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Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NITINOL MEDICAL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3841 95-4090463
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION
ORGANIZATION) CODE NUMBER)
263 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
(617) 737-0930
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
THOMAS M. TULLY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
263 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
(617) 737-0930
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
STEPHEN H. KAY, ESQ. TIMOTHY G. MASSAD, ESQ.
SQUADRON, ELLENOFF, PLESENT & CRAVATH, SWAINE & MOORE
SHEINFELD, LLP 825 EIGHTH AVENUE
551 FIFTH AVENUE NEW YORK, NEW YORK 10019
NEW YORK, NEW YORK 10176 (212) 474-1000
(212) 661-6500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OF OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock, par value $.001 per share..... $43,470,000 $14,990
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(1) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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CROSS-REFERENCE
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS OF FORM S-1 PURSUANT TO ITEM 501(B) OF REGULATION S-K
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REGISTRATION STATEMENT AND ITEM AND HEADING LOCATION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front and Outside Back Cover of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Prospectus Summary; Risk Factors (Page
6);
Not Applicable
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................... Outside Front Cover of Prospectus;
Underwriting
6. Dilution.......................................... Dilution
7. Selling Security Holders.......................... Not Applicable
8. Plan of Distribution.............................. Outside Front Cover of Prospectus;
Underwriting
9. Description of Securities to be Registered........ Description of Capital Stock
10. Interests of Named Experts and Counsel............ Legal Matters
11. Information with Respect to the Registrant........ Prospectus Summary; Risk Factors; Use
of Proceeds; Dividend Policy;
Capitalization; Selected Consolidated
Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal
Stockholders; Description of Capital
Stock; Financial Statements; Financial
Statement Schedules
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... Not Applicable
13. Other Expenses of Issuance and Distribution....... Part II
14. Indemnification of Directors and Officers......... Part II
15. Recent Sales of Unregistered Securities........... Part II
16. Exhibits and Financial Statement Schedules........ Part II; Exhibits
17. Undertakings...................................... Part II
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
PROSPECTUS Subject To Completion Dated June , 1996
2,700,000 Shares
Nitinol Medical
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Technologies, Inc.
Common Stock
(par value $.001 per share)
All of the Common Stock offered hereby is being offered by Nitinol Medical
Technologies, Inc., a Delaware corporation (together with its subsidiaries,
"NMT" or the "Company").
Prior to the Offering, there has been no public market for the Common Stock. It
is currently anticipated that the initial public offering price will be between
$12.00 and $14.00 per share. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price.
The Company has applied to have the Common Stock approved for quotation on the
Nasdaq National Market under the proposed symbol "NMTI".
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share $ $ $
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Total (3) $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $700,000.
(3) The Company has granted the Underwriters an option to purchase up to an
additional 405,000 shares of Common Stock, on the same terms as set forth
above, solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock being offered by this Prospectus are being offered
by the Underwriters, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters, and subject to approval of certain legal matters
by Cravath, Swaine & Moore, counsel for the Underwriters. It is expected that
delivery of the shares of Common Stock will be made against payment therefor on
or about , 1996 at the offices of J.P. Morgan Securities Inc., 60
Wall Street, New York, New York.
J.P. MORGAN & CO.
CS FIRST BOSTON
JEFFERIES & COMPANY, INC.
, 1996
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No person has been authorized to give any information or make any representa-
tions not contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by the Com-
pany or any Underwriter. This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, the Common Stock in any jurisdiction to
any person to whom it is unlawful to make such offer or solicitation.
No action has been or will be taken in any jurisdiction by the Company or by
any Underwriter that would permit a public offering of the Common Stock or pos-
session or distribution of this Prospectus in any jurisdiction where action for
that purpose is required, other than in the United States. Persons into whose
possession this Prospectus comes are required by the Company and the Underwrit-
ers to inform themselves about and to observe any restrictions as to the Offer-
ing of the Common Stock and the distribution of this Prospectus.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary...................... 3
Risk Factors............................ 6
Use of Proceeds......................... 12
Dividend Policy......................... 13
Capitalization.......................... 14
Dilution................................ 15
Selected Consolidated Financial Data.... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 17
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PAGE
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Business................................ 22
Management.............................. 40
Certain Transactions.................... 50
Principal Stockholders.................. 52
Description of Capital Stock............ 54
Shares Eligible for Future Sale......... 56
Underwriting............................ 57
Legal Matters........................... 58
Experts................................. 58
Additional Information.................. 58
Index to Financial Statements........... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
Prior to the Offering, the Company has not been subject to the reporting re-
quirements of the Securities Exchange Act of 1934 (the "Exchange Act"). The
Company intends to furnish stockholders with annual reports containing consoli-
dated financial statements audited by its independent auditors and such other
periodic reports as the Company may determine to be appropriate or as may be
required by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTIN-
UED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN
THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN COMMON STOCK OF THE COMPANY PURSUANT TO EXEMPTIONS FROM
RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
The product names Simon Nitinol Filter(R), SNF(R) and CardioSeal(TM) and the
Company's logo are trademarks of the Company. All other brand names or
trademarks appearing in this Prospectus are the property of their respective
holders.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus. Unless
otherwise noted herein, all information contained in this Prospectus (i) re-
flects a 1 for 1.9 reverse stock split to be effected prior to completion of
the Offering, (ii) reflects the conversion of all outstanding Convertible Pre-
ferred Stock of the Company into 1,993,212 shares of Common Stock and 37,871
shares of Redeemable Preferred Stock of the Company upon the closing of the Of-
fering (the "Conversion") and the immediate application of a portion of the net
proceeds of the Offering to redeem all such shares of Redeemable Preferred
Stock (the "Redemption"), and (iii) assumes no exercise of the Underwriters'
over-allotment option.
THE COMPANY
Nitinol Medical Technologies, Inc. designs, develops, and markets innovative
medical devices that utilize advanced materials and are delivered by minimally
invasive procedures. The Company's products are designed to offer alternative
approaches to existing complex treatments, thereby reducing patient trauma,
shortening procedure, hospitalization and recovery times, and lowering overall
treatment costs. The Company's patented medical devices include self-expanding
stents, vena cava filters and septal repair devices. At this time, the
Company's stents are in European clinical trials for certain indications, its
vena cava filters are marketed in the United States and abroad, and the Company
is completing the development of its septal repair device.
NMT has developed an expertise in precisely engineering nitinol and other ad-
vanced materials for a variety of innovative medical device applications.
Nitinol is a nickel-titanium alloy that exhibits unique superelastic and ther-
mal shape-memory characteristics which enable the Company's nitinol-based medi-
cal devices to transform into their intended shape once deployed into the body.
The Company has developed capabilities in advanced device fabrication, materi-
als characterization, manufacturing and process control and sophisticated in
vitro testing resulting in highly efficient and reliable manufacturing process-
es.
The Company has established arrangements with Boston Scientific Corporation
("Boston Scientific") and C. R. Bard, Inc. ("Bard"), worldwide leaders in sales
of minimally invasive medical devices, for the distribution, sales and market-
ing of its stents and its vena cava filter, respectively.
BUSINESS STRATEGY
The Company's strategy is to develop and commercialize a broad range of ad-
vanced medical devices for minimally invasive applications to address unmet
medical needs by (i) designing and developing new products by leveraging its
core technologies to precisely engineer nitinol and other advanced materials,
(ii) continuing to market products with more extensive distribution require-
ments through collaborations with established market leaders, (iii) creating
direct marketing and distribution capabilities for products, such as the septal
repair device, with smaller and more easily accessible user groups, (iv) devel-
oping commercial scale manufacturing facilities to become a fully-integrated
medical device company and (v) seeking licensing and acquisition opportunities
that complement the Company's business and will strengthen its competitive po-
sition.
PRODUCTS
Stents. NMT's patented self-expanding nitinol stents are designed to hold open
arteries, veins and other passageways of the body that have closed or become
obstructed as a result of aging, disease or trauma. The Company's stents are
placed in the body using catheter-based delivery systems. Once deployed, they
exert radial force against the walls of passageways to enable such passageways
to remain open and functional. NMT's proprietary stents can be manufactured in
a variety of sizes, shapes and flexibilities and with varying radial force
characteristics to treat a number of specific medical indications. Stents have
emerged as one of the fastest growing segments of the medical device market and
are increasingly being used as adjuncts or alternatives to a variety of medical
procedures. The stent market has grown from its infancy in 1990 to estimated
worldwide sales of $500 million in 1995, with continued growth expected. In No-
vember 1994, the Company entered into an exclusive license agree-
3
<PAGE>
ment with Boston Scientific to further develop, manufacture, market and dis-
tribute NMT's stents worldwide. Boston Scientific is currently conducting clin-
ical trials in Europe for peripheral vascular stenting and peripheral vascular
stent grafting applications. The Company has been advised by Boston Scientific
that it intends to commence marketing of the Company's peripheral vascular
stents in Europe during 1996 and that it intends to seek Food and Drug Adminis-
tration ("FDA") approval for an Investigational Device Exemption ("IDE") to
permit the commencement of United States clinical trials for peripheral vascu-
lar stenting in the near future.
Vena Cava Filters. The Company's patented Simon Nitinol Filter ("SNF") is a
nitinol vena cava filter designed to prevent pulmonary embolism (a blood clot
lodged in the vessels supplying blood to the lungs), a condition which results
in approximately 150,000 deaths annually in the United States. Vena cava fil-
ters are generally used in cases where drug therapy has failed or is contrain-
dicated. The Company's vena cava filter is implanted using the Company's pat-
ented, catheter-based delivery systems from veins in the leg or neck. Addition-
ally, the SNF is the only currently available vena cava filter which can also
be implanted from veins in the arm. In 1990, the Company obtained FDA clearance
to market the SNF in the United States. The SNF has been distributed in the
United States and certain other countries by the Bard Radiology Division of
Bard ("Bard Radiology") since 1992. In 1996, Bard International, Inc. ("Bard
International") began distributing the SNF outside the United States.
Septal Repair Devices. The Company is currently completing the development of
the CardioSeal Septal Occluder, an innovative, patented device for the mini-
mally invasive repair of defects in the septal wall of the heart, commonly
known as "holes in the heart." These defects, which occur primarily in chil-
dren, presently are treated by open heart surgery. The Company believes that
the CardioSeal Septal Occluder may be suitable for use in approximately 55,000
patients annually, as well as for approximately 145,000 adult patients annually
with Patent Foramen Ovale, another septal defect which may contribute to
stroke. The septal repair device was originally developed by Bard in collabora-
tion with Children's Hospital of Boston. NMT acquired the rights to develop and
commercialize the septal repair device in February 1996. The Company believes
that the clinical utility of the septal repair device was demonstrated with an
earlier version of the device that was evaluated in over 700 patients in clini-
cal trials conducted between 1989 and 1991. Children's Hospital of Boston is
conducting further clinical trials of the current version of the septal repair
device under an IDE permitting implantation of such devices in patients at high
risk for surgery. In May 1996, the Company submitted an IDE application to the
FDA for the CardioSeal Septal Occluder requesting authority to conduct multi-
center clinical trials in the United States. NMT intends to begin clinical tri-
als for the CardioSeal Septal Occluder in Canada and Europe in late 1996.
The Company's principal executive offices are located at 263 Summer Street,
Boston, MA 02210, and its telephone number is (617) 737-0930.
RISK FACTORS
Prospective purchasers should carefully consider the "Risk Factors" immediately
following this Prospectus Summary.
THE OFFERING
The offering of 2,700,000 shares of Common Stock initially being offered is re-
ferred to herein as the "Offering."
COMMON STOCK OFFERED....................2,700,000 shares
COMMON STOCK OUTSTANDING AFTER THE 8,985,922 shares
OFFERING(1)............................
USE OF PROCEEDS.........................Redemption of the Redeemable Preferred
Stock and funding of research,
development, clinical trials and
regulatory matters, leasehold
improvements and equipment, potential
licenses and acquisitions of
technologies or products that
complement NMT's business and for
other general corporate purposes.
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL................................."NMTI"
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(1)Excludes an aggregate of 1,982,945 shares of Common Stock issuable pursuant
to options and warrants outstanding as of June 15, 1996. Includes 3,947 shares
of Common Stock issued after March 31, 1996 and 1,993,212 shares of Common
Stock issuable upon the Conversion. See "Capitalization," "Management--Stock
Option Plans" and "Description of Capital Stock."
4
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary consolidated financial data derived from
the Consolidated Financial Statements of the Company. The data should be read
in conjunction with the Consolidated Financial Statements and Notes thereto and
other financial information included elsewhere in this Prospectus.
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THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
1991 1992 1993 1994 1995 1995 1996
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(UNAUDITED) (UNAUDITED)
In thousands, except per share data
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA:
Revenues:
Product sales.............. $ 1,292 $ 2,073 $ 2,003 $ 1,837 $ 2,716 $ 583 $ 860
License fees............... -- -- -- 773 625 -- 438
Product development........ -- -- -- 38 492 121 65
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1,292 2,073 2,003 2,647 3,833 705 1,362
Expenses:
Cost of product sales...... 265 497 655 812 1,264 236 378
Research and development... 173 210 272 555 871 157 523
General and administrative. 410 536 468 770 871 149 452
Selling and marketing...... 413 454 285 182 169 32 48
In-process research and
development(1)............ -- -- -- -- -- -- 1,111
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1,261 1,697 1,680 2,319 3,175 575 2,512
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income(loss) from opera-
tions...................... 31 376 323 328 658 130 (1,150)
Interest income (expense),
net........................ (180) (136) (62) (39) (29) (4) 25
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
provision for income taxes. (149) 240 261 289 628 126 (1,125)
Provision for income tax-
es(2) -- -- -- -- 44 -- --
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Net income(loss)............ $ (149) $ 240 $ 261 $ 289 $ 584 $ 126 $ (1,125)
========== ========== ========== ========== ========== ========== ==========
Net income(loss) per common
and common equivalent
share(3)................... $ (.02) $ .04 $ .04 $ .04 $ .08 $ .02 $ (.17)
========== ========== ========== ========== ========== ========== ==========
Weighted average common and
common equivalent shares
outstanding(3)............. 6,406 6,704 6,678 6,856 6,985 6,984 6,819
</TABLE>
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AT MARCH 31, 1996
PRO FORMA(4) PRO FORMA
------------ AS ADJUSTED(5)
--------------
(UNAUDITED)
In thousands
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BALANCE SHEET DATA:
Cash and cash equivalents.......................... $6,884 $34,427
Working capital.................................... 5,924 33,467
Total assets....................................... 8,642 36,185
Redeemable preferred stock......................... 4,250 --
Stockholders' equity............................... 2,396 34,189
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(1) Relates to a write-off of in-process research and development incurred in
connection with the Company's acquisition of the septal repair device
technology. See Note 3 of Notes to the Consolidated Financial Statements.
(2) In the periods prior to October 19, 1995 the Company elected to be taxed as
an "S" corporation for income tax purposes. Accordingly, there was no provision
for income taxes in these periods. See Note 4 of Notes to the Consolidated
Financial Statements.
(3) Computed on the basis described in Note 2(j) of Notes to the Consolidated
Financial Statements.
(4) The pro forma balance sheet data gives effect to the Conversion.
(5) Adjusted to reflect the sale of 2,700,000 shares of Common Stock offered
hereby (at an assumed initial public offering price of $13.00 per share) and
receipt by the Company of the estimated net proceeds therefrom, and the
application of a portion of such proceeds to fund the Redemption. See "Use of
Proceeds" and "Capitalization."
5
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Risk Factors
In addition to the other information in this Prospectus, the following factors
should be considered carefully by prospective investors in evaluating the Com-
pany and its business before purchasing shares of Common Stock offered hereby.
LIMITED COMMERCIALIZATION; UNCERTAINTIES OF PRODUCT DEVELOPMENT AND MARKET
ACCEPTANCE
The Company currently markets only one product, the Simon Nitinol Filter. The
Company's stents and CardioSeal Septal Occluder may require substantial fur-
ther investment in research, product development, preclinical and clinical
testing and governmental regulatory approvals prior to being marketed and sold
in the United States and other countries. The Company's success will depend,
in part, on its ability, either by itself or in collaboration with others, to
complete such product development efforts, obtain such regulatory approvals,
establish manufacturing and marketing programs for such proposed products and
gain market acceptance.
The Company's product development efforts are subject to the risks inherent in
the development of products based on innovative technologies. These risks in-
clude the possibilities that the Company's technologies or any or all of its
products will be found to be ineffective or unsafe, or will otherwise fail to
receive necessary regulatory approvals; that the products, if safe and effec-
tive, will be difficult to manufacture on a large scale or be uneconomical to
market; that the proprietary rights of third parties will interfere with the
Company's product development; or that third parties will market superior or
equivalent products which achieve greater market acceptance. Furthermore,
there can be no assurance that the Company or its collaborators will conduct
their product development efforts within the time frames currently anticipated
or that such efforts will be completed successfully. See "Business--Products."
There can be no assurance that the Company's stents, septal repair devices, or
any other products developed by the Company will achieve market acceptance.
The degree of market acceptance for the Company's products will depend upon a
number of factors, including the receipt and timing of regulatory approvals,
the establishment and demonstration in the medical community of the clinical
safety, efficacy and cost-effectiveness of the Company's products and their
advantages over existing technologies. Additionally, certain of the medical
indications that can be treated by the Company's devices can also be treated
by surgery, drugs or other medical devices. Many alternative treatments cur-
rently are widely accepted in the medical community and have a long history of
use. There can be no assurance that the Company's devices and procedures will
be able to replace such established treatments or that physicians or the medi-
cal community in general will accept and utilize the Company's devices or any
other medical products that may be developed by the Company. Long-term market
acceptance of NMT's products will depend, in part, on the capabilities and op-
erating features of the Company's products as compared to other available
products. Failure of the Company's products to gain market acceptance would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "--Intense Competition; Rapid Technological
Change" and "Business--Products."
DEPENDENCE UPON COLLABORATORS
The Company has entered into distribution agreements with Bard Radiology and
Bard International granting them exclusive distribution rights to the
Company's SNF, and a license agreement with Boston Scientific granting Boston
Scientific exclusive worldwide rights to develop, manufacture, market and dis-
tribute the Company's stent technology and products which incorporate such
technology. Although Bard Radiology and Bard International have agreed not to
sell competing filters, Boston Scientific is not prohibited from selling other
stents and, in fact, manufactures and licenses from others a variety of stents
that may compete with the Company's stents. Boston Scientific may choose to
emphasize such other stents in its developmental and marketing efforts. See
"--Intense Competition; Rapid Technological Change."
The Company's future product development and marketing depends on the success
of these arrangements and the ability to renew such arrangements. There can be
no assurance that such arrangements will be renewed or that the Company's ex-
isting relationships with Bard Radiology, Bard International or Boston Scien-
tific will continue in their current form. The Company's business could be ma-
terially adversely affected if its arrangements with Bard Radiology, Bard In-
ternational or Boston Scientific prove unsuccessful or if such companies ter-
minate their arrangements with the Company, negotiate lower prices, sell more
competing products, whether manufactured by themselves or others, or
6
<PAGE>
otherwise alter the nature of their relationships with the Company. The amount
and timing of resources to be devoted by the Company's existing and future col-
laborators to performing their contractual responsibilities are not within the
control of the Company. In addition, there can be no assurance that such col-
laborators will perform their obligations as expected or that the Company will
derive any additional revenue from such arrangements. There also can be no as-
surance that the Company's collaborators will not pursue existing or alterna-
tive technologies in preference to products being developed in collaboration
with the Company. There can be no assurance that the Company will be able to
negotiate additional collaborative arrangements in the future on acceptable
terms, if at all, or that such collaborative arrangements will be successful.
See "Business--Strategy," "Business--Products" and "Business--Agreements with
Boston Scientific and Bard."
INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE
The medical device industry is characterized by rapidly evolving technology and
intense competition. Other companies in the medical device industry are cur-
rently marketing products that compete with the Company's devices and may be
developing, or could in the future develop, additional products that are com-
petitive with the Company's. Many of the Company's competitors have substan-
tially greater capital resources, greater research and development, manufactur-
ing and marketing resources and experience and greater name recognition than
the Company. There can be no assurance that the Company will be able to compete
against such competitors and potential competitors in terms of research and de-
velopment, manufacturing, marketing and sales. Certain of the Company's compet-
itors, including Johnson & Johnson, Inc., currently market stents, and Boston
Scientific, which has entered into an exclusive license agreement with the Com-
pany relating to the Company's stent technology, distributes competing stents
and competes with the Company in the vena cava filter market. The Company be-
lieves that other companies are actively developing competitive septal repair
devices. Such companies may succeed in obtaining regulatory approvals and com-
mercializing their septal repair devices sooner than the Company. There can be
no assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more effective than those devel-
oped or marketed by the Company or that would render the Company's technology
and products obsolete or noncompetitive. Additionally, new surgical procedures
and medications could be developed that replace or reduce the importance of
current or future procedures that use the Company's products. Accordingly, the
Company's success will depend in part on its ability to respond quickly to med-
ical and technological changes through the development and introduction of new
products. Product development involves a high degree of risk and there can be
no assurance that the Company's new product development efforts will result in
any commercially successful products. Additionally, in many cases the medical
indications that can be treated by the Company's devices can also be treated by
surgery and drugs as well as other medical devices. See "Business--Products."
LIMITED MANUFACTURING HISTORY; DEPENDENCE ON THIRD PARTY MANUFACTURERS
The Company currently uses third parties to manufacture and distribute the SNF
and, pursuant to its exclusive license agreement, Boston Scientific to manufac-
ture and distribute its stents. The Company intends to continue to use third
parties to manufacture and distribute such products and certain other products
which the Company may seek to develop.
If the Company should encounter delays or difficulties with third party manu-
facturers in producing, packaging or distributing its proposed products, market
introduction and subsequent sales of such products would be adversely affected
and the Company may have to seek alternative sources of supply. No assurance
can be made that the Company will be able to enter into alternative supply ar-
rangements at commercially acceptable rates, if at all. Moreover, contract man-
ufacturers that the Company may use must adhere to current Good Manufacturing
Practice ("GMP") regulations enforced by the FDA. If the Company is unable to
obtain or retain third party manufacturers on commercially acceptable terms, it
may not be able to commercialize medical products as planned. The Company's de-
pendence upon third parties for the manufacture of medical products may materi-
ally adversely affect the Company's profit margins and its ability to develop
and distribute products on a timely and competitive basis.
The Company plans to manufacture the CardioSeal Septal Occluder itself and, for
such purpose, is currently constructing its own manufacturing facility. The
Company has had no previous experience in the scale-up or manufacture of medi-
cal products. The manufacturing facility will be subject to GMP, ISO 9000 and
other regulatory requirements, will be subject to similar risks regarding de-
lays or difficulties encountered in manufacturing any such medical products and
will require a substantial investment of capital. There can be no assurance
that the Company will be able to
7
<PAGE>
manufacture any such products successfully or in a cost-effective manner or
that the Company can achieve and maintain compliance with GMP, ISO 9000 and
other regulatory requirements. See "Business--Products" and "Business--Govern-
ment Regulation."
LIMITED MARKETING AND SALES EXPERIENCE
Although the Company has limited internal marketing and sales resources and
personnel, and currently relies primarily on third parties to market and sell
its products, the Company plans to market the CardioSeal Septal Occluder di-
rectly, if and when it receives the required regulatory approvals. In order to
market the CardioSeal Septal Occluder and any other products that it may
develop, the Company will have to develop a marketing and sales organization
with technical expertise and distribution capabilities. The development of
such an organization will require significant expenditures, management re-
sources and time. There can be no assurance that the Company will be able to
develop such a marketing and sales organization. See "Business--Products."
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend, in part, on its ability to obtain patents,
maintain trade secret protection and operate without infringing on the propri-
etary rights of third parties. The validity and breadth of claims covered in
medical technology patents involve complex legal and factual questions and,
therefore, may be highly uncertain. No assurance can be given that any pending
patent applications or any future patent application will result in issued
patents, the scope of any patent protection will exclude competitors or pro-
vide competitive advantages to the Company, any of the Company's patents will
be held valid if subsequently challenged or others will not claim rights in or
ownership of the patents and other proprietary rights held by the Company.
Furthermore, there can be no assurances that others have not or will not
develop similar products, duplicate any of the Company's products or design
around any patents issued or that may be issued in the future to the Company
or its licensors. In addition, whether or not patents are issued to the Com-
pany or its licensors, others may hold or receive patents which contain claims
having a scope that covers products developed by the Company.
Moreover, there can be no assurances that patents issued to or licensed by or
to the Company will not be challenged, invalidated or circumvented or that the
rights thereunder will provide any competitive advantage. The Company could
incur substantial costs in defending any patent infringement suits or in as-
serting any patent rights, including those granted by third parties. In addi-
tion, the Company may be required to obtain licenses to patents or proprietary
rights from third parties. There can be no assurance that such licenses will
be available on acceptable terms if at all. If the Company does not obtain re-
quired licenses, it could encounter delays in product development or find that
the development, manufacture or sale of products requiring such licenses could
be foreclosed. See "Business--Patents and Proprietary Rights" and "Business--
Licensed Technology; Royalty Obligations."
The Company also relies on unpatented proprietary technology, trade secrets
and know-how and no assurance can be given that others will not independently
develop substantially equivalent proprietary information, techniques or
processes, that such technology or know-how will not be disclosed or that the
Company can meaningfully protect its rights to such unpatented proprietary
technology, trade secrets, or know-how. Although the Company has entered into
non-disclosure agreements with its employees and consultants, there can be no
assurance that such non-disclosure agreements will provide adequate protection
for the Company's trade secrets or other proprietary know-how.
GOVERNMENT REGULATION; PRODUCT APPROVALS UNCERTAIN
The manufacture and sale of medical devices intended for commercial distribu-
tion are subject to extensive governmental regulations in the United States.
Medical devices are regulated in the United States by the FDA under the Fed-
eral Food, Drug and Cosmetic Act (the "FDC Act") and generally require pre-
market clearance or pre-market approval prior to commercial distribution. In
addition, certain material changes or modifications to medical devices also
are subject to FDA review and clearance or approval. Pursuant to the FDC Act,
the FDA regulates the research, testing, manufacture, safety, labeling, stor-
age, record keeping, advertising, distribution and production of medical de-
vices in the United States. Noncompliance with applicable requirements can re-
sult in failure of the government to grant pre-market clearance or approval
for devices, withdrawal of approvals, total or partial suspension of produc-
tion,
8
<PAGE>
fines, injunctions, civil penalties, recall or seizure of products, and crimi-
nal prosecution. The FDA also has the authority to request repair, replacement
or refund of the cost of any device manufactured or distributed by the Company.
The PMA approval process is expensive, uncertain and lengthy. A number of de-
vices for which pre-market approval has been sought have never been approved
for marketing. The review time is often significantly extended by the FDA,
which may require more information or clarification of information already pro-
vided in the submission. In addition, the FDA will inspect the manufacturing
facility to ensure compliance with the GMP regulations for medical devices
prior to approval of the PMA application. If granted, the approval may include
significant limitations on the indicated uses for which a product may be mar-
keted.
The Company's first product, the SNF, underwent significant clinical investiga-
tion under an IDE and received 510(k) clearance in 1990. Subsequent improve-
ments and modifications to the SNF have also received 510(k) clearance from the
FDA. There can be no assurances that future modifications of the device will
obtain such clearance.
Any products manufactured or distributed by the Company are subject to continu-
ing regulation by the FDA including record keeping requirements, reporting of
adverse experience with the use of the device, postmarket surveillance,
postmarket registry and other actions deemed necessary by the FDA. The FDA's
regulations require agency approval of a PMA supplement for certain changes if
they affect the safety and effectiveness of the device, including, but not lim-
ited to, new indications for use; labeling changes; the use of a different fa-
cility to manufacture, process, or package the device. Failure to obtain ap-
proval for changes in manufacturing facility or any other change affecting the
safety or effectiveness of an approved device on a timely basis, or at all,
would have a material adverse effect on the Company's business, financial con-
dition and results of operations. For any devices that are cleared through the
510(k) process, modifications or enhancements that could significantly affect
safety or effectiveness, or that constitute a major change in the intended use
of the device, will require new 510(k) submissions. There can be no assurance
that the Company will be able to obtain necessary regulatory approvals or
clearances on a timely basis or at all, and delays in receipt of, or failure to
receive, such approvals or clearances, the loss of previously received approv-
als or clearances, limitations on intended use imposed as a condition of such
approvals or clearances, or failure to comply with existing or future regula-
tory requirements would have a material adverse effect to the Company's busi-
ness, financial conditions and results of operations.
Sales of medical device products outside the United States are subject to for-
eign regulatory requirements that vary widely from country to country. The time
required to obtain approvals required by foreign countries may be longer or
shorter than that required for FDA approval, and requirements for licensing may
differ from FDA requirements. Failure to comply with regulatory requirements
could have a material adverse effect on the Company's business, financial con-
dition and results of operations. See "Business--Government Regulation."
UNCERTAIN AVAILABILITY OF THIRD PARTY REIMBURSEMENT; POSSIBLE HEALTH CARE RE-
FORMS
In the United States, suppliers of health care products and services are
greatly affected by Medicare, Medicaid and other government insurance programs,
as well as by private insurance reimbursement programs. Third party payers may
affect the pricing or relative attractiveness of the Company's products by reg-
ulating the maximum amount of reimbursement provided for by such payers to the
physicians and clinics using the Company's devices, or any other products that
the Company may develop, or by taking the position that such reimbursement is
not available at all. The level of reimbursement by third party payers in those
states that do provide reimbursement varies considerably. Major third party
payers reimburse inpatient medical treatment, including all operating costs and
all furnished items or services, including devices such as the Company's, at a
prospectively fixed rate based on the diagnosis-related group ("DRG") that cov-
ers such treatment as established by the federal Health Care Financing Adminis-
tration. For interventional procedures, the fixed rate of reimbursement is
based on the procedure or procedures performed and is unrelated to the specific
devices used in such procedure. The amount of profit realized by suppliers of
health care services relating to the procedure may be reduced by the use of the
Company's devices. If a procedure is not covered by a DRG, certain third party
payers may deny reimbursement. Alternatively, a DRG may be assigned that does
not reflect the costs associated with the use of the Company's devices, result-
ing in limited reimbursement. If, for any reason, the Company's products were
not to be reimbursed by third party payers, the Company's ability to sell its
products may be materially adversely affected. Mounting concerns about rising
health care costs may cause more restrictive coverage and reimbursement poli-
cies to be implemented in the future. Several states and the federal government
are investigating a variety of alternatives to reform the health care delivery
system and further reduce and con-
9
<PAGE>
trol health care spending. These reform efforts include proposals to limit
spending on health care items and services, limit coverage for new technology
and limit or control directly the price health care providers and drug and de-
vice manufacturers may charge for their services and products. In the interna-
tional market, reimbursement by private third party medical insurance provid-
ers, and governmental insurers and providers varies from country to country. In
certain countries, the Company's ability to achieve significant market penetra-
tion may depend upon the availability of third party governmental reimburse-
ment. See "Business--Government Regulation."
UNCERTAINTIES OF SUCCESSFUL REDESIGN OF THE SEPTAL REPAIR DEVICE
Between 1989 and 1991 Bard sponsored trials of an earlier version of the septal
repair device, known as the Clamshell. In 1991, Bard discovered fractures of
the stainless steel framework in certain of the devices implanted during such
clinical trials. Although no significant adverse clinical consequences were ob-
served as a result of these fractures, Bard suspended its clinical trials
worldwide except for patients at high risk for surgery. It was determined that
the fractures were caused by metal fatigue resulting from higher than antici-
pated forces acting on the Clamshell. Redesign efforts were initiated in col-
laboration with Dr. James Lock, Chairman of the Cardiology Department at
Children's Hospital of Boston (to which Bard donated the technology and associ-
ated assets), resulting in the design of the current version of the septal re-
pair device. Although the CardioSeal Septal Occluder has undergone extensive in
vitro testing, there can be no assurance that such testing accurately simulates
the actual forces in the human body or that similar fractures will not occur
with the CardioSeal Septal Occluder. If such fractures occur, the Company's ef-
forts to commercialize the CardioSeal Septal Occluder may be significantly de-
layed and the Company may be required to invest significant resources in fur-
ther designing and engineering the device or to discontinue its development ef-
forts. See "Business--Products."
PRODUCT LIABILITY RISKS; INSURANCE
The testing, marketing and sale of implantable devices and materials entail an
inherent risk that product liability claims will be asserted against the Com-
pany or its third party distributors in the event that the use of the Company's
devices is alleged to have adverse effects on a patient. A product liability
claim or a product recall could have a material adverse effect on the Company's
business, financial condition and results of operations. Certain of the
Company's devices are designed to be used in life-threatening situations where
there is a high risk of serious injury or death. Although the Company currently
maintains limited product liability insurance coverage, there can be no assur-
ance that in the future the Company will be able to maintain such coverage on
acceptable terms or that current insurance or insurance subsequently obtained
will provide adequate coverage against any or all potential claims. Furthermore
there can be no assurance that the Company will avoid significant product lia-
bility claims and the attendant adverse publicity. Any product liability claim
or other claim with respect to uninsured or underinsured liabilities could have
a material adverse effect on the Company's business, financial condition, and
result of operations.
EXPECTED NEAR-TERM LOSSES
The Company expects operating losses to continue at least through early 1997 as
it continues to expend substantial resources to complete development of the
Company's products, seek regulatory clearances or approvals, build its market-
ing, sales and manufacturing organizations and conduct further research and de-
velopment. There can be no assurance that the Company's products under develop-
ment will ever gain commercial acceptance, generate revenues or achieve profit-
ability or that the Company will resume profitability. See "Management's Dis-
cussion and Analysis of Financial Condition and Results of Operations."
UNCERTAIN FUTURE CAPITAL REQUIREMENTS
The Company may require funds in addition to the net proceeds of the Offering
for its research and product development programs, preclinical and clinical
testing, operating expenses, regulatory processes and manufacturing and market-
ing programs. The Company may seek such additional funding through public or
private financing or collaborative, licensing or other arrangements with corpo-
rate partners. If additional funds are raised by issuing equity securities,
further dilution to existing stockholders will result and future investors may
be granted rights superior to those of existing stockholders; debt financing,
if available, may involve restrictive covenants. The Company's capital require-
ments will depend on numerous factors, including the sales of its products, the
progress of its research and development programs, the progress of preclinical
and clinical testing, the time and cost involved in obtaining regulatory ap-
provals, the cost of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights, competing technological and mar-
ket developments, developments and changes in the Company's existing research,
licensing and other relationships and the terms of any new collaborative, li-
censing and other arrangements
10
<PAGE>
that the Company may establish. See "Business--Licensed Technology; Royalty
Obligations," "Management-Employment Agreements" and "Certain Transactions."
The Company's cash requirements will vary from those now planned and such
variances may be material.
There can be no assurance that additional financing will be available when
needed or, if available, will be available on acceptable or affordable terms.
Insufficient funds may prevent the Company from implementing its business
strategy or may require the Company to delay, scale back or eliminate certain
of its research and product development programs or to license to third par-
ties rights to commercialize products or technologies that the Company would
otherwise seek to develop itself. See "Management Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Re-
sources."
DEPENDENCE ON QUALIFIED PERSONNEL
There is intense competition for qualified personnel in the medical device
field, and there can be no assurance that the Company will be able to continue
to attract and retain qualified personnel necessary for the development of its
business. The loss of the services of existing personnel as well as the fail-
ure to recruit additional qualified scientific, technical and managerial per-
sonnel in a timely manner would be detrimental to the Company's anticipated
growth and expansion into areas and activities requiring additional expertise
such as marketing. The failure to attract and retain such personnel could ad-
versely affect the Company's business. See "Business--Employees" and "Manage-
ment."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's Com-
mon Stock and there can be no assurance that an active public market for the
Company's Common Stock will develop or be sustained in the future. The initial
public offering price of the Common Stock will be determined by negotiations
between the Company and the Underwriters. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. In addition, the market price of the Common Stock is likely to be
highly volatile as frequently occurs with publicly traded emerging growth com-
panies and medical device companies. Factors such as results of clinical tri-
als, announcements of technological innovations or new products by the Company
or its competitors, government regulatory action affecting the Company's pro-
posed products in both the United States and foreign countries, developments
or disputes concerning patent or proprietary rights and market conditions for
emerging growth and medical device companies in general, as well as period-to-
period fluctuations in the Company's financial results, could have a signifi-
cant impact on the market price of the Common Stock.
BROAD DISCRETION AS TO USE OF PROCEEDS
Approximately 42% of the estimated net proceeds of the Offering has been allo-
cated to working capital and other general corporate purposes and will be used
for such specific purposes as management may determine, including potential
license or acquisition arrangements with other companies. The Company is cur-
rently evaluating certain potential license or acquisition opportunities; how-
ever, the Company has no agreements, arrangements or understandings with any
third parties for any such licenses or acquisitions at this time. There can be
no assurance that the Company will enter into or consummate any such license
or acquisition or, if entered into, that any such arrangements will be suc-
cessful. Accordingly, management will have broad discretion with respect to
the expenditure of a substantial portion of the net proceeds of the Offering.
See "Use of Proceeds."
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE
In addition to its authorized shares of Common Stock, the Company's Amended
and Restated Certificate of Incorporation authorizes the issuance of up to
3,000,000 shares of undesignated Preferred Stock. Upon completion of the Of-
fering, no shares of preferred stock of the Company will be outstanding, and
the Company has no present intention to issue any shares of preferred stock.
However, because the rights and preferences of any series of preferred stock
may be set by the Board of Directors in its sole discretion, the rights and
preferences of any such preferred stock may be superior to those of the Common
Stock and thus may adversely affect the rights of the holders of Common Stock.
See "Description of Capital Stock--Preferred Stock."
11
<PAGE>
POSSIBLE ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALES
Upon completion of the Offering, the Company's existing stockholders will bene-
ficially own an aggregate 6,285,922 shares of Common Stock. Sales of substan-
tial amounts of Common Stock in the public market by such persons after the Of-
fering could adversely affect prevailing market prices for the Common Stock.
The Company, certain stockholders and directors and officers of the Company
have agreed to enter into lock-up agreements with the Underwriters not to dis-
pose of any shares of Common Stock, nor any securities convertible into or ex-
changeable or exercisable for any such shares, without the prior written con-
sent of J.P. Morgan Securities Inc. for a period of 180 days after the Offer-
ing. After such 180-day period, however, substantially all shares of Common
Stock currently outstanding will be eligible for sale in the public market pur-
suant to Rule 144 under the Securities Act of 1933, as amended (the "Securities
Act"), if the conditions to that Rule have been met. The Company's current
stockholders are also entitled to certain rights with respect to the registra-
tion under the Securities Act of shares held by them. See "Management," "De-
scription of Capital Stock--Registration Rights" and "Shares Eligible for Fu-
ture Sale."
NO DIVIDENDS
The Company does not anticipate declaring or paying cash dividends in the fore-
seeable future. The Company expects that any earnings which it may realize will
be retained for use in its business. See "Dividend Policy."
DILUTION
Investors purchasing shares of Common Stock in the Offering will incur immedi-
ate dilution of $9.19 in the per share net tangible book value of their Common
Stock. The Company has granted to officers, directors, certain principal stock-
holders and others numerous options and warrants to purchase Common Stock at
prices below the offering price. Investors purchasing shares of Common Stock in
the Offering will incur additional dilution to the extent outstanding warrants
and options are exercised. See "Dilution," "Management--Options Granted Outside
of the Plans" and "Certain Transactions."
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be approxi-
mately $31.9 million, assuming an initial public offering price of $13.00 per
share ($36.8 million if the over-allotment option is exercised in full), after
deducting the underwriting discount and offering expenses payable by the Compa-
ny.
The Company will use approximately $4.4 million of the net proceeds for the Re-
demption of the Company's Redeemable Preferred Stock, $.001 par value per share
("Redeemable Preferred Stock"), including the payment of accrued dividends. See
"Certain Transactions." The Company anticipates that it will use approximately
$8.0 million of the net proceeds for research, development, clinical trials and
regulatory matters; approximately $3.0 million to develop the Company's sales
and marketing capabilities; and approximately $3.0 million for leasehold im-
provements and payments under certain lease financing obligations to be in-
curred in connection with the Company's relocation to a new manufacturing, lab-
oratory and administrative facility. The Company intends to use the balance of
the net proceeds for potential licenses and acquisitions of technologies or
products that complement the business of the Company and for other general cor-
porate purposes, including working capital. As of the date of this Prospectus,
the Company is evaluating certain potential license or acquisition opportuni-
ties; however, the Company has no agreements, arrangements or understandings
with any third parties for any such licenses or acquisitions. Pending such us-
es, the Company intends to invest the net proceeds of the Offering in interest-
bearing, investment grade securities.
The foregoing represents the Company's best estimate of its allocation of the
net proceeds of the sale of the Common Stock offered hereby based upon the cur-
rent state of its business operations, its current plans and current economic
and industry conditions and is subject to reallocation among the categories
listed above or to new categories. The amounts actually expended for each pur-
pose may vary significantly depending upon numerous factors, including the pro-
gress of the Company's clinical trials and actions relating to regulatory mat-
ters, and the costs and timing of expansion of marketing, sales and manufactur-
ing activities, and hence the Company's management will retain broad discretion
in the allocation of a substantial portion of the net proceeds. See "Risk Fac-
tors--Broad Discretion as to Use of Proceeds."
12
<PAGE>
DIVIDEND POLICY
From the Company's inception through October 19, 1995, the Company was an "S"
corporation for federal and state income tax purposes. As such, the Company
generally was not subject to federal or state income taxes, but its income was
taxable to its stockholders. The Company declared and paid dividends in the ag-
gregate amount of $600,000 for such period.
The Company does not anticipate declaring or paying cash dividends in the fore-
seeable future. The Company expects that any earnings which it may realize will
be retained for use in its business.
CAPITALIZATION
The following table sets forth as of March 31, 1996 (i) the pro forma capital-
ization of the Company which gives effect to the Conversion, and (ii) the pro
forma capitalization as adjusted to give effect to the sale of the shares of
Common Stock offered hereby at an assumed offering price of $13.00 per share
(after deducting the underwriting discount and offering expenses) and the ap-
plication of a portion of the net proceeds therefrom for the Redemption. See
"Use of Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the Notes thereto included elsewhere
in this Prospectus.
---------------------
<TABLE>
AT MARCH 31, 1996
PRO FORMA
PRO FORMA AS ADJUSTED
--------- -----------
<S> <C> <C>
Dollars in thousands
Current portion of long term obligations $ 930 $ 930
========= ===========
Long term obligations $ -- $ --
Redeemable Preferred Stock, $.001 par value; 38,000
shares authorized, 37,871 shares issued and outstanding
pro forma; none issued and outstanding pro forma as
adjusted 4,250 --
--------- -----------
Stockholders' Equity:
Preferred Stock, $.001 par value; 3,000,000 shares
authorized; none issued and outstanding pro forma and
as adjusted -- --
Common Stock, $.001 par value; 30,000,000 shares
authorized; 6,281,975 shares issued and outstanding
pro forma; 8,981,975 shares pro forma as adjusted(1) 6 9
Additional paid-in capital 4,630 36,420
Accumulated deficit (2,240) (2,240)
--------- -----------
Total stockholders' equity 2,396 34,189
--------- -----------
Total capitalization $6,646 $34,189
========= ===========
</TABLE>
- -------
(1)Excludes 1,723,890 shares of the Company's Common Stock reserved for issu-
ance pursuant to the exercise of options and warrants outstanding as of March
31, 1996 at a weighted average exercise price of $2.11 per share of which op-
tions and warrants to purchase 859,770 shares of Common Stock were then exer-
cisable. From April 1, 1996 to June 15, 1996 the Company granted 263,002 addi-
tional options and warrants at a weighted average exercise price of $5.94 per
share and 3,947 shares were issued upon exercise of outstanding options.
13
<PAGE>
DILUTION
Dilution is the amount by which the initial public offering price paid by the
purchasers of the shares of Common Stock will exceed the net tangible book
value per share of Common Stock after the Offering. Net tangible book value
per share is determined at any date by subtracting the total liabilities of
the Company from the total book value of the tangible assets of the Company
and dividing the difference by the number of shares of Common Stock deemed to
be outstanding at such date.
The net tangible book value of the Company as of March 31, 1996 was $2,396,291
or $.38 per share pro forma after giving effect to the Conversion. After giv-
ing effect to the sale of 2,700,000 shares of Common Stock offered by the Com-
pany hereby at an assumed initial public offering price of $13.00 per share
and the application of a portion of the estimated net proceeds therefrom for
the Redemption, the pro forma net tangible book value of the Company as of
March 31, 1996 would have been $34,189,291 or $3.81 per share. This represents
an immediate increase in net tangible book value of $3.43 per share to exist-
ing stockholders and an immediate dilution of $9.19 per share to new investors
purchasing the shares of Common Stock in the Offering. The following table il-
lustrates the dilution of a new investor's equity on a per share basis as of
March 31, 1996:
-----------
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock $ 13.00
Pro forma net tangible book value per share of Common Stock be-
fore the Offering $ .38
Increase in net tangible book value per share attributable to
new investors 3.43
-----
Pro forma net tangible book value after the Offering (1) 3.81
-------
Dilution per share to new investors(1) $ 9.19
=======
</TABLE>
- -------
(1) If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value after the Offering would be approximately $4.16
per share, resulting in dilution to new investors in the Offering of $8.84 per
share. See "Underwriting."
The following table sets forth, as of March 31, 1996, the difference between
(i) the number of shares of Common Stock purchased from the Company (including
the Common Stock to be issued upon the Conversion), the total consideration
paid and the average price per share paid by the existing stockholders for
such shares and (ii) the number of shares of Common Stock to be purchased by
new investors in the Offering from the Company, the total consideration to be
paid and the average price per share to be paid by them for such shares and
(iii) the percentage of shares purchased from the Company by new investors and
the percentage of the consideration paid to the Company for such shares by new
investors.
---------------------------------------
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 6,281,975 69.9% $ 4,520,006 11.4% $ .72
New Investors 2,700,000 30.1 35,100,000 88.6 13.00
--------- ----- ----------- -----
Total 8,981,975 100.0% $39,620,006 100.0%
========= ===== =========== =====
</TABLE>
At June 15, 1996, 281,521 shares of Common Stock were issuable upon exercise
of outstanding warrants at a weighted average exercise price of $3.34 per
share and 1,701,424 shares of Common Stock were issuable upon exercise of out-
standing stock options at a weighted average exercise price of $2.51 per
share. To the extent these warrants or options are exercised, there will be
further dilution to new investors. See "Capitalization," "Management--Stock
Option Plans," "Management--Options Granted Outside of the Plans" and "De-
scription of Capital Stock."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company. The selected consolidated financial data as of December 31, 1994 and
1995 and for the three years in the period ended December 31, 1995 are derived
from the Company's Consolidated Financial Statements, which have been audited
by Arthur Andersen LLP, independent public accountants and together with their
report thereon are included elsewhere in this Prospectus. The selected
consolidated financial data for the years ended December 31, 1991, 1992 and
1993 are derived from the Company's Consolidated Financial Statements which, in
the case of 1992 and 1993, have been audited by Arthur Andersen LLP. The
selected consolidated financial data as of March 31, 1996 and the three months
ended March 31, 1995 and 1996 are derived from the Company's unaudited
Consolidated Financial Statements included elsewhere in this Prospectus. In the
opinion of management, the unaudited Consolidated Financial Statements of the
Company have been prepared on the same basis as the audited Consolidated
Financial Statements and include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for these periods. Results for the three
months ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996. The selected
consolidated financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus.
-----------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
1991 1992 1993 1994 1995 1995 1996
----------- ---------- ---------- ---------- ---------- ---------- ------------
(UNAUDITED) (UNAUDITED)
In thousands, except per share data
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA:
Revenues:
Product sales $ 1,292 $ 2,073 $ 2,003 $ 1,837 $ 2,716 $ 583 $ 860
License fees -- -- -- 773 625 -- 438
Product development -- -- -- 38 492 121 65
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,292 2,073 2,003 2,647 3,833 705 1,362
Expenses:
Cost of product sales 265 497 655 812 1,264 236 378
Research and development 173 210 272 555 871 157 523
General and administrative 410 536 468 770 871 149 452
Selling and marketing 413 454 285 182 169 32 48
In-process research and
development(1) -- -- -- -- -- -- 1,111
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,261 1,697 1,680 2,319 3,175 575 2,512
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income(loss) from operations 31 376 323 328 658 130 (1,150)
Interest income (expense),
net (180) (136) (62) (39) (29) (4) 25
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income(loss) before
provision for income taxes (149) 240 261 289 628 126 (1,125)
Provision for income tax-
es(2) -- -- -- -- 44 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income(loss) $ (149) $ 240 $ 261 $ 289 $ 584 $ 126 $ (1,125)
========== ========== ========== ========== ========== ========== ==========
Net income(loss) per common
and common equivalent
share(3) $ (.02) $ .04 $ .04 $ .04 $ .08 $ .02 $ (.17)
========== ========== ========== ========== ========== ========== ==========
Weighted average common and
common equivalent shares
outstanding(3) 6,406 6,704 6,678 6,856 6,985 6,984 6,819
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
1991 1992 1993 1994 1995 1996
----------- ---------- ---------- ---------- ---------- ------------
(UNAUDITED)
In thousands
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 32 $ 205 $ 644 $ 715 $ 533 $ 6,884
Working capital (deficit) (957) 415 512 68 (1,277) 5,924
Total assets 419 1,207 1,152 1,253 1,661 8,642
Long-term obligations 825 2,141 1,957 1,690 -- --
Redemption value of preferred
stock -- -- -- -- -- 4,250
Stockholders' equity (deficit) (1,697) (1,457) (1,190) (1,331) (844) 2,396
</TABLE>
- -------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+(1) RELATES TO A WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT INCURRED IN +
+CONNECTION WITH THE COMPANY'S ACQUISITION OF THE SEPTAL REPAIR DEVICE +
+TECHNOLOGY. SEE NOTE 3 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+(2) IN THE PERIODS PRIOR TO OCTOBER 19, 1995 THE COMPANY ELECTED TO BE TAXED +
+AS AN "S" CORPORATION FOR INCOME TAX PURPOSES. ACCORDINGLY, THERE WAS NO +
+PROVISION FOR INCOME TAXES IN THESE PERIODS. SEE NOTE 4 OF NOTES TO THE +
+CONSOLIDATED FINANCIAL STATEMENTS. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+(3) COMPUTED ON THE BASIS DESCRIBED IN NOTE 2(J) OF NOTES TO THE CONSOLIDATED +
+FINANCIAL STATEMENTS. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations
of the Company should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
OVERVIEW
Since its inception in 1986, the Company has focused its efforts on the de-
sign, development and commercialization of medical devices which are delivered
by minimally invasive procedures. The products developed or under development
include self-expanding stents, vena cava filters and septal repair devices.
The Company's initial product, a vena cava filter system, obtained FDA clear-
ance in 1990. This product is distributed in the United States and certain
other countries by Bard Radiology and in other markets outside the United
States by Bard International. Both distributors are obligated to make annual
minimum purchases. The filter component of the current vena cava filter system
is manufactured by Lake Region Manufacturing Inc. ("Lake Region"). The Company
currently purchases its delivery systems for the vena cava filter under pur-
chase orders with third party suppliers. The vena cava filter is the only
product sold by the Company during the periods discussed below. The majority
of the Company's revenues, and all of its cost of product sales, are related
to the vena cava filter during such periods.
In November 1994, the Company entered into an agreement with Boston Scientific
pursuant to which Boston Scientific obtained exclusive worldwide rights to
develop, manufacture, market and distribute the Company's stent technology and
products which incorporate such technology. Under this license agreement, Bos-
ton Scientific is responsible for performing clinical trials for stents under
development and for reimbursing the Company for stent development costs in-
curred by the Company. These reimbursements are classified as product develop-
ment revenues in the Consolidated Statement of Operations. The Company also
receives license fees, including milestone payments, from Boston Scientific
under this license agreement. Upon commercialization, the Company will receive
royalties based upon product sales and certain manufacturing cost reduction
incentives from Boston Scientific under the license agreement. The Company's
revenues in the periods discussed below include such license fees and reim-
bursements. Most of its costs associated with its stents are included in re-
search and development expenses.
In February 1996, the Company acquired, through the issuance of Common Stock,
the technology related to its septal repair device. The Company has not yet
realized any revenue related to its septal repair device. The Company expects
to manufacture this device itself which will result in increased operating ex-
penses as discussed below.
In the first quarter of 1996 the Company significantly increased the scope of
its operations. This included the addition of a new Chief Executive Officer,
an Executive Vice President and Chief Financial Officer and a President of the
Septal Repair Division, which was formed in February 1996. In addition, in
April 1996, the Company entered into a lease for a new manufacturing, labora-
tory and administrative space which will increase the Company's annual facil-
ity lease payments by approximately $400,000. The Company anticipates taking
full occupancy in September 1996 upon completion of construction of the facil-
ity to the Company's specifications. The Company expects operating expenses to
continue to increase significantly as it enters into clinical trials for the
septal repair device, accelerates its other product development programs and
builds the infrastructure necessary to commercialize its technologies.
The Company has agreed to make certain royalty payments to Children's Medical
Center Corporation based on net sales of the CardioSeal Septal Occluder. The
Company has also agreed to pay certain royalties to Morris Simon, M.D., the
Company's Scientific Director and co-founder, based on sales of products using
the technology invented by Dr. Simon relating to the SNF. In addition, pursu-
ant to the Company's employment agreements with Mr. Kleshinski and Dr. Harry,
respectively, the Company has agreed to pay certain royalties based on sales
or licenses of products where either Mr. Kleshinski or Dr. Harry, as the case
may be, was the sole or joint inventor. See Note 8(d) to Notes to the Consoli-
dated Financial Statements.
16
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
Revenues. Revenues for the three months ended March 31, 1996 increased to $1.4
million from $705,000 for the three months ended March 31, 1995 (a 99% in-
crease). Product sales derived from the sale of vena cava filters increased to
$860,000 for the three months ended March 31, 1996 from $583,000 for the three
months ended March 31, 1995 (a 48% increase). The increase in product sales is
primarily due to increased unit sales of vena cava filters, which in turn, was
primarily due to the introduction of the straight-line delivery system in No-
vember 1995, and the commencement of international distribution by Bard Inter-
national in January 1996. The Company recorded $438,000 in license fees from
Boston Scientific related to its stent technology in the three months ended
March 31, 1996, consisting of a $250,000 milestone payment and the first quar-
ter minimum royalty payment of $187,500. Product development revenues from
Boston Scientific (which consist of reimbursement of certain costs incurred by
the Company) decreased to $65,000 for the three months ended March 31, 1996
from $121,000 for the three months ended March 31, 1995 (a 46% decrease), due
to the completion of the Company's transfer of its stent technology to Boston
Scientific in November 1995 which has resulted in a reduction in stent devel-
opment costs incurred by the Company on behalf of Boston Scientific.
Cost of Product Sales. Cost of product sales increased to $378,000 for the
three months ended March 31, 1996 from $236,000 for the three months ended
March 31, 1995 (a 60% increase). The cost of product sales in both periods was
entirely related to vena cava filters, and the increase reflects the increase
in vena cava filters sold in the three months ended March 31, 1996. Cost of
product sales, as a percent of product sales, increased to 44% for the three
months ended March 31, 1996 from 40% for the three months ended March 31,
1995. This increase reflects the impact of the introduction of the straight-
line delivery system which has a higher unit manufacturing cost as a percent
of the selling price.
Research and Development. Research and development expenses increased to
$523,000 for the three months ended March 31, 1996 from $157,000 for the three
months ended March 31, 1995 (a 233% increase). The increase reflects increased
activity in the Company's development programs for vena cava filters, the
CardioSeal Septal Occluder and other products under development. Increased ex-
penses resulted primarily from increases in personnel and related costs, engi-
neering expenses and facilities related costs. The Company received reimburse-
ment from Boston Scientific for $65,000 and $121,000 of these expenses in the
three months ended March 31, 1996 and 1995 respectively, which amounts are in-
cluded in revenues.
General and Administrative. General and administrative expenses increased to
$452,000 for the three months ended March 31, 1996 from $149,000 for the three
months ended March 31, 1995 (a 203% increase). The increase consisted primar-
ily of increases in personnel and related costs, legal and professional fees
and consulting expenses. These increases resulted from the Company's expanded
scope of operations.
Selling and Marketing. Selling and marketing expenses increased to $48,000 for
the three months ended March 31, 1996 from $32,000 for the three months ended
March 31, 1995 (a 50% increase). Selling and marketing expenses in both peri-
ods were entirely related to vena cava filters, and the increase related to
the introduction of the straight-line delivery system and the international
distribution of the vena cava filter by Bard International beginning in Janu-
ary 1996.
In-Process Research and Development. In the three months ended March 31, 1996,
the Company recorded a charge of $1.1 million for in-process research and de-
velopment related to the CardioSeal Septal Occluder which was acquired in Feb-
ruary 1996. See Note 3 of Notes to the Consolidated Financial Statements.
Interest Income (Expense), Net. Interest income, net was $25,000 for the three
months ended March 31, 1996 as compared to interest expense, net amounting to
$4,000 for the three months ended March 31, 1995. This increase was primarily
due to the receipt in February 1996 of $7.5 million in net proceeds from the
sale of Convertible Preferred Stock. Interest expense in both periods
consisted primarily of interest on subordinated debt to stockholders, which
was fully repaid in April 1996.
Income Taxes. The Company had no income tax provision for the three months
ended March 31, 1996 as it incurred an operating loss. Prior to October 19,
1995, the Company elected to be taxed as an "S" Corporation for
17
<PAGE>
federal and state income tax purposes and, accordingly, the financial
statements do not include a provision for income taxes for the three months
ended March 31, 1995. See Note 4 of Notes to the Consolidated Financial
Statements.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues increased to $3.8 million in 1995 from $2.6 million in 1994
(a 46% increase). Product sales of vena cava filters increased to $2.7 million
in 1995 from $1.8 million in 1994 (a 50% increase). This increase is primarily
due to increased unit sales of vena cava filters which the Company attributes
primarily to the distribution agreements with Bard. License fees, which consist
of payments from Boston Scientific related to the Company's stent technology,
decreased to $625,000 in 1995 from $773,000 in 1994 (a 19% decrease). License
fees in 1995 represent amounts received upon the achievement of a contractual
milestone. License fees in 1994 represented initial license fees received from
Boston Scientific upon entering into the license agreement in November 1994.
Product development revenues increased to $492,000 in 1995 from $38,000 in
1994. The significant increase in 1995 reflects a full year of development
efforts funded by Boston Scientific under the agreements entered into in
November 1994.
Cost of Product Sales. Cost of product sales increased to $1.3 million in 1995
from $812,000 in 1994 (a 60% increase). The increase in cost of product sales
reflects the increase in vena cava filter units sold in 1995. Cost of product
sales, as a percent of product sales, increased to 47% in 1995 from 44% in 1994
primarily due to the introduction of the vena cava straight-line delivery
system in November 1995, which has a higher unit manufacturing cost as a
percent of the selling price.
Research and Development. Research and development expenses increased to
$871,000 in 1995 from $555,000 in 1994 (a 57% increase). The increase reflects
increased product development and patent registration costs associated with the
development of the Company's stent technology which was licensed to Boston
Scientific in November 1994. Increased expenses resulted primarily from
increases in personnel, engineering expenses and facilities related costs. The
Company received reimbursement from Boston Scientific for $492,000 and $38,000
of these expenses in 1995 and 1994, respectively, which amounts are included in
revenues.
General and Administrative. General and administrative expenses increased to
$871,000 in 1995 from $770,000 in 1994 (a 13% increase). The increase is
primarily due to the expansion of the Company's infrastructure necessary to
support the growth of the Company and increases in product development
activities. Increased expenses consisted primarily of increases in personnel
and related costs and consulting expenses.
Selling and Marketing. Selling and marketing expenses decreased to $169,000 in
1995 from $182,000 in 1994 (a 7% decrease). Selling and marketing expenses in
1995 and 1994 are entirely related to the Company's vena cava filter.
Interest Income (Expense), Net. Interest expense, net decreased to $29,000 in
1995 from $39,000 in 1994 (a 26% decrease). The decrease reflects the repayment
of subordinated debt to stockholders. Interest income in 1995 and 1994 was not
significant.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Revenues. Revenues increased to $2.6 million in 1994 from $2.0 million in 1993
(a 30% increase). Product sales decreased to $1.8 million in 1994 from $2.0
million in 1993 (a 10% decrease). The decrease in product sales was due primar-
ily to a decrease in the sales price of such filters received by the Company,
as a result of the distribution agreement with Bard Radiology, offset in part
by increased unit sales. In 1992 the Company entered into its exclusive distri-
bution agreement with Bard Radiology, pursuant to which it receives a specific
percentage of the average selling price of the vena cava filter. This percent-
age decreased in August 1993 from its introductory level and then again in Oc-
tober 1994, to its current level under the agreement. The Company does not an-
ticipate any additional reductions under the terms of the agreement in the near
future. License fees were $773,000 in 1994. The Company had no license fee rev-
enue in 1993. License fees represent initial license fees received from Boston
Scientific upon entering into the license agreement in November 1994. Product
development revenues were $38,000 in 1994. The increase reflects development
efforts funded by Boston Scientific under the agreement entered into in Novem-
ber 1994.
18
<PAGE>
Cost of Product Sales. Cost of product sales increased to $812,000 in 1994,
from $655,000 in 1993 (a 24% increase). The increase in cost of product sales
reflects the increase in vena cava filter units sold. Cost of product sales,
as a percent of product sales, increased to 44% in 1994 as compared to 33% in
1993 primarily due to the impact of the contractual reduction in the unit
selling price of vena cava filters.
Research and Development. Research and development expenses increased to
$555,000 in 1994 from $272,000 in 1993 (a 104% increase). The increase re-
flects increased product development and patent registration costs associated
with the development of the Company's stent technology which was licensed to
Boston Scientific in November 1994. Increased expenses consisted primarily of
increases in personnel, engineering expenses and facilities related costs. The
Company received reimbursement from Boston Scientific for $38,000 of these ex-
penses in 1994, which amount is included in revenues.
General and Administrative. General and administrative expenses increased to
$770,000 in 1994 from $468,000 in 1993 (a 65% increase). The increase is pri-
marily due to the expansion of the Company's infrastructure necessary to sup-
port the growth of the Company and increases in product development activi-
ties. Increased expenses consisted primarily of increases in personnel and re-
lated costs and consulting expenses.
Selling and Marketing. Selling and marketing expenses decreased to $182,000 in
1994 from $285,000 in 1993 (a 36% decrease). Selling and marketing expenses in
1994 and 1993 are primarily related to the Company's vena cava filter. The de-
crease reflects the Company's decision in 1993 to discontinue selling the fil-
ter through independent distributors and begin distributing exclusively
through Bard.
Interest Income (Expense), Net. Interest expense, net decreased to $39,000 in
1994 from $62,000 in 1993 (a 37% decrease). The decrease in 1994 reflects the
repayment of a portion of the subordinated debt due to stockholders. Interest
income in 1994 and 1993 was not significant.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through cash flows from opera-
tions of $525,000, $1.2 million and $647,000 in the years ended December 31,
1995, 1994 and 1993, respectively. In the three months ended March 31, 1996,
operations utilized cash of $882,000, primarily to fund a portion of the ac-
quisition of the septal repair device technology and for working capital. Cash
flows from operations include $500,000 of upfront license fees and a $100,000
advance product development billing received from Boston Scientific in 1994
and recorded as deferred revenue. In February 1996, the Company received ap-
proximately $7.5 million in net proceeds from the sale of 3,787,104 shares of
Convertible Preferred Stock, which funds were used in part to accelerate its
facilities and infrastructure expansion. In the year ended December 31, 1994
and the three months ended March 31, 1996, the Company made distributions to
its stockholders of $500,000 and $100,000, respectively. In 1994, the Company
began repaying a $1.5 million loan received in 1992 from Bard. Loan payments
are based upon the number of domestic vena cava units sold to Bard Radiology.
The loan is expected to be fully repaid by the end of 1996. Payments during
1994, 1995 and the three months ended March 31, 1996 amounted to $242,000,
$477,000 and $160,000, respectively. In addition, during the years ended De-
cember 31, 1993, 1994 and 1995 the Company repaid subordinated debt to its
stockholders amounting to $184,000, $329,000, and $2,500, respectively. The
balance outstanding as of March 31, 1996 of $309,000 was repaid in April 1996.
Purchases of property and equipment for use in its research and development
and general and administrative activities amounted to $336,000 during the
three years ended December 31, 1995 and $44,000 during the three months ended
March 31, 1996. In May 1996, the Company entered into a lease for a new manu-
facturing research and administrative facility which is expected to increase
its annual facility lease payments by approximately $400,000 beginning in the
third quarter of 1996. The Company anticipates incurring costs during 1996 and
1997 for leasehold improvements for its new facility of approximately $1.4
million, net of the landlord's contribution, and for purchases of equipment
and furniture of approximately $1.5 million. The Company has received a $1.5
million firm commitment for financing substantially all of the equipment and
furniture. The Company anticipates incurring additional leasehold improvements
and purchases of equipment and furniture.
The Company is party to various other substantial contractual arrangements in-
cluding salaries and fees for current employees and consultants which are
likely to increase as additional agreements are entered into and additional
per-
19
<PAGE>
sonnel are retained. The Company has also committed to purchase certain minimum
quantities of the vena cava filter from a supplier through June 2001. See Note
8(a) of Notes to the Consolidated Financial Statements. All of these arrange-
ments require cash payments by the company over varying periods of time. Cer-
tain of these arrangements are cancelable on short notice and certain require
termination or severance payments as part of any early termination.
The Company believes that the anticipated net proceeds of the Offering, its ex-
isting resources and cash flow from current operations will be sufficient to
fund its current level of operations and planned new product development, in-
cluding increased working capital requirements and capital expenditures, for
the foreseeable future. The Company expects to accelerate its product develop-
ment, marketing and other activities with the proceeds of the Offering. The
Company has incurred an operating loss of $1.1 million for the three months
ended March 31, 1996, primarily as a result of a charge of $1.1 million for ac-
quired in-process research and development. See Note 3 of Notes to the Consoli-
dated Financial Statements. The Company expects operating losses to continue at
least through early 1997 as it continues to expend substantial resources to
complete development of the Company's products, seek regulatory clearances or
approvals, build its marketing, sales and manufacturing organizations and con-
duct further research and development.
The Company may require funds in addition to the net proceeds of the Offering
for its research and product development programs, preclinical and clinical
testing, operating expenses, regulatory processes, manufacturing and marketing
programs and potential licenses and acquisitions. Any additional equity financ-
ing may be dilutive to stockholders, and debt financing, if available, may in-
volve restrictive covenants. The Company's capital requirements will depend on
numerous factors, including the sales of its products, the progress of its re-
search and development programs, the progress of preclinical and clinical test-
ing, the time and cost involved in obtaining regulatory approvals, the cost of
filing, prosecuting, defending and enforcing any patent claims and other intel-
lectual property rights, competing technological and market developments, de-
velopments and changes in the Company's existing research, licensing and other
relationships and terms of any collaborative, licensing and other arrangements
that the Company may establish.
20
<PAGE>
BUSINESS
OVERVIEW
The Company designs, develops, and markets innovative medical devices that
utilize advanced materials and are delivered by minimally invasive procedures.
The Company's products offer alternative approaches to complex medical treat-
ments, thereby reducing patient trauma, shortening procedure, hospitalization
and recovery times, and lowering overall treatment costs. The Company's pat-
ented medical devices include self-expanding stents, vena cava filters (the
Simon Nitinol Filter) and septal repair devices (the CardioSeal Septal Occlud-
er). The Company's strategy is to develop and commercialize a broad range of
advanced medical devices for minimally invasive applications to address unmet
medical needs.
The Company has established arrangements with Boston Scientific and Bard,
worldwide leaders in sales of minimally invasive medical devices, for the dis-
tribution, sales and marketing of its stents and its Simon Nitinol Filter, re-
spectively. The Company intends to continue to market products with extensive
distribution requirements through collaborations with established market lead-
ers. NMT intends to develop direct marketing and distribution capabilities for
products with smaller and more easily accessible user groups (such as the
CardioSeal Septal Occluder).
BACKGROUND
The Company was founded in July 1986 to develop and commercialize medical de-
vices using nitinol. Dr. Morris Simon, the Company's Scientific Director and
co-founder, was the first medical researcher to investigate the use of nitinol
for medical device applications. In April 1990, the Company obtained FDA
clearance to market its initial product, the Simon Nitinol Filter, in the
United States. The Company entered into an exclusive distribution agreement
with Bard Radiology for distribution of the SNF in the United States and cer-
tain other countries in May 1992. The Company's primary stent patent was is-
sued in November 1994 and, during the same month, the Company entered into an
exclusive license agreement with Boston Scientific to further develop, manu-
facture, market and distribute NMT's stents worldwide. In November 1995, the
Company expanded its relationship with Bard by granting Bard International the
right to distribute the SNF in most markets outside the United States. In Feb-
ruary 1996, the Company acquired the rights to its CardioSeal Septal Occluder
to complement the Company's core technologies and expand its product base.
CORE TECHNOLOGIES
NMT has developed an expertise in precisely engineering nitinol and other ad-
vanced materials, such as MP35N, for a variety of innovative medical device
applications. The Company has developed capabilities in advanced device fabri-
cation, materials characterization, manufacturing and process control and so-
phisticated in vitro testing resulting in highly efficient and reliable manu-
facturing processes.
Nitinol, a nickel-titanium alloy, has unique superelastic and thermal shape-
memory characteristics. The superelastic characteristics enable a nitinol-
based device to undergo severe deformation without permanent damage to either
its shape or strength. The thermal shape-memory characteristics of nitinol en-
able a device which has been radically deformed to return to its intended
shape in response to a small change in temperature. The mechanical properties
that can be engineered into nitinol-based devices permit innovative product
designs that presently would be difficult or impossible to replicate with
other materials. The Company is a leader among medical device companies that
utilize both the superelastic and thermal shape-memory characteristics of
nitinol. The Company has demonstrated its ability to utilize these character-
istics to provide for ease of access and delivery of sophisticated medical de-
vices that transform into their intended shape once placed into the body.
Nitinol is biocompatible and non-ferromagnetic, thereby allowing the use of
magnetic resonance imaging on patients with nitinol-based device implants.
MP35N is an advanced metal alloy which is biocompatible and resistant to cor-
rosion and fatigue. The Company has combined the use of MP35N with knitted
polyester in developing the CardioSeal Septal Occluder. Knitted polyester, a
biocompatible fabric that encourages tissue in-growth, has been extensively
used in the vasculature for many years.
21
<PAGE>
STRATEGY
The key elements of the Company's business strategy include:
.Developing a broad range of advanced medical devices for
minimally invasive applications which offer alternative
approaches to existing medical treatments, reduce patient
trauma, procedure, hospitalization and recovery times, and
overall treatment costs.
.Targeting development of products for large, fast growing
market segments with unmet medical needs.
.Focusing development efforts on core technologies which
leverage the Company's expertise in nitinol and other
advanced materials.
.Establishing collaborations with market leaders for the
marketing and distribution of products in larger markets with
more extensive distribution requirements.
.Creating direct marketing and distribution capabilities for
products with smaller and more easily accessible user groups.
.Developing commercial scale manufacturing facilities to become
a fully-integrated medical device company.
.Strengthening the Company's competitive position by
developing, acquiring and licensing technologies and products
that complement its business.
PRODUCTS
Stents
Stents are small tubes that hold open arteries, veins and other passageways in
the body, such as the esophagus and bile duct that have closed or become ob-
structed as a result of disease, trauma, or aging. Stents are placed in the
body using catheter-based delivery systems in minimally invasive procedures.
Once deployed, they exert radial force against the walls of passageways to ena-
ble such passageways to remain open and functional. A number of different stent
designs, materials and delivery systems, with varying characteristics are cur-
rently available. The three most prevalent stent designs are slotted tubes (a
metal tube from which most of the material is removed, resulting in a lattice-
like structure), coiled stents (continuous coiled wire) and wire mesh stents
(knitted metal wire). Most stents are currently manufactured using stainless
steel or similar alloys and are deployed through the expansion of a balloon on
a catheter-based delivery system. After deployment, a second balloon may be
used to further expand the stent. Certain stents, including the Company's, are
self-expanding, thereby eliminating the need for a balloon on the delivery
catheter. The factors influencing the performance of a stent include ease of
deployment, radial strength, flexibility, stability and the ability to achieve
precise placement.
Stents have emerged as one of the fastest growing segments of the medical de-
vice market and are used increasingly as adjuncts or alternatives to a variety
of medical procedures because it is believed that they are beneficial to over-
all patient outcome and may, over time, reduce total treatment costs.
Stents are increasingly being used in connection with the treatment of athero-
sclerosis, a vascular disease characterized by the deposit of fatty substances
(plaque) in the interior walls of blood vessels. The accumulation of plaque
narrows the blood vessels, thereby reducing blood flow. Accumulation of athero-
sclerotic plaque in the vessels of the heart can result in narrowing or block-
age of the arteries that provide blood flow to the heart, causing chest pain
(angina pectoris) and heart attacks. Atherosclerosis in the peripheral vessels
can cause a narrowing or blockage of the vessels that provide blood to the
legs, causing pain and cramps, and possible tissue damage, which in severe
cases can result in amputation. Atherosclerotic plaque in the carotid arteries,
located near the surface of the neck, can cause a narrowing of the vessels that
provide the primary blood flow to the brain, causing dizzy spells, "mini
strokes" known as transient ischemic attacks (TIA's) and strokes.
22
<PAGE>
Balloon dilation (angioplasty) of the coronary and peripheral arteries has be-
come one of the most common minimally invasive procedures performed worldwide.
The effectiveness of angioplasty has been limited by the relatively high rate
of reclosure of the treated vessels during the first several months after dila-
tion (restinosis). Therefore, the use of stents in conjunction with angioplasty
is increasingly becoming an accepted practice to reduce the incidence of
restinosis. Advanced carotid artery disease is currently generally treated by
invasive surgery (endarterectomy). Angioplasty with stenting is being used on
an experimental basis as a minimally invasive alternative to surgery in the ca-
rotid arteries.
Injury, disease, birth defect or trauma can cause a weakening of a section of
an arterial wall that can result in a bulge in the artery called an aneurysm,
which if ruptured can lead to death. One of the most common of these aneurysms
is an abdominal aortic aneurysm ("AAA"). Current treatment of AAA requires
highly invasive surgery. Stent grafts using catheter-based delivery systems are
currently being performed on an experimental basis.
Stents are also being used for palliative treatment of certain cancers. During
the later stages of esophageal cancer, for example, patients often develop a
narrowing of the esophagus due to tumor ingrowth. This narrowing inhibits the
ability to swallow. These strictures are now treated most often with painful
dilations or laser ablation. Pancreatic cancer often results in a narrowing of
the bile duct due to tumor ingrowth. The patient can become jaundiced and
develop fever. Current treatment for tumor ingrowth of the bile duct includes
the use of plastic and self-expanding metal mesh stents.
NMT's Hex-cell Stents. The Company has developed and patented a nitinol stent
which relies on a novel hexagonal cell (hex-cell) design. NMT's stents can be
customized into a variety of sizes, shapes, flexibilities, and radial force
characteristics for use in treating specific indications. The Company utilizes
both the superelastic and thermal shape-memory characteristics of nitinol to
provide for ease of access and delivery of its stents which transform into
their intended shape once placed into the body.
NMT's stents have the following characteristics which the Company believes will
offer patients and physicians advantages over many competing stents and surgi-
cal procedures:
. Self-expanding deployment does not necessitate the use of a
balloon catheter-based delivery system, thereby avoiding
vessel occlusion during stent placement and simplifying the
procedure.
. Controlled, sustained radial force, which prevents movement
of the stent after deployment and assures resistance to
vessel spasm.
. Cannot be permanently deformed by compression or trauma to
the stented vessel, thereby avoiding accidental reclosure.
. Radial strength, overall rigidity and shape can be varied for
different medical applications.
. Large expansion ratio (up to 15:1) enables a larger diameter
NMT stent to be delivered by a small diameter catheter,
helping to prevent injury at the access site and to adjacent
vessels and may provide improved access to smaller vessels.
. Minimal length change during deployment aids in precise
placement.
. Easy mating with graft material to enable use in procedures
such as AAA repair and peripheral vascular stent grafting.
Market Opportunity. The stent market has grown from its infancy in 1990 to es-
timated worldwide sales of $500 million in 1995 with continued growth expected.
As shown in the following table, the Company estimates that in 1995 there were
approximately 1.7 million procedures for medical conditions that stents have
been designed to address. Although stents are not used currently in most of
these cases, the Company believes that stents may be used as an adjunct or al-
ternative treatment in many of these procedures.
23
<PAGE>
PROCEDURES POTENTIALLY SUITABLE FOR STENTS--1995
-------------------------
<TABLE>
<CAPTION>
UNITED STATES INTERNATIONAL WORLDWIDE
------------- ------------- ---------
<S> <C> <C> <C>
Coronary Angioplasty 450,000 245,000 695,000
Peripheral Vascular Graft Surgery 175,000 145,000 320,000
Peripheral Vascular Angioplasty 140,000 130,000 270,000
Carotid Surgery 100,000 85,000 185,000
Abdominal Aortic Aneurysm Surgery 45,000 45,000 90,000
Biliary 40,000 60,000 100,000
Esophageal 10,000 15,000 25,000
--------- --------- ---------
Total 960,000 725,000 1,685,000
========= ========= =========
</TABLE>
To date, most stents have been used for the treatment of atherosclerotic plaque
in the coronary arteries. The Company believes that the increase in stent usage
for other procedures and indications has been limited, in part, by the charac-
teristics of stents currently available. NMT believes that its stents may offer
certain advantages over currently available stents and, in connection with its
collaboration with Boston Scientific, is actively pursuing the development of
its stents in each of the market segments described below. See "Risk Factors--
Limited Commercialization; Uncertainties of Product Development and Market Ac-
ceptance," "--Relationship with Boston Scientific," "--Current Status" and "--
Agreements with Boston Scientific and Bard."
Peripheral Vascular. Existing stents for vascular disease include both balloon-
expandable and self-expanding stents. While stent use is well established in
the larger vessels such as the iliac arteries, currently available stents have
limitations in their use in the smaller, more exposed vessels of the leg due to
difficulty of placement, insufficient radial strength and flexibility and a
higher risk of clot formation.
The Company believes that its stents may offer advantages over currently avail-
able stents in flexibility, radial strength and placement. NMT's stents have
precisely engineered radial strength, cannot be permanently deformed after de-
ployment, and can be delivered using a small diameter catheter.
Peripheral Vascular Stent Grafts. For many patients who currently undergo sur-
gical bypass grafting for the treatment of atherosclerosis in the vessels of
the legs, the length of the blockage makes balloon dilation and traditional
stenting difficult or impractical.
The Company believes that its stents may provide for a new minimally invasive
alternative to bypass surgery using long covered stents or multiple stents
joined with graft material (stent grafts) and inserted in the vessel percutane-
ously. NMT's stents can be mated easily to graft material, cannot be deformed
by trauma to the stented vessel, can be engineered with precise radial force to
prevent movement and assure hemostasis (absence of blood leakage around the
stent) after deployment. The self-expanding deployment of NMT's stents may also
simplify the delivery mechanics for the physician.
Carotid Arteries. While some stenting of the carotid arteries (located near the
surface of the neck) is being done experimentally, the Company believes that
the characteristics of current stents limit their utility in the carotid arter-
ies. Balloon expandable stents require occluding blood flow to the brain during
deployment. In addition, balloon expandable stents can be permanently deformed
by compression or trauma to the stented vessel.
The Company believes its stents will not require occluding blood flow to the
brain during deployment and, unlike currently available balloon expandable
stents, cannot be permanently deformed after deployment, thereby preventing ac-
cidental closure of the vessel. In addition, the Company believes that its
stents can be engineered to exert precise radial force to prevent movement, are
designed to conform well to the vessel shape, have minimal length change during
deployment for highly accurate placement, and can be delivered by a small diam-
eter catheter.
24
<PAGE>
Abdominal Aortic Aneurysm ("AAA"). The Company believes that the use of a cov-
ered stent or stented graft could provide a minimally invasive alternative to
surgery in the treatment of AAA.
The Company believes that its stents may be particularly well suited for AAA
treatment. Specifically, NMT's stents can be mated easily to grafting material
and have sustained radial force to prevent migration and assure hemostasis. In
addition, NMT's stents have a large expansion (15:1) ratio for deployment of a
large diameter stent on a small diameter catheter and are self-expanding
thereby avoiding occlusion of the aorta during deployment and simplifying the
procedure.
Esophageal/Biliary. Existing palliative treatment for esophageal cancer in-
cludes painful dilations. Laser ablation is also utilized, but is a treatment
that requires sophisticated equipment and highly-trained physicians, and often
requires expensive repeat procedures. Existing stents for tumor ingrowth of the
bile duct primarily include plastic and self-expanding wire mesh stents. Plas-
tic stents can become blocked rather quickly because of their narrow diameter,
and the wire mesh stents, due to their mesh design, may not resist further tu-
mor growth.
The Company believes that its stents may have advantages for both of these in-
dications. NMT's stents have a large expansion ratio for delivery of a large
diameter stent on a small diameter catheter and exert sustained radial force
which may resist recoil from continued tumor growth.
Coronary Arteries. Existing stents for coronary disease include balloon-expand-
able or self-expanding wire mesh stents.
The Company believes that its stents may have advantages over other stents for
use in coronary arteries. NMT's stents are self-expanding to avoid balloon oc-
clusion of the vessel during placement, may not require post-deployment bal-
looning, and exhibit minimal length change during deployment for highly accu-
rate placement.
Relationship with Boston Scientific. In November 1994, NMT licensed to Boston
Scientific, a worldwide leader in sales of minimally invasive medical devices,
exclusive worldwide rights to develop, manufacture, market and distribute the
Company's stent technology. Boston Scientific is the leader in the peripheral
angioplasty market, a leader in the vascular graft market and a leader in the
coronary angioplasty market. Under the terms of this agreement, Boston Scien-
tific funds, and has control over, product development, manufacturing scale-up,
clinical trials, marketing and distribution worldwide and has the sole right to
use the patents and technical information owned by NMT related to stents. NMT
receives a sales royalty, milestone payments, minimum license fees, manufactur-
ing cost reduction incentives and reimbursement of development costs. Boston
Scientific has assumed responsibility for conducting the necessary preclinical
and clinical studies, obtaining the regulatory approvals it deems necessary,
and manufacturing and marketing NMT's stents worldwide.
Boston Scientific is not prohibited from selling competing stents and has es-
tablished a broad-based stent program. In addition to its collaboration with
the Company, Boston Scientific has obtained exclusive worldwide rights to
Medinol, Ltd.'s balloon expandable stent technology and has developed its own
Strecker knitted stent technology and Sabre(TM) self-expanding stent technolo-
gy. Boston Scientific launched Medinol's NIR(TM) coronary stent in Europe in
March 1996. In May 1996, Boston Scientific acquired Mintec, Inc., a privately
held company, which develops stent graft technology and has announced its in-
tention to launch a device for the repair of AAAs in the near future.
The Company believes that its relationship with Boston Scientific, a market
leader which has made a significant commitment to developing stent technology,
will facilitate the development and commercialization of the Company's stents.
The Company and Boston Scientific are currently pursuing projects to develop
the Company's stents for a variety of applications. The markets ultimately
targeted for commercial sales will be determined by Boston Scientific pursuant
to the license agreement. See "Risk Factors--Dependence Upon Collaborators" and
"--Agreements with Boston Scientific and Bard."
Current Status. European clinical trials for the NMT stent in peripheral ves-
sels have been initiated by Boston Scien-tific. Boston Scientific has advised
the Company that it intends to begin marketing a line of the Company's periph-
eral vascular stents in Europe during 1996 under the name Symphony and intends
to seek FDA approval of an IDE for
25
<PAGE>
peripheral vascular applications in the near future. Boston Scientific has
also initiated European trials of the NMT stent for peripheral vascular stent
grafts. Such trials are intended to demonstrate that a stent graft may provide
for a new minimally invasive alternative to bypass surgery using multiple NMT
stents joined with graft material and inserted in the vessel percutaneously.
See "Risk Factors--Limited Commercialization; Uncertainties of Product Devel-
opment and Market Acceptance."
Boston Scientific is completing a scale-up of its stent manufacturing capabil-
ities in the United States to enable it to manufacture NMT's stents in quanti-
ties to support clinical trials and initial anticipated commercialization in
certain markets. The Company and Boston Scientific continue to work
collaboratively towards the development of NMT's stents for additional indica-
tions and to achieve manufacturing efficiencies.
Competition. Competition in the stent market is intense and is expected to in-
crease. Most of the stents sold today are balloon expandable and have been de-
signed primarily for coronary applications. However, the companies listed be-
low, as well as other companies, may be developing additional stents. Some of
the stents being developed may be more similar to the Company's stents than
those in the market today, although the Company does not know of any competi-
tor that is developing a stent substantially similar to its product.
Johnson & Johnson Interventional Systems Co., Cook Inc., Guidant
Corporation/ACS, Boston Scientific/Medinol, and Arterial Vascular Engineering,
Inc., among others, currently sell stainless steel, balloon expandable stents
in the United States or internationally.
The following table lists the Company's major competitors who are currently
selling or, to the Company's knowledge, developing self-expanding stents in
the United States or internationally.
<TABLE>
<CAPTION>
----------------------------
MATERIAL DESIGN
COMPANY --------------- ------------
<S> <C> <C>
Pfizer, Inc./Schneider Stainless steel Wire mesh
Medtronic, Inc./Instent Nitinol Coil
Boston Scientific (Strecker) Tantalum Wire mesh
Boston Scientific (Sabre(TM)) Nitinol Slotted tube
Bard/Angiomed Nitinol Slotted tube
</TABLE>
Vena Cava Filters
Vena cava filters are used for the prevention of pulmonary embolism (a blood
clot lodged in the vessels supplying blood to the lungs). These emboli
(clots), which often develop initially in the veins of the legs, can break
loose and travel up the vena cava, through the heart and into the blood ves-
sels of the lungs, causing acute respiratory and circulation problems. Vena
cava filters are intended to trap these clots before they can reach the lungs.
Patients at high risk for pulmonary embolism include post-operative orthopedic
and neurosurgery patients, cancer patients undergoing surgery and chemotherapy
and severe trauma victims. There are 600,000 incidents of pulmonary embolism
diagnosed in the United States each year with 150,000 deaths per year. While
usually treated initially with anticoagulant drugs, vena cava filters may be
used in cases where drug therapy has failed or is contraindicated. Factors in-
fluencing the performance of vena cava filters include coverage of the vena
cava and the pattern of the filtering method. Additionally, the variety of en-
try site options and the size of the delivery system affects ease of deploy-
ment.
Simon Nitinol Filter. The Company has developed a nitinol vena cava filter
which possesses highly efficient clot filtering characteristics. The Company
has engineered both the superelastic and thermal shape-memory characteristics
of nitinol to provide for ease of delivery of a vena cava filter which can be
easily implanted in the patient by a minimally invasive procedure using the
Company's patented catheter-based delivery systems. The Company's vena cava
filter
26
<PAGE>
transforms into its intended shape once deployed into the body. The SNF can be
implanted from the veins in the leg or neck, and is the only currently avail-
able vena cava filter which can also be implanted from the veins in the arm.
NMT believes the Simon Nitinol Filter offers patients and physicians several
advantages over competing vena cava filters, including the following:
.Sophisticated design facilitates accurate deployment and
provides for highly efficient clot filtration.
.Smallest diameter catheter-based delivery system results in
minimal trauma to the access site or to the vessels during
deployment.
.Largest number of delivery options (leg, neck and arm)
provides adaptability to individual patient conditions and
anatomy.
.Device flexibility facilitates easy maneuvering of the device
through tortuous anatomy during deployment to the filter
delivery site.
Current Status. The Company received FDA 510(k) clearance to market the SNF,
and commenced sales, in April 1990. All 510(k) notifications with respect to
subsequent modifications to the SNF have also been accepted by the FDA. In No-
vember 1995, the Company introduced a simplified, straight line catheter-based
delivery system for its SNF.
Market Opportunity. The worldwide sales for vena cava filters were estimated to
be $53 million in 1995. Worldwide sales for vena cava filters has grown at a
rate of 14% annually for the past four years. The United States represents 75%
of current worldwide sales. NMT's vena cava filters currently have an approxi-
mately 12% share of vena cava filter sales in the United States. The European
market is currently small but is expected to grow as clinical data on the cost
effectiveness of vena cava filter use continues to be developed.
New Product Development. The Company is currently developing a retrievable vena
cava filter and a superelastic vena cava filter, discussed below.
Retrievable Vena Cava Filter. Currently available vena cava filters are perma-
nent implants which can only be removed surgically. Therefore, patients who are
at risk for pulmonary embolism for a defined period of time (post-operative re-
covery, recovery from trauma, etc.) and receive a vena cava filter have the im-
plant in place for life. Although the Company believes that there are no ad-
verse physical risks to leaving a vena cava filter in place, there is often a
psychological resistance to implantation of a permanent device. As a result, a
vena cava filter is often not used until a patient at risk has experienced his
or her first pulmonary embolism. However, recent controlled studies of the pro-
phylactic use of currently available permanent vena cava filters in severe
trauma patients have demonstrated a significant reduction in morbidity and mor-
tality in this category of high-risk patients for pulmonary embolism. The Com-
pany believes that the availability of a retrievable vena cava filter may re-
sult in greater prophylactic use, and may be used in lieu of a permanently im-
planted device in certain circumstances.
The Company is conducting early design and feasibility work on a retrievable
vena cava filter which can be placed into the body and later removed. Vena cava
filters which remained implanted for six weeks were successfully removed from
sheep in studies conducted by the Company in April 1996. Following additional
laboratory and animal testing, the Company anticipates commencing European
clinical trials during 1997. The Company also anticipates filing an IDE for a
retrievable vena cava filter during 1997 to enable the Company to conduct human
clinical trials in the United States. See "Risk Factors--Limited Commercializa-
tion; Uncertainties of Product Development and Market Acceptance."
Superelastic Vena Cava Filter. Presently, all vena cava filters have the poten-
tial for a filter leg to penetrate the wall of the vena cava into surrounding
organs or structures. Although no significant adverse clinical consequences
have resulted from reported protrusions to date associated with the Simon
Nitinol Filter (nor to the Company's knowledge with respect to any other vena
cava filter), the Company believes that a vena cava filter which utilizes the
superelastic
27
<PAGE>
characteristic of Nitinol to avoid this phenomenon would represent a techno-
logical advance. There can be no assurances that adverse clinical consequences
associated with filter leg penetration will not occur in the future. See "Risk
Factors--Product Liability Risks; Insurance."
The Company is conducting research and development related to a superelastic
vena cava filter. The Company's proposed superelastic vena cava filter would
resemble the current SNF but would incorporate structural changes in the legs
of the device enabling each leg of the filter to exert an evenly measured de-
gree of controlled outward force against the wall of the vessel regardless of
the diameter of the patient's vena cava. The superelastic vena cava filter
would be designed to enable secure placement, while offering constant radial
leg force and reduced potential for penetration of the wall of the vena cava.
The Company believes that this cannot be achieved presently using traditional
device materials. See "Risk Factors--Limited Commercialization; Uncertainties
of Product Development and Market Acceptance."
Relationship with Bard. The Company entered into an exclusive distribution
agreement in May 1992 with Bard Radiology for distribution of the SNF in the
United States and certain other countries. Sales and market penetration for
the SNF have increased significantly as a result of this agreement. See "Man-
agement's Discussion and Analysis of Financial Condition and Results of Opera-
tions." Beginning November 30, 1995, Bard International was granted the exclu-
sive right to distribute the SNF in most markets outside the United States.
Although there can be no assurance, NMT believes that international sales and
market share growth will increase substantially as a result. The loss of ei-
ther distributor would have a material adverse affect on the Company's busi-
ness. See "Risk Factors--Dependence Upon Collaborators."
Each of the distribution agreements is for a five year term. Bard Radiology
may renew, at its option, its agreement thereafter for periods of five years.
The Company's agreement with Bard International renews automatically for suc-
cessive one year periods unless terminated by either party. Both distributors
are obligated to make annual minimum purchases and have agreed not to sell
competing vena cava filters during the term of the respective distribution
agreements. Bard Radiology has also agreed not to compete for an additional
two years after its distribution agreement with the Company has terminated. In
addition, the Company has granted Bard Radiology a right of first offer for
any of NMT's new devices which may be marketed to interventional radiologists
and for which NMT desires to enter into an exclusive distributorship within
the United States. See "--Agreements with Boston Scientific and Bard."
Manufacturing. The Company has contracted with Lake Region for the production
of the filter component of the SNF. The Company's agreement with Lake Region
grants Lake Region the right to manufacture at least 75% of the Company's
worldwide requirements of the current filter, for a period of five years until
June 30, 2001. The Company is obligated to order a minimum quantity of the
current filters and pay Lake Region a fixed price per unit. Lake Region has
agreed not to manufacture filters for a third party for a period of two years
after the termination of the agreement. See "Risk Factors--Limited Manufactur-
ing History; Dependence on Third Parties." The Company currently purchases the
delivery systems for the SNF under purchase orders from third-party suppliers.
Competition. Boston Scientific, among others, currently competes with the Com-
pany in sales of vena cava filters. Boston Scientific introduced the
Greenfield Filter to the market in the mid-1970's and is still the predominant
leader with an approximately 70% of current unit sales of vena cava filters in
the United States. Since the introduction of the Simon Nitinol Filter in 1990,
NMT has achieved the second highest level of sales (approximately 12% of cur-
rent unit sales) in the United States due primarily to its distribution agree-
ment with Bard Radiology and the introduction of a new simplified delivery
system. Other competitors in this market include B. Braun and Cook, Inc.
Septal Repair Device
The Company has acquired exclusive rights to develop and market a patented
septal repair device, the CardioSeal Septal Occluder, which is designed for
the repair of intracardiac shunts commonly known as "holes in the heart."
28
<PAGE>
Intracardiac shunts are common medical problems, occurring primarily in chil-
dren, that result in abnormal blood flow through the chambers of the heart. The
most common defects occur in either the atrial ("ASD") or ventricular septum
("VSD") which divide the left and right pumping chambers of the heart. Patients
with these defects may suffer from poorly oxygenated blood as well as requiring
increased cardiac effort to adequately supply blood to the body. This may lead
to congestive heart failure and pulmonary hypertension, resulting in severe in-
capacity or even death. The current treatment is open heart surgery. Open-heart
surgery involves opening a patient's chest, cutting through the sternum, con-
necting the patient to a heart/lung machine and opening the heart to surgically
repair the hole. Such a procedure is costly and generally requires up to a week
of hospitalization and an extensive recovery period. The CardioSeal Septal Oc-
cluder is designed to be a minimally invasive, less costly alternative to open
heart surgery.
The following three diagrams illustrate normal
cardiac anatomy, a hole in the atrial septum of
the heart (ASD) and a hole in the ventricular
septum of the heart (VSD), respectively.
[GRAPHIC APPEARS HERE]
Another common septal defect is the Patent Foramen Ovale ("PFO"), a transient
hole which may open under straining efforts (coughing, defecating, etc.). PFO
has been implicated as a possible cause of embolic strokes, in which small
blood clots escape through the PFO and travel to the brain. Current treatment
for patients who have experienced embolic strokes is lifelong anticoagulation
therapy, which may result in significant side effects and/or patient noncompli-
ance with the treatment regimen. Recently, some institutions have begun advo-
cating open heart surgery to close PFO's to prevent additional strokes. The
Company believes that its septal repair device using a minimally-invasive de-
livery system may address the needs of the PFO market.
The diagram below shows a cross-section of the
heart and a transient hole between the left and
right atriums, know as a PFO.
[GRAPHIC APPEARS HERE]
29
<PAGE>
CardioSeal Septal Occluder. The CardioSeal Septal Occluder is a catheter-deliv-
ered cardiac implant designed to close atrial septal defects. The device con-
sists of eight wire spring arms covered with two pieces of knitted polyester
fabric which form two opposed disk-like occluders each having an umbrella
shape. The framework is made of MP35N, a material chosen because of its supe-
rior characteristics as an implant material (biocompatibility and corrosion and
fatigue resistance). Knitted polyester was chosen because of its extensive use
in the cardiovascular system and its ability to promote normal tissue in-
growth. At the center of the occluders is an inter-connection point which al-
lows the product to be placed within the septal defect so that one umbrella is
opened on each side of the defect. The product is designed to be manufactured
in five diameter sizes ranging from 17mm to 40mm.
The CardioSeal Septal Occluder is delivered to the site of the defect through a
puncture of the femoral vein in the leg. The device is loaded into a delivery
catheter and moved toward the defect site (top left diagram). At the defect
site, the CardioSeal Septal Occluder is deployed through the defect (top center
diagram) and the first umbrella is opened (top right diagram). The delivery
system is then retracted through the hole so that the first umbrella comes into
contact with the septal wall (bottom left diagram) the delivery system is then
retracted further allowing the second umbrella to open and seal the defect from
both sides (bottom center diagram). Once the position of the CardioSeal Septal
Occluder is confirmed by the physician, he detaches the delivery system and re-
moves it from the patient (bottom right diagram).
[GRAPHIC APPEARS HERE]
An earlier version of the septal repair device, named the Clamshell, was origi-
nally developed by Bard in collaboration with Children's Hospital of Boston.
Between 1989 and 1991 Bard sponsored clinical trials of the Clamshell in over
700 patients. In 1991, Bard discovered fractures of the stainless steel frame-
work of the original septal repair device. Although no significant adverse
clinical consequences were observed as a result of these fractures, Bard sus-
pended its clinical trials. However, the FDA permitted the continued use of the
Clamshell for patients at high risk for surgery. See "Risk Factors--Uncertain-
ties of Successful Redesign of the Septal Repair Device" and "Risk Factors--
Product Liability Risks; Insurance." Redesign efforts were initiated in collab-
oration with Dr. James Lock, Chairman of the Cardiology Department at
Children's Hospital in Boston. Extensive engineering redesign and testing, in-
cluding the use of MP35N for the framework, resulted in significant improve-
ments in both the fatigue and corrosion resistance of the device. In 1995, Bard
donated the technology and associated assets to Children's Hospital of Boston
which subsequently licensed the technology to InnerVentions. The Company ac-
quired the rights to develop and commercialize the current septal repair device
in February 1996. In connection with the acquisition, the Company acquired all
of the existing development, manufacturing and testing equipment, patent li-
censes, know-how and documentation necessary to manufacture septal repair de-
vices which had been originally developed by Bard. NMT has hired certain key
personnel who worked on this project at Bard. See "Certain Transactions."
Market Opportunity. The Company believes the CardioSeal Septal Occluder may be
suitable for approximately 55,000 patients annually with congenital heart de-
fects and approximately 145,000 adult patients annually with PFOs. Such esti-
mates are based on industry reports of the total numbers of patients diagnosed
with such conditions and the Company's own analysis of the portions of such
populations for whom its device may be suitable. See "Risk Factors--Limited
Commercialization; Uncertainties of Product Development and Market Acceptance."
Current Status. The Company believes that based on clinical usage of the septal
repair device since 1989, clinical utility has been demonstrated. Children's
Hospital of Boston is currently conducting clinical trials of the redesigned
30
<PAGE>
Clamshell devices under an IDE granted by the FDA in the second quarter of
1996 to allow for use of the devices in patients with a variety of cardiac
conditions and at high risk for surgery. The devices being tested by
Children's Hospital of Boston were provided by Bard and were not included in
the assets acquired by the Company. The CardioSeal Septal Occluder will be
manufactured based on the same design specifications as the redesigned Clam-
shell devices currently being tested by Children's Hospital of Boston.
The Company has tested the CardioSeal Septal Occluder with an extensive series
of pre-clinical tests. Such pre-clinical testing culminated with an acceler-
ated in vitro life test of 630 million cycles (which equates to 10 years at
120 heartbeats per minute). During such testing, no fractures occurred in the
CardioSeal Septal Occluder even though the stress levels were set to simulate
twice the estimated level of stress observed clinically with the original
Clamshell device. The Company believes that the current CardioSeal Septal Oc-
cluder is now ready to enter clinical trials and intends to commence clinical
trials for the CardioSeal Septal Occluder in Europe in late 1996. In the
United States, the FDA classifies the septal repair device as a class III med-
ical device, which requires receipt of PMA prior to marketing. In May 1996,
the Company submitted an IDE to the FDA to pursue a multi-center, pivotal
clinical trial in the United States for ASDs. Extensive pre-clinical informa-
tion has already been reviewed by the FDA as part of the approval process for
the institutionally-sponsored IDE by Children's Hospital of Boston. The Com-
pany anticipates initiating its United States clinical trials for ASD in the
fourth quarter of 1996 pending both product availability and FDA approval of
its IDE. There is no assurance that the FDA will approve the IDE nor of the
timing of any such FDA action. See "Risk Factors--Government Regulation; Prod-
uct Approvals Uncertain."
Clinical protocol submissions have been made in Canada and Europe to commence
ASD clinical trials. The study protocol will be substantially the same as that
used in the United States. The Company anticipates commencement of these clin-
ical trials in the fall of 1996 and will pursue clinical studies for the PFO
indication following the successful completion of its ASD trials. There can be
no assurances, however, that the Company's proposed clinical trials will be
successfully completed or that the Company will be able to achieve the forego-
ing product development schedule. See "Risk Factors--Government Regulation;
Product Approvals Uncertain."
New Product Development. The Company is currently evaluating design enhance-
ments to the CardioSeal Septal Occluder as well as alternative designs for the
device. The Company is considering the use of nitinol for the device to fur-
ther reduce the size of the delivery system, further simplify the deployment
procedure and potentially broaden the range of therapeutic indications.
Marketing and Sales Strategy. The Company intends to develop its own sales
force to market the CardioSeal Septal Occluder. There are approximately 150-
200 pediatric interventional cardiologists in the United States who could po-
tentially implant the device. These specialists practice at an estimated 75-
100 institutions that provide advanced cardiac care to children. It is esti-
mated that a similar number of centers would be targeted internationally.
Therefore, the Company believes that the size and scope of the target audience
is manageable with a small, specialized sales and marketing team. The
Company's marketing strategy will require a specific physician training pro-
gram prior to selling products into any center. See "Risk Factors-- Limited
Manufacturing History; Dependence on Third Party Manufacturers."
Manufacturing. The Company has signed a lease for, and is in the process of
renovating, an approximately 27,000 square foot facility in Boston, Massachu-
setts. A fully integrated GMP and ISO 9000 manufacturing facility will be in-
cluded in this space so that the manufacture of the CardioSeal Septal Occluder
can be appropriately controlled. Integral to the facility will be a Class
10,000 clean room for the final manufacture of the device. See "Risk Factors--
Limited Manufacturing History; Dependence on Third Party Manufacturers."
Competition. The Company believes that only three companies, Microvena Corpo-
ration, Dr. Osypka GmbH, and Pediatric Cardiology Custom Medical Devices are
actively developing competitive devices and that none of these companies cur-
rently has a product on the market.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company seeks to protect its technology through the use of patents and
trade secrets. The Company is the owner or licensee of eight issued United
States patents, and corresponding foreign patents, relating to its stents, the
SNF, the septal repair device and nitinol radiopaque markers. The Company has
received a notice of allowance from the United States Patent and Trademark Of-
fice on a ninth United States patent application. In addition, the Company has
pending applications for additional patents in the United States and abroad.
The Company's owned United States and
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foreign patents and patent applications cover its stents, methods of manufac-
turing its stents, methods and devices for inserting its stents, its SNF and
devices for inserting its SNF. The expiration dates of the Company's patents
relating to its stents range from 2012 to 2013. The patent for its vena cava
filters expires in 2001 and the patent for its radiopaque markers expires in
2014. In addition, the Company is the exclusive licensee under certain patents
relating to the CardioSeal Septal Occluder and methods for repairing cardiac
and vascular defects. The Company also holds licenses to certain technology
used in the SNF and in nitinol septal repair device. See "--Licensed Technolo-
gy; Royalty Obligations."
There can be no assurance that the Company's pending patent applications in the
United States and abroad will be granted. No assurance can be given that pat-
ents issued to or licensed by or to the Company will not be challenged, invali-
dated or circumvented, or that the rights granted thereunder will provide any
competitive advantage. The Company could incur substantial costs in defending
any patent infringement suit or in asserting any patent rights, including those
granted by third parties. Any adverse outcome could subject the Company to sig-
nificant liabilities to third parties, require disputed rights to be licensed
from third parties, or require the Company to cease selling its devices.
The Company also relies on trade secrets and technical know-how in the develop-
ment and manufacture of its devices, which it seeks to protect, in part,
through confidentiality agreements with its employees, consultants and other
parties. The Company's agreements with its employees and consultants generally
require such individuals to assign to the Company any inventions conceived or
reduced to practice by them while employed or retained by the Company. There
can be no assurance, however, that these agreements will provide meaningful
protection or adequate remedies for the Company in the event of unauthorized
use, transfer or disclosure of such information or inventions.
The employment agreements between the Company and Mr. Kleshinski, Vice Presi-
dent of Research and Development, and Mr. Harry, Vice President of Research En-
gineering, while requiring that their inventions be assigned to the Company,
provide that the Company is obligated to pay certain royalties to Messrs.
Kleshinski and Harry based on sales or licenses of products where either Mr.
Kleshinski or Dr. Harry, as the case may be, was the sole or joint inventor.
The Company has seven trademarks which are registered in the United States Pa-
tent and Trademark Office.
LICENSED TECHNOLOGY; ROYALTY OBLIGATIONS
In connection with its septal repair device, the Company has obtained an exclu-
sive worldwide license from Children's Medical Center Corporation under United
States patents entitled "Occluder and Method for Repair of Cardiac and Vascular
Defects" and "Occluder for Repair of Cardiac and Vascular Defects" and their
respective corresponding foreign patents, patent applications and associated
know-how. The license agreement provides for royalty payments of five percent
based on net sales of the Company's CardioSeal Septal Occluder until the end of
the term of the patents or termination of the agreement. The patents expire in
September 2012 and June 2012, respectively. Pursuant to the license agreement,
the Company is required to achieve certain milestones in exploiting the patent
rights, most of which have been achieved. If the Company fails to achieve the
milestones, Children's Medical Center Corporation may terminate the license
agreement. The Company also has a royalty-free, worldwide sublicense under the
United States patent entitled "System for the Percutaneous Transluminal Front-
End Loading Delivery and Retrieval of a Prosthetic Occluder" and its corre-
sponding foreign patents and associated know-how. The sublicense is exclusive
in the field of the repair of atrial septal defects and nonexclusive in certain
other fields. The Company has also obtained an exclusive worldwide license from
Lloyd A. Marks, M.D. under the United States patent entitled "Aperture Occlu-
sion Device". The license agreement with Dr. Marks provides for royalty pay-
ments based on net sales of nitinol septal repair devices which are covered by
the patent until the end of term of the patent. The patent expires in 2011.
Certain minimum royalty payments must be paid regardless of net sales. Dr.
Marks was also issued warrants to purchase 5,263 shares of Common Stock, which
warrants are accompanied by certain "piggy-back" registration rights. See "De-
scription of Capital Stock--Registration Rights."
In connection with the Simon Nitinol Filter, the Company entered into a Tech-
nology Purchase Agreement dated April 14, 1987 with Morris Simon, M.D., the
Company's Scientific Director and co-founder. Pursuant to the agreement, Dr.
Simon assigned all the technology relating to the SNF to the Company in ex-
change for certain royalty payments based on net sales of technology invented
by Dr. Simon relating to the SNF, to continue perpetually unless the agreement
is sooner terminated. Dr. Simon agreed not to compete with the Company in the
vena cava filter market during the term of the agreement. In connection with
the agreement, Beth Israel Hospital Association granted the Company an exclu-
sive worldwide license under U.S. patent entitled "Blood Clot Filter". In con-
sideration for the license, Dr. Simon assigned a percentage of his royalty pay-
ments from the Company to Beth Israel Hospital Association.
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Pursuant to their respective employment agreements, the Company has agreed to
pay royalties of one to five percent to Messrs. Kleshinski and Harry based on
sales or licenses of products where either Mr. Kleshinski or Dr. Harry, as the
case may be, was the sole or joint inventor. The Company is not obligated to
pay royalties to Mr. Kleshinski with respect to the Company's stents or vena
cava filters or to Dr. Harry with respect to the Company's devices which were
being sold prior to January 1994 unless Dr. Harry's inventions result in an in-
creased sales price to the Company. See "Management--Employment Agreements."
AGREEMENTS WITH BOSTON SCIENTIFIC AND BARD
Boston Scientific
In November 1994, NMT entered into an agreement with Boston Scientific, per-
taining to its stent technology. Under the terms of the agreement, NMT granted
to Boston Scientific exclusive worldwide rights to develop, manufacture, market
and distribute products incorporating NMT's stent technology. Boston Scientific
has the right to market and advertise products based on the Company's stent
technology exclusively under its own name and the Company has no right to any
trademarks or tradenames developed by Boston Scientific. Boston Scientific has
exclusive control over, and is responsible for, funding product development,
manufacturing scale-up, clinical trials, marketing and distribution worldwide.
The agreement obligates Boston Scientific to use diligent efforts in a commer-
cially reasonable manner to develop, manufacture and market products using
NMT's stent technology; however, there can be no assurance that Boston Scien-
tific will develop the Company's stents for any particular application. In ad-
dition, Boston Scientific is not prohibited from developing or selling compet-
ing stents. See "Risk Factors--Dependence Upon Collaborators."
Boston Scientific is obligated to pay NMT a percentage of revenue from the sale
of products using NMT's stent technology. If the fees payable are less than
certain minimum levels, Boston Scientific must pay the difference or NMT can
elect to make the license non-exclusive. The license fees may be reduced in the
event a competing stent with a similar design, as defined in the agreement, ac-
quires a 10% or greater sales share with respect to any particular application.
Boston Scientific is also obligated to make payments upon the occurrence of
certain developmental events and the achievement of certain manufacturing cost
reductions, and reimburse certain development costs.
The term of the agreement is for the longer of 20 years from market launch or
the date on which the last NMT patent relating to stents expires. Boston Scien-
tific also has the perpetual non-exclusive and royalty-free right to manufac-
ture, use and sell all products as to which it has previously paid licensing
fees and on products for which all applicable patents have expired or have been
held invalid. Such additional rights granted to Boston Scientific survive ter-
mination of the agreement.
Bard
The Company has entered into strategic distribution agreements with Bard Radi-
ology (as amended, the "Bard Radiology Agreement") and Bard International (the
"Bard International Agreement") to distribute the SNF in the United States and
certain other countries.
The Bard Radiology Agreement, signed in May 1992 and amended in February 1993
and October 1995, grants Bard Radiology the exclusive right to distribute the
Simon Nitinol Filter, and any changes, improvements or modifications thereto,
in the United States and certain other countries for a five year term renewable
by Bard Radiology for additional five year terms thereafter. The Company also
granted Bard Radiology a right of first offer to obtain exclusive distribution
rights in the United States for any new devices developed by the Company that
may be marketed to interventional radiologists and for which NMT desires to en-
ter into an exclusive distributorship within the United States. The Company
sells the SNF to Bard Radiology at determined prices and Bard Radiology is re-
quired to purchase certain minimums to maintain its exclusivity. Pursuant to
the Bard Radiology Agreement, Bard Radiology is obligated to provide the Com-
pany with quarterly purchase orders in substantial conformity with its purchase
forecasts submitted to the Company. Bard Radiology has further agreed not to
compete with the Company in the vena cava filter market during the term of the
agreement and for two years after termination. The Company has agreed not to
make or sell any competing device as long as Bard maintains its exclusivity un-
der the agreement.
The Bard International Agreement, signed in November 1995, grants Bard Interna-
tional the exclusive right to distribute the Simon Nitinol Filter, and any
changes, improvements or modifications thereto, worldwide (excluding the United
States and certain other countries) for a five year term which is automatically
renewed for successive one year periods unless terminated by either party. The
Company sells the SNF to Bard International at determined prices and Bard In-
ternational is required to make certain minimum purchases which, if not met,
could result in termination of the agreement by the Company. Pursuant to the
Bard International Agreement, Bard International is obligated to
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provide the Company with quarterly purchase orders in substantial conformity
with its forecasts submitted to the Company. Bard International has further
agreed not to compete with the Company in the vena cava filter market during
the term of the Bard International Agreement.
GOVERNMENT REGULATION
The manufacture and sale of medical devices intended for commercial distribu-
tion are subject to extensive governmental regulations in the United States.
Medical devices are regulated in the United States by the FDA under the FDC Act
and generally require pre-market clearance or pre-market approval prior to com-
mercial distribution. In addition, certain material changes or modifications to
medical devices also are subject to FDA review and clearance or approval. Pur-
suant to the FDC Act, the FDA regulates the research, testing, manufacture,
safety, labeling, storage, record keeping, advertising, distribution and pro-
duction of medical devices in the United States. Noncompliance with applicable
requirements can result in failure of the government to grant pre-market clear-
ance or approval for devices, withdrawal of approvals, total or partial suspen-
sion of production, fines, injunctions, civil penalties, recall or seizure of
products, and criminal prosecution. The FDA also has the authority to request
repair, replacement or refund of the cost of any device manufactured or dis-
tributed by the Company.
Medical devices are classified into one of three classes, Class I, II or III,
on the basis of the controls deemed by the FDA to be necessary to reasonably
ensure their safety and effectiveness. Class I devices are subject to general
controls and class II devices are subject to general and to special controls
(e.g., performance standards, postmarket surveillance, patient registries, and
FDA guidelines). Generally, Class III devices are those that must receive pre-
market approval by the FDA to ensure their safety and effectiveness (e.g.,
life-sustaining, life-supporting and implantable devices, or new devices which
have not been found to be substantially equivalent to legally marketed de-
vices), and require clinical testing to ensure safety and effectiveness and FDA
approval prior to marketing and distribution. The FDA also has the authority to
require clinical testing of Class I and Class II devices. A PMA application
must be filed if a proposed device is not substantially equivalent to a legally
marketed predicate device or if it is a Class III device for which the FDA has
called for such applications.
If human clinical trials of a device are required and if the device presents a
"significant risk," the manufacturer or distributor of the device is required
to file an investigational device exemption ("IDE") application with FDA prior
to commencing human clinical trials. The IDE application must be supported by
data, typically the results of animal and, possibly, mechanical testing. If the
IDE application is approved by the FDA, human clinical trials may begin at a
specific number of investigational sites with a maximum number of patients, as
approved by the agency. Sponsors of clinical trials are permitted to sell those
devices distributed in the course of the study provided such costs do not ex-
ceed recovery of the costs of manufacture, research, development and handling.
The clinical trials must be conducted under the auspices of an independent in-
stitutional review board ("IRB") established pursuant to FDA regulations. If
one or more IRBs determine that a clinical trial involves a "nonsignificant
risk" device, the sponsor of the study is not required to obtain FDA approval
of an IDE application before beginning the study. However, prior IRB approval
of the study is required and the study must be conducted in compliance with the
applicable FDA regulations, including, but not limited to, FDA's regulations
regarding the protection of human subjects.
Generally, before a new device can be introduced into the market in the United
States, the manufacturer or distributor must obtain FDA clearance of a pre-mar-
ket notification ("510(k) notification") submission or approval of a PMA appli-
cation. If a medical device manufacturer or distributor can establish that a
device is "substantially equivalent" to a legally marketed Class I or Class II
device, or to a Class III device for which the FDA has not called for PMAs, the
manufacturer or distributor may seek clearance from the FDA to market the de-
vice by filing a 510(k) notification. The 510(k) notification may need to be
supported by appropriate data establishing the claim of substantial equivalence
to the satisfaction of the FDA. The FDA recently has been requiring a more rig-
orous demonstration of substantial equivalence.
Following submission of the 510(k) notification, the manufacturer or distribu-
tor may not place the device into commercial distribution until an order is is-
sued by the FDA. At this time, the FDA typically responds to the submission of
a 510(k) notification within 90 to 200 days. An FDA order may declare that the
device is substantially equivalent to a legally marketed device and allow the
proposed device to be marketed in the United States. The FDA, however, may de-
termine that the proposed device is not substantially equivalent or require
further information, including clinical data, to make a determination regarding
substantial equivalence. Such determination or request for additional informa-
tion could delay market introduction of the product that is the subject of the
510(k) notification.
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If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent to a legally marketed device, the
manufacturer or distributor must seek pre-market approval of the proposed de-
vice through submission of a PMA application. A PMA application must be sup-
ported by extensive data, including preclinical and clinical trial data, as
well as extensive literature to prove the safety and effectiveness of the de-
vice. Following receipt of a PMA application, if the FDA determines that the
application is sufficiently complete to permit a substantive review, the agency
will "file" the application. Under the FDC Act, the FDA has 180 days to review
a PMA application, although the review of an application more often occurs over
a protracted time period, and generally takes approximately two years or more
from the filing date to complete.
The PMA approval process is expensive, uncertain and lengthy. A number of de-
vices for which pre-market approval has been sought have never been approved
for marketing. The review time is often significantly extended by the FDA,
which may require more information or clarification of information already pro-
vided in the submission. During the review period, an advisory committee likely
will be convened by the FDA to review and evaluate the application and provide
recommendations to the agency as to whether the device should be approved. In
addition, the FDA will inspect the manufacturing facility to ensure compliance
with the GMP regulations for medical devices prior to approval of the PMA ap-
plication. If granted, the approval may include significant limitations on the
indicated uses for which a product may be marketed.
Certain Class III devices that were on the market before May 28, 1976
("preamendments Class III devices"), and devices that are determined to be sub-
stantially equivalent to them, can be brought to market through the 510(k)
process until the FDA, by regulation, calls for the submission of PMA applica-
tions for the devices. Generally, the FDA will not grant 510(k) clearance for
such devices unless the facilities at which they are manufactured successfully
undergo an FDA preapproval GMP inspection. In addition, the FDC Act requires
the FDA either to down-classify preamendments Class III devices to Class I or
Class II, or to publish a classification regulation retaining the devices in
Class III. Manufacturers of preamendments Class III devices that the FDA re-
tains in Class III must submit PMA applications 90 days after the publication
of a final regulation in which the FDA calls for PMAs. If the FDA calls for a
PMA for preamendments Class III device, a PMA must be submitted for the device
even if the device has already received 510(k) premarket clearance; however, if
the FDA down-classifies a preamendments Class III device to Class I or Class
II, a PMA application is not required. The FDA's reclassification determina-
tions are to be based on safety and effectiveness information that manufactur-
ers of certain preamendments Class III devices are required to submit to the
FDA as set forth in two FDA orders published in August 1995.
The Company's first product, the SNF, underwent significant clinical investiga-
tion under an IDE and received 510(k) clearance in 1990. Subsequent improve-
ments and modifications to the SNF have also received 510(k) clearance from the
FDA. There can be no assurances that future modifications of the device will
obtain clearance.
The 510(k) clearances for the SNF were based on substantial equivalence of the
device to other cardiovascular intravascular filters, which are Class III
preamendments devices. The FDA has characterized cardiovascular intravascular
filters as not likely candidates for down-classification under the reclassifi-
cation provisions of the FDC Act pertaining to preamendments Class III devices.
Thus, it is likely that the FDA will call for PMAs for cardiovascular
intravascular filters and that the Company will be required to submit a PMA for
the SNF within 90 days after the date that the FDA calls for PMAs. There can be
no assurance that the Company will be able to prepare and submit a PMA within
90 days after the FDA calls for PMAs for cardiovascular intravascular filters
or that any data and information submitted in a PMA will be adequate to support
approval of the device. Failure of the Company to submit a PMA and have it ac-
cepted for filing by the FDA within the required timeframe could result in the
Company being required to cease distribution of the SNF until such time as a
PMA application is submitted and accepted for filing. Moreover, although the
Company believes it would be permitted to continue distribution of the SNF af-
ter submission of a PMA and before its approval there can be no assurance that
the FDA will permit such continued distribution. The Company's failure to have
a PMA accepted for filing within the required timeframe or to obtain PMA ap-
proval for the SNF could have a material adverse effect on the Company's busi-
ness, financial condition and results of operations. In addition, the Company
will be required to submit safety and effectiveness information about the SNF
to the FDA by August 14, 1996 in accordance with an FDA order addressing the
classification of preamendments Class III devices. The FDA order prescribes the
format and type of information required to be submitted. The Company is cur-
rently in the process of preparing such information for submission to the FDA;
failure of the Company to submit safety and
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effectiveness information about the SNF in accordance with the order would re-
sult in the SNF being deemed misbranded and could result in FDA enforcement ac-
tion against the Company.
Boston Scientific is responsible for applying for registrations and regulatory
approvals it deems necessary for NMT's stents. It is believed that each of the
vascular indications for the stent (coronary arteries , carotid arteries, pe-
ripheral vascular, AAA and peripheral vascular stent grafts) will require a
separate PMA applications prior to commercialization in the United States. Bos-
ton Scientific has commenced clinical trials in Europe of NMT's stents for pe-
ripheral vascular and peripheral vascular stent grafts applications. Commencing
clinical trials in Europe is a strategy, now commonly used in the industry,
which allows significant information to be gained and may enhance the ability
to develop a United States based protocol of study.
The Company believes, based on competitive product filings, that the non-vascu-
lar stent indications will qualify for the 510(k) notification. These filings
for esophageal and biliary indications will also be the responsibility of Bos-
ton Scientific.
There can be no assurance that the FDA will agree that the non-vascular stent
indications may be cleared through the 510(k) process or, if a 510(k) notifica-
tion is submitted, that the non-vascular stent will be deemed substantially
equivalent to a legally marketed predicate device. In addition, there can be no
assurance that Boston Scientific will submit regulatory filings for any partic-
ular indications for the stents, or that Boston Scientific will submit regula-
tory filings in every country in which the stents could be marketed.
The septal repair device will also be subject to the PMA process in the United
States. NMT submitted an application for an IDE to the FDA in May 1996. Submis-
sion of an IDE does not give assurance that FDA will approve the IDE and, if it
is approved, there can be no assurance that FDA will determine that the data
derived from these studies support the safety and efficacy of the device or
warrant the continuation of clinical studies. There can be no assurance that
the Company will be able to obtain necessary regulatory approvals or clearances
on a timely basis or at all, and delays in receipt of or failure to receive
such approvals or clearances, the loss of previously received approvals or
clearances, limitations on intended use imposed as a condition of such approv-
als or clearances, or failure to comply with existing or future regulatory re-
quirements would have a material adverse effect on the Company's business, fi-
nancial condition and results of operations.
Currently, the Company is dependent on third parties to manufacture its prod-
ucts for use in clinical trials and commercial distribution. These third par-
ties are required to register with the FDA as medical device manufacturers. The
third party manufacturers are inspected by the FDA for compliance with the GMP
and other applicable regulations. In addition, the third party manufacturers
will be specifically inspected by the FDA before the agency will approve a PMA
application for the Company's products. There can be no assurance that the
third party manufacturers on which the Company depends for the manufacture of
its products will be able to come into compliance with the GMP regulations at
the time of the preapproval inspection or to maintain such compliance.
The Company currently intends to manufacture its septal repair device. The
Company's manufacturing facilities will be required to be registered with the
FDA and will be subject to the GMP regulations. FDA approval will be required
before the Company could begin commercial distribution of medical devices from
its own manufacturing facilities.
Any products manufactured or distributed by the Company are subject to continu-
ing regulation by the FDA including record keeping requirements, reporting of
adverse experience with the use of the device, postmarket surveillance,
postmarket registry and other actions deemed necessary by the FDA. The FDA's
regulations require agency approval of a PMA supplement for certain changes if
they affect the safety and effectiveness of the device, including, but not lim-
ited to, new indications for use; labeling changes; the use of a different fa-
cility to manufacture, process, or package the device; failure to obtain ap-
proval for changes in manufacturing facility or any other change affecting the
safety or effectiveness of an approved device on a timely basis, or at all,
would have a material adverse effect on the Company's business, financial con-
dition and results of operations. For any devices that are cleared through the
510(k) process, modifications or enhancements that could significantly affect
safety or effectiveness, or constitute a major change in the intended use of
the device, will require new 510(k) submissions. There can be assurance that
the Company will be able to obtain necessary regulatory approvals or clearances
on a timely basis or at all, and delays in
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receipt of or failure to receive such approvals or clearances, the loss of pre-
viously received approvals or clearances, limitations on intended use imposed
as a condition of such approvals or clearances, or failure to comply with ex-
isting or future regulatory requirements would have a material adverse effect
on the Company's business, financial conditions and results of operations.
The Company is required to provide information to the FDA on deaths or serious
injuries alleged to have been associated with the use of its medical devices,
as well as product malfunctions that would likely cause or contribute to death
or serious injury if the malfunction were to recur in a similar device marketed
by the manufacturer. In addition, the FDA prohibits an approved device from be-
ing marketed or promoted for unapproved uses. If the FDA believes that a com-
pany is not in compliance with the law, it can initiate proceedings to detain
or seize products, issue a recall, enjoin future violations and assess civil
and criminal penalties against the Company, its officers and its employees.
Failure to comply with the regulatory requirements could have a material ad-
verse effect on the Company's business, financial condition and results of op-
eration.
The advertising of most FDA-regulated products is subject to both FDA and Fed-
eral Trade Commission jurisdiction. The Company also is subject to regulation
by the Occupational Safety and Health Administration and by other governmental
entities.
Sales of medical device products outside the United States are subject to for-
eign regulatory requirements that vary widely from country to country. The time
required to obtain approvals required by foreign countries may be longer or
shorter than that required for FDA approval, and requirements for licensing may
differ from FDA requirements. Failure to comply with foreign regulatory re-
quirements could have a material adverse effect on the Company's business, fi-
nancial condition and results of operations.
The current regulatory environment in Europe for medical devices differs sig-
nificantly from that in the United States. There is currently no universally
accepted definition of a medical device in Europe and there is no common ap-
proach to medical device regulation among the various countries. There are sev-
eral different regulatory regimes operating within the different European coun-
tries. Regulatory requirements for medical devices range from no regulations in
some countries to rigorous regulations approaching the requirements of the
FDA's regulations for Class III medical devices. Several countries require that
device safety be demonstrated prior to approval for commercialization. The reg-
ulatory environment in certain European countries is expected to undergo major
changes as a result of the creation of medical device directives by the Euro-
pean Union.
Regulations regarding the manufacture and sale of the Company's products are
subject to change. The Company cannot predict what impact, if any, such changes
might have on its business, financial condition or results of operations.
The Company plans to implement policies and procedures intended to allow the
Company to receive ISO 9000 certification. ISO 9000 certification is based on
adherence to established standards in the areas of quality assurance and manu-
facturing process control. This certification is a significant European Union
sales requirement that will permit the Company or its collaborators to affix
the prescribed "CE" mark to its products. The European Union has promulgated
rules which require that medical products receive a CE mark by mid-1998 in or-
der to commercially market and sell medical products in the countries of the
European Economic Area. Failure to receive CE mark certification will prohibit
the Company from selling its products in Europe. There can be no assurance that
the Company will be successful in meeting certification requirements.
THIRD PARTY REIMBURSEMENT
Health care providers, such as hospitals and physicians, that purchase medical
devices such as stents, generally rely on third party payers, principally Medi-
care, Medicaid and private health insurance plans, to reimburse all or part of
the costs and fees associated with the Company's devices. Major third party
payers reimburse inpatient medical treatment, including all operating costs and
all furnished items or services, including devices such as the Company's, at a
prospectively fixed rate based on the diagnosis-related group ("DRG") that cov-
ers such treatment as established by the federal Health Care Financing Adminis-
tration. For interventional procedures, the fixed rate of reimbursement is
based on the procedure or procedures performed and is unrelated to the specific
devices used in that procedure. The
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amount of profit relating to the procedure may be reduced by the use of the
Company's devices. If a procedure is not covered by a DRG, certain third party
payers may deny reimbursement. Alternatively, a DRG may be assigned that does
not reflect the costs associated with the use of the Company's devices, result-
ing in underreimbursement. If, for any reason, the Company's products were not
to be reimbursed by third party payers, the Company's ability to sell its prod-
ucts may be materially adversely affected. Mounting concerns about rising
health care costs may cause more restrictive coverage and reimbursement poli-
cies to be implemented in the future. Several states and the federal government
are investigating a variety of alternatives to reform the health care delivery
system and further reduce and control health care spending. These reform ef-
forts include proposals to limit spending on health care items and services,
limit coverage for new technology and limit or control directly the price
health care providers and drug and device manufacturers may charge for their
services and products. The Company believes that domestic health care providers
currently are reimbursed for the cost of purchasing the Company's SNF. In the
international market, reimbursement by private third party medical insurance
providers, including governmental insurers and providers, varies from country
to country. In certain countries, the Company's ability to achieve significant
market penetration may depend upon the availability of third party governmental
reimbursement. The Company's independent distributors, and the health care
providers to whom such distributors sell, obtain any necessary reimbursement
approvals. There can be no assurance as to either United States or foreign mar-
kets that third party reimbursement and coverage will be available and ade-
quate, that current reimbursement amounts will not be decreased in the future
or that future legislation, regulation or reimbursement policies of third party
payers will not occur. See "Risk Factors--Uncertain Availability of Third Party
Reimbursement; Possible Health Care Reforms."
EMPLOYEES
As of May 31, 1996, NMT employed 25 full-time and three part-time employees.
Further staff will be added at the completion of the Offering as required by
the demands of the planned manufacturing scale-up for the septal repair device
and other development programs. No employees are covered by collective bargain-
ing agreements, and the Company believes it maintains good relations with its
employees.
FACILITIES
The Company currently occupies approximately 7,500 square feet of laboratory,
pilot manufacturing and office space in Boston. The Company has entered into a
lease for a new manufacturing, laboratory and administrative facility in Boston
comprising approximately 27,000 square feet which it expects to occupy commenc-
ing in the third quarter of 1996.
LEGAL PROCEEDINGS
The Company has no material pending legal proceedings.
PRODUCT LIABILITY AND INSURANCE
The Company's business involves the risk of product liability claims. The Com-
pany has not experienced any product liability claims to date. Although the
Company maintains product liability insurance with coverage limits of $5 mil-
lion per occurrence and an annual aggregate maximum of $5 million, there can be
no assurance that product liability claims will not exceed such insurance cov-
erage limits, which could have a material adverse effect on the Company, or
that such insurance will be available on commercially reasonably terms or at
all. See "Risk Factors--Product Liability Risks; Insurance."
38
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to certain Di-
rectors, executive officers and key personnel of the Company:
Directors and Executive Officers
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------------------------------------
<S> <C> <C>
Thomas M. Tully (1) 50 President, Chief Executive Officer and Director
David A. Chazanovitz 45 President, Septal Repair Division
Theodore I. Pincus 53 Executive Vice President and Chief Financial Officer
C. Leonard Gordon 66 Chairman of the Board
(1)(2)
Morris Simon, M.D. 70 Director and Scientific Director
Michael C. Brooks (2) 51 Director
Robert G. Brown 53 Director
R. John Fletcher 50 Director
(2)(3)
Jeffrey R. Jay, M.D. 37 Director
(1)(3)
Key Personnel
- -------------------------------------------------------------------------------
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------------------------------------
<S> <C> <C>
Sherrie Coval-Gold- 37 Vice President of Regulatory Affairs
smith
Rudy Davis 44 Vice President of Marketing and Sales,
Septal Repair Division
Jason Harry, Ph.D. 38 Vice President of Research Engineering
Stephen Kleshinski 43 Vice President of Research and Development
Eugene O'Donnell 49 Vice President for Vena Cava Filter Operations
Carol Ryan 33 Vice President of Product Development,
Septal Repair Division
James W. Sheppard 37 Director of Operations, Septal Repair Division
</TABLE>
- -------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Stock Option Committee
THOMAS M. TULLY has served as President, Chief Executive Officer and Director
of NMT since January 1996. From May 1994 to April 1995, Mr. Tully served as
President of the Institute of Molecular Biology and from August 1991 to March
1994, Mr. Tully served as President of Organogenesis, Inc. Prior to that Mr.
Tully served for three years as the President of the Schneider division of Pfi-
zer, Inc. and spent nine years in various executive positions in consumer prod-
ucts and medical devices at Johnson & Johnson, Inc. and was the founding Presi-
dent of Johnson & Johnson Interventional Systems.
DAVID A. CHAZANOVITZ has served as President of NMT's Septal Repair Division
since January 1996. He has over 20 years of experience in the medical products
business, 16 of which have been with Bard. At Bard, Mr. Chazanovitz served as
President of the USCI Angiography Division, Bard Electrophysiology Division and
Bard Ventures Division where he was a founder. During his last two and one-half
years at Bard Mr. Chazanovitz had overall responsibility for the septal defect
repair program.
THEODORE I. PINCUS has served as Chief Financial Officer of the Company, as a
part-time employee since June 1995 and became an Executive Vice President and a
full-time employee in May 1996. From September 1993 to April 1996 he served as
Chief Financial Officer of Immunotherapy, Inc., a privately-held
biopharmaceutical company, and for the
39
<PAGE>
past six years until joining the Company as a full-time employee he has been
President of The Pincus Group, a management consulting firm. From August 1992
to March 1995 he also served as the Chief Financial Officer of Biofield Corp.,
then a privately-held medical device company. Mr. Pincus is a Certified Public
Accountant and from 1985 to 1989 he was a partner at Ernst & Young.
MORRIS SIMON, M.D., a co-founder of NMT, is a Director and Scientific Director
of the Company. Since 1973, Dr. Simon has been a Director of Clinical Radiolo-
gy, Department of Radiology, at Beth Israel Hospital, and since 1976, a Profes-
sor of Radiology at Harvard Medical School.
C. LEONARD GORDON, a co-founder of NMT, served as the Company's Chief Executive
Officer and President, from August 1990 to January 1996. Mr. Gordon has served
as a Director of the Company since its inception in 1986 and as Chairman of the
Board of the Company since January 1996. Mr. Gordon has been engaged in venture
capital enterprises for more than 10 years, particularly in the field of new
medical technologies and devices. He was co-founder and Chief Executive Officer
of (i) Oxigene, Inc. a publicly-traded company engaged in the design and devel-
opment of drugs and (ii) Biofield Corp., a publicly-traded medical device com-
pany that has developed a breast cancer detection system. Mr. Gordon presently
serves as Chairman of the Board of Biofield Corp. and Chairman of the Board of
Immunotherapy, Inc. Mr. Gordon has practiced law in New York City for approxi-
mately 41 years and is currently of counsel to Gordon Altman Butowsky Weitzen
Shalov & Wein.
MICHAEL C. BROOKS has been a director of the Company since March 1996. Mr.
Brooks was appointed as a Director as a designee selected by the holders of the
Company's Convertible Preferred Stock. He has been a General Partner of J.H.
Whitney & Co., a venture capital partnership, since January 1985 and currently
serves as Managing Partner. Mr. Brooks is also a director of SunGard Data Sys-
tems, Inc., a computer software and services company, DecisionOne, a
multivendor computer service company, and several private companies.
ROBERT G. BROWN has been a Director of the Company since 1992. From 1987 to
1992 he served as President and Chief Operating Officer of NMT. Prior to join-
ing NMT, Mr. Brown spent approximately 15 years in various marketing and busi-
ness development positions with the Boston Scientific Corporation.
R. JOHN FLETCHER was elected a Director of the Company in January 1996. Mr.
Fletcher is the founder and Chief Executive Officer of Fletcher Spaght, Inc., a
management consulting company which specializes in strategic development for
health care and high technology businesses. Prior to founding Fletcher Spaght,
Inc. in 1983, he was a senior member of The Boston Consulting Group. Mr.
Fletcher is a director of AutoImmune, a biotechnology company developing orally
administered pharmaceutical products and Bachman Information Systems, Inc., a
software development company.
JEFFREY R. JAY, M.D. has been a Director of the Company since March 1996. Dr.
Jay was appointed as a director as a designee selected by the holders of the
Company's Convertible Preferred Stock. Since 1993, he has been a General Part-
ner of J.H. Whitney & Co. From 1988 to 1993, Dr. Jay was employed by Canaan
Partners, a venture capital firm. Dr. Jay currently is a national advisory mem-
ber of the American Medical Association's Physician Capital Source Committee
and is on the Board of CRA Managed Care, Inc., a workers compensation managed
care company, UtiliMed, a diagnostic imaging managed care company, and Advance
ParadigM, Inc., a health benefits manager.
SHERRIE COVAL-GOLDSMITH, Vice President of Regulatory Affairs, joined the Com-
pany in February 1996. From 1995 until January 1996, Ms. Coval-Goldsmith had
been Director of Regulatory Affairs for T-Cell Sciences, Inc. From 1994 until
1995, she had been Director of Regulatory Affairs of Institute of Molecular Bi-
ology, Inc. Prior to that, Ms. Coval-Goldsmith had over 10 years of clinical
research experience, including serving as Manager of Clinical Research and Reg-
ulatory Affairs for the Stryker Biotech Division of Stryker Corp. where she had
responsibility for an advanced implantable device.
RUDY DAVIS joined the Company as its Vice President of Marketing and Sales,
Septal Repair Division in May 1996. During the past 11 years he has held mar-
keting positions of increasing responsibility with various divisions of Bard,
and is a co-inventor of the original Clamshell device. He is a registered re-
spiratory therapist with ten years clinical and administrative experience in
the Cardiology Department at the Catherine McAuley Health Center in Ann Arbor,
Michigan.
40
<PAGE>
JASON HARRY, PH.D. joined NMT in July 1994 as Director of Engineering and be-
came Vice President of Research Engineering in January 1996. Dr. Harry has
been involved in biomedical engineering research and development for over 15
years. His fields of interest have included ocular mechanics, orthopaedics,
skeletal muscle biophysics and locomotion, and functional neural stimulation.
He worked for three years as a research engineer in the Orthopaedic
Biomechanics Laboratory of Beth Israel Hospital/Harvard Medical School. Fol-
lowing his doctoral work at Harvard University, he was a member of the engi-
neering faculty at Brown University for five years. During that time, he de-
veloped a research program based in part on the use of shape memory alloys in
medical devices, including a miniature neural electrode and a hip joint pros-
thesis component.
STEPHEN KLESHINSKI, Vice President of Research and Development, joined NMT in
1987 as the Company's first employee. Mr. Kleshinski has 15 years of medical
experience in academic and commercial settings. From 1980 to 1987 he was in-
volved in academic medical research at Beth Israel Hospital/Harvard Medical
School. For the last eight years he has been responsible for all technical as-
pects of product and process design and development for NMT.
EUGENE O'DONNELL was appointed Vice President for Vena Cava Filter Operations
effective January 1, 1996. Mr. O'Donnell previously served as General Manager
of the Company since November 1992. He joined the Company in 1990 as National
Sales Manager after the SNF became commercially available. Prior to joining
NMT, he spent nine years in a variety of sales and product marketing positions
with Boston Scientific. His experience includes over 19 years in the field of
cardiovascular medical devices.
CAROL RYAN has served as Vice President of Product Development, Septal Repair
Division, since February 1996. She has nine years of medical device engineer-
ing experience with various divisions of Bard including both manufacturing and
new product development. During the past three and one-half years, she has had
the responsibility for management of the technical activities associated with
the re-design effort leading to the current septal repair device.
JAMES W. SHEPPARD joined NMT in March 1996 as Director of Operations, Septal
Repair Division. Mr. Sheppard has fourteen years of increasing responsibility
in medical devise manufacturing, twelve of which were at Bard manufacturing
various cardiovascular devices including angiography, critical care and elec-
trophysiology catheters. While at Bard he established new manufacturing facil-
ities and organizations. More recently, Mr. Sheppard served as Director of
Manufacturing for Summit Technology, Inc.
COMMITTEES
The Board of Directors has a Compensation Committee which has authority to re-
view and approve all compensation arrangements, including annual incentive
awards for senior officers of the Company, an Audit Committee which has au-
thority to recommend annually to the Board of Directors the engagement of the
independent auditors of the Company and review the scope and results of the
audit, the adequacy of the Company's internal accounting controls and the pro-
fessional services furnished by the independent auditors and a Stock Option
Committee which administers the Company's stock option plans.
DIRECTORS COMPENSATION
All directors hold their offices until the next stockholders' meeting of the
Company and until their successors are elected and qualified. Directors who do
not otherwise receive compensation from the Company receive $4,000 per year
and all directors receive reimbursement of travel expenses. The Company has
entered into oral arrangements with C. Leonard Gordon, the Company's Chairman
of the Board, and Dr. Morris Simon, the Company's Scientific Director. See
"Certain Transactions."
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Amended and Restated Certificate of Incorporation limits the li-
ability of directors to the maximum extent permitted by Delaware law. Delaware
law provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except li-
ability for (i) any breach of their duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve inten-
tional
41
<PAGE>
misconduct or a knowing violation of law, (iii) unlawful payments of dividends
or unlawful stock repurchases or redemptions or (iv) any transaction form which
the director derived an improper personal benefit. Such limitation of liability
does not apply to liabilities arising under the federal securities laws and
does not affect the availability of equitable remedies such as injunctive re-
lief or rescission. The Company's bylaws provide that the Company shall indem-
nify its directors and executive officers and may indemnify its other officers
and employees and other agents to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a director
or officer of the Company in which indemnification is required or permitted and
the Company is not aware of any threatened litigation or proceeding that may
result in a claim for such indemnification.
42
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or earned for the fiscal year
ended December 31, 1995 for (i) those persons who served as the Company's Chief
Executive Officer during the year ended December 31, 1995 and (ii) the three
other most highly compensated executive officers of the Company at December 31,
1995 (collectively, the "Named Executive Officers").
1995 SUMMARY COMPENSATION TABLE
----------------------------------
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
UNDERLYING ALL OTHER
SALARY(1) BONUS(1) OPTIONS(#) COMPENSATION
NAME AND PRINCIPAL POSITION -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Thomas M. Tully $45,000 $15,000 -- --
President and Chief Executive
Officer(2)
David A. Chazanovitz 20,000 -- -- --
President, Septal Repair
Division(3)
Theodore I. Pincus 31,000 10,000 52,630 --
Executive Vice President and
Chief Financial Officer(4)
C. Leonard Gordon 112,500 1,000 302,628 $4,000(7)
Chairman of the Board and Former
Chief Executive Officer(5)(6)
</TABLE>
- -------
(1) All four individuals listed were part-time consultants to the Company in
1995.
(2) The present annual base salary is $175,000.
(3) The present annual base salary is $160,000.
(4) The present annual base salary is $160,000.
(5) The present annual rate of compensation as a consultant to the Company is
$135,000.
(6) Does not include income as an "S" Corporation stockholder.
(7) Director's fees.
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning options granted
to the Chief Executive Officer and the Named Executive Officers during the fis-
cal year ended December 31, 1995, including information concerning the poten-
tial realizable value of such options.
-----------------------------------------------
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------
POTENTIAL
PERCENTAGE REALIZABLE VALUE
OF TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS EXERCISE RATES OF STOCK
SECURITIES GRANTED TO OR BASE PRICE
UNDERLYING INDIVIDUALS PRICE PER APPRECIATION FOR
OPTIONS IN FISCAL SHARE EXPIRATION OPTION TERM
GRANTED YEAR ($/SHARE) DATE 5%($) 10%($)
NAME ---------- ----------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas M. Tully(1) -- -- -- -- -- --
David A. Chazanovitz(2) -- -- -- -- -- --
Theodore I. Pincus(3) 26,315 4.9% $2.15 10/13/02 $ 23,000 $ 53,500
26,315 4.9 2.15 12/21/05 35,500 90,000
C. Leonard Gordon 210,525 39.5 2.15 10/13/02 184,000 429,000
</TABLE>
- -------
(1)In February 1996, options to purchase 263,157 shares of Common Stock at
$2.15 per share were granted and in May 1996 options to purchase 116,433 shares
of Common Stock at $6.95 per share were granted.
(2) In February 1996, options to purchase 118,420 shares of Common Stock at
$2.15 per share were granted.
(3) In April 1996, additional options to purchase 39,473 shares of Common Stock
at $2.15 per share were granted.
43
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning the number and
value of securities underlying exercisable and unexercisable stock options as
of the fiscal year ended December 31, 1995 by the Company's Chief Executive Of-
ficer and the Named Executive Officers. Options for 15,789 shares at $.19 per
share were exercised by the Former Chief Executive Officer in September 1995.
There were no other exercises of stock options during the fiscal year ended De-
cember 31, 1995.
--------------------------------------------------
<TABLE>
<CAPTION>
NUMBER NUMBER OF SECURITIES
OF SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE DECEMBER 31, 1995 DECEMBER 31, 1995(4)
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas M. Tully -- -- -- -- -- --
David A. Chazanovitz -- -- -- -- -- --
Theodore I. Pincus -- -- 1,462(1) 51,168(1) -- --
C. Leonard Gordon 15,789 $30,900 198,828(2) 103,800(3) $103,024 --
</TABLE>
- -------
(1) Exercisable and unexercisable options are at $2.15 per share.
(2)Includes 26,315 options to purchase Common Stock at $.76 per share; 65,788
options to purchase Common Stock at $1.14 per share, and 106,725 options to
purchase Common Stock at $2.15 per share.
(3) All at $2.15 per share.
(4)Value is determined by subtracting the exercise price per share from the es-
timated fair market value at December 31, 1995 ($2.15 per share) as determined
by the Board of Directors, and multiplying by the number of shares subject to
the option.
EMPLOYMENT AGREEMENTS
Effective September 1, 1995, Thomas M. Tully became President and Chief Execu-
tive Officer of the Company pursuant to an employment agreement dated February
13, 1996. The agreement is for a term of three years, however, if Mr. Tully is
employed by the Company on June 1, 1998, the term will automatically be ex-
tended until August 31, 1999, unless either party gives three months prior
written notice. Pursuant to his agreement, Mr. Tully receives a salary of
$175,000 the first year until August 31, 1996, $200,000 the second year and af-
ter September 1, 1997, a salary of $250,000 per year. Mr. Tully is also eligi-
ble to receive bonus payments upon the achievement by the Company of certain
specified goals. In addition, upon the closing of the acquisition of the septal
repair technology, Mr. Tully received a lump sum payment of $125,000 and non-
qualified stock options to purchase 263,157 shares of the Company's Common
Stock, which options are exercisable at $2.15 per share. Options to purchase
42,631 shares vested upon execution of the agreement and the remaining options
vest in equal monthly installments over three years, and are accompanied by
certain "piggy-back" registration rights. See "--Options Granted Outside of the
Plans" and "Description of Capital Stock--Registration Rights." The options are
exercisable for a period of ten years after the vesting thereof and become im-
mediately exercisable in the event of a change of control of the Company. If
Mr. Tully's employment is terminated due to his death or disability, the number
of options deemed to be exercisable shall be an amount equal to the number of
options exercisable at the date of termination multiplied by two and the por-
tion of the options due to become exercisable on the first day of the month co-
incident with or next following the date of termination, prorated for the num-
ber of days he was employed during that month, shall become exercisable and all
other unexercisable options shall expire. Mr. Tully will forfeit all
unexercisable options if the Company terminates him either with or without
cause. If the Company terminates Mr. Tully's employment without cause, the Com-
pany will be obligated to continue to pay his annual salary for a period of one
year from termination. Mr. Tully has agreed not to compete with the Company for
a period of one year after he ceases to be employed with the Company. Mr. Tully
has agreed to serve on the Company's Board of Directors upon request of the
Company during the term of his employment agreement.
Effective January 1, 1996, David A. Chazanovitz became President, Septal Repair
Division pursuant to a three-year employment agreement dated February 13, 1996.
Pursuant to his agreement, Mr. Chazanovitz receives a salary of $160,000 the
first year, $175,000 the second year and $185,000 the third year. Mr.
Chazanovitz is also eligible to
44
<PAGE>
receive bonus payments upon the achievement by the Company of certain specified
goals. In connection with his employment, Mr. Chazanovitz received (i) non-
qualified stock options to purchase 92,105 shares of the Company's Common Stock
at an exercise price of $2.15 per share. The options vest in equal monthly in-
stallments over three years, (ii) options to purchase an aggregate of up to
10,526 shares of the Company's Common Stock at an exercise price of $2.15 per
share subject to vesting in the amounts and upon the earlier of (x) the
achievement of certain milestones as described in his employment agreement or
(y) June 1, 1998, and (iii) options to purchase an aggregate of 15,789 shares
of the Company's Common Stock at an exercise price of $2.15 per share subject
to vesting in the amounts and upon the earlier of (x) the achievement of cer-
tain milestones as described in his employment agreement or (y) December 31,
2000. See "--Options Granted Outside of the Plans." The options are exercisable
for a period of ten years after the vesting thereof and become immediately ex-
ercisable in the event of a change of control of the Company. If Mr.
Chazanovitz' employment is terminated due to his death or disability, the por-
tion of the options due to become exercisable on the first day of the month co-
incident with or next following the date of termination, prorated for the num-
ber of days he was employed during the month, shall become exercisable and all
other unexercisable options shall expire. Mr. Chazanovitz will forfeit all
unexercisable options if the Company terminates his employment with or without
cause. If the Company terminates Mr. Chazanovitz' employment without cause, the
Company will be obligated to continue to pay his annual salary for a period of
six months from termination. Mr. Chazanovitz has agreed not to compete with the
Company for a period of one year after he ceases to be employed by the Company.
Effective May 1996, Theodore I. Pincus became Executive Vice President and
Chief Financial Officer pursuant to a three-year employment agreement. Pursuant
to his employment agreement, Mr. Pincus receives a salary of $160,000 the first
year, $175,000 the second year and $185,000 the third year. In addition, Mr.
Pincus receives living expenses of $35,000 the first year and $20,000 the sec-
ond year, in lieu of receiving the Company's relocation benefits package. Mr.
Pincus is also eligible to receive bonus payments upon the achievement by the
Company of certain specified goals. In connection with his employment, Mr. Pin-
cus received non-qualified stock options to purchase 39,473 shares of Common
Stock of the Company at an exercise price of $2.15 per share. The options vest
in equal monthly installments over three years. See "--Options Granted Outside
of the Plans." The options are exercisable for a period of ten years after the
vesting thereof and become immediately exercisable in the event of a change of
control of the Company. If Mr. Pincus' employment is terminated due to his
death or disability, the portion of the options due to become exercisable on
the first day of the month coincident with or next following the date of termi-
nation, prorated for the number of days he was employed during that month,
shall become exercisable and all other unexercisable options shall expire. Mr.
Pincus will forfeit all unexercisable options if the Company terminates his em-
ployment either with or without cause. If the Company terminates Mr. Pincus'
employment without cause, the Company will be obligated to continue to pay his
annual salary for a period of six months after termination. The Company loaned
Mr. Pincus $65,000, which loan will be forgiven over the next three years; pro-
vided, however, that (i) if Mr. Pincus is terminated for cause (as defined in
his employment agreement) the then-outstanding loan together with interest at
prime plus one percent shall become immediately due and payable, or (ii) if Mr.
Pincus is terminated for any other reason, the then-outstanding loan together
with interest at prime plus one percent shall be payable monthly with a final
payment due on April 30, 1999. Mr. Pincus has agreed not to compete with the
Company for a period of one year after he ceases to be employed by the Company.
The Company has entered into employment agreements with each of Stephen
Kleshinski, Vice President of Research and Development and Jason Harry, Ph.D.,
Vice President of Research Engineering. The employment agreements provide for
terms of five years commencing on June 1, 1993 and for three years commencing
July 1, 1994, respectively. Mr. Kleshinski has agreed for a period of 18 months
following termination of his employment, and Dr. Harry has agreed for a period
of 12 months following termination of his employment, not to compete with the
Company and they each have agreed to assign to the Company any inventions he
may have. The Company is obligated, however, to pay certain royalties to
Messrs. Kleshinski and Harry based on sales or licenses of products where ei-
ther Mr. Kleshinski or Dr. Harry, as the case may be, was the sole or joint in-
ventor. See "Business--Licensed Technology; Royalty Obligations."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1995, Mr. Gordon served as a member
of the Board of Directors of the Company and participated in the deliberations
of the Board of Directors regarding executive compensation during such period,
including deliberations regarding the determination of his own compensation.
With the exception of Mr.
45
<PAGE>
Gordon who is a member of the Compensation Committee of Biofield Corp., no ex-
ecutive officer of the Company serves or served on the Compensation Committee
of another entity and no executive officer of the Company serves or served as a
director of another entity who has or had an executive officer serving on the
Board of Directors of the Company.
STOCK OPTION PLANS
The 1994 Plan
The Nitinol Medical Technologies, Inc. 1994 Stock Option Plan (the "1994 Plan")
provides for the granting of stock options to acquire a maximum of 315,789
shares of Common Stock. As of June 15, 1996, no shares had been issued upon the
exercise of options granted under the 1994 Plan, 300,789 shares were subject to
outstanding options and 15,000 shares remained available for future grant. The
1994 Plan is administered by the Board of Directors; and, unless previously
terminated, shall terminate on May 31, 2004.
Under the 1994 Plan, options may be granted to employees, directors and consul-
tants, at the discretion of the Board of Directors. Incentive stock options
("ISOs") may only be granted to individuals who, at the time of the grant, are
employees or directors of the Company. Non-qualified stock options ("NSOs") may
be granted to employees, directors or consultants. The exercise price of ISOs
and NSOs shall be established by the Board of Directors, provided that the ex-
ercise price must be at least equal to the fair market value per share at the
date of the grant. However, if ISOs are granted to persons owning, directly or
indirectly, at the time of the option grant, over 10% of the total combined
voting power of all classes of stock of the Company, the 1994 Plan provides
that the exercise price for such ISOs shall not be less than 110% of fair mar-
ket value per share at the date of the grant. Each ISO or NSO must expire
within ten years of the date of grant or at such earlier time as the Board of
Directors shall determine. Options are nontransferable, except by will or the
laws of descent and distribution. The amount and exercise price of options
granted under the 1994 Plan may be adjusted, at the discretion of the Board of
Directors, in the event of any change in the Company's capitalization or in the
event of any merger, consolidation or corporate reorganization where the Com-
pany is the surviving corporation.
Any unexercised options held by a grantee whose relationship with the Company
ceases for any reason (other than retirement, death or disability) shall imme-
diately terminate. Upon cessation of a grantee's relationship with the Company
resulting from retirement, disability or death, the period during which the
grantee may exercise options shall not exceed (i) one year from the date of
termination in the case of death, and (ii) three months from the date of termi-
nation in the case of retirement or disability. However, in no event shall the
exercise period extend beyond the option term. Unexercised options shall termi-
nate upon the dissolution or liquidation of the Company or in the event of a
merger, consolidation or any corporate reorganization where the Company is not
the surviving corporation.
1996 Plan
The Nitinol Medical Technologies, Inc. 1996 Stock Option Plan (the "1996 Plan")
was adopted by the Board of Directors in June 1996, subject to approval by the
Company's stockholders.
The purpose of the 1996 Plan is to attract and retain key personnel. The 1996
Plan provides for the grant of options to acquire a maximum of 600,000 shares
of the Common Stock. As of the date hereof, no shares are subject to outstand-
ing options. The 1996 Plan permits the granting of ISOs or NSOs at the discre-
tion of the administrator of the 1996 Plan (the "Plan Administrator"). The
Board of Directors has appointed a Stock Option Committee of the Board as the
Plan Administrator. Subject to the terms of the 1996 Plan, the Plan Administra-
tor determines the terms and conditions of options granted under the 1996 Plan.
Options granted under the 1996 Plan are evidenced by written agreements which
contain such terms, conditions, limitations and restrictions as the Plan Admin-
istrator deems advisable and which are not inconsistent with the 1996 Plan.
ISOs may be granted to individuals who, at the time of grant, are employees of
the Company or its affiliates. NSOs may be granted to directors, employees,
consultants and other agents of the Company or its affiliates. The 1996 Plan
provides that the Plan Administrator must establish an exercise price for ISOs
that is not less than the fair market value per share of the Common Stock at
the date of grant and an exercise price for NSOs of not less than 85% of such
fair market value. Each ISO must expire with ten years of the date of grant.
However, if ISOs are granted to a person owning more than 10% of the voting
stock of the Company, the 1996 Plan provides that the exercise price may not be
less than 110% of the fair market value per share at the
46
<PAGE>
date of grant and that the term of such ISOs may not exceed five years. The
Plan Administrator has the authority to establish vesting periods for options
granted under the 1996 Plan, or to grant options which are fully vested at the
time of grant.
An optionee whose relationship with the Company or any related corporation
ceases for any reason (other than termination for cause, death or total dis-
ability, as such terms are defined in the 1996 Plan) may exercise options in
the three-month period following such cessation (unless such options terminate
or expire sooner by their terms), or in such longer period determined by the
Plan Administrator in the case of NSOs. Unexercised options granted under the
1996 Plan terminate upon a merger (other than a stock merger), reorganization
or liquidation of the Company; however, immediately prior to such a transac-
tion, optionees may exercise such options without regard to whether the
vesting requirements have been satisfied.
Options granted under the 1996 Plan covert into options to purchase shares of
another corporation involved in a stock merger with the Company, unless the
Company and such other corporation, in their sole discretion, determine that
such options terminate. Such converted options become fully vested without re-
gard to whether the vesting requirements in the option agreement for such op-
tions have been satisfied, unless the Board of Directors determines otherwise.
The option exercise price may be paid in full at the time the notice of exer-
cise of the option is delivered to the Company and must be paid in cash, by
bank certified or cashier's check or by personal check. Options are
nontransferable with certain exceptions. The Board has certain rights to sus-
pend, amend or terminate the 1996 Plan provided stockholder approval is ob-
tained.
The 1996 Directors' Stock Plan
The Nitinol Medical Technologies, Inc. 1996 Stock Option Plan for Non-Employee
Directors (the "1996 Directors' Stock Plan") was adopted by the Company's
Board of Directors in June 1996, subject to approval by the Company's stock-
holders. The 1996 Directors' Stock Plan is administered by the Company's Board
of Directors. Subject to the provisions of the 1996 Directors' Stock Plan, the
Board has the authority to interpret the plan and apply its provisions and to
adopt, amend or rescind rules, procedures and forms relating to it. The 1996
Directors' Stock Plan provides for the automatic grant of nonstatutory stock
options to purchase shares of Common Stock to directors of the Company who are
not employees of the Company and do not otherwise receive compensation from
the Company.
Under the 1996 Directors' Stock Plan, 150,000 shares of Common Stock have been
reserved for issuance of options. If any options granted under the 1996 Direc-
tors' Stock Plan shall for any reason expire or be cancelled or otherwise ter-
minated without having been exercised in full, the shares allocable to the un-
exercised portion of such options shall again become available. The 1996 Di-
rectors' Stock Plan provides for the automatic grant of options to eligible
directors. Each eligible director serving on the Board on the effective date
of the 1996 Directors' Stock Plan automatically will receive an option to pur-
chase 10,000 shares of Common Stock at the current market price on the date of
grant, subject to vesting in equal monthly installments over a period of three
years. In the future, each nonemployee director who joins the Board will auto-
matically receive an initial grant of options to purchase 10,000 shares of
Common Stock at an exercise price equal to the fair market value per share at
the date of grant, subject to vesting in equal monthly installments over a
three year period. In each year other than the year in which a director re-
ceives an initial grant of options, such director will automatically receive
options to purchase 2,500 shares of Common Stock which shall become fully-
vested six months after the date of grant.
The term of each option granted under the 1996 Directors' Stock Plan is 10
years. Options granted under the 1996 Directors' Stock Plan must be exercised
prior to the earlier of the scheduled expiration date or the date one year
following the date of termination of service.
The exercise price of each option under the 1996 Directors' Stock Plan must be
equal to the fair market value of the Common Stock subject to the option on
the date of the grant. The exercise price of each option is payable upon exer-
cise in cash. The 1996 Directors' Stock Plan also permits an optionee to pay
the exercise price of an option by delivery of an irrevocable direction to
pledge the optionee's shares to a securities broker or lender approved by the
Company as security for a loan and to deliver all or part of the loan proceeds
to the Company in payment of all or
47
<PAGE>
part of the exercise price and any withholding taxes. Unless sooner terminated
by the Board, the 1996 Directors' Stock Plan will terminate in June 2006, and
no further options may be granted pursuant to the plan following the termina-
tion date.
OPTIONS GRANTED OUTSIDE OF THE PLANS
In addition to the ISOs and NSOs which may be granted under the 1994 Plan, as
at June 15, 1996 the Company has granted options to purchase an aggregate of
1,400,635 shares outside of the 1994 Plan, to certain of its employees, consul-
tants, executive officers and directors, of which 516,747 are vested and the
remainder of which vest upon the passage of time or the achievement of certain
milestones by the Company. Additionally, the Company has granted certain
"piggy-back" registration rights with respect to the shares underlying such op-
tions. See "Description of Capital Stock--Registration Rights."
401 (K) PROFIT SHARING PLAN & TRUST
In January 1996, the Company adopted a 401 (k) Profit Sharing Plan & Trust (the
"401 (k) Plan"), a tax-qualified plan covering all of its employees who are at
least 18 years of age and have completed three months of service with the Com-
pany. Each employee may elect to reduce his or her current compensation by up
to 15%, subject to the statutory limit (a maximum of $9,500 in 1996) and have
the amount of the reduction contributed to the 401 (k) Plan. The 401 (k) Plan
provides that the Company may, as determined from time to time by the Board of
Directors, provide a matching contribution. In addition, the Company may con-
tribute an additional amount to the 401 (k) Plan, as determined by the Board of
Directors, which will be allocated based on the proportion of the employee's
compensation for the plan year to the aggregate compensation for the plan year
for all eligible employees. The Company has made no contributions to date.
All employee contributions to the 401 (k) Plan are fully vested at all times.
Upon termination of employment, a participant may elect a lump sum distribution
or, if his or her total amount in the 401 (k) Plan is greater than $3,500, may
elect to receive benefits as retirement income.
48
<PAGE>
CERTAIN TRANSACTIONS
In February, 1996, the Company entered into an Agreement and Plan of Merger
pursuant to which InnerVentions, Inc., a wholly-owned subsidiary of Fletcher
Spaght, Inc. and the exclusive licensee of the technology relating to the
CardioSeal Septal Occluder, was merged with and into NMT Heart, Inc., a wholly-
owned subsidiary of the Company. Pursuant to the Agreement and Plan of Merger,
the Company acquired all the existing development, manufacturing and testing
equipment, patent licenses, know-how and documentation relating to the manufac-
ture of the CardioSeal Septal Occluder, which had been originally developed by
Bard, donated to Children's Hospital of Boston, then licensed to InnerVentions.
In connection with the merger, Fletcher Spaght, Inc. received 514,651 shares of
Common Stock of NMT and warrants to purchase 111,818 shares of Common Stock at
an exercise price of $2.15 per share, which shares and warrants are accompanied
by certain "piggy-back" registration rights. See "Description of Capital
Stock--Registration Rights." NMT has also agreed to use its best efforts to
nominate a designee of Fletcher Spaght, Inc. as a director of NMT. Certain of
the Company's existing stockholders have agreed to vote their shares of Common
Stock in favor of such a designee.
In February 1996, the Company sold an aggregate of 3,787,104 shares of Convert-
ible Preferred Stock for an aggregate purchase price of $8,500,000 pursuant to
the Convertible Stock Offering. Upon the completion of the Offering, the out-
standing shares of Convertible Preferred Stock will automatically be converted
into units, consisting of an aggregate of 1,993,212 shares of Common Stock and
37,871 shares of the Company's Redeemable Preferred Stock. The Redeemable Pre-
ferred Stock will be redeemed by the Company upon completion of the Offering at
a redemption price of $4,250,000 plus accrued dividends of approximately
$150,000 thereon. See "Use of Proceeds." In connection with the Convertible
Stock Offering, the Company entered into a Registration Rights Agreement with
the purchasers of the Convertible Preferred Stock, granting to such purchasers
certain demand and "piggy-back" registrations rights. See "Description of Capi-
tal Stock -- Registration Rights." Whitney Equity Partners, L.P. and Boston
Scientific purchased 1,829,065 and 117,247 shares (on a common equivalent ba-
sis), respectively, in the Convertible Stock Offering. Michael C. Brooks and
Jeffrey R. Jay, M.D., each a Director of the Company, are each a General Part-
ner of J.H. Whitney & Co., an affiliate of Whitney Equity Partners L.P.
In connection with the foregoing transactions, in February 1996, the Company
also entered into a Termination Agreement with its existing stockholders termi-
nating a Stockholders Agreement dated as of April 30, 1987, as amended. Pursu-
ant to the Termination Agreement, the Company granted the stockholders certain
"piggy-back" registration rights. See "Description of Capital Stock -- Regis-
tration Rights."
In October 1995, C. Leonard Gordon, the Chairman of the Board of the Company,
received a non-qualified option to purchase 184,210 shares of the Company's
Common Stock at an exercise price of $2.15 per share. Of these options, (i)
105,263 vested immediately, (ii) 39,473 options will vest over three years com-
mencing with the closing of the acquisition in February 1996 of InnerVentions;
and (iii) 39,473 options will vest over three years commencing with the closing
of the Convertible Stock Offering which occurred in February 1996. In May 1994,
in connection with Mr. Gordon's efforts in negotiating the exclusive license
agreement with Boston Scientific relating to the Company's stent technology,
Mr. Gordon received (i) a non-qualified stock option to purchase 52,631 shares
of the Company's Common Stock at an exercise price of $1.14 to vest one year
from the date of issuance, and (ii) $100,000 paid from 5% of payments received
by the Company under the exclusive license agreement with Boston Scientific.
Mr. Gordon has entered into an oral arrangement with the Company whereby Mr.
Gordon will provide certain executive services as are required by the Company
and will be compensated for such services rendered in an amount not to exceed
$135,000 per year. The services Mr. Gordon performs for the Company include
serving as Chairman of the Board and consulting upon various aspects of the
Company's business including certain contractual arrangements. The Company be-
lieves the terms of the arrangement are no less favorable to the Company than
terms that it could have obtained from an unaffiliated third party. See Note 13
of Notes to the Consolidated Financial Statements.
In April, 1987 the Company entered into a Technology Purchase Agreement with
Morris Simon, M.D. pursuant to which the Company has agreed to pay to Dr. Simon
certain royalty payments based on sales of products using the technology in-
vented by Dr. Simon relating to the SNF. Dr. Simon assigned a percentage of his
royalty payments to Beth Israel Hospital Association. See "Business--Licensed
Technology; Royalty Obligations." Dr. Simon has entered into an oral arrange-
ment with the Company whereby Dr. Simon will provide consulting services as are
required by the
49
<PAGE>
Company and will be compensated for such services rendered in an amount not to
exceed $100,000 per year. Pursuant to this arrangement, Dr. Simon serves as
Scientific Director and provides related consulting services to the Company.
The Company believes the terms of the arrangement are no less favorable to the
Company than terms that it could have obtained from an unaffiliated third par-
ty. See Note 13 of Notes to the Consolidated Financial Statements.
Pursuant to the Company's employment agreements with Messrs. Kleshinski and
Harry, respectively, the Company has agreed to pay certain royalties to Messrs.
Kleshinski and Harry based on sales or licenses of products where either Mr.
Kleshinski or Dr. Harry, as the case may be, was the sole or joint inventor.
See "Business--Licensed Technology; Royalty Obligations" and Note 8(d) of Notes
to the Consolidated Financial Statements.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of May 31, 1996 and as adjusted to reflect the
sale by the Company of the Common Stock offered hereby, by (i) each executive
officer and Director, (ii) all Directors and executive officers as a group and
(iii) each person or group known to the Company to be the beneficial owner of
more than 5% of the Common Stock.
-------------------------
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)(2)
SHARES
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNED(1) OFFERING OFFERING
OWNER ------------ ------------ ------------
<S> <C> <C> <C>
Whitney Equity Partners, L.P. 1,829,065 29.12% 20.36%
c/o J.H. Whitney & Co.
177 Broad Street
Stamford, CT 06901
C. Leonard Gordon (3) 683,215 10.52% 7.43%
c/o Immunotherapy Inc.
360 Lexington Avenue
New York, NY 10017
--------- ------------ ------------
R. John Fletcher (4)
c/o Fletcher Spaght, Inc.
222 Berkeley Street
Boston, MA 02116-3761
Fletcher Spaght, Inc. (4) 626,469 9.80% 6.89%
c/o Fletcher Spaght, Inc.
222 Berkeley Street
Boston, MA 02116-3761
Jack Reinstein (5) 623,744 9.86% 6.91%
7779 Willow Glen Road
Los Angeles, CA 90046
Morris Simon, M.D. (6) 88,815 1.39% *
c/o Nitinol Medical Technolo-
gies, Inc.
263 Summer Street
Boston, MA 02210
--------- ------------ ------------
Michael C. Brooks (7)
c/o J.H. Whitney & Co.
177 Broad Street
Stamford, CT 06901
Robert G. Brown (8) 94,342 1.50% 1.05%
217 Echo Drive
Jupiter, FL 33458
--------- ------------ ------------
Jeffrey R. Jay, M.D. (9)
c/o J.H. Whitney & Co.
177 Broad Street
Stamford, CT 06901
David A. Chazanovitz (10) 12,792 * *
c/o Nitinol Medical Technolo-
gies, Inc.
263 Summer Street
Boston, MA 02210
Theodore I. Pincus (11) 13,888 * *
c/o Nitinol Medical Technolo-
gies, Inc.
263 Summer Street
Boston, MA 02210
Thomas M. Tully (12) 87,121 1.37% *
c/o Nitinol Medical Technolo-
gies, Inc.
263 Summer Street
Boston, MA 02210
All directors and executive 1,606,646 23.50% 16.85%
officers of the Company as
a group (9 persons) (13)
</TABLE>
- -------
* Less than one percent.
51
<PAGE>
(1) Except as indicated in the footnotes to this table, based on information
provided by such persons, the persons named in the table above have sole
voting and investment power with respect to all shares of Common Stock shown
as beneficially owned by them.
(2) Percentage of ownership before the Offering is based on 6,281,975 shares of
Common Stock outstanding as of May 31, 1996. For each person or group shares
of Common Stock subject to stock options that are exercisable within 60 days
of May 31, 1996 are deemed outstanding for computing the percentage of such
person or group.
(3) Mr. Gordon's shares are all owned jointly with his wife. Includes 122,806
options to purchase Common Stock at $2.15 per share; 65,789 options to pur-
chase Common Stock at $1.14 per share, and 26,315 options to purchase Common
Stock at $.76 per share. Mr. Gordon disclaims beneficial ownership in an ag-
gregate of 237,870 shares owned by, or in trust for, his children and grand-
children.
(4) An aggregate of 514,651 shares and 111,818 warrants to purchase Common
Stock at $2.15 per share are held by Fletcher Spaght, Inc., of which Mr.
Fletcher is the founder, Chief Executive Officer and a principal stockhold-
er. Includes 28,489 warrants to purchase Common Stock at $2.15 per share
which may be transferred to Mr. Chazanovitz under certain conditions pursu-
ant to an agreement between Mr. Chazanovitz and Fletcher Spaght, Inc. Mr.
Fletcher is a director of NMT.
(5) Includes 6,578 options to purchase Common Stock at $2.15 per share; 13,157
options to purchase Common Stock at $1.14 per share, and 26,315 options to
purchase Common Stock at $.76 per share and 104,008 shares owned by Syner-
gistic Associates, Inc. Money Purchase Pension Plan of which Mr. Reinstein
is sole trustee. Mr. Reinstein disclaims beneficial ownership of 190,315
shares owned by his children and grandchildren.
(6) Includes 9,868 options to purchase Common Stock at $2.15 per share; 52,631
options to purchase Common Stock at $1.14 per share, and 26,315 options to
purchase Common Stock at $.76 per share. Dr. Simon disclaims beneficial own-
ership of 655,324 shares owned by his wife and children.
(7) Mr. Brooks is a General Partner of J.H. Whitney & Co., an affiliate of
Whitney Equity Partners, L.P. Mr. Brooks disclaims beneficial ownership of
the shares held by Whitney Equity Partners, L.P., except to the extent of
his proportionate interest.
(8) Includes 11,184 options to purchase Common Stock at $2.15 per share and
13,157 options at $1.14 per share.
(9) Dr. Jay is a General Partner of J.H. Whitney & Co., an affiliate of Whitney
Equity Partners, L.P. Dr. Jay disclaims beneficial ownership of the shares
held by Whitney Equity Partners, L.P., except to the extent of his propor-
tionate interest.
(10) Represents 12,792 options to purchase Common Stock at $2.15 per share.
Does not include 28,489 warrants to purchase Common Stock at $2.15 per share
which may be transferred to Mr. Chazanovitz under certain conditions pursu-
ant to an agreement between Mr. Chazanovitz and Fletcher Spaght, Inc.
(11) Represents 13,888 options to purchase Common Stock at $2.15 per share.
(12) Represents 80,653 options to purchase Common Stock at $2.15 per share and
6,468 options at $6.95 per share.
(13) Includes 6,468 options to purchase Common Stock at $6.95 per share;
363,012 options to purchase Common Stock at $2.15 per share; 131,578 options
to purchase Common Stock at $1.14 per share and 52,631 options to purchase
Common Stock at $.76 per share.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $.001 par value, 3,800,000 shares of Convertible Preferred Stock,
$.001 par value, 38,000 Redeemable Preferred Stock, $.001 par value and
3,000,000 shares of Preferred Stock, $0.001 par value.
COMMON STOCK
As of June 15, 1996, there were 6,285,922 shares of Common Stock outstanding
and held of record by approximately 74 stockholders. There will be 8,985,922
shares of Common Stock outstanding after giving effect to the sale of the
shares of Common Stock offered hereby.
Holders of Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of the stockholders, and stockholders have
no right to cumulate their votes in the election of directors. Subject to pref-
erences that may be applicable to any outstanding shares of preferred stock,
holders of Common Stock are entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company, hold-
ers of Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any outstanding shares of
preferred stock. Holders of Common Stock have no preemptive rights and no right
to convert their Common Stock into any other securities. There are no redemp-
tion or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and all shares of Common Stock to be outstanding
upon completion of the Offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of the Offering, all outstanding shares of Convertible Pre-
ferred Stock of the Company will convert automatically into shares of Common
Stock and Redeemable Preferred Stock, which shall be redeemed with a portion of
the net proceeds of the Offering. See "Use of Proceeds." Accordingly, no shares
of preferred stock will be outstanding immediately after the closing of the Of-
fering. The Board of Directors has the authority, without further action by the
stockholders, to issue shares 3,000,000 of preferred stock in one or more se-
ries and to fix the designations, powers (including voting powers, if any)
preferences and relative participating, optional, conversion and other special
rights, and the qualifications, limitations and restrictions to each series.
This provision may be deemed to have a potential anti-takeover effect and the
issuance of preferred stock in accordance with such provision may delay or pre-
vent a change of control of the Company. In addition, although it presently has
no intention to do so, the Board of Directors, without stockholder approval,
could issue preferred stock with voting and conversion rights which could ad-
versely affect the voting power of the holders of Common Stock.
REGISTRATION RIGHTS
In connection with the Convertible Stock Offering, the purchasers of the Con-
vertible Preferred Stock were granted certain registration rights which pertain
to the shares of Common Stock to be issued upon the Conversion. At any time af-
ter six months following the closing of the Offering, the Company is obligated
to effect three demand registrations (subject to certain limitations) at the
Company's expense upon the request of holders owning 25% or more of the aggre-
gate number of shares of Common Stock into which shares of Convertible Pre-
ferred Stock have been converted. In addition, the Convertible Preferred Stock
purchasers were granted "piggy-back" registration rights immediately (subject
to certain limitations) at the Company's expense, as part of a registration of
the Company's securities for its own account or the account of others. In addi-
tion, Junewicz & Co., Inc. and Furman Selz LLC, in connection with the Convert-
ible Stock offering, were issued warrants as ("Private Placement Agent War-
rants") to purchase 99,660 and 64,779 shares of Common Stock, respectively. The
Private Placement Agent Warrants grant the holders thereof "piggy-back" regis-
tration rights as part of a registration of the Company's securities for its
own account or the account of others which are exercisable at any time after
the closing of the Offering. The holders of the Private Placement Agent War-
rants have agreed not to dispose of such warrants for a period of 180 days af-
ter the date of this Prospectus.
53
<PAGE>
Furthermore, whenever the Company proposes to register any of its securities
under the Securities Act, either for its own account or the account of others,
the Company is required each such time to notify Thomas M. Tully, the Company's
President and Chief Executive Officer, Fletcher Spaght, Inc. and Lloyd A.
Marks, M.D. and to include therein their shares and shares transferred by them
to and for the benefit of their family members or affiliates. The Company is
required to bear the expenses of such "piggy-back" registration rights. Such
rights are subject to the right of the underwriter(s) of the Offering to limit
the number of shares being registered and other terms and conditions. The Com-
pany has also granted similar "piggy-back" registration rights to certain of
its existing stockholders in consideration for their agreement to terminate
their Shareholders Agreement with the Company.
The existence of the registration rights described above may involve added
costs and complexity in the event the Company desires to register shares of
Common Stock in the future and could have an adverse effect on the market price
of Common Stock.
No shares of Common Stock are being registered on behalf of the Company's
securityholders in connection with the Offering.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The Company's Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws provide broadly for indemnification of the officers and direc-
tors of the Company. In addition, the Amended and Restated Certificate of In-
corporation provides that, to the fullest extent permitted by Delaware law, no
director shall be personally liable to the Company or its stockholders for mon-
etary damages for any breach of fiduciary duty by such director in his capacity
as a director.
DELAWARE ANTI-TAKEOVER STATUTE
The Company is subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless (with certain exceptions) the business combi-
nation or the transaction in which the person became an interested stockholder
is approved in a prescribed manner. Generally, a "business combination" in-
cludes a merger, asset or stock sale, or other transaction resulting in a fi-
nancial benefit to the stockholder. Generally, an "interested stockholder" is a
person who, together with affiliates and associates, owns or (within three
years prior, did own) 15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer and Trust Company will act as transfer agent and regis-
trar for the Common Stock.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have a total of 8,985,922
shares of Common Stock outstanding (9,390,922 shares if the Underwriters' over-
allotment option is exercised in full). Of these shares, the 2,700,000 shares
of Common Stock offered hereby (3,105,000 shares if the Underwriters' over-al-
lotment option is exercised in full) will be freely tradable without restric-
tion or registration under the Securities Act, by persons other than affiliates
of the Company. The remaining 6,285,922 shares of Common Stock outstanding are
"restricted shares" as that term is defined by Rule 144 promulgated under the
Securities Act. Under Rule 144 (and subject to the conditions thereof) approxi-
mately 3,605,691 shares of the restricted shares will become eligible for sale
upon completion of the Offering. The Company's officers and directors and cer-
tain other stockholders of the Company (who in the aggregate will hold
6,248,499 shares of the restricted securities upon completion of the Offering)
have agreed to enter into lock-up agreements which provide that they will not
directly or indirectly, offer, sell, offer to sell, grant any option to pur-
chase or otherwise sell or dispose of any shares of Common Stock or other capi-
tal stock of the Company, or any securities convertible into, exercisable, or
exchangeable for, any shares of Common Stock or other capital stock of the Com-
pany without the prior written consent of J.P. Morgan Securities, Inc. on be-
half of the Underwriters, for a period of 180 days from the date of this Pro-
spectus. See "Underwriting."
As of June 15, 1996, options to purchase a total of 1,701,424 shares of Common
Stock were outstanding with a weighted average exercise price of $2.51 per
share, of which options to purchase 667,314 shares of Common Stock were exer-
cisable. In addition, as of such date, an additional 15,000 shares of Common
Stock were available for future option grants under the 1994 Plan. In June
1996, the Company adopted, subject to stockholder approval, the 1996 Plan and
the 1996 Directors' Stock Plan, which include 600,000 and 150,000 shares avail-
able for future option grants, respectively. No options have been granted under
the 1996 Plan. Upon adoption of the 1996 Directors' Stock Plan, options to pur-
chase 10,000 shares of Common Stock at the initial public offering price per
share will be granted to four nonemployee directors, subject to stockholder ap-
proval of the plan. As of June 15, 1996, Common Stock purchase warrants to pur-
chase a total of 281,522 shares of Common Stock were outstanding with a
weighted average price of $3.34 per share. The Company's officers, directors
and certain other stockholders of the Company holding an aggregate of 1,350,587
shares issuable upon the exercise of options and warrants have agreed to enter
into lock-up agreements. Rule 701 under the Securities Act provides that, be-
ginning 90 days after the date of this Prospectus, shares of Common Stock ac-
quired on the exercise of outstanding options may be resold subject to certain
provisions of Rule 144. The Company intends to file registration statements un-
der the Securities Act to register shares of Common Stock included in its op-
tion plans, shares of Common Stock subject to outstanding stock options granted
outside of such plans and shares of Common Stock issuable upon the exercise of
certain warrants. See "Description of Capital Stock--Registration Rights."
55
<PAGE>
Underwriting
The Underwriters named below (the "Underwriters"), for whom J.P . Morgan
Securities Inc., CS First Boston Corporation and Jefferies & Company, Inc. are
acting as representatives (the "Representatives"), have severally agreed,
subject to the terms and conditions set forth in the underwriting agreement
among the Company and the Representatives (the "Underwriting Agreement"), to
purchase from the Company, and the Company has agreed to sell to the
Underwriters, the respective number of shares of Common Stock set forth
opposite their names below:
- --------
Underwriters Number of Shares
----------------
J.P . Morgan Securities Inc. .
CS First Boston Corporation...
Jefferies & Company, Inc. ....
----------------
Total......................... 2,700,000
================
The nature of the Underwriters' obligations under the Underwriting Agreement is
such that all of the Common Stock being offered, excluding shares covered by
the over-allotment option granted to the Underwriters, must be purchased if any
are purchased.
The Representatives have advised the Company that the several Underwriters
propose to offer the Common Stock to the public initially at the public
offering price set forth on the cover page of this Prospectus and may offer the
Common Stock to selected dealers at such price less a concession not to exceed
$ per share. The Underwriters may allow, and such dealers may reallow, a
concession to other dealers not in excess of $ per share. After the public
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives.
The Company has granted the Underwriters an option, exercisable within 30 days
after the date of this Prospectus, to purchase up to an additional 405,000
shares of Common Stock from the Company at the same price per share to be paid
by the Underwriters for the other shares offered hereby. If the Underwriters
purchase such additional shares pursuant to the option, each of the
Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may exercise the option only to cover over-allotments, if any,
made in connection with the distribution of Common Stock offered hereby.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price has been determined by negotiations between
the Company and the Representatives. Among the factors considered in
determining the initial offering price include the prevailing market
conditions, the market valuations of certain publicly traded companies, revenue
and earnings of the Company and comparable companies in recent periods,
estimates of the business potential and prospects of the Company, the
experience of the Company's management and the position of the Company in its
industry.
The Representatives have informed the Company that the Underwriters will not
confirm, without customer authorization, sales to their customer accounts as to
which they have discretionary trading power.
The Company and its directors and executive officers and certain stockholders
have agreed not to offer, sell or otherwise dispose of, any Common Stock or any
securities convertible into Common Stock or register for sale under the
Securities Act any Common Stock, for a period of 180 days after the date of
this Prospectus without the prior written consent of J.P . Morgan Securities
Inc. See "Shares Eligible for Future Sale."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
56
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New
York. The Underwriters have been represented by Cravath, Swaine & Moore, New
York, New York.
EXPERTS
The Consolidated Financial Statements of the Company included in this Prospec-
tus and elsewhere in the Registration Statement have been audited by Arthur An-
dersen LLP, independent public accountants, as stated in their report with re-
spect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
The statements in the Prospectus under the captions "Risk Factors--Dependence
on Patents and Proprietary Technology," "Business--Patents and Proprietary
Technology," "Business--Licensed Technology; Royalty Obligations" and other
references herein to intellectual property have been reviewed and approved by
Sixbey, Friedman, Leedom & Ferguson, patent counsel for the Company, as experts
on such matters and are included herein in reliance upon that review and ap-
proval.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the "Commis-
sion"), a Registration Statement on Form S-1 (together with all amendments, ex-
hibits, schedules and supplements thereto, the "Registration Statement") under
the Securities Act with respect to the shares of Common Stock being offered
hereby. This Prospectus, which forms a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the shares of Common Stock
offered hereby, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other docu-
ment are not necessarily complete and, where such contract or other document is
an exhibit to the Registration Statement, each such statement is qualified in
all respects by the provisions in such exhibit, to which reference is hereby
made. Copies of the Registration Statement may be examined without charge at
the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 and the Commission's Regional Offices located at
Seven World Trade Center, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the Registration Statement can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C., 20549,
upon payment of certain fees prescribed by the Commission.
57
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March
31, 1996 (Unaudited) F-3
Consolidated Statements of Operations for the Years Ended December 31,
1993, 1994 and 1995 and for the Three Months Ended March 31, 1995 and
1996 (Unaudited) F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1993, 1994 and 1995, and for the Three Months Ended
March 31, 1996 (Unaudited) F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 and for the Three Months Ended March 31, 1995 and
1996 (Unaudited) F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
Upon the consummation of the reverse stock split discussed in Note 9(b) to the
Nitinol Medical Technologies, Inc. Consolidated Financial Statements, we expect
to be in the position to render the following audit report.
Arthur Andersen LLP
Boston, Massachusetts
June 18, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nitinol Medical Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Nitinol Medical
Technologies, Inc. (a Delaware corporation) and subsidiary as of December 31,
1994 and 1995, and the related consolidated statements of operations, stock-
holders' equity (deficit) and cash flows for each of the three years in the pe-
riod ended December 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nitinol Medical Technologies,
Inc. and subsidiary as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Boston, Massachusetts
March 21, 1996 (except with
respect to the matter dis-
cussed in Note 9(b), as to
which the date is , 1996)
F-2
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
----------------------------
<TABLE>
<CAPTION>
AT
AT DECEMBER 31, MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 715,400 $ 533,247 $ 6,884,019
Accounts receivable 84,796 323,217 623,256
Inventories 151,114 208,061 220,511
Prepaid expenses 10,814 20,326 48,952
Deferred tax asset -- 143,000 143,000
----------- ----------- -----------
Total current assets 962,124 1,227,851 7,919,738
----------- ----------- -----------
Property and equipment, at cost:
Laboratory and computer equipment 337,135 393,171 735,624
Leasehold improvements 12,987 124,461 124,461
Office furniture and equipment 42,419 76,030 76,696
----------- ----------- -----------
392,541 593,662 936,781
Less--Accumulated depreciation and
amortization 128,388 208,777 236,823
----------- ----------- -----------
264,153 384,885 699,958
----------- ----------- -----------
Other assets 27,008 48,014 21,977
----------- ----------- -----------
$ 1,253,285 $ 1,660,750 $ 8,641,673
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 119,470 $ 498,816 $ 236,367
Accrued expenses 295,506 215,983 300,821
Distribution payable to
stockholders -- 100,000 --
Current portion of subordinated
debt 2,500 309,356 309,356
Current portion of loan from
distributor 477,120 780,830 621,330
Current portion of deferred revenue -- 600,000 527,508
----------- ----------- -----------
Total current liabilities 894,596 2,504,985 1,995,382
----------- ----------- -----------
Loan from distributor, net of current
portion 780,830 -- --
----------- ----------- -----------
Deferred revenue, net of current
portion 600,000 -- --
----------- ----------- -----------
Subordinated debt, net of current
portion 309,356 -- --
----------- ----------- -----------
Commitments and contingencies (Note
8)
Redemption value of preferred stock -- -- 4,250,000
----------- ----------- -----------
Stockholders' equity (deficit):
Preferred stock, $.001 par value--
Authorized--3,000,000 shares
Issued and outstanding--none -- -- --
Convertible preferred stock, $.001
par value--
Authorized--3,800,000 shares
Issued and outstanding--3,787,104
shares at March 31, 1996
(preference in liquidation of
$8,500,000 at March 31, 1996) -- -- 3,787
Common stock, $.001 par value--
Authorized--30,000,000 shares
Issued and outstanding--3,758,322,
3,774,112 and 4,288,763 shares at
December 31, 1994 and 1995 and
March 31, 1996, respectively 3,759 3,775 4,290
Paid-in capital 263,247 266,231 4,627,884
Accumulated deficit (1,598,503) (1,114,241) (2,239,670)
----------- ----------- -----------
Total stockholders' equity
(deficit) (1,331,497) (844,235) 2,396,291
----------- ----------- -----------
$ 1,253,285 $ 1,660,750 $ 8,641,673
=========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $2,003,313 $1,836,931 $2,716,022 $ 583,205 $ 859,554
License fees -- 772,500 625,000 -- 437,500
Product development -- 38,051 491,857 121,450 64,816
---------- ---------- ---------- ---------- -----------
2,003,313 2,647,482 3,832,879 704,655 1,361,870
---------- ---------- ---------- ---------- -----------
Expenses:
Cost of product sales 654,944 812,204 1,263,951 235,913 377,578
Research and develop-
ment 272,248 554,530 870,588 157,355 523,146
General and adminis-
trative 467,981 770,175 871,469 148,934 452,263
Selling and marketing 285,272 182,377 169,308 32,489 48,168
In-process research
and development -- -- -- -- 1,111,134
---------- ---------- ---------- ---------- -----------
1,680,445 2,319,286 3,175,316 574,691 2,512,289
---------- ---------- ---------- ---------- -----------
Income (loss) from
operations 322,868 328,196 657,563 129,964 (1,150,419)
---------- ---------- ---------- ---------- -----------
Interest expense (74,339) (52,838) (37,629) (8,005) (17,349)
Interest income 12,144 14,003 8,328 4,405 42,339
---------- ---------- ---------- ---------- -----------
(62,195) (38,835) (29,301) (3,600) 24,990
---------- ---------- ---------- ---------- -----------
Income (loss) before
provision for
income taxes 260,673 289,361 628,262 126,364 (1,125,429)
Provision for income
taxes -- -- 44,000 -- --
---------- ---------- ---------- ---------- -----------
Net income (loss) $ 260,673 $ 289,361 $ 584,262 $ 126,364 $(1,125,429)
========== ========== ========== ========== ===========
Net income (loss) per
common and common
equivalent share $ .04 $ .04 $ .08 $ .02 $ (.17)
========== ========== ========== ========== ===========
Weighted average common
and common equivalent
shares outstanding 6,678,065 6,855,549 6,984,924 6,984,461 6,819,262
========== ========== ========== ========== ===========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
<TABLE>
<CAPTION>
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK STOCKHOLDERS'
NUMBER $.001 NUMBER $.001 PAID-IN ACCUMULATED EQUITY
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL DEFICIT (DEFICIT)
--------- --------- --------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 -- $ -- 3,562,006 $3,562 $ 188,434 $(1,648,537) $(1,456,541)
Exercise of common
stock options -- -- 43,685 44 5,966 -- 6,010
Net income -- -- -- -- -- 260,673 260,673
--------- ------ --------- ------ ---------- ----------- -----------
Balance, December 31,
1993 -- -- 3,605,691 3,606 194,400 (1,387,864) (1,189,858)
Distributions to
stockholders -- -- -- -- -- (500,000) (500,000)
Exercise of common
stock options -- -- 152,631 153 68,847 -- 69,000
Net income -- -- -- -- -- 289,361 289,361
--------- ------ --------- ------ ---------- ----------- -----------
Balance, December 31,
1994 -- -- 3,758,322 3,759 263,247 (1,598,503) (1,331,497)
Exercise of common
stock options -- -- 15,790 16 2,984 -- 3,000
Distributions to
stockholders -- -- -- -- -- (100,000) (100,000)
Net income -- -- -- -- -- 584,262 584,262
--------- ------ --------- ------ ---------- ----------- -----------
Balance, December 31,
1995 -- -- 3,774,112 3,775 266,231 (1,114,241) (844,235)
Issuance of
convertible preferred
stock, net of
issuance costs of
approximately
$989,000 (Unaudited) 3,787,104 3,787 -- -- 3,257,211 -- 3,260,998
Common stock issued in
connection with the
purchase of
technology and other
assets (Unaudited) -- -- 514,651 515 1,104,442 -- 1,104,957
Net loss (Unaudited) -- -- -- -- -- (1,125,429) (1,125,429)
--------- ------ --------- ------ ---------- ----------- -----------
Balance, March 31, 1996
(Unaudited) 3,787,104 $3,787 4,288,763 $4,290 $4,627,884 $(2,239,670) $ 2,396,291
========= ====== ========= ====== ========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
1993 1994 1995 1995 1996
---------- ----------- ---------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ 260,673 $ 289,361 $ 584,262 $ 126,364 $(1,125,429)
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating
activities--
Depreciation and
amortization 45,413 55,825 88,895 15,595 28,837
Deferred tax asset -- -- (143,000) -- --
Common stock issued for
in-process research and
development -- -- -- -- 806,174
Changes in assets and
liabilities--
Accounts receivable 328,804 (8,308) (238,421) (76,877) (300,039)
Inventories 154,519 12,386 (56,947) 30,002 (12,450)
Prepaid expenses (4,019) 2,086 (9,512) (3,306) (28,626)
Accounts payable (69,997) 24,171 379,347 41,451 (262,449)
Accrued expenses (67,895) 190,121 (79,523) (155,727) 84,838
Deferred revenue -- 600,000 -- -- (72,492)
---------- ----------- ---------- --------- -----------
Net cash provided by
(used in) operating
activities 647,498 1,165,642 525,101 (22,498) (881,636)
---------- ----------- ---------- --------- -----------
Cash flows from investing
activities:
Purchases of property and
equipment (30,564) (104,049) (201,121) (145,852) (44,336)
(Increase) decrease in
other assets -- 12,100 (29,513) (6,937) 25,246
---------- ----------- ---------- --------- -----------
Net cash used in
investing activities (30,564) (91,949) (230,634) (152,789) (19,090)
---------- ----------- ---------- --------- -----------
Cash flows from financing
activities:
Payments of subordinated
debt (183,858) (329,161) (2,500) (2,500) --
Payments of loan from
distributor -- (242,050) (477,120) (284,820) (159,500)
Proceeds from issuance of
convertible preferred
stock, net -- -- -- -- 7,510,998
Proceeds from issuance of
common stock 6,010 69,000 3,000 -- --
Distributions to
stockholders -- (500,000) -- -- (100,000)
---------- ----------- ---------- --------- -----------
Net cash provided by
(used in) financing
activities (177,848) (1,002,211) (476,620) (287,320) 7,251,498
---------- ----------- ---------- --------- -----------
Net increase (decrease) in
cash and cash equivalents 439,086 71,482 (182,153) (462,607) 6,350,772
Cash and cash equivalents,
beginning of period 204,832 643,918 715,400 715,400 533,247
---------- ----------- ---------- --------- -----------
Cash and cash equivalents,
end of period $ 643,918 $ 715,400 $ 533,247 $ 252,793 $ 6,884,019
========== =========== ========== ========= ===========
Supplemental disclosure of
cash flow information:
Cash paid during the
period for--
Interest $ 78,885 $ 52,838 $ 39,814 $ 10,427 $ 3,582
========== =========== ========== ========= ===========
Taxes $ 3,157 $ 1,862 $ 2,135 $ -- $ --
========== =========== ========== ========= ===========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS
Nitinol Medical Technologies, Inc. (NMT or the Company) designs, develops
and markets innovative medical devices that utilize advanced materials and
are delivered by minimally invasive procedures. The Company's products are
designed to offer alternative approaches to existing complex treatments,
thereby reducing patient trauma, shortening procedure, hospitalization and
recovery times, and lowering overall treatment costs. The Company's pat-
ented medical devices include self-expanding stents, vena cava filters and
septal repair devices. At this time, the Company's stents are in European
clinical trials for certain indications, its vena cava filters are mar-
keted in the United States and abroad, and the Company is completing the
development of its septal repair device. The Company is subject to a num-
ber of risks similar to those of other companies in this stage of develop-
ment, including uncertainties regarding the development of commercially
viable products, competition from alternative procedures and larger compa-
nies, dependence on key personnel, government regulation and the ability
to obtain adequate financing to fund product development. See "Risk Fac-
tors" on pages 6-12 of this Prospectus.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of
the Company and its wholly owned subsidiary. All intercompany transactions
and balances have been eliminated in consolidation.
(b) Management Estimates
The preparation of accrual based financial statements in conformity with
generally accepted accounting principles requires management to make esti-
mates and assumptions that affect the reported amounts of assets and lia-
bilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and ex-
penses during the reporting periods. Actual results could differ from
those estimates.
(c) Interim Financial Statements
The accompanying Consolidated Financial Statements as of March 31, 1996
and for the three months ended March 31, 1995 and 1996 are unaudited. In
management's opinion, these unaudited Consolidated Financial Statements
have been prepared on the same basis as the audited Consolidated Financial
Statements and include all adjustments, consisting of only normal recur-
ring adjustments, necessary for a fair presentation of the results for
such periods. The unaudited results for the three months ended March 31,
1996 are not necessarily indicative of the results expected for the fiscal
year ending December 31, 1996.
(d) Cash and Cash Equivalents
The Company considers all investments with maturities of 90 days or less
from the date of purchase to be cash equivalents. At March 31, 1996, cash
equivalents consist of money market accounts, commercial paper and short-
term mutual funds that invest in U.S. government obligations. In accor-
dance with Statement of Financial Accounting Standards (SFAS) No. 115, Ac-
counting for Certain Investments in Debt and Equity Securities, the Com-
pany considers its cash equivalents, which are carried at market and ap-
proximate cost, as available-for-sale.
(e) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or mar-
ket and consist of the following:
-----------------------
<TABLE>
<CAPTION>
AT DECEMBER 31, MARCH 31,
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Components $ 96,817 $178,366 $193,646
Finished goods 54,297 29,695 26,865
-------- -------- --------
$151,114 $208,061 $220,511
======== ======== ========
</TABLE>
Finished goods consist of materials, labor and manufacturing overhead.
F-7
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(f) Financial Instruments
The estimated fair value of the Company's financial instruments, which in-
clude cash and cash equivalents, accounts receivable and debt, approxi-
mates their reported amounts.
(g) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of
Credit Risk, requires disclosure of any significant off-balance-sheet and
credit risk concentrations. Financial instruments that subject the Company
to credit risk consist primarily of trade accounts receivable. The Company
utilizes primarily one distributor for the sales of its filter products.
This distributor had amounts due to the Company of approximately $162,000,
$267,000 and $364,000 as of December 31, 1994 and 1995 and March 31, 1996,
respectively. This distributor accounted for 83%, 93%, 95%, 94% and 96% of
product revenues for fiscal 1993, 1994 and 1995 and for the three months
ended March 31, 1995 and 1996, respectively.
(h) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to oper-
ations using the straight-line method, which allocates the cost of prop-
erty and equipment over the following estimated useful lives:
---------
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
ASSET CLASSIFICATION -------------
<S> <C>
Laboratory and computer equipment 7 Years
Leasehold improvements Life of Lease
Office furniture and equipment 3-10 Years
</TABLE>
(i) Revenue Recognition
The Company records product sales upon shipment, and license fees and
product development revenue as earned.
The Company expects to recognize $500,000 of license fees, which are cur-
rently recorded as deferred revenue, when the 24-month refund period ex-
pires in November 1996 (see Note 6).
(j) Net Income (Loss) per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share is based on the
weighted-average number of shares of common stock and common stock equiva-
lents outstanding during the respective periods. All shares of capital
stock, options and warrants issued during the 12 months immediately pre-
ceding the anticipated initial public offering were treated as if they had
been outstanding for all periods, in accordance with the Securities and
Exchange Commission rules and regulations, calculated under the treasury-
stock method and based on the estimated initial public offering share
price appearing on the cover of this Prospectus. Pro forma net income
(loss) per common and common equivalent share has not been presented as
the results are not materially different from historical net income (loss)
per common and common equivalent share.
F-8
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(k) Postretirement Benefits
The Company has no material obligations for postretirement benefits.
(3) PURCHASE OF TECHNOLOGY AND OTHER ASSETS
In February 1996, the Company issued 514,651 shares of its common stock
and warrants to purchase 111,818 shares of common stock at $2.15 per share
for the purchase of certain technology and related fixed assets. The Com-
pany has valued the common stock issued in this transaction at $2.15 per
share, which represents the fair value as determined by its Board of Di-
rectors and supported by an appraisal. The Company is required to pay cer-
tain future royalties as defined in the agreement. The acquired technology
relates to a septal repair device for which the Company expects to conduct
human clinical trials. At the time of the acquisition, it was determined
that the commercial feasibility of the purchased technology was uncertain,
and accordingly, the Company charged the amount of the purchase price al-
located to the technology to operations as in-process research and devel-
opment. The amount allocated to laboratory and computer equipment repre-
sents the estimated fair value at the date of acquisition. The aggregate
purchase price and acquisition costs incurred of $1,409,917 were allocated
as follows:
-------
<TABLE>
<S> <C>
Laboratory and computer equipment $ 298,783
In-process research and development 1,111,134
----------
$1,409,917
==========
</TABLE>
(4) INCOME TAXES
The Company uses the liability method to account for income taxes in ac-
cordance with SFAS No. 109, Accounting for Income Taxes.
Prior to October 19, 1995, the Company elected to be taxed as an S corpo-
ration for federal and state income tax purposes. Accordingly, the accom-
panying Consolidated Financial Statements do not include a provision for
income taxes for 1993, 1994 and the first 10 1/2 months of 1995. The pro-
vision for income taxes in the accompanying consolidated statement of op-
erations for the period from October 19, 1995 to December 31, 1995 con-
sists of the following:
-----
<TABLE>
<S> <C>
Federal $ --
State 44,000
-------
$44,000
=======
</TABLE>
The accompanying consolidated statements of operations do not contain a
pro forma income tax adjustment for periods prior to the termination of
the S corporation election. If the election to be treated as an S corpora-
tion was not made, the Company would have been subject to federal and
state corporate income taxes. However, the Company would have had suffi-
cient net operating loss carryforwards to offset income in all periods
presented.
The deferred tax asset of $143,000 at December 31, 1995 and March 31, 1996
relates primarily to deferred revenue, which was included in taxable in-
come in 1994.
F-9
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) LOAN FROM DISTRIBUTOR
The Company has an exclusive distribution agreement with an unrelated
third party to provide for the sale and distribution of the Simon Nitinol
Filter (SNF). In connection with this agreement, the Company received a
loan of $1,500,000 from the distributor in 1992. The agreement calls for
the repayment of this loan by the Company through certain minimum pur-
chases of the SNF by the distributor, as defined in the agreement. In the
event that the loan is not fully repaid upon expiration or termination of
the agreement, the amount outstanding becomes due and payable in monthly
installments. Based on projected sales levels for 1996, the Company ex-
pects that the amount outstanding under the loan agreement at December 31,
1995 and March 31, 1996 will be repaid in full in 1996. Accordingly, the
total outstanding amount has been classified as current in the accompany-
ing consolidated balance sheets as of December 31, 1995 and March 31,
1996.
(6) DEFERRED REVENUE
On November 22, 1994, the Company licensed exclusive, worldwide rights,
including the right to sublicense to others, to develop, produce and mar-
ket its stent technology to an unrelated third party (the Licensee). In
connection with the signing of the license agreement, the Company received
$500,000 in consideration for the license granted and an additional
$500,000 upon issuance of the United States patent for a specific stent.
The Company may be required to refund varying amounts of such payments
based on the occurrence of certain events, as defined in the license
agreement. To date, no such event has occurred. The Company deferred rec-
ognition as revenue of amounts that may be subject to refund until the ex-
piration of the refund period. The final refund period expires in November
1996. The Company also received $272,500 from the Licensee in 1994 which
is nonrefundable and is to be credited against future license fees payable
to the Company, as defined. This amount is included in license fees in the
accompanying consolidated statements of operations in 1994. During 1995
and the three months ended March 31, 1996, the Company received additional
nonrefundable license fees upon the achievement of certain milestones, as
defined in the license agreement.
In 1994, the Company also received a $100,000 advance from the Licensee
under a product development program for the reimbursement of costs the
Company incurred related to the activities of product development, regis-
tration and transfer of technology to the Licensee. For the years ended
December 31, 1994 and 1995 and for the three months ended March 31, 1995
and 1996, the Company received $38,051, $491,857, $121,450 and $64,816,
respectively, of reimbursements for development program costs. These reim-
bursed amounts are included in revenues in the accompanying consolidated
statements of operations.
F-10
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) DEBT
Subordinated debt consists of the following:
-----------------------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Subordinated unsecured debt to various
stockholders, principal due in annual
installments of $95,000 through July 1997,
bearing interest at 10% $190,000 $190,000 $190,000
Subordinated unsecured debt to various
stockholders, principal due in annual
installments of $25,000 through July 1997,
bearing interest at 10% 50,000 50,000 50,000
Subordinated unsecured debt to various
stockholders, principal due in annual
installments of $18,750 through July 1998,
bearing interest at 10% 56,250 56,250 56,250
Deferred interest due to various stockholders
and a related party and associated pension
plan, principal due in annual installments
of $6,553 through July 1997, bearing
interest at 10% 13,106 13,106 13,106
Other 2,500 -- --
-------- -------- --------
311,856 309,356 309,356
Less--Current portion 2,500 309,356 309,356
-------- -------- --------
$309,356 $ -- $ --
======== ======== ========
</TABLE>
The Company repaid all outstanding subordinated debt in April 1996. Ac-
cordingly, all subordinated debt has been reflected as current in the ac-
companying consolidated balance sheets as of December 31, 1995 and March
31, 1996.
(8) COMMITMENTS AND CONTINGENCIES
(a) Manufacturing Agreement
The Company contracts with an unrelated third party for the manufacture of
certain products. Under the amended agreement, the Company is required to
purchase minimum unit quantities through June 2001. The aggregate minimum
purchases under the agreement are approximately $2,600,000. In addition,
in the event of an order cancellation or product conversion, the Company
has agreed to purchase all in-process materials and all special materials
purchased by the manufacturer for use in the production of these products,
limited to purchase orders through 180 days after cancellation.
(b) Operating Leases
The Company has entered into operating leases for office and laboratory
space. These leases expire through 2005. The leases for office space re-
quire payment for all related operating expenses of the building, includ-
ing real estate taxes and utilities.
F-11
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Future minimum rental payments due under operating lease agreements as of
March 31, 1996 are approximately as follows:
--------
<TABLE>
<CAPTION>
AMOUNT
YEAR ENDED ----------
<S> <C>
1996 $ 318,000
1997 468,000
1998 468,000
1999 468,000
2000 468,000
Thereafter 2,981,000
----------
$5,171,000
==========
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 and for
the three months ended March 31, 1995 and 1996 amounted to approximately
$87,000, $84,000, $103,000, $26,000 and $42,000, respectively. In connec-
tion with its facility lease, the Company entered into a construction
agreement whereby the Company is required to provide approximately
$900,000, beginning in June 1996, related to improvements of the facility.
(c) Profit Sharing
Prior to 1995, the Company had entered into a distribution agreement with
a distributor which provided for an annual profit sharing payment (not to
exceed a specified aggregate amount) based on income before provision for
income taxes, as defined in the agreement. In 1995, the Company terminated
this agreement through a payment of $100,000 to the distributor. This pay-
ment was charged to operations and is included in the accompanying consol-
idated statements of operations.
(d) Royalties
The Company has entered into various agreements that require payment of
royalties to be paid based on specified percentages of future sales, as
defined (see Notes 3 and 12). In addition, the Company has agreed to pay
royalties to certain employees based on sales or licenses of products
where they were the sole or joint inventor. Future minimum commitments un-
der these agreements are approximately $15,000 per year. Royalty expense
under royalty agreements was $56,000, $66,000, $64,000, $17,000 and
$24,000 for the years December 31, 1993, 1994, 1995 and for the three
months ended March 31, 1995 and 1996, respectively.
(9) COMMON STOCK
(a) Authorized Common Stock
In June 1996, the Company's Board of Directors voted to increase the num-
ber of authorized shares of common stock from 10,000,000 to 30,000,000.
The change is subject to stockholder approval and will be effective upon
the filing of the amended and restated certificate of incorporation.
(b) Stock Split
In June 1996, the Company's Board of Directors approved a 1-for-1.9 re-
verse stock split of the Company's common stock. Accordingly, all share
and per share amounts of common stock have been retroactively
F-12
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
restated for all periods presented to reflect the reverse stock split. The
reverse split is subject to stockholder approval and will be effective
upon the filing of the amended and restated certificate of incorporation.
(10) PREFERRED STOCK
In February 1996, the Board of Directors authorized 3,800,000 shares of
convertible preferred stock and 38,000 shares of redeemable preferred
stock. The Company then sold 3,787,104 shares of preferred stock at $2.24
per share, resulting in net proceeds to the Company of approximately
$7,500,000. The Company has recorded the redemption value of the convert-
ible preferred stock outside of stockholder's equity (deficit) as of March
31, 1996.
In June 1996 the Company's Board of Directors voted to authorize 3,000,000
shares of undesignated preferred stock. This authorization is subject to
stockholder approval and will be effective upon the filing of the amended
and restated certificate of incorporation.
(a) Convertible Preferred Stock
The convertible preferred stockholders maintain the following rights and
privileges.
Voting. The convertible preferred stockholders are entitled to vote
with the common stockholders based on the number of votes that they
would receive upon conversion.
Conversion. The convertible preferred stockholders may convert their
preferred stock at any time. Each share of convertible preferred stock
is convertible into one conversion unit. A conversion unit consists of
(i) 1/1.9 share of common stock, subject to certain antidilution ad-
justments and (ii) one one-hundredth share of redeemable preferred
stock. The convertible preferred stock automatically converts into an
equal number of conversion units upon an initial public offering re-
sulting in gross proceeds to the Company of at least $22,000,000 and a
minimum price of $12.77 per share or a sale of the Company resulting in
gross proceeds to the stockholders of at least $100,000,000.
Liquidation. In the event of liquidation, dissolution or winding up of
the Company, the holders of the convertible preferred stock are enti-
tled to an amount equal to the greater of (i) the liquidation prefer-
ence, $2.24 per share at March 31, 1996, plus any accrued and unpaid
dividends or (ii) the amount the holders of convertible preferred stock
would be entitled to receive if all shares of convertible preferred
stock had been converted immediately prior to any liquidation, dissolu-
tion or winding up.
Dividends. The holders of the convertible preferred stock shall be en-
titled to receive dividends if and when declared by the Board of Direc-
tors. Dividends payable on the convertible preferred stock shall begin
to accrue in May 1996 at an annual rate equal to 8% based on the liqui-
dation preference described above.
(b) Redeemable Preferred Stock
The redeemable preferred stockholders maintain the following rights and
privileges.
Voting. The holders of redeemable preferred stock shall not have any
right to vote unless required by law.
F-13
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Redemption. On the closing of a qualified initial public offering or a
qualified sale transaction, as defined above, each share of redeemable
preferred stock shall automatically be redeemed at a price equal to
$4,250,000 divided by the number of shares of redeemable preferred
stock outstanding, plus (i) all accrued and unpaid dividends and (ii)
any dividend amounts due to the redeemable preferred stockholders.
Liquidation. In the event of liquidation, dissolution or winding up of
the Company, the holders of the redeemable preferred stock shall be en-
titled to receive an amount equal to the redemption liquidation prefer-
ence plus any accrued and unpaid dividends.
Dividends. The holders of the redeemable preferred stock shall be enti-
tled to receive dividends if and when declared by the Board of Direc-
tors. Dividends on the redeemable preferred stock shall begin to accrue
from the issuance date of the redeemable preferred stock at an annual
rate equal to 16% based on the redemption liquidation preference.
(11) STOCK OPTIONS AND WARRANTS
(a) Nonqualified Stock Options
The Company granted nonqualified options to various officers/stockholders
and members of the Board of Directors to purchase shares of common stock
at a given exercise price per share. The options become exercisable in
full or in part at issuance or within one to four years of the date of is-
suance. All unexercised grants expire on the earlier of approximately five
to ten years from date of issuance or 90 days after termination of service
as an officer, director, employee and/or consultant.
(b) Stock Option Plans
1994 Stock Option Plan. In May 1994, the Board of Directors approved an
incentive stock option plan (the 1994 Plan), which authorizes the Company
to issue options to purchase up to 315,789 shares of the Company's common
stock under the 1994 Plan. The Company may grant options to officers, key
employees, directors and consultants of the Company at an exercise price
not less than fair market value as determined by the Board of Directors.
There were 39,210 shares available for grant under the 1994 Plan as of
March 31, 1996.
F-14
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The following table summarizes all stock option activity including grants
outside of the 1994 Plan:
-------------------
<TABLE>
<CAPTION>
NUMBER PRICE PER
OF SHARES SHARE
--------- -----------
<S> <C> <C>
Balance, December 31, 1992 212,105 $ .13-$.57
Granted 78,947 .57
Exercised (43,685) .13
--------- -----------
Balance, December 31, 1993 247,367 .19-.76
Granted 297,368 .76-1.14
Exercised (152,631) .19-.57
--------- -----------
Balance, December 31, 1994 392,104 .19-1.14
Granted 539,473 2.15
Exercised (15,790) .19
--------- -----------
Balance, December 31, 1995 915,787 .76-2.15
Granted 531,845 2.15-3.19
--------- -----------
Balance, March 31, 1996 1,447,632 $ .76-$3.19
========= ===========
Exercisable, March 31, 1996 583,513 $ .76-$2.15
========= ===========
</TABLE>
Subsequent to March 31, 1996, the Company granted options to purchase
257,739 shares of common stock at per share prices ranging from $2.15 to
$6.95, and options to purchase 3,947 shares at $2.15 per share were exer-
cised.
1996 Stock Option Plan. The Nitinol Medical Technologies, Inc. 1996 Stock
Option Plan (the 1996 Plan) was adopted by the Board of Directors in June
1996, subject to approval by the Company's stockholders.
The 1996 Plan provides for the grant of options to acquire a maximum of
600,000 shares of the common stock. As of the date hereof, no shares are
subject to outstanding options. The 1996 Plan permits the granting of in-
centive stock options or nonstatutory stock options at the discretion of
the administrator of the 1996 Plan (the Plan Administrator). The Board of
Directors has appointed a Stock Option Committee of the Board as the Plan
Administrator. Subject to the terms of the 1996 Plan, the Plan Administra-
tor determines the terms and conditions of options granted under the 1996
Plan.
The 1996 Directors Stock Plan. The Nitinol Medical Technologies, Inc. 1996
stock option plan for non-employee directors (the 1996 Directors' Stock
Plan) was adopted by the Company's Board of Directors in June 1996, sub-
ject to approval by the Company's stockholders. The 1996 Directors' Stock
Plan provides for the automatic grant of nonstatutory stock options to
purchase shares of common stock to directors of the Company who are not
employees of the Company and do not otherwise receive compensation from
the Company.
Under the 1996 Directors' Stock Plan 150,000 shares of common stock have
been reserved for issuance of options. The 1996 Directors' Stock Plan pro-
vides for the automatic grant of options to eligible directors. Each eli-
gible director serving on the Board on the effective date of the 1996 Di-
rectors' Stock Plan automatically received an option to purchase 10,000
shares of common stock at a price equal to the initial public offering
price of this offering, subject to vesting in three equal monthly install-
ments over a period of three
F-15
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
years. In the future, each nonemployee director who joins the Board will
automatically receive an initial grant of options to purchase 10,000
shares of common stock at an exercise price equal to the fair market value
per share at the date of grant, subject to vesting in equal monthly in-
stallments over a three year period. In each year other than the year in
which a director receives an initial grant of options, such director will
automatically receive options to purchase 2,500 shares of common stock
which shall become fully-vested six months after the date of grant.
(c) Warrants
In connection with the technology purchase discussed in Note 3, the Com-
pany issued warrants to purchase 111,818 shares of common stock at $2.15
per share. The warrants are fully exercisable and expire ten years from
the date of grant.
In February 1996, the Company issued warrants to purchase 164,440 shares
of common stock at $4.26 per share to placement agents in connection with
a private placement of the Company's convertible preferred stock. In April
1996, the Company issued a warrant to purchase 5,263 shares of common
stock at $.01 per share in connection with a patent license agreement. The
warrants are fully exercisable and expire ten years from the date of
grant.
(12) TECHNOLOGY PURCHASE AGREEMENT
Pursuant to a technology purchase agreement (TPA), the Company purchased
from a stockholder/founder the proprietary rights to the primary patent
for the SNF and related technology. Under the terms of the TPA, the Com-
pany made an initial payment of $15,000 and agreed to pay royalties based
upon various rates of cumulative net sales, as defined, with minimum roy-
alties payable of $15,000 per year. Royalties are payable over the life of
the primary patent and commenced after FDA approval. The Company has
granted the stockholder/founder a security interest in substantially all
proprietary rights acquired by the Company. In the event of unsecured de-
faults, as set forth in the TPA, the Company has agreed to immediately pay
the stockholder/founder damages of $100,000.
(13) RELATED PARTY TRANSACTIONS
Three stockholders of the Company and related entities provide management
consulting services to the Company. Total payments made during the years
ended December 31, 1993, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996 in connection with such services were approxi-
mately $180,000, $210,000, $242,000, $53,000 and $75,000, respectively.
At December 31, 1994 and 1995 and March 31, 1996, the Company had subordi-
nated debt and deferred interest outstanding to various stockholders, a
related party and an associated pension plan of $311,856, $309,356 and
$309,356, respectively (see Note 7).
F-16
<PAGE>
Nitinol Medical
- --------------------------------------------------------------------------------
Technologies, Inc.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in
connection with the issuance and distribution of the securities being offered
hereby (items marked with an asterisk (*) represent estimated expenses):
<TABLE>
<S> <C>
SEC Registration Fee ........................................... $ 14,990
Legal Fees and Expenses......................................... 200,000*
Blue Sky Fees (including counsel fees).......................... 15,000*
NASD Filing Fee................................................. 4,847
Nasdaq National Market Fee...................................... 25,000
Accounting Fees and Expenses.................................... 135,000*
Transfer Agent and Registrar Fees............................... 5,000*
Printing and Engraving Expenses................................. 125,000*
Miscellaneous Expenses.......................................... 175,163*
--------
Total......................................................... $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Delaware General Corporation Law, Section 102(b)(7), enables a corporation
in its original certificate of incorporation, or an amendment thereto validly
approved by stockholders, to eliminate or limit personal liability of members
of its Board of Directors for violations of a director's fiduciary duty of
care. However, the elimination or limitation shall not apply where there has
been a breach of the duty of loyalty, failure to act in good faith,
intentional misconduct or a knowing violation of a law, the payment of a
dividend or approval of a stock repurchase which is deemed illegal or an
improper personal benefit is obtained. Articles Eighth, Ninth and Tenth of the
Company's Amended and Restated Certificate of Incorporation includes the
following language:
"EIGHTH. A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the Corporation or any of its direct or
indirect subsidiaries or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of any other corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee, or agent or in any other capacity while serving
as a director, officer, employee, or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than
permitted prior thereto), against all expense, liability, and loss (including
attorneys' fees, judgments, fines, excise or other taxes assessed with respect
to an employee benefit plan, penalties, and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith,
and such indemnification shall continue as to an indemnitee who has ceased to
be a director, officer, employee, or agent and shall inure to the benefit of
the indemnitee's heirs, executors, and administrators; provided, however,
that, except as provided in Paragraph C of this Article EIGHTH with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
II-1
<PAGE>
B. The right to indemnification conferred in Paragraph A of this Article
EIGHTH shall include the right to be paid by the Corporation the expenses
incurred in defending any proceeding for which such right to indemnification
is applicable in advance of its final disposition (hereinafter an "advancement
of expenses"); provided, however, that, if the Delaware General Corporation
Law requires, an advancement of expenses incurred by an indemnitee in his or
her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Article EIGHTH or
otherwise.
C. The rights to indemnification and to the advancement of expenses
conferred in Paragraphs A and B of this Article EIGHTH shall be contract
rights. If a claim under Paragraph A or B of this Article EIGHTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be 20 days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by an indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that
the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law, and (ii) any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon a
final adjudication that the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article EIGHTH or otherwise, shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article EIGHTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, this
certificate of incorporation, by-law, agreement, vote of stockholders or
disinterested directors, or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee, or agent of the Corporation or another
corporation, partnership, joint venture, trust, or other enterprise against
any expense, liability, or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability, or loss under
the Delaware General Corporation Law.
F. The Corporation's obligation, if any, to indemnify any person who was or
is serving as a director, officer, employee, or agent of any direct or
indirect subsidiary of the Corporation or, at the request of the Corporation,
of any other corporation or of a partnership, joint venture, trust, or other
enterprise shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture,
trust, or other enterprise.
G. Any repeal or modification of the foregoing provisions of this Article
EIGHTH shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
II-2
<PAGE>
NINTH. No director of the Corporation shall be liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision does not eliminate the liability of the
director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of Title 8 of the Delaware Code, or (iv) for any transaction
from which the director derived an improper personal benefit. For purposes of
the prior sentence, the term "damages" shall, to the extent permitted by law,
include without limitation, any judgment, fine, amount paid in settlement,
penalty, punitive damages, excise or other tax assessed with respect to an
employee benefit plan, or expense of any nature (including, without
limitation, counsel fees and disbursements). Each person who serves as a
director of the Corporation while this Article NINTH is in effect shall be
deemed to be doing so in reliance on the provisions of this Article NINTH, and
neither the amendment or repeal of this Article NINTH, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
NINTH, shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for, arising out of, based upon, or in
connection with any acts or omissions of such director occurring prior to such
amendment, repeal, or adoption of an inconsistent provision. The provisions of
this Article NINTH are cumulative and shall be in addition to and independent
of any and all other limitations on or eliminations of the liabilities of
directors of the Corporation, as such, whether such limitations or
eliminations arise under or are created by any law, rule, regulation, by-law,
agreement, vote of stockholders or disinterested directors, or otherwise.
TENTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In February 1996, the Company sold an aggregate of 3,787,104 shares of
Convertible Preferred Stock for an aggregate purchase price of $8,500,000. The
Company believes that each such issuance and sale was exempt from registration
pursuant to Section 4(2) of the Securities Act and Regulation D promulgated
thereunder. Warrants to purchase 164,440 shares of Common Stock at an exercise
price of $4.26 were also issued for nominal consideration to certain brokers
that assisted the Company in the Convertible Stock Offering. The Company
believes that each such issuance and sale was exempt from registration
pursuant to Section 4(2) of the Securities Act.
In the last three years, the Company has issued options for the purchase of
an aggregate of 300,789 shares of Common Stock under the 1994 Plan, none of
which have been exercised. The Company believes that each of the foregoing
transactions was exempt from registration pursuant to Section 4(2) of the
Securities Act.
Each purchaser of the securities described above has represented that he or
she understands that the securities acquired may not be sold or otherwise
transferred absent registration under the Act or the availability of an
exemption from the registration requirements of the Act, and each certificate
evidencing the securities owned by each purchaser bears or will bear upon
issuance a legend to that effect.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1 -- Form of Underwriting Agreement. (1)
3.1 -- Amended and Restated Certificate of Incorporation.
3.2 -- Amended and Restated By-laws.
4.1 -- Form of Common Stock Certificate. (1)
5.1 -- Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP. (1)
10.1 -- Stock Purchase Agreement by and among the Company, Whitney Equity
Partners, L.P., Boston Scientific Corporation, David J. Morrison,
Corporate Decisions, Inc., dated as of February 16, 1996.
10.2 -- Registration Rights Agreement by and among the Company, Whitney
Equity Partners, L.P., Boston Scientific Corporation, David J.
Morrison, Corporate Decisions, Inc., dated as of February 16, 1996.
10.3 -- Agreement and Plan of Merger by and among the Company, NMT Heart,
Inc., InnerVentions, Inc. and Fletcher Spaght, Inc., dated as of
January 25, 1996.
10.4 -- Stock Purchase Warrant by and between the Company and Fletcher
Spaght, Inc., dated February 14, 1996.
10.5 -- Pledge Agreement by and between the Company and Fletcher Spaght,
Inc., dated February 14, 1996.
10.6 -- Registration Rights Agreement by and between the Company and
Fletcher Spaght, Inc., dated as of February 14, 1996.
10.7 -- Distribution Agreement by and between the Company and the Bard
Radiology division of C.R. Bard, Inc., dated May 19, 1992, as
amended on February 1, 1993 and October 1, 1995. (1)(2)
10.8 -- International Distribution Agreement by and between the Company and
Bard International, Inc., dated as of November 30, 1995. (1)(2)
10.9 -- License and Development Agreement by and between the Company and
Boston Scientific Corporation, dated as of November 22, 1994. (1)(2)
10.10 -- Manufacturing Agreement by and between the Company and Lake Region
Manufacturing Company, Inc., dated February 15, 1996. (1)(2)
10.11 -- Technology Purchase Agreement by and between the Company and Morris
Simon, M.D., dated as of April 14, 1987. (1)(2)
10.12 -- Asset and Technology Donation and Transfer Agreement by and between
C.R. Bard, Inc. and Children's Medical Center Corporation dated as
of May 12, 1995. (1)
10.13 -- Stock Transfer Agreement by and between Children's Medical Center
Corporation and InnerVentions, Inc., dated as of June 19, 1995. (1)
10.14 -- License Agreement by and between Children's Medical Center
Corporation and InnerVentions, Inc., dated June 19, 1995. (1)
10.15 -- Sublicense Agreement by and between Children's Medical Center
Corporation and InnerVentions, Inc., dated June 19, 1995. (1)
10.16 -- Assignment Agreement by and between the Company and The Beth Israel
Hospital Association, dated June 30, 1994. (1)
10.17 -- License Agreement by and between the Company and Lloyd A. Marks,
dated as of April 15,
1996. (1)
10.18 -- Share Purchase Warrant by and between the Company and Lloyd A.
Marks, dated April 15, 1996.
10.19 -- Registration Rights Agreement by and between the Company and Lloyd
A. Marks, dated as of April 15, 1996.
10.20 -- Employment Agreement by and between the Company and Thomas M.
Tully, dated February 13, 1996.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.21 -- Registration Rights Agreement by and between the Company and Thomas
M. Tully, dated as of February 13, 1996.
10.22 -- Employment Agreement by and between the Company and David
Chazanovitz, dated February 13, 1996, as amended as of June 15, 1996.
10.23 -- Employment Agreement by and between the Company and Jason Harry,
dated as of July 1, 1994. (1)(2)
10.24 -- Employment Agreement by and between the Company and Stephen J.
Kleshinski, dated July 22, 1993, as supplemented by agreement dated as
of June 1, 1994. (1)(2)
10.25 -- Employment Agreement by and between the Company and Theodore I.
Pincus, dated as of May 17, 1996.
10.26 -- Form of Registration Rights Agreement between the Company and certain
of its existing stockholders, dated as of February 14, 1996.
10.27 -- Agreement of Lease by and between the Company and the Trustees of
Wormwood Reality, dated as of May 8, 1996.
10.28 -- Company 1994 Stock Option Plan.
10.29 -- Company 1996 Stock Option Plan.
10.30 -- Company 1996 Stock Option Plan for Non-Employee Directors.
11.1 -- Statement re: Company's Earnings Per Share.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (contained in
the opinion filed as Exhibit 5.1).(1)
23.3 -- Consent of Sixbey, Friedman, Leedom & Ferguson.
24.1 -- Power of Attorney (included on the signature page hereof).
27.1 -- Financial Data Schedule.
</TABLE>
- --------
(1) To be filed by amendment.
(2) Confidential treatment requested.
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted because they are not required, are inappli-
cable or the information required is included in the Consolidated Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations
and registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been ad-
vised that in the opinion of the Securities and Exchange Commission such in-
demnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appro-
priate jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The Company hereby undertakes that, for purposes of determining any liabil-
ity under the Securities Act, the information omitted from the form of pro-
spectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
II-5
<PAGE>
The Company hereby undertakes that, for the purpose of determining any
liability under the Securities Act, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON, COMMONWEALTH OF
MASSACHUSETTS, ON JUNE 19, 1996.
NITINOL MEDICAL TECHNOLOGIES, INC.
/s/ Thomas M. Tully
By: _________________________________
Thomas M. Tully
Chief Executive Officer,
President and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS THOMAS M. TULLY AND THEODORE I. PINCUS, OR ANY
ONE OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER
OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE, AND STEAD,
IN ANY AND ALL CAPACITIES, TO SIGN (I) ANY AND ALL PRE- OR POST-EFFECTIVE
AMENDMENTS TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME WITH ALL
EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH AND (II) ANY
REGISTRATION STATEMENT, AND ANY AND ALL AMENDMENTS THERETO, RELATING TO THE
OFFERING COVERED HEREBY FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT
OF 1933 WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-
IN-FACT AND AGENTS, OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES STATED.
SIGNATURES TITLE DATE
/s/ Thomas M. Tully Chief Executive June 19, 1996
- ------------------------------------- Officer, President
THOMAS M. TULLY and Director
(Principal
Executive Officer)
/s/ Theodore I. Pincus Executive Vice June 19, 1996
- ------------------------------------- President and Chief
THEODORE I. PINCUS Financial Officer
(Principal
Financial and
Accounting Officer)
/s/ Morris Simon, M.D. Scientific Director June 19, 1996
- ------------------------------------- and Director
MORRIS SIMON, M.D.
II-7
<PAGE>
SIGNATURES TITLE DATE
/s/ C. Leonard Gordon Chairman of the June 19, 1996
- ------------------------------------- Board and Director
C. LEONARD GORDON
/s/ Michael C. Brooks Director June 19, 1996
- -------------------------------------
MICHAEL C. BROOKS
/s/ Robert G. Brown Director June 19, 1996
- -------------------------------------
ROBERT G. BROWN
/s/ R. John Fletcher Director June 19, 1996
- -------------------------------------
R. JOHN FLETCHER
/s/ Jeffrey R. Jay, M.D. Director June 19, 1996
- -------------------------------------
JEFFREY R. JAY, M.D.
II-8
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NITINOL MEDICAL TECHNOLOGIES, INC.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NITINOL MEDICAL TECHNOLOGIES, INC.
Nitinol Medical Technologies, Inc., (the "Corporation") a corporation
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Nitinol Medical Technologies, Inc. The
date of filing of its original Certificate of Incorporation with the Secretary
of State was July 28, 1986.
2. This Amended and Restated Certificate of Incorporation restates,
integrates and further amends the provisions of the Certificate of Incorporation
of the Corporation. This Amended and Restated Certificate of Incorporation was
duly adopted by the directors and stockholders of the Corporation.
3. The text of the Certificate of Incorporation as heretofore amended is
hereby restated and further amended to read in its entirety as follows:
FIRST. The name of the corporation is Nitinol Medical Technologies, Inc.
SECOND. The address, including street, number, city and county of the
Corporation's registered office in the State of Delaware is 9 East Loockerman
Street, in the City of Dover, County of Kent. The name of its registered agent
at such address is National Corporate Research, Ltd.
- 1 -
<PAGE>
THIRD. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH. Authorized Shares.
-----------------
A. The aggregate number of shares which the Corporation shall have
authority to issue is 36,838,000, consisting of thirty million (30,000,000)
shares of Common Stock, par value $.001 per share (the "Common Stock"),
3,800,000 shares of Convertible Preferred Stock, par value $.001 per share (the
"Convertible Preferred Stock"), 38,000 shares of Redeemable Preferred Stock, par
value $.001 per share (the "Redeemable Preferred Stock") and 3,000,000 shares of
undesignated Preferred Stock, par value $.001 per share ("the "Preferred
Shares").
B. Authority is hereby expressly granted to the Board of Directors of the
Corporation (or a committee thereof designated by the Board of Directors
pursuant to the by-laws of the Corporation, as from time to time amended (the
"By-Laws")) to issue the Preferred Shares from time to time as Preferred Shares
of any series and to declare and pay dividends thereon in accordance with the
terms thereof and, in connection with the creation of each such series, to fix
by the resolution or resolutions providing for the issue of shares thereof, the
number of shares of such series, and the designations, powers, preferences, and
rights (including voting rights), and the qualifications, limitations, and
restrictions, of such series, to the full extent now or hereafter permitted by
the laws of the State of Delaware.
Upon the filing in the office of the Secretary of the State of Delaware of
this Certificate of Incorporation of the Corporation, each 1.9 shares of Common
Stock of the Corporation issued and outstanding as of the
- 2 -
<PAGE>
date of this amendment shall thereby and thereupon be combined into one share of
validly issued, fully paid, and nonassessable share of Common Stock of the
Corporation, and (ii) the number of shares of Company Common Stock constituting
part of a Conversion Unit (as defined in Article FIFTH) shall be adjusted in
accordance with Article FIFTH Section (A)(5)(d)(1). No scrip or fractional
shares will be issued by reason of this amendment.
FIFTH. The powers, preferences, rights, qualifications, limitations and
restrictions of the Convertible Preferred Stock and the Redeemable Preferred
Stock are as follows (capitalized terms used in this Article FIFTH and not
otherwise defined shall have the meanings set forth in Section C of this Article
FIFTH:
A. Convertible Preferred Stock.
---------------------------
1. Ranking. The Convertible Preferred Stock and the Redeemable
-------
Preferred Stock shall rank on a parity with each other with respect to dividend
rights and rights on liquidation, dissolution or winding up, and shall rank
senior to all other equity securities of the Corporation, and any other series
or class of the Corporation's preferred or common stock, now or hereafter
authorized.
2. Dividends and Distributions.
---------------------------
a. Dividends. The holders of shares of Convertible Preferred
---------
Stock shall be entitled to receive dividends, as, when and if declared by the
Board of Directors, out of funds legally available therefor ("LEGALLY AVAILABLE
-----------------
FUNDS").
- -----
b. Accrued Dividends; Record Date. Dividends payable on the
------------------------------
Convertible Preferred Stock shall begin to accrue from May 20, 1996 at an
- 3 -
<PAGE>
annual rate equal to 8% based upon the Liquidation Preference, calculated on the
basis of a 360-day year consisting of twelve 30-day months, and shall accrue on
a daily basis, in each case whether or not earned or declared. The Board of
Directors may fix a record date for the determination of holders of shares of
Convertible Preferred Stock entitled to receive payment of any dividends payable
pursuant to Article FIFTH Section (A)(2)(a), which record date shall not be more
than 60 days prior to the applicable dividend payment date.
c. Dividends Pro Rata. All dividends paid with respect to
------------------
shares of Convertible Preferred Stock pursuant to this Article FIFTH Section
(A)(2) shall be paid pro rata to the holders entitled thereto. In the event
that the Legally Available Funds shall be insufficient for the payment of the
entire amount of cash dividends payable at any dividend payment date, such funds
shall be allocated for the payment of dividends with respect to the shares of
Convertible Preferred Stock pro rata.
d. Certain Restrictions. If any dividends accrued on shares of
--------------------
Convertible Preferred Stock as provided in this Article FIFTH Section (A)(2) are
not paid in full in cash, then until all such dividends shall have been paid in
full in cash, the Corporation shall not declare or pay cash dividends on, or
make any other distributions with respect to, any shares of capital stock of the
Corporation ranking junior to the Convertible Preferred Stock and Redeemable
Preferred Stock.
3. Voting Rights. In addition to any voting rights provided by law,
-------------
the holders of shares of Convertible Preferred Stock shall have the following
voting rights:
a. Except as otherwise required by applicable law, each share
of Convertible Preferred Stock shall entitle the holder thereof to vote,
- 4 -
<PAGE>
in person or by proxy, at a special or annual meeting of stockholders, on all
matters voted on by holders of Common Stock voting together as a single class
with the holders of the Common Stock and with holders of all other shares
entitled to vote thereon. With respect to any such vote, each share of
Convertible Preferred Stock shall entitle the holder thereof to cast that number
of votes per share as is equal to the number of votes that such holder would be
entitled to cast assuming that such shares of Convertible Preferred Stock had
been converted, on the record date for determining the stockholders of the
Corporation eligible to vote on any such matters or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited, into the maximum number of shares of Common Stock
into which such shares of Convertible Preferred Stock are then convertible as
provided in Article FIFTH Section (A)(5).
b. Unless the consent or approval of a greater number of shares
shall then be required by law, the affirmative vote or written consent in lieu
thereof of the holders of at least fifty-one percent (51%) of the outstanding
shares of Convertible Preferred Stock and Redeemable Preferred Stock, voting
together as a single class, in person or by proxy, at a special or annual
meeting of stockholders called for the purpose or by written consent, shall be
necessary to (i) authorize or increase the authorized number of shares of
capital stock, (ii) repurchase, redeem, or declare any dividends or other
distributions with respect to any equity securities of the Corporation (other
than (a) dividends on the Convertible Preferred Stock provided for in Article
FIFTH Section (A)(2)(a) or dividends on the Redeemable Preferred Stock provided
for in Article FIFTH Section (B)(2)(a), and (b) purchases of Common Stock from
employees of the Company or any of its subsidiaries in an amount not to exceed
- 5 -
<PAGE>
$250,000.00 in any 12-month period), (iii) authorize, adopt or approve an
amendment to this Certificate of Incorporation, as amended, that would increase
or decrease the par value of the shares of Convertible Preferred Stock or
Redeemable Preferred Stock, alter or change the powers, preferences or special
rights of the shares of Convertible Preferred Stock or Redeemable Preferred
Stock, or alter or change the powers, preferences or special rights of any other
capital stock of the Corporation, (iv) amend, alter or repeal this Certificate
of Incorporation, as amended, or the Corporation's By-Laws so as to affect the
shares of Convertible Preferred Stock or Redeemable Preferred Stock adversely,
including, without limitation, by granting any voting right to any holder of
notes, bonds, debentures or other debt obligations of the Corporation, (v)
authorize any security convertible into, exchangeable for or evidencing the
right to purchase or otherwise receive any shares of capital stock,(vi) effect
the voluntary liquidation, dissolution, winding up, recapitalization or
reorganization of the Corporation or (vii) enter into any transaction or series
of transactions that would result in a Change of Control.
4. Liquidation, Dissolution or Winding Up.
--------------------------------------
a. In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary (other than a liquidation,
dissolution or winding up following the redemption of all of the Redeemable
Preferred Stock in connection with a Qualified Sale Transaction), before any
distribution or payment to holders of Common Stock or of any other capital stock
ranking in any such event junior to the Convertible Preferred Stock and the
Redeemable Preferred Stock, the holders of shares of Convertible Preferred Stock
and Redeemable Preferred Stock shall be entitled to be paid, (x) in the case of
the Convertible Preferred Stock, an amount equal to the greater
- 6 -
<PAGE>
of (i) the Liquidation Preference, plus an amount equal to all accrued and
unpaid dividends, if any, with respect to each share of Convertible Preferred
Stock or (ii) the amount that the holders of shares of Convertible Preferred
Stock would be entitled to receive in connection with such liquidation,
dissolution or winding up if all of the holders of the Convertible Preferred
Stock had converted their shares immediately prior to any relevant record date
or payment in connection with such liquidation, dissolution or winding up and
(y) in the case of the Redeemable Preferred Stock, an amount equal to the
Redeemable Liquidation Preference, plus an amount equal to all accrued and
unpaid dividends, if any, with respect to each share of Redeemable Preferred
Stock, in either case, before any payment or distribution is made to any class
or series of capital stock ranking junior to the Redeemable Preferred Stock and
Convertible Preferred Stock.
b. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to the
holders of Convertible Preferred Stock and the Redeemable Preferred Stock shall
be insufficient to permit payment in full to such holders of the sums which such
holders are entitled to receive in such case, then all of the assets available
for distribution to holders of the Convertible Preferred Stock and Redeemable
Preferred Stock shall be distributed among and paid to such holders ratably in
proportion to the amounts that would be payable to such holders if such assets
were sufficient to permit payment in full.
c. Neither the consolidation or merger of the Corporation with
or into any other Person nor the sale or other distribution to another Person of
all or substantially all the assets, property or business of the
- 7 -
<PAGE>
Corporation shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Article FIFTH Section (A)(4).
5. Conversion.
----------
a. Stockholders' Right To Convert. Each share of Convertible
------------------------------
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time, or from time to time, into Conversion Units (as defined below), at a
rate of one Conversion Unit for one share of Convertible Preferred Stock. A
"CONVERSION UNIT" shall consist of (I) that number of shares of Common Stock
- ----------------
equal to a fraction, the numerator of which is the Initial Conversion Price and
the denominator of which is the Adjusted Conversion Price and (II) one one-
hundredth share of Redeemable Preferred Stock.
The option to convert into Conversion Units shall be exercised by (i)
giving written notice to the Corporation, at its principal corporate office, of
the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Redeemable Preferred Stock
and Common Stock issuable upon conversion are to be issued and (ii) surrendering
for such purpose to the Corporation, at any place where the Corporation shall
maintain a transfer agent for its Convertible Preferred Stock, Redeemable
Preferred Stock and Common Stock, certificates representing the shares to be
converted, duly endorsed in blank or accompanied by proper instruments of
transfer. At the time of the surrender referred to in clause (ii) above, the
Person in whose name any certificate for shares of Common Stock and Redeemable
Preferred Stock shall be issuable upon such conversion shall be deemed to be the
holder of record of such shares of Common Stock and Redeemable Preferred Stock
on such date, notwithstanding that the share register of the Corporation shall
then be closed or that the certificates representing such
- 8 -
<PAGE>
Common Stock and Redeemable Preferred Stock shall not then be actually delivered
to such person.
b. Automatic Conversion. On the date of the closing of a
--------------------
Qualified Public Offering or a Qualified Sale Transaction, each outstanding
share of Convertible Preferred Stock shall automatically, with no further action
required to be taken by the Corporation or the holder thereof, be converted into
Conversion Units, at a rate of one Conversion Unit for one share of Convertible
Preferred Stock. Immediately thereafter, each holder of Convertible Preferred
Stock shall be deemed to be the holder of record of the Redeemable Preferred
Stock and Common Stock issuable upon conversion of such holder's Convertible
Preferred Stock notwithstanding that the share register of the Corporation shall
then be closed or that certificates representing such Redeemable Preferred Stock
or Common Stock shall not then be actually delivered to such person. Upon
notice from the Corporation, each holder of Convertible Preferred Stock so
converted shall promptly surrender to the Corporation, at any place where the
Corporation shall maintain a transfer agent for its Convertible Preferred Stock,
Redeemable Preferred Stock and Common Stock, certificates representing the
shares so converted, duly endorsed in blank or accompanied by proper instruments
of transfer. On the date of such automatic conversion, all rights with respect
to the shares of Convertible Preferred Stock so converted, including the rights,
if any, to receive notices and vote, will terminate, except only the rights of
holders thereof to (i) receive certificates for the number of shares of Common
Stock and Redeemable Preferred Stock into which such shares of Convertible
Preferred Stock have been converted, (ii) the payment of any accrued but unpaid
dividends thereon as provided in Article FIFTH Section (A)(5)(c) below and (iii)
- 9 -
<PAGE>
exercise the rights to which they are entitled as holders of Common Stock and
Redeemable Preferred Stock.
c. Accrued Dividends. If conversion pursuant to Article FIFTH
-----------------
Section (A)(5)(a) or (A)(5)(b) occurs at a time when there are any accrued and
unpaid dividends or other amounts due on the shares of Convertible Preferred
Stock, such dividends and other amounts shall continue to be deferred but shall
be paid in full by the Corporation to the holder of the shares of Redeemable
Preferred Stock into which such shares of Convertible Preferred Stock were
converted no later than the Mandatory Redemption Date.
d. Antidilution Adjustments.
------------------------
(1) Dividend, Subdivision, Combination or Reclassification of Company
-----------------------------------------------------------------
Common Stock. If the Corporation shall, at any time or from time to time, (a)
- ------------
declare a dividend on the Company Common Stock payable in shares of its capital
stock (including Company Common Stock), (b) subdivide the outstanding Company
Common Stock, (c) combine the outstanding Company Common Stock into a smaller
number of shares, or (d) issue any shares of its capital stock in a
reclassification of the Company Common Stock (excluding any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing corporation), then in each such case, the number
of shares of Company Common Stock constituting part of a Conversion Unit at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification and the number and kind of shares
of Company Common Stock issuable on such date shall be proportionately adjusted
so that, in connection with a conversion of the Convertible Preferred Stock
after such date, the holder of the Convertible Preferred Stock shall be entitled
to receive the aggregate number and kind of shares of capital stock which, if
- 10 -
<PAGE>
the conversion had occurred immediately prior to such date, the holder would
have owned upon such conversion and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. Any such adjustment
shall become effective immediately after the record date of such dividend or the
effective date of such subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur. If a dividend is declared and such dividend is not paid, the number of
shares of Common Stock constituting part of a Conversion Unit shall be adjusted
to that number of shares of Common Stock constituting part of a Conversion Unit
immediately prior to such record date.
(2) Issuance of Rights to Purchase Company Common Stock Below Current
-----------------------------------------------------------------
Market Price or Dilution Price. If the Corporation shall, at any time or from
- ------------------------------
time to time, fix a record date for the issuance of rights or warrants to all
holders of Company Common Stock entitling them (for a period expiring within 45
calendar days after such record date) to subscribe for or purchase Company
Common Stock or securities convertible into Company Common Stock at a price per
share of Company Common Stock, or having a conversion price per share of Company
Common Stock, if a security is convertible into Company Common Stock (determined
in each such case by dividing (X) the total consideration payable to the
Corporation upon exercise, conversion or exchange of such rights, warrants or
other securities convertible into Company Common Stock by (Y) the total number
of shares of Company Common Stock covered by such rights, warrants or other
securities convertible into Company Common Stock), lower than either the Current
Market Price per share of Common Stock on such record date (or, if an ex-
dividend date has been established for such record
- 11 -
<PAGE>
date, on the day next preceding such ex-dividend date) or the Dilution Price,
then the Adjusted Conversion Price shall be reduced to the price determined by
multiplying the Adjusted Conversion Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of shares
of Company Common Stock outstanding on such record date plus the number of
additional shares of Company Common Stock which the aggregate offering price of
the total number of shares of the Company Common Stock so to be offered (or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at the Applicable Price, and the denominator of which
shall be the number of shares of Company Common Stock outstanding on such record
date plus the number of additional shares of Company Common Stock to be offered
for subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such price for subscription or
purchase may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be determined in good
faith by the Board of Directors of the Corporation and shall be that value which
is agreed upon by at least a majority of the members thereof; provided, that if
--------
the holders of a majority of the shares of Convertible Preferred Stock object to
such valuation as determined by the Board of Directors within fifteen (15) days
of receipt of written notice of such valuation or, if such percentage of the
members of the Board of Directors of the Corporation are unable to agree upon
the value of such consideration, the value thereof shall be determined by an
independent investment bank of nationally recognized stature that is selected by
a majority of the members of the Board of Directors. Any such adjustment shall
become effective immediately after the record date for such rights or warrants.
Such adjustment shall be made successively whenever such a record date
- 12 -
<PAGE>
is fixed. If such rights or warrants are not so issued, the Adjusted Conversion
Price shall be adjusted to the Adjusted Conversion Price in effect immediately
prior to such record date. The determination of whether any adjustment is
required under this Article FIFTH Section (A)(5)(d)(2) by reason of the sale and
issuance of rights, options, warrants or convertible or exchangeable securities
and the amount of such adjustment, if any, shall be made only at the time of
such issuance or sale and not at the subsequent time of issuance or sale of
Company Common Stock upon the exercise of such rights to subscribe or purchase.
Upon the expiration of any such options or rights, the termination of any such
rights to convert or exchange or the expiration of any options or rights related
to such convertible or exchangeable securities, the Adjusted Conversion Price,
to the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(3) Certain Distributions. If the Corporation shall, at any time or
---------------------
from time to time, fix a record date for the distribution to all holders of
Company Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Corporation is the continuing corporation)
of evidences of indebtedness, assets or other property (other than (i) cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or (ii) dividends payable in capital stock for which adjustment is made
under Article FIFTH Section (A)(5)(d)(1)) or subscription
- 13 -
<PAGE>
rights or warrants (excluding those referred to in Article FIFTH Section
(A)(5)(d)(2)), then in each such case for the purpose of this Article FIFTH
Section (A)(5)(d)(3), the holders of the Convertible Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the Corporation into
which their shares of Convertible Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Company Common Stock
entitled to receive such distribution.
(4) Issuance of Company Common Stock Below Current Market Price or
--------------------------------------------------------------
Common Stock Dilution Price. Except in the case of Common Stock or securities
- ---------------------------
convertible into or exchangeable for Common Stock to be issued (i) to an
employee, advisor, consultant or director of the Corporation directly or
pursuant to any stock option or stock plan or arrangement that has been approved
by the Corporation's Board of Directors and not exceeding, in the aggregate,
3,600,000 shares of Common Stock (subject to adjustment in the circumstances set
forth in Article FIFTH Section (A)(5)(d)(1)), (ii) pursuant to the exercise of
any option, warrant or convertible security outstanding on the Issue Date of the
Convertible Preferred Stock, (iii) in connection with bona fide research,
licensing or corporate partnering relationships, in connection with equipment
lease financing, or in connection with non-convertible debt financing with
institutional lenders, in each case approved by the Board of Directors of the
Corporation, (iv) upon conversion of the Convertible Preferred Stock or (v) in
connection with a merger or consolidation as a result of which the holders of
the Corporation's outstanding capital stock immediately prior to the
consummation of such transaction hold voting securities in excess of fifty (50)
percent of the voting power of the surviving or resulting entity (in which
- 14 -
<PAGE>
event the provisions of this Article FIFTH Section (A)(5)(d)(4) shall not
apply), the Adjusted Conversion Price shall be subject to adjustment as follows:
If the Corporation shall, at any time or from time to time, sell or issue shares
of Company Common Stock (regardless of whether originally issued or from the
Corporation's treasury), or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Company Common Stock at a price per share of Company Common Stock
(determined, in the case of rights, options, warrants or convertible or
exchangeable securities, by dividing (X) the total consideration received or
receivable by the Corporation in consideration of the sale or issuance of such
rights, options, warrants or convertible or exchangeable securities, plus the
total consideration payable to the Corporation upon exercise or conversion or
exchange thereof, by (Y) the total number of shares of Company Common Stock
covered by such rights, options, warrants or convertible or exchangeable
securities) lower than either the Current Market Price per share of Common Stock
or the Dilution Price immediately prior to such sale or issuance, then the
Adjusted Conversion Price shall be reduced to the price determined by
multiplying the Adjusted Conversion Price in effect immediately prior thereto by
a fraction, the numerator of which shall be the sum of the number of shares of
Company Common Stock outstanding immediately prior to such sale or issuance plus
the number of shares of Company Common Stock which the aggregate consideration
received (determined as provided below) for such sale or issuance would purchase
at the Applicable Price and the denominator of which shall be the total number
of shares of Company Common Stock outstanding immediately after such sale or
issuance. Such adjustment shall be made successively whenever such sale or
issuance is made. For the purposes of such adjustments, the shares of
- 15 -
<PAGE>
Company Common Stock which the holder of any such rights, options, warrants, or
convertible or exchangeable securities shall be entitled to subscribe for or
purchase shall be deemed to be issued and outstanding as of the date of such
sale or issuance and the consideration "received" by the Corporation therefor
shall be deemed to be the consideration actually received or receivable by the
Corporation (plus any underwriting discounts or commissions in connection
therewith) for such rights, options, warrants or convertible or exchangeable
securities, plus the consideration stated in such rights, options, warrants or
convertible or exchangeable securities to be payable to the Corporation for the
shares of Company Common Stock covered thereby. If the Corporation shall sell
or issue shares of Company Common Stock for a consideration consisting, in whole
or in part, of property other than cash or its equivalent, then in determining
the "price per share of Company Common Stock" and the "consideration" received
or receivable by or payable to the Corporation for purposes of the first
sentence following the colon and the immediately preceding sentence of this
Article FIFTH Section (A)(5)(d)(4), the fair value of such property shall be
determined in good faith by the Board of Directors of the Corporation and shall
be the value which is agreed upon by at least a majority of the members thereof;
provided, that if the holders of a majority of the shares of Convertible
- --------
Preferred Stock object to such valuation as determined by the Board of Directors
within fifteen (15) days of receipt of written notice of such valuation or if
such percentage of the members of the Board of Directors of the Corporation are
unable to agree upon the value of such consideration, the value thereof shall be
determined by an independent investment bank of nationally recognized stature
that is selected by a majority of the members of the Board of Directors. The
determination of whether any adjustment is required under this Article FIFTH
- 16 -
<PAGE>
Section (A)(5)(d)(4) by reason of the sale and issuance of rights, options,
warrants or convertible or exchangeable securities and the amount of such
adjustment, if any, shall be made only at the time of such issuance or sale and
not at the subsequent time of issuance or sale of Company Common Stock upon the
exercise of such rights to subscribe or purchase. Upon the expiration of any
such options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such convertible
or exchangeable securities, the Adjusted Conversion Price, to the extent in any
was affected by or computed using such options, rights or securities or options
or rights related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Company Common Stock (and convertible
or exchangeable securities which remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities.
e. De Minimis Adjustments. No adjustment of the Adjusted Conversion
----------------------
Price shall be made if the amount of such adjustment would result in a change in
the Adjusted Conversion Price per share of less than $.05, but in such case any
adjustment that would otherwise be required to be made shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment, which together with any adjustment so carried forward, would result
in a change in the Adjusted Conversion Price of $.05 per share. Notwithstanding
the provisions of the first sentence of this Article FIFTH Section (A)(5)(d),
any adjustment postponed pursuant to this Article FIFTH Section (A)(5)(d) shall
be made no later than the earlier of (i) three years from the date of the
transaction that would, but for the provisions of the first
- 17 -
<PAGE>
sentence of this Article FIFTH Section (A)(5)(d), have required such adjustment
and (ii) immediately prior to the date of any conversion of shares of
Convertible Preferred Stock.
f. Fractional Shares. Notwithstanding any other provision of this
-----------------
Certificate of Incorporation, as amended, the Corporation shall not be required
to issue fractions of shares of Common Stock upon conversion of any shares of
Convertible Preferred Stock or to distribute certificates which evidence
fractional shares. In lieu of fractional shares, the Corporation may pay
therefore, at the time of any conversion of shares of Convertible Preferred
Stock as herein provided, an amount in cash equal to such fraction multiplied by
the Current Market Price of a share of Common Stock.
g. Reorganization, Reclassification, Merger and Sale of Assets
-----------------------------------------------------------
Adjustment. If there occurs any capital reorganization or any reclassification
- ----------
of the Company Common Stock or the Redeemable Preferred Stock, the consolidation
or merger of the Corporation with or into another Person (other than a merger or
consolidation of the Corporation in which the Corporation is the continuing
corporation and which does not result in any reclassification or change of
outstanding shares of Company Common Stock or Redeemable Preferred Stock) or the
sale, transfer or other disposition of all or substantially all of the assets of
the Corporation to another Person, in each case other than pursuant to a
Qualified Sale Transaction, then each share of Convertible Preferred Stock shall
thereafter be convertible into the same kind and amounts of securities
(including shares of stock) or other assets, or both, which were issuable or
distributable to the holders of outstanding Company Common Stock and Redeemable
Preferred Stock upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, in respect of that number of shares of
- 18 -
<PAGE>
Common Stock and Redeemable Preferred Stock into which such share of Convertible
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, consolidation, merger, sale or conveyance;
and, in any such case, appropriate adjustments (as determined in good faith by
the Board of Directors of the Corporation) shall be made to assure that the
provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be practicable, in relation to any securities or other assets
thereafter deliverable upon the conversion of the Convertible Preferred Stock.
h. Certificate as to Adjustments. Whenever the number of shares of
-----------------------------
Common Stock and Redeemable Preferred Stock issuable, or the securities or other
property deliverable upon the conversion of the Convertible Preferred Stock,
shall be adjusted pursuant to the provisions hereof, the Corporation shall
promptly give written notice thereof to each holder of shares of Convertible
Preferred Stock at such holder's address as it appears on the transfer books of
the Corporation and shall forthwith file, at its principal executive office and
with any transfer agent or agents for the Convertible Preferred Stock, the
Common Stock and the Redeemable Preferred Stock, a certificate, signed by the
President or one of the Vice Presidents of the Corporation, and by its Chief
Financial Officer, its Treasurer or one of its Assistant Treasurers, stating the
number of shares of Common Stock and Redeemable Preferred Stock issuable, or the
securities or other property deliverable, per share of Convertible Preferred
Stock converted, calculated to the nearest cent or to the nearest one one-
hundredth of a share and setting forth in reasonable detail the method of
calculation and the facts requiring such adjustment and upon which such
calculation is based. Each adjustment shall remain in effect until a subsequent
adjustment hereunder is required.
- 19 -
<PAGE>
i. Reservation of Common Stock and Redeemable Preferred Stock. The
----------------------------------------------------------
Corporation shall at all times reserve and keep available for issuance upon the
conversion of the shares of Convertible Preferred Stock the maximum number of
each of its authorized but unissued shares of Common Stock and Redeemable
Preferred Stock as is reasonably anticipated to be sufficient to permit the
conversion of all outstanding shares of Convertible Preferred Stock into
Conversion Units and shall take all action required to increase the authorized
number of shares of Common Stock or Redeemable Preferred Stock, as the case may
be, if at any time there shall be insufficient authorized but unissued shares of
Common Stock or Redeemable Preferred Stock, as the case may be, to permit such
reservation or to permit the conversion of all outstanding shares of Convertible
Preferred Stock.
j. No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Common Stock and Redeemable Preferred Stock upon the
conversion of shares of Convertible Preferred Stock shall be made without charge
to the holder of shares of Convertible Preferred Stock for any issue or transfer
tax, or other incidental expense in respect of the issuance or delivery of such
certificates or the securities represented thereby, all of which taxes and
expenses shall be paid by the Corporation.
6. Preemptive Rights.
-----------------
a. Except as provided in paragraph (b) below, if the Corporation
shall from time to time (each such time referred to herein as a "DETERMINATION
-------------
TIME") propose to issue and sell any capital stock or any security convertible
- ----
for or exchangeable into capital stock (each a "NEW ISSUANCE"), then the
------------
Corporation shall give twenty (20) days prior written notice to each holder of
Convertible Preferred Stock (such notice to specify the
- 20 -
<PAGE>
number and type of securities comprising the New Issuance and the price, terms
and conditions of such issuance and sale). By written notice given to the
Corporation within ten (10) days of being notified of such New Issuance, each
holder of Convertible Preferred Stock shall be entitled to purchase that
percentage of the New Issuance determined by dividing (i) the total number of
shares of Convertible Preferred Stock owned by such holder by (ii) the total
number of shares of Convertible Preferred Stock then outstanding.
b. The provisions of this Article FIFTH Section (A)(6) shall not
apply to the issuance of capital stock or securities convertible into or
exchangeable for capital stock to be issued to (i) an employee, advisor,
consultant or director of the Corporation directly or pursuant to any stock
option or stock plan or arrangement that has been approved by the Corporation's
Board of Directors and not exceeding, in the aggregate, 3,225,000 shares of
Common Stock (subject to adjustment in the circumstances set forth in Article
FIFTH Section (A)(5)(d)(1)), (ii) pursuant to the exercise of any option,
warrant or convertible security outstanding on the Issue Date of the Convertible
Preferred Stock, (iii) in connection with bona fide research, licensing or
corporate partnering relationships, in connection with equipment lease
financing, or in connection with non-convertible debt financing with
institutional lenders, in each case approved by the Board of Directors of the
Corporation, (iv) upon conversion of the Convertible Preferred Stock, (v) in
connection with a merger or consolidation as a result of which the holders of
the Corporation's outstanding capital stock immediately prior to the
consummation of such transaction hold voting securities in excess of fifty
percent of the voting power of the surviving or resulting entity or (vi) in
connection with a stock split, stock dividend or recapitalization.
- 21 -
<PAGE>
7. Certain Remedies. Any registered holder of shares of Convertible
----------------
Preferred Stock shall be entitled to an injunction or injunctions to prevent
violations of the provisions of this Certificate of Incorporation, as amended,
and to enforce specifically the terms and provisions of this Certificate of
Incorporation, as amended, in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
such holder may be entitled at law or in equity. Notwithstanding the foregoing,
the observance of any term of this Certificate of Incorporation, as amended,
which benefits only the holders of the Convertible Preferred Stock may be waived
by a majority in interest of the Convertible Preferred Stock (either generally
or in a particular instance and either retroactively or prospectively).
B. Redeemable Preferred Stock.
--------------------------
1. Ranking. The Redeemable Preferred Stock and the Convertible
-------
Preferred Stock shall rank on a parity with respect to dividend rights and
rights on liquidation, dissolution or winding up, and shall rank senior to all
other equity securities of the Corporation, and any other series or class of the
Corporation's preferred or common stock, now or hereafter authorized.
2. Dividends and Distributions.
---------------------------
a. Dividends. The holders of outstanding shares of Redeemable
---------
Preferred Stock shall be entitled to receive dividends, as, when and if declared
by the Board of Directors, out of Legally Available Funds.
b. Accrued Dividends; Record Date. Dividends payable on the
------------------------------
Redeemable Preferred Stock shall begin to accrue from the Issue Date of the
Redeemable Preferred Stock at an annual rate equal to 16% based upon the
Redeemable Liquidation Preference, calculated on the basis of a 360-day year
- 22 -
<PAGE>
consisting of twelve 30-day months, and shall accrue on a daily basis, in each
case whether or not earned or declared. The Board of Directors may fix a record
date for the determination of holders of shares of Redeemable Preferred Stock
entitled to receive payment of any dividends payable pursuant to Article FIFTH
Section (B)(2)(a), which record date shall not be more than 60 days prior to the
applicable dividend payment date.
c. Dividends Pro Rata. All dividends paid with respect to shares of
------------------
Redeemable Preferred Stock pursuant to this Article FIFTH Section (B)(2) shall
be paid pro rata to the holders entitled thereto. In the event that the Legally
Available Funds shall be insufficient for the payment of the entire amount of
cash dividends payable at any dividend payment date, such funds shall be
allocated for the payment of dividends with respect to the shares of Redeemable
Preferred Stock pro rata.
d. Certain Restrictions.
--------------------
If any dividends accrued on shares of Redeemable Preferred Stock as
provided in this Article FIFTH Section (B)(2) are not paid in full in cash, then
until all such dividends shall have been paid in full in cash, the Corporation
shall not declare or pay cash dividends on, or make any other distributions with
respect to, any shares of capital stock of the Corporation ranking junior to the
Redeemable Preferred Stock and Convertible Preferred Stock.
3. Voting Rights. Except as set forth in Article FIFTH Section
-------------
(A)(3)(b), the holders of Redeemable Preferred Stock shall not have any right to
vote unless required to have a vote under applicable law.
4. Liquidation, Dissolution or Winding Up.
--------------------------------------
- 23 -
<PAGE>
a. In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary (other than a liquidation,
dissolution or winding up following the redemption of all of the Redeemable
Preferred Stock in connection with a Qualified Sale Transaction), before any
distribution or payment to holders of Common Stock or of any other capital stock
ranking in any such event junior to the Redeemable Preferred Stock and the
Convertible Preferred Stock, the holders of shares of Redeemable Preferred Stock
and Convertible Preferred Stock shall be entitled to be paid, (x) in the case of
the Redeemable Preferred Stock, an amount equal to the Redeemable Liquidation
Preference, plus an amount equal to all accrued and unpaid dividends, if any,
with respect to each share of Redeemable Preferred Stock and (y) in the case of
the Convertible Preferred Stock, an amount equal to the greater of (i) the
Liquidation Preference, plus an amount equal to all accrued and unpaid
dividends, if any, with respect to each share of Convertible Preferred Stock or
(ii) the amount that the holders of Convertible Preferred Stock would be
entitled to receive in connection with such liquidation, dissolution or winding
up if all of the holders of the Convertible Preferred Stock had converted their
shares immediately prior to any relevant record date or payment in connection
with such liquidation, dissolution or winding up, in either case, before any
payment or distribution is made to any class or series of capital stock ranking
junior to the Redeemable Preferred Stock and Convertible Preferred Stock.
b. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to the
holders of Redeemable Preferred Stock and the Convertible Preferred Stock shall
be insufficient to permit payment in full to such holders of the sums which such
- 24 -
<PAGE>
holders are entitled to receive in such case, then all of the assets available
for distribution to holders of the Redeemable Preferred Stock and the
Convertible Preferred Stock shall be distributed among and paid to such holders
ratably in proportion to the amounts that would be payable to such holders if
such assets were sufficient to permit payment in full.
c. Neither the consolidation or merger of the Corporation with
or into any other Person nor the sale or other distribution to another Person of
all or substantially all the assets, property or business of the Corporation
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this Article FIFTH Section (B)(4).
5. Redemption. The Corporation shall, as provided below, redeem the
----------
shares of Redeemable Preferred Stock.
a. Automatic Redemption. On the date of the closing of a
--------------------
Qualified Public Offering or a Qualified Sale Transaction (a "MANDATORY
---------
REDEMPTION DATE"), each share of Redeemable Preferred Stock shall automatically,
- ---------------
with no further action required to be taken by the Corporation or the holder
thereof, be redeemed (unless otherwise prevented by law), at a redemption price
per share equal to 100% of the Redeemable Liquidation Preference for such
Redeemable Preferred Stock, plus (i) all accrued and unpaid dividends on the
Redeemable Preferred Stock to the date of redemption and (ii) all deferred
amounts on the Convertible Preferred Stock specified in Article FIFTH Section
(A)(5)(c) hereof. The total sum payable per share of Redeemable Preferred Stock
to be redeemed (the "REDEEMED SHARES") on the Mandatory Redemption Date is
---------------
hereinafter referred to as the "REDEMPTION PRICE", and the payment to be made on
----------------
the Mandatory Redemption Date for the Redeemed Shares is hereinafter referred to
as the "REDEMPTION PAYMENT". Upon notice from the Corporation, each holder
------------------
- 25 -
<PAGE>
of Redeemable Preferred Stock so redeemed shall promptly surrender to the
Corporation, at any place where the Corporation shall maintain a transfer agent
for its Redeemable Preferred Stock, certificates representing the shares so
redeemed, duly endorsed in blank or accompanied by proper instruments of
transfer.
b. Termination of Rights. Except as set forth in Article FIFTH
---------------------
Section (B)(5)(c), on and after the Mandatory Redemption Date all rights of any
holder of Redeemable Preferred Stock shall cease and terminate; and such
Redeemed Shares shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Corporation;
provided, however, that, if the Corporation defaults in the payment of the
- -------- -------
Redemption Payment, the rights of the holders of Redeemable Preferred Stock
shall continue until the Corporation cures such default.
c. Insufficient Funds for Redemption. If the funds of the
---------------------------------
Corporation available for redemption of the Redeemable Preferred Stock by law or
otherwise on the Mandatory Redemption Date are insufficient to redeem the
Redeemed Shares on such date, the holders of Redeemed Shares shall share ratably
in any funds available by law for redemption of such shares according to the
respective amounts which would be payable with respect to the number of shares
owned by them if the shares to be so redeemed on such Mandatory Redemption Date
were redeemed in full. The Corporation shall in good faith use all reasonable
efforts as expeditiously as possible to eliminate, or obtain an exception,
waiver or exemption from, any and all restrictions under applicable law that
prevented the Corporation from paying the Redemption Price and redeeming all of
the shares of Redeemable Preferred Stock to be redeemed hereunder. At any time
thereafter when additional funds of the Corporation are available by law for the
- 26 -
<PAGE>
redemption of shares of Redeemable Preferred Stock, such funds will be used, at
the end of the next succeeding fiscal quarter, to redeem the balance of such
shares, or such portion thereof for which funds are available, on the basis set
forth above. In the event that funds are not available by law for the payment
in full of the Redemption Price for the shares of Redeemable Preferred Stock to
be so redeemed on the Mandatory Redemption Date, then the Corporation shall be
obliged to make such partial redemption so that the number of shares of
Redeemable Preferred Stock held by each holder shall be reduced in an amount
which shall bear the same ratio to the actual number of shares of Redeemable
Preferred Stock required to be redeemed on such Mandatory Redemption Date as the
number of shares of Redeemable Preferred Stock then held by such holder bears to
the aggregate number of shares of Redeemable Preferred Stock then outstanding.
In the event that the Corporation fails to redeem shares of Redeemable Preferred
Stock for which redemption is required, then during the period from the
Mandatory Redemption Date through the date on which such shares that the
Corporation failed to redeem on the Mandatory Redemption Date are actually
redeemed, dividends on such shares shall continue to accrue and be cumulative as
specified in Article FIFTH Section (B)(2)(b).
C. Definitions. For the purposes of this Certificate of
-----------
Incorporation, as amended, the following terms shall have the meanings
indicated:
"Adjusted Conversion Price" shall mean, with respect to each share of
-------------------------
Convertible Preferred Stock, $1.68, subject to appropriate adjustment for events
described in Article FIFTH Section (A)(5).
- 27 -
<PAGE>
"Applicable Price" shall mean the higher of (a) the Current Market
----------------
Price per share of Common Stock on the applicable record or other relevant date
and (b) the Dilution Price.
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Change of Control" shall mean (i) the direct or indirect sale, lease,
-----------------
exchange or other transfer of all or substantially all of the assets of the
Corporation to any Person or entity or group of Persons or entities acting in
concert as a partnership or other group (a "GROUP OF PERSONS"), (ii) the merger
----------------
or consolidation of the Corporation with or into another corporation with the
effect that the then existing stockholders of the Corporation hold less than 50%
of the combined voting power of the then outstanding securities of the surviving
corporation of such merger or the corporation resulting from such consolidation
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors, (iii) the replacement of a
majority of the Board of Directors of the Corporation, over a two-year period,
from the directors who constituted the Board of Directors at the beginning of
such period, and such replacement shall not have been approved by the Board of
Directors of the Corporation (or its replacements approved by the Board of
Directors of the Corporation) as constituted at the beginning of such period,
(iv) a Person or Group of Persons shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or otherwise, have
become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act) of securities of the Corporation representing 50% or more of the combined
voting power of the then
- 28 -
<PAGE>
outstanding securities of the Corporation ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors.
"Closing Price" shall mean, with respect to each share of Common
-------------
Stock, for any day, (a) the last reported sale price regular way or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices regular way, in either case as reported on the principal national
securities exchange on which such Common Stock is listed or admitted for trading
or (b) if such Common Stock is not listed or admitted for trading on any
national securities exchange, the last reported sale price or, in case no such
sale takes place on such day, the average of the highest reported bid and the
lowest reported asked quotation for such Common Stock as reported on the
Automatic Quotation System of NASDAQ or a similar service if NASDAQ is no longer
reporting such information.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" shall mean the Corporation's Common Stock, par
------------
value $0.001 per share.
"Company Common Stock" shall mean, collectively, the Common Stock and
--------------------
any class of common stock of the Corporation authorized after the Issue Date of
the Convertible Preferred Stock, or any other class or series of stock resulting
from successive changes or reclassifications of the Common Stock.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "PRIMARY
-------
- 29 -
<PAGE>
OBLIGATION") of another Person (with respect to a given primary obligation, the
- ----------
"PRIMARY OBLIGOR"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or equity capital of the primary obligor in respect of any such
primary obligation or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of such primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor in respect thereof to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof.
"Conversion Unit" has the meaning assigned such term in Article
---------------
FIFTH Section (A)(5).
"Convertible Preferred Stock" has the meaning assigned such term
---------------------------
in Section 1.
"Current Market Price" shall mean, with respect to shares of Common
--------------------
Stock, on any date, the average of the daily Closing Prices per share of Common
Stock for the 10 consecutive trading days commencing 15 days before such date.
If on any such date the shares of such Common Stock are not listed or admitted
for trading on any national securities exchange or quoted on NASDAQ or
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<PAGE>
a similar service, the Current Market Price for such shares shall be the fair
market value of such shares on such date as determined in good faith by the
Board of Directors of the Corporation and shall be the value which is agreed
upon by at least 85% of the members thereof, or if such percentage of the
members of the Board of Directors of the Corporation are unable to agree upon
the value of such consideration, the value thereof shall be determined by an
independent investment bank of a nationally recognized stature that is selected
by the holders of a majority of the outstanding shares of Convertible Preferred
Stock.
"Determination Time" has the meaning assigned such term in
------------------
Article FIFTH Section (A)(6)(a).
"Dilution Price" shall mean, with respect to each share of Common
--------------
Stock, $1.68, subject to appropriate adjustment for events described in Article
FIFTH Section (A)(5)(d)(1).
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Commission thereunder.
"GAAP" means generally accepted United States accounting
----
principles in effect from time to time.
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of any of the foregoing.
"Gross Cash Proceeds" shall mean, with respect to any Initial Public
-------------------
Offering, the gross proceeds received by the Corporation or any
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<PAGE>
subsidiary of the Corporation, before brokerage commissions or other fees and
------
expenses relating to such Initial Public Offering.
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause (f))
on any property or asset owned or held by such Person regardless of whether the
indebtedness secured thereby shall have been assumed by such Person or is non-
recourse to the credit of such Person and (h) all Contingent Obligations of such
Person.
"Initial Conversion Price" shall mean, with respect to each share
------------------------
of Convertible Preferred Stock $1.68.
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<PAGE>
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Corporation of its Common Stock pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act.
"Issue Date" shall mean the date, as the case may be, on which the
----------
shares of Convertible Preferred Stock or Redeemable Preferred Stock are issued.
"Legally Available Funds" has the meaning assigned such term in
-----------------------
Article FIFTH Section (A)(2)(a).
"Liquidation Preference" shall mean, with respect to each share of
----------------------
Convertible Preferred Stock, its original purchase price of $2.244459.
"Mandatory Redemption Date" has the meaning assigned such term in
-------------------------
Article FIFTH Section (B)(5)(a).
"NASDAQ" shall mean the National Association of Securities
------
Dealers, Inc.
"New Issuance" has the meaning assigned such term in Article
------------
FIFTH Section (A)(6)(a).
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of any such entity.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Gross Cash Proceeds to the Company in excess of $22,000,000.00 and
in respect of which the price per share of Common Stock sold in such Initial
Public Offering is at least $5.00 (subject to appropriate adjustment for any
dividends, subdivisions, combinations or reclassifications of Common Stock).
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<PAGE>
"Qualified Sale Transaction" means a Sale Transaction in which the
--------------------------
aggregate consideration received by the Corporation's stockholders, before
brokerage commissions or other fees and expenses relating to such Sale
Transaction is in excess of $100,000,000.00.
"Redeemable Liquidation Preference" shall mean with respect to each
---------------------------------
share of Redeemable Preferred Stock, $4,250,000 divided by the number of shares
of Redeemable Preferred Stock outstanding (assuming conversion of all shares of
Convertible Preferred Stock pursuant to Article FIFTH Section (A)(5)).
"Redeemable Preferred Stock" has the meaning assigned such term
--------------------------
in Section 1.
"Sale Transaction" shall mean (i) any sale of the capital stock of the
----------------
Corporation, (ii) any merger, consolidation, sale or other business combination
involving the Corporation or (iii) any sale of all or substantially all of the
assets of the Corporation, in each case in one transaction or a series of
transactions occurring prior to the consummation of an initial public offering.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission thereunder.
SIXTH. Election of directors need not be by written ballot.
SEVENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
EIGHTH. The Board of Directors is authorized to adopt, amend, or repeal
By-Laws of the Corporation except as and to the extent provided in the By-Laws.
- 34 -
<PAGE>
NINTH. A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the Corporation or any of its direct or indirect
subsidiaries or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of any other corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee, or agent or in any other capacity while serving as
a director, officer, employee, or agent, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability, and loss (including attorneys' fees,
judgments, fines, excise or other taxes assessed with respect to an employee
benefit plan, penalties, and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith, and such indemnification
shall continue as to an indemnitee who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the indemnitee's heirs,
executors, and administrators; provided, however, that, except as provided in
Paragraph C of this Article NINTH with respect to proceedings to enforce rights
to indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
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<PAGE>
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Paragraph A of this
Article NINTH shall include the right to be paid by the Corporation the expenses
incurred in defending any proceeding for which such right to indemnification is
applicable in advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that, if the Delaware General Corporation Law
-------- -------
requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under this Article NINTH or otherwise.
C. The rights to indemnification and to the advancement of expenses
conferred in Paragraphs A and B of this Article NINTH shall be contract rights.
If a claim under Paragraph A or B of this Article NINTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be
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<PAGE>
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by an indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that the indemnitee has not met
any applicable standard for indemnification set forth in the Delaware General
Corporation Law, and (ii) any suit by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that the indemnitee
has not met any applicable standard for indemnification set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article NINTH or otherwise, shall be on the Corporation.
- 37 -
<PAGE>
D. The rights to indemnification and to the advancement of expenses
conferred in this Article NINTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, this certificate of
incorporation, by-law, agreement, vote of stockholders or disinterested
directors, or otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee, or agent of the Corporation
or another corporation, partnership, joint venture, trust, or other enterprise
against any expense, liability, or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability, or loss
under the Delaware General Corporation Law.
F. The Corporation's obligation, if any, to indemnify any person who
was or is serving as a director, officer, employee, or agent of any direct or
indirect subsidiary of the Corporation or, at the request of the Corporation, of
any other corporation or of a partnership, joint venture, trust, or other
enterprise shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
or other enterprise.
G. Any repeal or modification of the foregoing provisions of this
Article NINTH shall not adversely affect any right or protection hereunder of
any person in respect of any act or omission occurring prior to the time of such
repeal or modification.
TENTH. No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision does not eliminate
the liability of the director (i) for any breach of the director's duty of
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<PAGE>
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of Title 8 of the Delaware Code, or (iv) for any
transaction from which the director derived an improper personal benefit. For
purposes of the prior sentence, the term "damages" shall, to the extent
permitted by law, include without limitation, any judgment, fine, amount paid in
settlement, penalty, punitive damages, excise or other tax assessed with respect
to an employee benefit plan, or expense of any nature (including, without
limitation, counsel fees and disbursements). Each person who serves as a
director of the Corporation while this Article TENTH is in effect shall be
deemed to be doing so in reliance on the provisions of this Article TENTH, and
neither the amendment or repeal of this Article TENTH, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
TENTH, shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for, arising out of, based upon, or in
connection with any acts or omissions of such director occurring prior to such
amendment, repeal, or adoption of an inconsistent provision. The provisions of
this Article TENTH are cumulative and shall be in addition to and independent of
any and all other limitations on or eliminations of the liabilities of directors
of the Corporation, as such, whether such limitations or eliminations arise
under or are created by any law, rule, regulation, by-law, agreement, vote of
shareholders or disinterested directors, or otherwise.
ELEVENTH. Whenever a compromise or arrangement is proposed between
the Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
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<PAGE>
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
IN WITNESS WHEREOF, I have made, signed, and sealed this Certificate of
Incorporation this ____ day of June, 1996.
_________________________________
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<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
of
NITINOL MEDICAL TECHNOLOGIES, INC.
As adopted June __, 1996
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC.
A Delaware Corporation
AMENDED AND RESTATED BY-LAWS
___________________________
ARTICLE I
OFFICES
The principal office of Nitinol Medical Technologies, Inc. (the
"Corporation") shall be located at its principal place of business or such other
place as the Board of Directors ("Board") may designate. The Corporation may
have such other offices, either within or without the State of Delaware, as the
Board may designate or as the business of the Corporation may require from time
to time.
ARTICLE II
STOCKHOLDERS
Section 2.1 Annual Meeting.
--------------
An annual meeting of stockholders for the purposes of electing directors
and of transacting such other business as may come before it shall be held on
such date and time as shall be designated from time to time by the Board or the
President, either within or without the State of Delaware, as may be specified
by the Board.
Section 2.2 Special Meetings.
----------------
Except as otherwise provided for in the Amended and Restated Certificate of
Incorporation, special meetings of stockholders for any purpose or purposes may
be held at any time upon call of the Chairman of the Board, if any, the Chief
Executive Officer, the President, the Secretary, or a majority of the
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<PAGE>
Board, at such time and place either within or without the State of Delaware as
may be stated in the notice. A special meeting of stockholders shall be called
by the President or the Secretary upon the written request, stating time, place,
and the purpose or purposes of the meeting, of stockholders who together own of
record 25% of the outstanding stock of all classes entitled to vote at such
meeting.
Section 2.3 Notice of Meetings.
------------------
Written notice of stockholders meetings, stating the place, date, and hour
thereof, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by the Chairman of the Board, if
any, the President, any Vice President, the Secretary, or an Assistant
Secretary, to each stockholder entitled to vote thereat at least ten days but
not more than sixty days before the date of the meeting, unless a different
period is prescribed by laws.
Section 2.4 Quorum.
------
Except as otherwise provided by law or in the Amended and Restated
Certificate of Incorporation or these Amended and Restated By-Laws, at any
meeting of stockholders, the holders of a majority of the outstanding shares of
each class of stock entitled to vote at the meeting shall be present or
represented by proxy in order to constitute a quorum for the transaction of any
business. In the absence of a quorum, a majority in interest of the
stockholders present or the chairman of the meeting may adjourn the meeting from
time to time in the manner provided in Section 2.5 of these Amended and Restated
By-Laws until a quorum shall attend.
Section 2.5 Adjournment.
-----------
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
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<PAGE>
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 2.6 Organization.
------------
The Chairman of the Board, if any, or in his absence the President, or in
their absence any Vice President, shall call to order meetings of stockholders
and shall act as chairman of such meetings. The Board or, if the Board fails to
act, the stockholders may appoint any stockholder, director, or officer of the
Corporation to act as chairman of any meeting in the absence of the Chairman of
the Board, the President, and all Vice Presidents.
The Secretary of the Corporation shall act as secretary of all meetings of
stockholders, but, in the absence of the Secretary, the chairman of the meeting
may appoint any other person to act as secretary of the meeting.
Section 2.7 Voting.
------
Except as otherwise provided by law or in the Amended and Restated
Certificate of Incorporation or these Amended and Restated By-Laws and except
for the election of directors, at any meeting duly called and held at which a
quorum is present, a majority of the votes cast at such meeting upon a given
question by the holders of outstanding shares of stock of all classes of stock
of the Corporation entitled to vote thereon who are present in person or by
proxy shall decide such question. At any meeting duly called and held for the
election of directors at which a quorum is present, those directors receiving
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<PAGE>
a plurality of the votes cast by the holders (acting as such) of shares of any
class or series entitled to elect directors as a class shall be elected.
Section 2.8 Action Without a Meeting.
------------------------
The stockholders may take any action required or permitted to be taken by
them without a meeting unless otherwise prohibited by law or the Amended and
Restated Certificate of Incorporation.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 Number and Term of Office.
-------------------------
The business, property, and affairs of the Corporation shall be managed by
or under the direction of a board of at least one director; provided, however,
that the Board, by resolution adopted by vote of a majority of the then
authorized numbers of directors, may increase or decrease the number of
directors. The directors shall be elected by the holders of shares entitled to
vote thereon at the annual meeting of stockholders, and each shall serve
(subject to the provisions of Article IV) until the next succeeding annual
meeting of stockholders and until his respective successor is elected and
qualified.
Section 3.2 Chairman of the Board.
---------------------
The directors may elect one of their members to be Chairman of the Board.
The Chairman shall be subject to the control of and may be removed by the Board.
He shall perform such duties as may from time to time be assigned to him by the
Board.
Section 3.3 Meetings.
--------
Regular meetings of the Board may be held without notice at such time and
place as shall from time to time be determined by the Board.
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<PAGE>
Special meetings of the Board shall be held at such time and place as shall
be designated in the notice of the meeting whenever called by the Chairman of
the Board, if any, the President, or by a majority of the directors then in
office.
Section 3.4 Notice of Special Meetings.
--------------------------
The Secretary, or, in his absence, any other office of the Corporation,
shall give each director notice of the time and place of holding of special
meetings of the Board by mail at least five days before the meeting, or by
telex, telecopy, telegraph, cable or overnight courier at least three days
before the meeting. Unless otherwise stated in the notice thereof, any and all
business may be transacted at any meeting without specification of such business
in the notice.
Section 3.5 Quorum and Organization of Meetings.
-----------------------------------
A majority of the total number of members of the Board as constituted from
time to time shall constitute a quorum for the transaction of business, but, if
at any meeting of the Board (whether or not adjourned from a previous meeting)
there shall be less than a quorum present, a majority of those present may
adjourn the meeting to another time and place, and the meeting may be held as
adjourned without further notice or waiver. Except as otherwise provided by law
or in the Amended and Restated Certificate of Incorporation or these Amended and
Restated By-Laws, a majority of the directors present at any meeting at which a
quorum is present may decide any question brought before such meeting. Meetings
shall be presided over by the Chairman of the Board, if any, or in his absence,
by the President, or in the absence of both by such other person as the
directors may select. The Secretary of the Corporation shall act as secretary
of the meeting, but in his absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
-5-
<PAGE>
Section 3.6 Committees.
----------
The Board may, by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the power and authority of the Board in the management of the
business, property, and affairs of the Corporation, and may authorize the seal
of the Corporation to be affixed to all papers which may require it; but no such
committee shall have power or authority in reference to amending the Amended and
Restated Certificate of Incorporation of the Corporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board pursuant to
authority expressly granted to the Board by the Corporation's Amended and
Restated Certificate of Incorporation, fix any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation, or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the Corporation), adopting an
agreement of merger or consolidation under Section 251 or 252 of the General
Corporation Law of the State of Delaware, recommending to the stockholders the
sale, lease, or exchange of all or substantially all of the Corporation's
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<PAGE>
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of dissolution, or amending these Amended and
Restated By-Laws; and, unless the resolution expressly so provided, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of the State of Delaware.
Each committee which may be established by the Board pursuant to these Amended
and Restated By-Laws may fix its own rules and procedures. Notice of meetings
of committees, other than of regular meetings provided for by the rules, shall
be given to committee members. All action taken by committees shall be recorded
in minutes of the meetings.
Section 3.7 Action Without Meeting.
----------------------
The Board or any committee designated by the Board may take any action
required or permitted to be taken by them without a meeting unless otherwise
prohibited by law or the Amended and Restated Certificate of Incorporation.
Section 3.8 Telephone Meetings.
------------------
Nothing contained in these Amended and Restated By-laws shall be deemed to
restrict the power of members of the Board, or any committee designated by the
Board, to participate in a meeting of the Board, or committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
ARTICLE IV
OFFICERS
Section 4.1 Executive Officers.
------------------
The executive officers of the Corporation shall be a Chairman of the Board,
a Chief Executive Officer, a President, one or more Vice Presidents, a
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<PAGE>
Treasurer, and a Secretary, each of whom shall be elected by the Board. The
Board may elect or appoint such other officers (including a Controller and one
or more Assistant Treasurers and Assistant Secretaries) as it may deem necessary
or desirable. Each officer shall hold office for such term as may be prescribed
by the Board from time to time. Any person may hold at one time two or more
offices.
Section 4.2 Powers and Duties.
-----------------
The Chairman of the Board, if any, or, in his absence, the Chief Executive
Officer, or in his absence, the President, shall preside at all meetings of the
stockholders and of the Board. The Chief Executive Officer shall be the chief
executive officer of the Corporation. In the absence of the Chief Executive
Officer, the President and, in the absence of the President, a Vice President
appointed by the President or, if the President fails to make such appointment,
by the Board, shall perform all the duties of the Chief Executive Officer. The
officers and agents of the Corporation shall each have such powers and authority
and shall perform such duties in the management of the business, property and
affairs of the Corporation as generally pertain to their respective offices, as
well as such powers and authorities and such duties as from time to time may be
prescribed by the Board.
ARTICLE V
RESIGNATIONS, REMOVALS, AND VACANCIES
Section 5.1 Resignations.
------------
Any director or officer of the Corporation, or any member of any committee,
may resign at any time by giving written notice to the Board, the Chief
Executive Officer, the President, or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if the
-8-
<PAGE>
time be not specified therein, then upon receipt thereof. The acceptance of
such resignation shall not be necessary to make it effective.
Section 5.2 Removals.
--------
The Board, by a vote of not less than a majority of the entire Board, at
any meeting thereof, or by written consent, at any time, may, to the extent
permitted by law, remove with or without cause, from office or terminate the
employment of any officer or member of any committee and may, with or without
cause, disband any committee.
Any director or the entire Board may be removed, with or without cause, by
the holders of a majority of the shares entitled at the time to vote at an
election of directors.
Section 5.3 Vacancies.
---------
Any vacancy in the office of any director or officer through death,
resignation, removal, disqualification, or other cause, and any additional
directorship resulting from any increase in the number of directors, may be
filled at any time by a majority of the directors then in office (even though
less than a quorum remains) or, in the case of any vacancy in the office of any
director, by the stockholders, and, subject to the provisions of this Article V,
the person so chosen shall hold office until his successor shall have been
elected and qualified; or, if the person so chosen is a director elected to fill
a vacancy, he shall (subject to the provisions of this Article IV) hold office
for the unexpired term of his predecessor.
-9-
<PAGE>
ARTICLE VI
CAPITAL STOCK
Section 6.1 Stock Certificates.
------------------
The certificates for shares of the capital stock of the Corporation
shall be in such form as shall be prescribed by law and approved, from time to
time, by the Board.
Section 6.2 Transfer of Shares.
------------------
Shares of the capital stock of the Corporation may be transferred on
the books of the Corporation only by the holder of such shares or by his duly
authorized attorney, upon the surrender to the Corporation or its transfer agent
of the certificate representing such stock properly endorsed.
Section 6.3 Fixing Record Date.
------------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which, unless otherwise
provided by law, shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action.
Section 6.4 Lost Certificates.
-----------------
The Board or any transfer agent of the Corporation may direct a new
certificate or certificates representing stock of the Corporation to be issued
in place of any certificate or certificates theretofore issued by the
Corporation, alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate to be lost,
-10-
<PAGE>
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board (or any transfer agent of the Corporation authorized to
do so by a resolution of the Board) may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as the Board (or any transfer agent so
authorized) shall direct to indemnify the Corporation against any claim that may
be made against the Corporation with respect to the certificate alleged to have
been lost, stolen, or destroyed or the issuance of such new certificates, and
such requirement may be general or confined to specific instances.
Section 6.5 Regulations.
------------
The Board shall have power and authority to make all such rules and
regulations as it may deem expedient concerning the issue, transfer,
registration, cancellation, and replacement of certificates representing stock
of the Corporation.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Corporate Seal.
--------------
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal" and
"Delaware".
Section 7.2 Fiscal Year.
-----------
The fiscal year of the Corporation shall be
determined by resolution of the Board.
-11-
<PAGE>
Section 7.3 Notices and Waivers Thereof.
---------------------------
Wherever any notice whatever is required by law, the Amended and
Restated Certificate of Incorporation, or these Amended and Restated By-Laws to
be given to any stockholder, director, or officer, such notice, except as
otherwise provided by law, may be given personally, or by mail, telex, telecopy,
telegraph, cable or overnight courier addressed to such address as appears on
the books of the Corporation. Any notice given by telex, telecopy, telegraph or
cable shall be deemed to have been given when it shall have been delivered for
transmission, and any notice given by mail or overnight courier shall be deemed
to have been given when it shall have been deposited in the United States mail
with postage thereon prepaid or given to such courier service, as applicable.
Whenever any notice is required to be given by law, the Amended and
Restated Certificate of Incorporation, or these Amended and Restated By-Laws, a
written waiver thereof, signed by the person entitled to such notice, whether
before or after the meeting or the time stated therein, shall be deemed
equivalent in all respects to such notice to the full extent permitted by law.
Section 7.4 Stock of Other Corporations or Other Interests.
----------------------------------------------
Unless otherwise ordered by the Board, the Chief Executive Officer,
the President, the Secretary, and such attorneys or agents of the Corporation as
may be from time to time authorized by the Board, the Chief Executive Officer,
or the President, shall have full power and authority on behalf of the
Corporation to attend and to act and vote in person or by proxy at any meeting
of the holders of securities of any corporation or other entity in which the
Corporation owns or holds shares or other securities, and at such meetings shall
possess and may exercise all the rights and powers incident to the ownership of
such shares or other securities which the Corporation, as the owner or holder
-12-
<PAGE>
thereof, might have possessed and exercised if present. The Chief Executive
Officer, the President, the Secretary, or such attorneys or agents, may also
execute and deliver on behalf of the Corporation powers of attorney, proxies,
consents, waivers, and other instruments relating to the shares or securities
owned or held by the Corporation.
ARTICLE VIII
AMENDMENTS
The holders of shares entitled at the time to vote for the election of
directors shall have power to adopt, amend, or repeal the Amended and Restated
By-laws of the Corporation by vote of not less than a majority of such shares,
and except as otherwise provided by law, the Board shall have power equal in all
respects to that of the stockholders to adopt, amend, or repeal the Amended and
Restated By-Laws by vote of not less than a majority of the entire Board.
However, any By-Law adopted by the Board may be amended or repealed by vote of
the holders of a majority of the shares entitled at the time to vote for the
election of directors.
ARTICLE IX
PROVISIONS OF LAW
The Amended and Restated By-Laws shall be subject to such provisions
of the statutory and common laws of the State of Delaware as may be applicable
to corporations organized under the laws of the State of Delaware. References
herein to provisions of law shall be deemed to be references to the aforesaid
provisions of law unless otherwise explicitly stated. All references in the
Amended and Restated By-Laws to such provisions of law shall be construed to
refer to such provisions as from time to time amended.
-13-
<PAGE>
ARTICLE X
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Amended and Restated By-Laws shall be subject to the Amended and
Restated Certificate of Incorporation of the Corporation. All references in the
Amended and Restated By-Laws to the Amended and Restated Certificate of
Incorporation shall be construed to mean the Amended and Restated Certificate of
Incorporation of the Corporation as from time to time amended.
-14-
<PAGE>
EXHIBIT 10.1
____________________________________________________________
STOCK PURCHASE AGREEMENT
among
NITINOL MEDICAL TECHNOLOGIES, INC.,
WHITNEY EQUITY PARTNERS, L.P.,
BOSTON SCIENTIFIC CORPORATION,
DAVID J. MORRISON
and
CORPORATE DECISIONS, INC.
______________________________
Dated as of February 16, 1996
______________________________
____________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 DEFINITIONS................................. 1
1.1 Definitions................................. 1
1.2 Accounting Terms; Financial Statements...... 8
ARTICLE 2 PURCHASE AND SALE OF STOCK.................. 8
2.1 Purchase and Sale of Stock.................. 8
2.2 Powers, Rights and Preferences.............. 9
2.3 Fees and Reimbursement of Expenses.......... 9
2.4 Closing 9
ARTICLE 3 CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO CLOSE. 9
3.1 Representations and Warranties.............. 9
3.2 Compliance with this Agreement.............. 10
3.3 Secretary's Certificate..................... 10
3.4 Documents 10
3.5 Purchase Permitted by Applicable Laws....... 10
3.6 Opinion of Counsel.......................... 10
3.7 Consents and Approvals...................... 10
3.8 No Material Adverse Change.................. 11
3.9 Capitalization and Ownership; Conduct of
Business.................................... 11
3.10 Registration Rights Agreement............... 11
3.11 Stockholders' Agreement..................... 11
3.12 Certificate of Incorporation and Bylaws..... 11
3.13 No Material Judgment or Order............... 11
3.14 Pro Forma Balance Sheet..................... 12
3.15 Non-Competition/Non-Solicitation
Agreements.................................. 12
ARTICLE 4 CONDITIONS TO THE OBLIGATION OF THE COMPANY
TO CLOSE.................................... 12
4.1 Representations and Warranties.............. 12
4.2 Compliance with this Agreement.............. 12
4.3 Issuance Permitted by Applicable Laws....... 13
4.4 Consents and Approvals...................... 13
4.5 Stockholders' Agreement..................... 13
4.6 No Material Judgment or Order............... 13
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF
THE COMPANY................................. 13
5.1 Corporate Existence and Power............... 14
5.2 Corporate Authorization; No Contravention... 14
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
5.3 Governmental Authorization; Third Party
Consents.................................... 15
5.4 Binding Effect.............................. 15
5.5 Litigation.................................. 15
5.6 Compliance with Laws........................ 15
5.7 No Default or Breach........................ 16
5.8 Title to Properties......................... 16
5.9 Taxes....................................... 17
5.10 Financial Condition......................... 17
5.11 Disclosure.................................. 18
5.12 No Material Adverse Change.................. 19
5.13 Environmental Matters....................... 19
5.14 Investment Company/Government Regulations... 20
5.15 Subsidiaries................................ 20
5.16 Capitalization.............................. 20
5.17 Solvency.................................... 21
5.18 Private Offering............................ 22
5.19 Broker's, Finder's or Similar Fees.......... 22
5.20 Labor Relations............................. 22
5.21 ERISA and Employee Benefit Plans............ 22
5.22 Intellectual Property....................... 23
5.23 Potential Conflicts of Interest............. 27
5.24 Trade Relations............................. 27
5.25 Outstanding Borrowings...................... 28
5.26 Material Contracts.......................... 28
5.27 Insurance................................... 28
5.28 Merger Agreement............................ 29
5.29 Merger...................................... 29
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS.................................. 30
6.1 Authorization; No Contravention............. 30
6.2 Binding Effect.............................. 30
6.3 Purchase for Own Account.................... 30
6.4 Broker's, Finder's or Similar Fees.......... 31
ARTICLE 7 INDEMNIFICATION............................. 31
7.1 Indemnification............................. 31
7.2 Notification................................ 33
7.4 Limitations on Indemnification.............. 34
ARTICLE 8 AFFIRMATIVE COVENANTS....................... 34
8.1 Operation of Company........................ 34
8.2 Exclusivity................................. 34
8.3 Use of Proceeds............................. 34
8.4 Taxes....................................... 34
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 9 MISCELLANEOUS............................... 35
9.1 Obligations of the Purchasers............... 35
9.2 Termination................................. 35
9.3 Survival of Representations and Warranties.. 36
9.4 Notices..................................... 36
9.5 Successors and Assigns...................... 37
9.6 Determinations, Requests or Consents........ 37
9.7 Amendment and Waiver........................ 38
9.8 Counterparts................................ 38
9.9 Headings.................................... 38
9.10 Governing Law............................... 38
9.11 Jurisdiction................................ 38
9.12 Severability................................ 39
9.13 Rules of Construction....................... 39
9.14 Variations in Pronouns...................... 39
9.15 Entire Agreement............................ 39
9.16 Publicity................................... 39
9.17 Limitations on Rights of Third Parties...... 40
9.18 Further Assurances.......................... 40
</TABLE>
EXHIBITS
A - Terms of Preferred Stock
B - Form of Registration Rights Agreement
C - Form of Stockholders' Agreement
D - Amendment to Bylaws
iii
<PAGE>
SCHEDULES
2.1 Names of Purchasers, Number of Shares of Convertible Preferred
Stock and Purchase Price Thereof
5.5 Litigation
5.6 FDA
5.9 Taxes
5.12 Material Adverse Change
5.15 Subsidiaries
5.16 Capitalization
5.21 Employee Benefits
5.22(a) Intellectual Property Exceptions
5.22(b)(i) Patents, Copyrights and Trademarks
5.22(b)(ii) IP Licenses - Licensee
5.22(b)(iii) IP Licenses - Licensor
5.22(b)(iv) Proposed Intellectual Property Agreements
5.22(e) Intellectual Property - Litigation
5.22(h) Intellectual Property - Indemnification
5.23 Potential Conflicts of Interest
5.25 Outstanding Borrowings
5.26 Material Contracts
5.27 Insurance
5.28 Agreements Related to Acquisition of InnerVentions, Inc.
iv
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of February 16, 1996, among NITINOL MEDICAL
TECHNOLOGIES, INC., a Delaware corporation (the "COMPANY"), WHITNEY EQUITY
-------
PARTNERS, L.P., a Delaware limited partnership ("WHITNEY EQUITY PARTNERS"),
-----------------------
BOSTON SCIENTIFIC CORPORATION, a Delaware corporation ("BSC"), David J. Morrison
---
("MORRISON") and Corporate Decisions, Inc. ("CDI," and together with Whitney
-------- ---
Equity Partners, BSC and Morrison, the "PURCHASERS").
----------
WHEREAS, the Company proposes to issue and sell to the Purchasers
3,787,104 shares of Convertible Preferred Stock, for an aggregate purchase price
of $8,500,000.00; and
WHEREAS, it is further contemplated that such other transactions as
are described in Articles 3 and 8 hereof shall be consummated as provided for in
such Articles and any other documents pertaining to such transactions;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" means, as to any Person, any other Person directly or
---------
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For the purposes of this definition, "control," when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise. The terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement (including the exhibits and schedules
---------
hereto) as the same may be amended, supplemented or modified in accordance with
the terms hereof.
<PAGE>
"Agreement and Plan of Merger" means the Agreement and Plan of Merger,
----------------------------
dated as of January 25, 1996, among the Company, NMT Heart, InnerVentions, Inc.
and Fletcher Spaght, Inc.
"Audited Financial Statements" has the meaning assigned to such
----------------------------
term in Section 5.10(a).
"Bard" has the meaning assigned to such term in Section 5.22(k).
----
"Benefit Plan" has the meaning assigned to that term in Section
------------
5.21(a).
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Closing" has the meaning assigned to that term in Section 2.4.
-------
"Closing Date" means the date specified in Section 2.4.
------------
"Code" means the Internal Revenue Code of 1986, as amended, or any
----
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, $0.001 par value, of the
------------
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Condition of the Company" means the assets, business, properties,
------------------------
operations or financial condition of the Company and its Subsidiaries, taken as
a whole.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "PRIMARY
-------
OBLIGATION") of another Person (with respect to a given primary obligation, the
- ----------
"PRIMARY OBLIGOR"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or
2
<PAGE>
equity capital of the primary obligor in respect of any such primary obligation
or otherwise to maintain the net worth or solvency or any balance sheet item,
level of income or financial condition of such primary obligor, or (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
in respect thereof to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
or failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Contractual Obligations" means, as to any Person, any provision of
-----------------------
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Convertible Preferred Stock" means the Convertible Preferred Stock,
---------------------------
$.001 par value per share, of the Company, or any other capital stock of the
Company into which such stock is reclassified or reconstituted.
"Environmental Laws" means any federal, state, territorial, provincial
------------------
or local law, common law doctrine, rule, code, ordinance, order, decree,
judgment, injunction, license, permit or regulation relating to pollution,
protection of the environment or human health and safety, including those
pertaining to land use, air, soil, surface water, ground water (including the
protection, cleanup, removal, remediation or damage thereof), public or employee
health or safety, emissions, discharges, releases or threatened releases of any
pollutant or contaminant, including, without limitation, medical, chemical,
biological, biohazardous or radioactive waste and materials, into ambient air,
land, surface water, groundwater, personal property or structures, or the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any pollutant or contaminant, or any
hazardous, solid or medical waste or any hazardous, toxic, biohazardous,
radioactive or otherwise dangerous substance.
"ERISA" means the Employee Retirement Income Security Act of 1974,
-----
as amended.
3
<PAGE>
"Event of Default" means (a) any default by the Company in the due
----------------
observance or performance of any covenant or agreement to be observed or
performed pursuant to Article 8 of this Agreement or pursuant to any other
Transaction Agreement or (b) any representation, warranty, certification or
statement made by or on behalf of the Company in this Agreement or in any other
Transaction Agreement or in any certificate or other document delivered pursuant
hereto or thereto shall have been incorrect in any material respect when made.
"FDA" has the meaning assigned such term in Section 5.6.
---
"GAAP" means generally accepted United States accounting principles
----
in effect from time to time.
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of any of the foregoing.
"Hazardous Materials" means those substances, the transportation,
-------------------
release, generation, handling, use, presence, storage or disposal of which are
regulated by or form the basis of liability under any Environmental Laws.
"Hospital" has the meaning assigned such term in Section 5.22(k).
--------
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in
4
<PAGE>
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any lien (other than liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by such Person
regardless of whether the indebtedness secured thereby shall have been assumed
by such Person or is non-recourse to the credit of such Person and (h) all
Contingent Obligations of such Person.
"Indemnified Party" has the meaning assigned to such term in
-----------------
Section 7.1.
"Intellectual Property" shall mean all of the following as they
---------------------
exist in all jurisdictions throughout the world:
(i) patents and patent applications (including any
divisions, continuations, continuations-in-part, substitutions or
reissues thereof, whether or not patents are issued on such
applications and whether or not such applications are modified,
withdrawn or resubmitted) ("PATENTS");
-------
(ii) trademarks, service marks, trade dress, trade
names, brand names, designs and logos, corporate names, product or
service identifiers, whether registered or unregistered, and all
registrations and applications for registration thereof
(collectively, "TRADEMARKS");
----------
(iii) copyright registrations and applications for
registration thereof, and any non-registered copyrights
("COPYRIGHTS");
------------
(iv) trade secrets, inventions (whether or not
patentable and whether or not reduced to practice), invention
disclosures and improvements thereto (collectively, "TRADE
-----
SECRETS");
(v) proprietary computer software programs and source
code; and
(vi) any other information concerning the Company or
any Subsidiary that is not generally available to the public and
which is treated as confidential or proprietary by the Company or
such Subsidiary (collectively, "CONFIDENTIAL INFORMATION").
------------------------
5
<PAGE>
"IP Licenses" has the meaning assigned to such term in Section
----------- -------
5.22(b)(ii).
- -----------
"Liabilities" has the meaning assigned to such term in Section 7.1.
-----------
"License Agreement" has the meaning assigned such term in Section
-----------------
5.22(k).
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock or equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, any interest of a
lessor under a capital lease, or any financing lease having substantially the
same economic effect as any of the foregoing.
"NMT Heart" means NMT Heart, Inc., a wholly owned subsidiary of the
---------
Company.
"Outstanding Borrowings" means all Indebtedness of the Company or
----------------------
any of its Subsidiaries for money borrowed.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Placement Agents" has the meaning assigned to such term in Section
----------------
5.19.
"PPM" means the Nitinol Medical Technologies, Inc. Confidential
---
Private Placement Memorandum, dated as of February 12, 1996.
"Preferred Shares" has the meaning assigned to such term in Section
----------------
2.1.
"Pro Forma Balance Sheet" means the pro forma consolidated balance
-----------------------
sheet of the Company and its Subsidiaries delivered pursuant to Section 3.18.
"Proposed Intellectual Property Agreements" has the meaning
-----------------------------------------
assigned to such term in Section 5.22(b)(iv).
6
<PAGE>
"Redeemable Preferred Stock" means the Redeemable preferred stock,
--------------------------
$.001 par value per share, of the Company, or any other Capital Stock of the
Company into which such stock is reclassified or reconstituted.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement substantially in the form attached hereto as Exhibit B.
---------
"Requirements of Law" means, as to any Person, the articles or
-------------------
certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case (i)
applicable or binding upon such Person or any of its properties or to which such
Person or any of its properties is subject or (ii) pertaining to any or all of
the transactions contemplated herein.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Solvent" means, as to any Person, that the fair saleable value on a
-------
going concern basis of the assets and property of such Person is, on the date of
determination, greater than the total amount of liabilities (including
contingent and unliquidated liabilities) of such Person as of such date and
that, as of such date, such Person is able to pay all liabilities of such Person
as such liabilities mature. In computing the amount of contingent or
unliquidated liabilities at any time, such liabilities will be computed as the
amount which, in light of all the facts and circumstances existing at such time,
represents the amount that is probable to become an actual or matured liability.
"State Regulatory Laws" means the laws, rules or regulations of any
---------------------
Governmental Authority of any state for which any consent, approval or
expiration of any waiting period is necessary in connection with the proposed
purchase and sale contemplated hereby.
"Stockholders' Agreement" means the Stockholders' Agreement
-----------------------
substantially in the form attached hereto as Exhibit C.
---------
"Stock Option Plan" has the meaning assigned to such term in
-----------------
Section 5.16(a).
"Stock Transfer Agreement" has the meaning assigned to such term in
------------------------
Section 5.22(k).
7
<PAGE>
"Sublicense Agreement" has the meaning assigned to such term in
--------------------
Section 5.22(k).
"Subsidiary" means, with respect to any Person, a corporation or other
----------
entity of which 50% or more of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Company.
"Tax" or "Taxes" means all federal, state, county, local, foreign and
--- -----
other taxes (including, without limitation, income, profits, premium, estimated,
excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance,
capital levy, production, transfer, withholding, employment, unemployment
compensation, payroll-related and property taxes, import duties and other
governmental charges and assessments), whether or not measured in whole or in
part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto.
"Technology Donation Agreement" has the meaning assigned to such
-----------------------------
term in Section 5.22(k).
"Transaction Agreements" means, collectively, this Agreement, the
----------------------
Stockholders' Agreement and the Registration Rights Agreement.
"Unaudited Financial Statements" has the meaning assigned to such
------------------------------
term in Section 5.10(a).
1.2 Accounting Terms; Financial Statements. All accounting terms
--------------------------------------
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
ARTICLE 2
PURCHASE AND SALE OF STOCK
--------------------------
2.1 Purchase and Sale of Stock. Subject to the terms and conditions
--------------------------
herein set forth, the Company agrees that it will issue to each of the
Purchasers, and each of the Purchasers, severally and not jointly, agrees
8
<PAGE>
that it will acquire from the Company, on the Closing Date, the number of shares
of Convertible Preferred Stock (the "PREFERRED SHARES") set forth next to such
----------------
Purchaser's name on Schedule 2.1 hereto. The purchase price of the Preferred
------------
Shares to be acquired by each Purchaser shall be as set forth next to each such
Purchaser's name on Schedule 2.1 hereto.
------------
2.2 Powers, Rights and Preferences. The Preferred Shares shall have
------------------------------
the powers, rights and preferences set forth in Exhibit A.
---------
2.3 Fees and Reimbursement of Expenses.
----------------------------------
(a) At the Closing, or on such later date as may be specified in
writing by Whitney Equity Partners, the Company shall pay to J.H. Whitney & Co.
a transaction fee of $50,000.00.
(b) The Company shall reimburse all of the Purchasers' reasonable
out-of-pocket expenses (including, without limitation, (i) lawyers' fees,
charges and disbursements, (ii) consultants' fees and expenses and (iii)
expenses related to travel to and from the Company and lodging, etc. while at
the Company) incurred in connection with the transactions contemplated by this
Agreement.
2.4 Closing. The purchase and issuance of the Preferred Shares shall
-------
take place at the closing (the "CLOSING"), to be held at the offices of Paul,
-------
Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New
York 10019, at 10:00 a.m., Eastern Standard Time, on February 16, 1996, or at
such other time and place as the Company and the Purchasers may agree in writing
(the "CLOSING DATE"). At the Closing, the Company shall deliver to the
------------
Purchasers certificates representing the Preferred Shares purchased by each
Purchaser against delivery to the Company by the Purchasers of the purchase
price therefor by wire transfer of immediately available funds to an account
specified in writing by the Company on or before the Closing Date.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
-----------------------------
The obligation of the Purchasers to purchase the Preferred Shares, to
pay the purchase prices therefor at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction of the following conditions
9
<PAGE>
on or before the Closing Date (subject to any waiver of any such condition by
the Purchasers):
3.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 5 hereof shall be true and
correct at and as of the Closing Date as if made at and as of such date.
3.2 Compliance with this Agreement. The Company shall have performed
------------------------------
and complied in all material respects with all of the agreements and conditions
set forth or contemplated herein that are required to be performed or complied
with on or before the Closing Date.
3.3 Secretary's Certificate. The Purchasers shall have received a
-----------------------
certificate from the Company, dated the Closing Date and signed by the Secretary
or an Assistant Secretary of the Company, certifying that the attached copies of
the Certificate of Incorporation, as amended, and Bylaws, as amended, of the
Company, and resolutions of the Board of Directors of the Company approving this
Agreement and the transactions contemplated hereby, are all true, complete and
correct and remain unamended and in full force and effect.
3.4 Documents. The Purchasers shall have received true, complete and
---------
correct copies of such documents as they may reasonably request in connection
with or relating to the sale of the Preferred Shares and the transactions
contemplated hereby, all in form and substance reasonably satisfactory to the
Purchasers.
3.5 Purchase Permitted by Applicable Laws. The acquisition of and
-------------------------------------
payment for the Preferred Shares to be acquired by the Purchasers hereunder and
the consummation of the transactions contemplated hereby (a) shall not be
prohibited by any Requirement of Law, (b) shall not subject any of the
Purchasers to any penalty or, in their reasonable judgment, any other onerous
condition under or pursuant to any Requirement of Law and (c) shall be permitted
by all Requirements of Law to which they or the transactions contemplated by or
referred to herein are subject; and the Purchasers shall have received such
certificates or other evidence as they may reasonably request to establish
compliance with this condition.
3.6 Opinion of Counsel. The Purchasers shall have received opinions
------------------
from (i) Squadron, Ellenoff, Plesent & Sheinfeld, LLP, special counsel to the
Company, and (ii) Sixbey, Friedman, Leedham & Ferguson, patent counsel to the
Company, each dated the Closing Date, relating to the
10
<PAGE>
transactions contemplated by or referred to herein, in form and substance
reasonably acceptable to the Purchasers.
3.7 Consents and Approvals. All approvals, consents, exemptions,
----------------------
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of
Law, State Regulatory Laws and Contractual Obligations of the Company necessary
or required in connection with the execution, delivery or performance
(including, without limitation, the issuance of Common Stock and Redeemable
Preferred Stock upon conversion of the Preferred Shares) by the Company, or
enforcement against the Company, of the Transaction Agreements to which it is a
party and the transactions contemplated thereby shall have been obtained and be
in full force and effect, and the Purchasers shall have been furnished with
appropriate evidence thereof, and all applicable waiting periods shall have
lapsed without extension or the imposition of any conditions or restrictions.
3.8 No Material Adverse Change. Except as described in Schedule 5.12
-------------------------- -------------
or as set forth on the Pro Forma Balance Sheet, since December 31, 1994 there
shall have been no material adverse change, nor to the best knowledge of the
Company shall any such change be threatened, in the Condition of the Company.
3.9 Capitalization and Ownership; Conduct of Business. From the date
-------------------------------------------------
of this Agreement through the Closing Date, there shall have been no change in
the capital structure or ownership of the Company except as contemplated by the
Transaction Agreements, and the Company shall not have entered into any
transaction or taken any action other than in the ordinary course of its
business, except that the Company may enter into such agreements and take such
other actions outside of the ordinary course of business, in each case as may be
specifically approved in writing by the Purchasers.
3.10 Registration Rights Agreement. The Company shall have duly
-----------------------------
executed and delivered the Registration Rights Agreement.
3.11 Stockholders' Agreement. The Company and the other parties
-----------------------
thereto shall have terminated the stockholders' agreement, dated as of April 30,
1987, as amended, between the Company and the other parties named therein. The
Stockholders' Agreement shall have been duly executed and delivered by the
Company and the stockholders of the Company named therein (except the
Purchasers).
11
<PAGE>
3.12 Certificate of Incorporation and Bylaws. The Certificate of
---------------------------------------
Incorporation, as amended to include the Terms of Preferred Stock attached
hereto as Exhibit A, and Bylaws, as amended to include the provisions set forth
---------
in Exhibit D hereto, of the Company shall be in form and substance satisfactory
---------
to the Purchasers.
3.13 No Material Judgment or Order. There shall not be on the
-----------------------------
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority or any condition imposed under any
Requirement of Law that, in the judgment of the Purchasers, would (a) prohibit
the purchase of the Preferred Shares hereunder, (b) subject the Purchasers to
any penalty if the Preferred Shares were to be purchased hereunder or (c)
prohibit the consummation of the transactions contemplated by the Transaction
Agreements.
3.14 Pro Forma Balance Sheet. The Company shall have delivered to
-----------------------
the Purchasers as of the Closing Date a pro forma consolidated balance sheet of
the Company and its Subsidiaries as of December 31, 1995, certified as complete
and accurate in all material respects by the chief financial officer of the
Company, reflecting (i) the effect of the transactions contemplated by this
Agreement, including all material fees and expenses in connection therewith,
(ii) the acquisition of InnerVentions, Inc. and (iii) the application of those
adjustments to the historical consolidated balance sheet of the Company and its
Subsidiaries as of December 31, 1995.
3.15 Non-Competition/Non-Solicitation Agreements. The Company shall
-------------------------------------------
have entered into non-competition/non-solicitation agreements with Thomas M.
Tully, David A. Chazanovitz, Dr. Morris Simon, Jason Harry and Stephen
Kleshinski, each in form and substance reasonably satisfactory to the
Purchasers.
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE___
-------------------------
The obligations of the Company to issue and sell the Preferred Shares
and of the Company to perform any other obligations hereunder shall be subject
to the satisfaction of the following conditions on or before the Closing Date
(subject to any waiver of any such condition by the Company):
12
<PAGE>
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Purchasers contained in Section 6 hereof shall be true and
correct at and as of the Closing Date as if made at and as of such date.
4.2 Compliance with this Agreement. The Purchasers shall have
------------------------------
performed and complied in all material respects with all of their agreements and
conditions set forth or contemplated herein that are required to be performed or
complied with by the Purchasers on or before the Closing Date.
4.3 Issuance Permitted by Applicable Laws. The issuance of the
-------------------------------------
Preferred Shares to be issued by the Company hereunder and the consummation of
the transactions contemplated hereby (a) shall not be prohibited by any
Requirement of Law, (b) shall not subject the Company to any penalty or, in its
reasonable judgment, other onerous condition under or pursuant to any
Requirement of Law and (c) shall be permitted by all Requirements of Law to
which it is or the transactions contemplated by or referred to herein are
subject.
4.4 Consents and Approvals. All approvals, consents, exemptions,
----------------------
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of
Law, State Regulatory Laws and Contractual Obligations of the Purchasers
necessary or required in connection with the execution, delivery or performance
by the Purchasers, or enforcement against the Purchasers, of the Transaction
Agreements shall have been obtained and be in full force and effect, and the
Company shall have been furnished with appropriate evidence thereof, and all
applicable waiting periods shall have lapsed without extension or the imposition
of any conditions or restrictions.
4.5 Stockholders' Agreement. The Purchasers shall have duly
-----------------------
executed and delivered the Stockholders' Agreement.
4.6 No Material Judgment or Order. There shall not be on the Closing
-----------------------------
Date any judgment or order of a court of competent jurisdiction or any ruling of
any Governmental Authority or any condition imposed under any Requirement of Law
which, in the judgment of the Company, would (a) prohibit the sale of the
Preferred Shares hereunder, (b) subject the Company to any penalty if the
Preferred Shares were to be sold hereunder or (c) prohibit the consummation of
the transactions contemplated by the Transaction Agreements.
13
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to the Purchasers as
follows:
5.1 Corporate Existence and Power.
-----------------------------
(a) The Company and each of its Subsidiaries: (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (ii) has all requisite corporate power and
authority to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently, or is currently
proposed to be (as described in the PPM), engaged; (iii) is duly qualified as a
foreign corporation and licensed in each jurisdiction in which such
qualification or license is required by law and is in good standing under the
laws of each such jurisdiction wherein the character of the property owned or
leased, or the nature of the activities conducted makes such licensing or
qualification necessary, except where failure to be so licensed or qualified
would not have a material adverse effect of the Condition of the Company; and
(iv) has the corporate power and authority to execute, deliver and perform its
obligations under each Transaction Agreement to which it is or will be a party.
(b) The Certificate of Incorporation, as amended, of the Company and
the Bylaws, as amended, of the Company delivered to the Purchasers pursuant to
Section 3.3 are the true and complete copies thereof as in effect on the date
hereof. The minute books of the Company and its Subsidiaries, copies of which
have been made available to the Purchasers, contain true and complete records of
all meetings and consents in lieu of meetings of the Board of Directors (and any
committee thereof) of the Company and its Subsidiaries, as the case may be,
since the time of their organization and accurately reflect all material
transactions referred to in such minutes and consents in lieu of meeting. The
stock books of the Company and its Subsidiaries, copies of which have been made
available to the Purchasers for their inspection, are true and complete.
5.2 Corporate Authorization; No Contravention. The execution and
-----------------------------------------
delivery by the Company and its Subsidiaries of each Transaction Agreement to
which it is a party and the performance of the transactions contemplated hereby
or thereby, including, without limitation, the issuance of the Preferred Shares,
(a) has
14
<PAGE>
been duly authorized by all necessary corporate, and, if required, stockholder
action, (b) does not contravene the terms of the Company's or any Subsidiary's
Certificate of Incorporation or Bylaws, or any amendment of either and (c) will
not violate, conflict with or result in any breach or contravention of or the
creation of any Lien under any Contractual Obligation of the Company or any of
its Subsidiaries or any Requirement of Law applicable to the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries have
previously entered into any agreement which is currently in effect or to which
the Company or any of its Subsidiaries is currently bound, granting any
registration rights to any Person that is inconsistent with the rights to be
granted by the Company in the Registration Rights Agreement.
5.3 Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
Requirement of Law, any State Regulatory Law or Contractual Obligation of the
Company or any of its Subsidiaries, and no lapse of a waiting period under any
Requirement of Law or State Regulatory Law, is necessary or required in
connection with the execution, delivery or performance(including, without
limitation, the issuance of Common Stock and Redeemable Preferred Stock upon the
conversion of the Preferred Shares) by the Company or any of its Subsidiaries,
or enforcement against the Company or any of its Subsidiaries, of the
Transaction Agreements to which it is a party or the transactions contemplated
thereby.
5.4 Binding Effect. This Agreement and the other Transaction
--------------
Agreements have been duly executed and delivered by the Company and each
Subsidiary (to the extent that each such Person is a party thereto) and
constitute the legal, valid and binding obligations of the Company and each
Subsidiary (to the extent that each such Person is a party thereto) enforceable
against the Company and each Subsidiary (to the extent that each such Person is
a party thereto) in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
relating to enforceability.
5.5 Litigation. Except as set forth on Schedule 5.5, there are no
---------- ------------
legal actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of the Company or any of its Subsidiaries, threatened, at law, in
equity, in arbitration or before any Governmental
15
<PAGE>
Authority against or affecting the Company or any of its Subsidiaries.
5.6 Compliance with Laws. To the knowledge of the Company, the
--------------------
Company and its Subsidiaries are in compliance with all Requirements of Law in
all material respects. Except as set forth on Schedule 5.6, there are no
------------
product recalls by the United States Food and Drug Administration ("FDA") or any
---
comparable foreign regulatory authority pending or, to the knowledge of the
Company, contemplated or threatened, with respect to any products manufactured,
sold, marketed, distributed or delivered by the Company or any of its
Subsidiaries or, to the knowledge of the Company, with respect to any licensed
products manufactured, sold, marketed, distributed or delivered by the Company's
licensees (including, without limitation, BSC) pursuant to license agreements
with the Company and, to the knowledge of the Company, there are no pending or
threatened investigations by any governmental authority with respect to such
products which, either individually or in the aggregate, could have a material
adverse effect on the Condition of the Company. Except as set forth on Schedule
--------
5.6, the Company and each of its Subsidiaries is in compliance in all material
- ---
respects with all applicable FDA requirements, including, without limitation,
facility registration, device listing and product notifications, and the Company
has no knowledge that it or any of its Subsidiaries or licensees (including,
without limitation, BSC) is not operating in compliance in all material respects
with FDA operating requirements, including, without limitation, good
manufacturing practices. In April 1990 the FDA accepted the Company's 510(k)
notification with respect to the Simon Nitinol Filter and all 510(k)
notifications with respect to subsequent modifications thereto have been
accepted by the FDA.
5.7 No Default or Breach. No event has occurred and is continuing
--------------------
(or would result from the incurring of obligations by the Company or any of its
Subsidiaries under the Transaction Agreements) which constitutes or which with
the giving of notice or passage of time would constitute an Event of Default or
a default or event of default under any Contractual Obligation to which the
Company or any of its Subsidiaries is a party. Neither the Company, nor any of
its Subsidiaries is in default under or with respect to any Contractual
Obligation in any respect, which, individually or together with all such
defaults, would have a material adverse effect on the Condition of the Company,
or which could adversely affect the ability of the Company or any of its
Subsidiaries to perform its obligations under any Transaction Agreement.
16
<PAGE>
5.8 Title to Properties. The Company and each of its Subsidiaries
-------------------
have good record and marketable title in fee simple to, or holds interests as
lessee under leases in full force and effect in, all of its real property,
except for such defects in title as would not, individually or in the aggregate,
have a material adverse effect on the Condition of the Company, or an adverse
effect on the ability of the Company or any of its Subsidiaries to perform their
obligations under the Transaction Agreements.
5.9 Taxes.
-----
(a) The Company and each of its Subsidiaries have filed all returns
with respect to Taxes required to be filed through the date hereof in a manner
consistent with prior years and applicable laws and regulations and all such Tax
returns are true and complete in all material respects. The Company and each of
its Subsidiaries have paid or made adequate provision for the payment of all
Taxes that are shown to be due on such Tax Returns through the date hereof, or
that are claimed or asserted by any taxing authority to be due through the date
hereof, except for those Taxes that are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside. With respect to any period for which Tax returns have not yet been
filed, or for which Taxes are not yet due or owing, the Company and each of its
Subsidiaries have no liability for Taxes in each case other than Taxes incurred
in the ordinary course of business or for which accruals are reflected in the
Unaudited Financial Statements.
(b) No audit or other proceeding by any court, taxing authority, or
similar person is pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened with respect to any Taxes due from or with respect to
the operations of the Company or any of its Subsidiaries or any Tax return filed
by or with respect to the operations of the Company or any of its Subsidiaries.
To the knowledge of the Company, no assessment of Taxes is proposed against the
Company, any of its Subsidiaries or their assets.
(c) For all taxable periods ending on or before October 19, 1995 the
Company has had a valid election in effect to be treated as an "S corporation,"
within the meaning of Section 1361(a)(1) of the Code, and, except as set forth
on Schedule 5.9, has had similar elections in effect under comparable provisions
------------
of state and local laws in each jurisdiction where the Company files tax
returns.
17
<PAGE>
5.10 Financial Condition.
-------------------
(a) The Company has furnished the Purchasers with true and complete
copies of (i) the audited consolidated balance sheets of the Company and its
Subsidiaries as of December 31, 1994 and December 31, 1993 and the related
consolidated statements of income, shareholder's deficit and cash flows,
together with the notes thereto, of the Company and its Subsidiaries for the
years ended December 31, 1994 and December 31, 1993 (collectively, the "AUDITED
-------
FINANCIAL STATEMENTS") and (ii) the unaudited balance sheet of the Company and
- --------------------
its Subsidiaries as of December 31, 1995 and the related consolidated statements
of operations and cash flows of the Company and its Subsidiaries for the 12
month period ended December 31, 1995, in each case certified as being fairly
stated in all material respects by the Chief Financial Officer of the Company
(collectively, the "UNAUDITED FINANCIAL STATEMENTS"). The Audited Financial
------------------------------
Statements fairly present the consolidated financial position of the Company and
its Subsidiaries as of the date thereof, and the results of income,
shareholder's deficit and cash flows of the Company and its Subsidiaries for the
periods set forth therein, all in conformity with GAAP consistently applied
during the periods involved. The Unaudited Financial Statements fairly present
the consolidated financial position of the Company and its Subsidiaries as of
the date thereof and the results of operations and cash flows of the Company and
its Subsidiaries for the periods set forth therein, all in conformity with GAAP,
except that the Unaudited Financial Statements do not contain all of the
footnotes required under GAAP, consistently applied during the periods involved.
(b) The Pro Forma Balance Sheet delivered to the Purchasers pursuant
to Section 3.14 sets forth the consolidated assets and liabilities of the
Company and its Subsidiaries on a pro forma basis after taking into account (i)
the transactions contemplated by this Agreement and (ii) the acquisition of
InnerVentions, Inc. The Pro Forma Balance Sheet has been prepared by the
Company in accordance with GAAP and fairly presents in all material respects the
assets and liabilities of the Company and its Subsidiaries, as of December 31,
1995, based on the assumptions set forth therein.
5.11 Disclosure.
----------
(a) Agreement and Other Documents. The PPM and the representations
-----------------------------
and warranties contained in this Agreement any other agreements, documents and
certificates furnished to the Purchasers by the Company at the Closing do
18
<PAGE>
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make any statement contained herein or therein, in
the light of the circumstances under which it was made, not misleading. For
purposes of this Section 5.11(a), the parties agree that projections contained
in the PPM shall not be considered as facts. The parties further agree that, to
the extent any fact is disclosed on one Schedule to this Agreement, it need not
be disclosed on any other Schedule.
(b) Material Adverse Effects. There is no fact known to the Company
------------------------
which has not been disclosed to the Purchasers in writing which materially
adversely affects, or, insofar as the Company can reasonably foresee, is
reasonably expected to materially adversely affect the Condition of the Company
or the ability of the Company to perform its obligations under the Transaction
Agreements or any other document or transaction contemplated thereby.
5.12 No Material Adverse Change. Except as described in Schedule
-------------------------- --------
5.12 or as set forth on the Pro Forma Balance Sheet, since December 31, 1994,
- ----
there has not been any material adverse change, nor to the best knowledge of the
Company is any such change threatened, in the Condition of the Company.
5.13 Environmental Matters.
---------------------
(a) The Company has operated its properties, assets and operations and
those of each of its Subsidiaries in material compliance with all applicable
Environmental Laws. To the knowledge of the Company, there are no Hazardous
Materials stored or otherwise located in, on or under any of the property or
assets of the Company or any of its Subsidiaries, including the groundwater,
and, to the knowledge of the Company, there have been no releases or threatened
releases of Hazardous Materials in, on or under any property adjoining any of
the property or assets of the Company or any of its Subsidiaries.
(b) To the knowledge of the Company, none of the properties, assets or
operations of the Company or any of its Subsidiaries is the subject of any
federal, state or local investigation evaluating whether (i) any remedial action
is needed to respond to a release or threatened release of any Hazardous
Materials into the environment or (ii) any release or threatened release of any
Hazardous Materials into the environment or any such properties, assets or
operations of the Company or any of its Subsidiaries is in contravention of any
Environmental Law.
19
<PAGE>
(c) Neither the Company nor any of its Subsidiaries have received any
notice or claim, nor are there pending, or, to the best knowledge of the
Company, threatened or reasonably anticipated lawsuits or proceedings against
the Company or any of its Subsidiaries with respect to violations of an
Environmental Law or in connection with the presence of or exposure to any
Hazardous Materials in the environment or any release or threatened release of
any Hazardous Materials into the environment, and the Company and each of its
Subsidiaries neither are nor were the owner or operator of any property which
(i) pursuant to any Environmental Law has, to the knowledge of the Company, been
placed on any list of Hazardous Materials disposal sites, including without
limitation, the "National Priorities List" or "CERCLIS List," (ii) has or, to
the knowledge of the Company, had any subsurface storage tanks located thereon
or (iii) to the knowledge of the Company, has ever been used as or for a waste
disposal facility, a mine, a gasoline service station or a petroleum products
storage facility.
(d) To the knowledge of the Company, there are no events, conditions
or circumstances, including without limitation the presence or release of
Hazardous Materials in the environment, which may result in the Company or any
of its Subsidiaries or any of their respective properties or assets being
subject to any liability, either present or contingent, pursuant to
Environmental Laws.
(e) The Purchasers acknowledge that the Company's principal place of
business is located in a multi-tenant office building that is neither owned or
operated by the Company.
5.14 Investment Company/Government Regulations. After giving effect
-----------------------------------------
to the transactions contemplated by the Transaction Agreements, neither the
Company nor any of its Subsidiaries will be an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. Neither the Company
or any of its Subsidiaries are subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act, or any federal or state statute or regulation limiting its ability
to incur Indebtedness.
5.15 Subsidiaries. Schedule 5.15 sets forth a complete and accurate
------------ -------------
list of all of the Subsidiaries of the Company together with their respective
jurisdictions of incorporation or organization. Each such Subsidiary is
directly wholly owned by the Company. All of the outstanding shares of capital
stock of the Subsidiaries that
20
<PAGE>
are corporations are validly issued, fully paid and non-assessable. All of the
outstanding shares of capital stock of, or other ownership interests in, each of
the Subsidiaries are owned by the Company or by a wholly owned Subsidiary free
and clear of any Liens. No Subsidiary has outstanding options, warrants,
subscriptions, calls, rights convertible securities or other agreements or
commitments obligating the Subsidiary to issue, transfer or sell any securities
of the Subsidiary.
5.16 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of 25,000,000
shares, consisting of 20,000,000 shares of Common Stock, 3,800,000 shares of
Convertible Preferred Stock, 38,000 shares of Redeemable Preferred Stock and
1,162,000 shares of undesignated preferred stock. As of the Closing and after
giving effect to the transactions contemplated by the Transaction Agreements,
(i) 8,148,650.5 shares of Common Stock and 3,787,104 shares of Convertible
Preferred Stock will be issued and outstanding, all of which will be owned of
record by the Persons listed on Schedule 5.16 in the amounts listed next to the
-------------
name of each such Person, (ii) 600,000 shares of Common Stock will be reserved
for issuance pursuant to employee stock options granted or which may be granted
pursuant to the Nitinol Medical Technologies, Inc. 1994 Stock Option Plan (the
"STOCK OPTION PLAN"), (iii) 2,025,000 shares of Common Stock will be reserved
- ------------------
for issuance pursuant to employee stock options granted outside of the Stock
Option Plan, (iv) 524,891 shares of Common Stock will be reserved for issuance
pursuant to Common Stock purchase warrants issued to R. John Fletcher and the
Placement Agents, (v) 3,800,000 shares of Common Stock will be reserved for
issuance in connection with the conversion of the Convertible Preferred Stock
and (vi) 38,000 shares of Redeemable Preferred Stock will be reserved for
issuance in connection with the conversion of the Convertible Preferred Stock.
All outstanding shares of capital stock of the Company have been duly
authorized. All outstanding shares of capital stock of the Company are, and
when issued, sold and delivered in accordance with this Agreement, the shares of
Common Stock and Redeemable Preferred Stock issuable upon conversion of the
Preferred Shares will be, validly issued, fully paid, nonassessable and free and
clear of any Lien, except for any Liens created pursuant to the Stockholders'
Agreement.
(b) At the Closing, except for (i) the Convertible Preferred Stock,
(ii) the employee stock options referred to in Section 5.16(a)(ii) and Section
5.16(a)(iii) and (iii) the Common Stock purchase warrants referred to in
21
<PAGE>
Section 5.16(a)(iv), there will be no outstanding securities convertible into or
exchangeable for capital stock of the Company or options, warrants or other
rights to purchase or subscribe to capital stock of the Company or contracts,
commitments, agreements, understandings or arrangements of any kind to which the
Company is a party relating to the issuance of any capital stock of the Company,
any such convertible or exchangeable securities or any such options, warrants or
rights.
5.17 Solvency. The Company and each of its Subsidiaries are Solvent
--------
and will not as a result of any transaction contemplated in any Transaction
Agreement become not Solvent.
5.18 Private Offering. No form of general solicitation or general
----------------
advertising was used by the Company or its representatives in connection with
the offer or sale of the Preferred Shares. No registration of the Preferred
Shares pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws will be required in connection with the offer, sale or
issuance of the Preferred Shares. The Company agrees that neither it, nor
anyone acting on its behalf, will offer or sell the Preferred Shares or any
other security so as to require the registration of the Preferred Shares
pursuant to the provisions of the Securities Act or any state securities or
"blue sky" laws, unless such Preferred Shares are so registered.
5.19 Broker's, Finder's or Similar Fees. Except (i) the transaction
----------------------------------
fee of $50,000.00, as specified in Section 2.3(a) hereof, payable to J.H.
Whitney & Co. by the Company, (ii) the issuance to Junewicz & Co., Inc. and
Furman Selz LLC (together, the "PLACEMENT AGENTS") of warrants to purchase an
----------------
aggregate of 312,436 shares of Common Stock and (iii) the transaction fees of
$350,625.00 and $276,250.00 payable by the Company to Junewicz & Co., Inc. and
Furman Selz, LLC, respectively, there are no brokerage commissions, finder's
fees or similar fees or commissions payable in connection with the transactions
contemplated hereby based on any agreement, arrangement or understanding with
the Company or any action taken by the Company.
5.20 Labor Relations. Neither the Company nor any of its
---------------
Subsidiaries is engaged in any unfair labor practice. There is (a) no unfair
labor practice complaint pending or, to the best knowledge of the Company,
threatened against the Company or any of its Subsidiaries before the National
Labor Relations Board and no grievance or arbitration proceeding arising out of
or under any collective bargaining agreement is so pending or, to the best
knowledge
22
<PAGE>
of the Company, threatened, (b) no strike, labor dispute, slowdown or stoppage
pending or threatened against the Company, and (c) no union representation
question existing with respect to the employees of the Company or any of its
Subsidiaries and, to the knowledge of the Company, no union organizing
activities are taking place.
5.21 ERISA and Employee Benefit Plans.
--------------------------------
(a) There are no employee benefit plans, arrangements, policies or
commitments of any type (including, but not limited to, plans described in
section 3(3) of ERISA maintained by the Company or any of its Subsidiaries, or
with respect to which the Company or any of its Subsidiaries has or could have
any direct or indirect liability, other than those described in Schedule 5.21
-------------
("BENEFIT PLANS").
- ---------------
(b) Accurate and complete copies of all plan text and agreements, the
most recent annual report, the most recent annual and periodic accounting of
plan assets, and the most recent actuarial valuation with respect to each
Benefit Plan have been delivered to the Purchasers.
(c) No Benefit Plan is subject to Title IV of ERISA or section 412 of
the Code. No Benefit Plan is a "multiple employer plan" within the meaning of
the Code or ERISA.
(d) With respect to each Benefit Plan, except as set forth in Schedule
--------
5.21: (i) if it is intended to qualify under section 401(a) or 403(a) of the
- ----
Code, such plan so qualifies; (ii) such Benefit Plan has been maintained and
administered at all times in compliance with its terms and applicable laws and
regulations; (iii) no event has occurred and there exists circumstances under
which the Company or any of its Subsidiaries could incur material liability
under ERISA, the Code or otherwise (other than routine claims for benefits) with
respect to such plan or with respect to any other entity's employee benefit
plan; and (iv) all contributions and premiums due with respect to such plan have
been made on a timely basis.
(e) With respect each Benefit Plan that is a "welfare plan" (as
defined in ERISA section 3(1)): (i) no such plan provides medical or death
benefits with respect to current or former employees of the Company or any of
its Subsidiaries beyond their termination of employment (other than as required
to avoid an excise tax under Code section 4980 B); and (ii) the Company and each
of its Subsidiaries has complied with the requirements of Code section 4980B.
23
<PAGE>
(f) The consummation of the transaction contemplated by this Agreement
will not: (i) entitle any individual to severance or termination pay; (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due to any individual; or (iii) result in the payment that will be
taken into account in determining whether there is an "excess parachute payment"
under Code section 280G(b)(1).
5.22 Intellectual Property.
---------------------
(a) Except as set forth on Schedule 5.22(a), the Company or one of its
----------------
Subsidiaries owns or is licensed or otherwise has the right to use all
Intellectual Property necessary for the operation of its business as presently
conducted or proposed to be conducted (as described in the PPM).
(b) (i) Schedule 5.22(b)(i) sets forth all Patents, Copyrights and
-------------------
Trademarks owned by or issued to the Company or any Subsidiary, and all
applications relating to Patents, Copyrights and Trademarks filed by the Company
or any Subsidiary, specifying as to each item, as applicable: (A) the nature of
the item, including the title or description; (B) the owner of the item; (D) the
jurisdictions by or in which the item is recognized without regard to
registration, or in which the item has been issued or registered, or in which an
application for issuance or registration has been filed, including the
respective registration or application numbers, (D) the registration or
application number; (E) the issue date and expiration date of the item, and (F)
with respect to each Trademark, the class or classes of goods or services on
which such Trademark is or is intended to be used.
(ii) Schedule 5.22(b)(ii) sets forth all material licenses,
--------------------
sublicenses, registered user agreements and other agreements or permissions ("IP
--
LICENSES") under which the Company or any Subsidiary is a licensee or otherwise
- --------
is authorized to use or practice any Intellectual Property.
(iii) Schedule 5.22(b)(iii) sets forth all IP Licenses under which
---------------------
the Company or any Subsidiary is a licensor or otherwise authorizes any person
to use or practice Intellectual Property.
(iv) Schedule 5.22(b)(iv) sets forth and describes the status of any
--------------------
agreements involving Intellectual Property currently in negotiation or proposed
by the Company or any Subsidiary of a type which if entered into by the Company
or such Subsidiary would be required to
24
<PAGE>
be listed on Schedule 5.22(b)(ii) or 5.22(b)(iii) ("PROPOSED INTELLECTUAL
-------------------- ------------ ---------------------
PROPERTY AGREEMENTS").
- -------------------
(v) There have been delivered to the Purchasers true and complete
copies of (1) all issued Patents, Copyright, Trademark and other registrations,
applications, licenses, agreements and permissions (as amended to date) listed
on Schedules 5.22(b)(i)-(iii), (2) true and complete copies of all other written
--------------------------
documentation evidencing ownership or prosecution of each item of Intellectual
Property, and (3) the most recent draft, letter of intent or term sheet (or, if
none exist, a reasonably detailed written summary) embodying the terms of all
Proposed Intellectual Property Agreements.
(c) To the knowledge of the Company, all issued patents and registered
Trademarks and Copyrights held by the Company or any Subsidiary are valid and
subsisting. The Company and the Subsidiaries have taken all necessary and
desirable action to maintain and protect each item of Intellectual Property
owned or used by the Company and the Subsidiaries.
(d) To the knowledge of the Company, no party is in breach or default
under any IP License in any material respect, nor does any condition exist which
with notice or lapse of time or both would constitute a material breach or
default or permit termination, modification or acceleration thereunder, and no
party has repudiated any provision thereof. Except as disclosed with respect to
the IP Licenses listed on Schedule 5.22(b)(ii), there are no material royalties,
--------------------
fees or other payments payable by the Company or any Subsidiary to any other
person by reason of the ownership, use, license, sale or disposition of any
Intellectual Property.
(e) Except as set forth on Schedule 5.22(e), no litigation is pending
----------------
or, to the knowledge of the Company, threatened that challenges the validity,
enforceability, ownership or right to use, sell, license or dispose of any item
of Intellectual Property used or proposed to be used (as described in the PPM)
by the Company or any Subsidiary, and no such item of Intellectual Property is
subject to any outstanding order, ruling, judgment, decree, stipulation, charge
or settlement agreement, restricting in any manner the use or the licensing
thereof by the Company or any Subsidiary.
(f) To the knowledge of the Company, neither the Company nor any
Subsidiary has ever infringed upon the material intellectual property rights of
any third party, or received any claim, charge, complaint, demand or
25
<PAGE>
notice in writing alleging any such infringement or other violation of the
intellectual property rights of any third party, or knows of any basis for any
such claim. To the knowledge of the Company, the use of any Intellectual
Property as a result of the operation of the businesses of the Company and the
Subsidiaries as presently conducted or proposed to be conducted (as described in
the PPM) will not infringe upon or otherwise violate the intellectual property
rights of any third party.
(g) To the knowledge of the Company, no third party is materially
infringing upon or otherwise materially violating rights of the Company or any
Subsidiary in the Intellectual Property.
(h) Except as set forth on Schedule 5.22(h), neither the Company nor
----------------
any Subsidiary has agreed to indemnify any person against any charge of
infringement or other violation, or granted any third party the right to bring
infringement or other enforcement actions, with respect to any Intellectual
Property owned or used by the Company or any Subsidiary. Except as set forth on
Schedule 5.22(h), the Company or one of the Subsidiaries has the exclusive right
- ----------------
to file, prosecute and maintain all applications and registrations with respect
to the Intellectual Property owned or used by the Company or any Subsidiary.
(i) To the knowledge of the Company, no current or former employee of
the Company or any Subsidiary is in violation of any Requirement of Law
applicable to such employee, or any term of any employment agreement, patent or
invention disclosure agreement, or other agreement with the Company or such
Subsidiary concerning Intellectual Property. No former employer of any Company
or Subsidiary employee, or current or former employer of any Company or
Subsidiary consultant, has made a claim against the Company or any Subsidiary,
or, to the knowledge of the Company, against any other person, that such
employee or such consultant is utilizing proprietary information of such
employer.
(j) Without limiting the generality of the foregoing, InnerVentions,
Inc. and its Subsidiary have all Intellectual Property necessary to use the
"Clamshell II Septal Occluder," the "Delivery System" and "Device-Related
Products" as set forth in the Stock Transfer Agreement (the "STOCK TRANSFER
--------------
AGREEMENT") between Children's Medical Center Corporation (the "HOSPITAL") and
- --------- --------
InnerVentions, Inc. dated as of June 19, 1995; the License Agreement (the
"LICENSE AGREEMENT") between the Hospital and InnerVentions, Inc. dated June 19,
- ------------------
1995; and the Sublicense Agreement (the
26
<PAGE>
"SUBLICENSE AGREEMENT") between the Hospital and InnerVentions, Inc. dated June
--------------------
19, 1995.
(k) C.R. Bard, Inc. ("BARD") developed the Clamshell II Septal
----
Occluder as well as a delivery system for its implantation which was then
assigned to the Hospital together with certain tangible assets and intellectual
property rights pursuant to an Asset and Technology Donation and Transfer
Agreement (the "TECHNOLOGY DONATION AGREEMENT") between Bard and the Hospital
-----------------------------
dated as of May 12, 1995. In connection with such transfer, Bard and the
Hospital entered into a Patent and Know-How License Agreement dated as of June
19, 1995. The Hospital then assigned all of the rights received from Bard to
InnerVentions, Inc. pursuant to the Stock Transfer Agreement, the License
Agreement and the Sublicense Agreement. Bard then entered into a Supply
Agreement with InnerVentions, Inc. dated as of July 19, 1995 for the supply of
certain related products. All such agreements are valid, subsisting, in full
force and effect and binding upon all parties thereto in accordance with their
terms, no person or entity which is a party thereto or otherwise bound thereby
is in default of any material term thereunder, and, no event, occurrence,
condition or act exists which does (or which with or without the giving of
notice or the lapse of time or both would) give rise to a material default, or a
cancellation, acceleration or loss of material contractual benefits thereunder,
and there are no outstanding disputes thereunder nor threatened cancellations
thereof.
5.23 Potential Conflicts of Interest. To the best knowledge of the
-------------------------------
Company, except as set forth on Schedule 5.23, no officer, director or Affiliate
-------------
of the Company or any of its Subsidiaries: (a) owns, directly or indirectly,
any interest in (excepting less than 1% stock holdings for investment purposes
in securities of publicly held and traded companies), or is an officer,
director, employee or consultant of, any Person which is, or is engaged in
business as, a competitor, lessor, lessee, supplier, distributor, sales agent or
customer of, or lender to or borrower from, the Company or any of its
Subsidiaries; (b) owns, directly or indirectly, in whole or in part, any
tangible or intangible property that the Company or any of its Subsidiaries uses
in the conduct of its business; or (c) has any cause of action or other claim
whatsoever against, or owes any amount to, the Company or any of its
Subsidiaries, except for claims in the ordinary course of business such as for
accrued vacation pay, accrued benefits under employee benefit plans, and similar
matters and agreements arising in the ordinary course of business.
27
<PAGE>
5.24 Trade Relations. To the best knowledge of the Company, there
---------------
exists no actual or threatened termination, cancellation or limitation of, or
any material adverse modification or change in, the business relationship or
business of the Company and its Subsidiaries taken as a whole or their business
with any customer or any group of customers whose use of their services are
individually or in the aggregate material to the business of the Company and its
Subsidiaries taken as a whole, or with any material supplier, and there exists
no condition or state of facts or circumstances that would adversely affect the
Condition of the Company or prevent the Company or its Subsidiaries from
conducting their business after the consummation of the transactions
contemplated by the Transaction Agreements in substantially the same manner in
which it heretofore has been conducted.
5.25 Outstanding Borrowings. Schedule 5.25 lists (i) the amount of
---------------------- -------------
all Outstanding Borrowings, (ii) the Liens that relate to such Outstanding
Borrowings and that encumber the assets of the Company or any of its
Subsidiaries and (iii) the name of each lender thereof.
5.26 Material Contracts. Neither the Company nor any Subsidiary is a
------------------
party to any Contractual Obligation and is not subject to any charge, corporate
restriction, judgment, injunction, decree or Requirement of Law materially
adversely affecting, or which may adversely affect, the Condition of the
Company. Schedule 5.26 lists all contracts, agreements and commitments of the
-------------
Company and any Subsidiary, whether written or oral, including, without
limitation the (i) Distribution Agreement, dated as of May 19, 1992, between the
Company and Bard, as amended, (ii) License and Development Agreement dated
November 22, 1994, between the Company and BSC, as amended, (iii) Manufacturing
Agreement, dated as of June 30, 1988, between the Company and Lake Region
Manufacturing Company, Inc. and (iv) Technology Purchase Agreement, dated as of
April 14, 1987, between the Company and Morris Simon, M.D., but excluding (a)
the Transaction Agreements, (b) purchase orders in the ordinary course of the
Company's and any Subsidiary's business and (d) any other contracts, agreements
and commitments of the Company or any Subsidiary that (i) do not extend beyond
December 31, 1996 and involve the receipt or payment of not more than $50,000
and (ii) do not relate to employment or labor matters. All of the contracts,
agreements and commitments of the Company and its Subsidiaries are in full force
and effect and binding upon the Company or its Subsidiaries and to the knowledge
of the Company the other parties thereto in accordance with their terms.
Neither the Company nor any Subsidiary thereof, nor to the knowledge of the
Company, any other party to such
28
<PAGE>
contracts, agreements and commitments is in default thereunder, nor does any
condition exist that with notice or lapse of time or both would constitute a
default thereunder. The Company has no knowledge of any proposed, pending or
likely cancellation or termination of any such contract, agreement or
commitment.
5.27 Insurance. Schedule 5.27 (i) accurately summarizes all of the
--------- -------------
Company's and any Subsidiary's insurance policies or programs in effect as of
the date hereof and indicates the insurer's name, policy number, expiration
date, amount of coverage, type of coverage, annual premiums, exclusions and
deductibles, and (ii) indicates any self-insurance program that is in effect.
The Company and each of its Subsidiaries maintain insurance in such amounts and
covering such risks as are usually and customarily carried with respect to
similar businesses according to their respective locations.
5.28 Merger Agreement.
----------------
The Company has delivered to the Purchasers a true, complete and
correct copy of the Agreement and Plan of Merger, together with all amendments
and modifications thereto. Such agreement (including the schedules and exhibits
thereto) comprises a full and complete copy of all agreements between the
parties thereto with respect to the subject matter thereof or between NMT Heart
and the Company, on the one hand, and any other party, on the other hand, with
respect to the merger of InnerVentions, Inc. into NMT Heart, and all
transactions related thereto, and, except as delivered to the Purchasers and set
forth on Schedule 5.28, there are no agreements or understandings, written or
-------------
oral, or side arrangements not contained therein that relate to or modify the
substance thereof. The Agreement and Plan of Merger was duly authorized by all
necessary corporate action on the part of the Board of Directors of each of NMT
Heart and the Company, was validly executed and delivered by NMT Heart and the
Company and is the legal, valid and binding obligation of NMT Heart, the Company
and their respective successors, enforceable in accordance with its terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws affecting creditors' rights
generally and by general principles of equity relating to enforceability. The
Agreement and Plan of Merger is in full force and effect and, except with the
Purchasers' prior approval, has not been amended or modified, and no provision
thereof has been waived by any party thereto.
29
<PAGE>
5.29 Merger.
------
The merger of InnerVentions, Inc. into NMT Heart has been consummated
in accordance with all Requirements of Law, such that InnerVentions no longer
legally exists and that NMT Heart, the surviving corporation of such merger, is
fully obligated for the liabilities of the merged corporations, and the Company
has delivered to the Purchasers copies of the articles of merger for such
merger, certified by the Secretary of State of each state in which a party to
such merger is incorporated, or other evidence of the consummation of the merger
of InnerVentions, Inc. into NMT Heart that is reasonably satisfactory to the
Purchasers.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
----------------------------
Each of the Purchasers, severally and not jointly, hereby
represents and warrants as follows:
6.1 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by such Purchaser of each Transaction Agreement (a) is within such
Purchaser's power and authority and has been duly authorized by all necessary
action (corporate, partnership or otherwise), (b) does not contravene the terms
of such Purchaser's organizational documents or any amendment thereof, and (c)
will not violate, conflict with or result in any breach or contravention of or
the creation of any Lien under any Contractual Obligation of such Purchaser or
any Requirement of Law applicable to such Purchaser.
6.2 Binding Effect. This Agreement and the other Transaction
--------------
Agreements have been duly executed and delivered by such Purchaser, and each
constitutes the legal, valid and binding obligation of such Purchaser
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
6.3 Purchase for Own Account.
------------------------
(a) The Preferred Shares to be acquired by such Purchaser pursuant to
this Agreement are being or will be acquired for its own account, for investment
and not with a view to the distribution thereof within the meaning
30
<PAGE>
of the Securities Act, and such Purchaser has no intention of distributing or
reselling such securities or any part thereof, without prejudice, however, to
the rights of such Purchaser at all times to sell or otherwise dispose of all or
any part of its Preferred Shares or any shares of Common Stock or Redeemable
Preferred Stock issued upon conversion of Preferred Shares under an effective
registration statement under the Securities Act, or under an exemption from such
registration available under the Securities Act, and subject, nevertheless, to
the disposition of such Purchaser's property being at all times within its
control. If such Purchaser should in the future decide to dispose of any of its
Preferred Shares or any shares of Common Stock or Redeemable Preferred Stock
issued upon conversion of Preferred Shares, such Purchaser understands and
agrees that it may do so only in compliance with the Securities Act and
applicable state securities laws, as then in effect. Such Purchaser agrees to
the imprinting, so long as required by law, of a legend on certificates
representing all of its Preferred Shares and any shares of Common Stock or
Redeemable Preferred Stock issued upon conversion of the Preferred Shares to the
following effect: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
------------------------------------------------------------
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
- -------------------------------------------------------------------------------
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
- -------------------------------------------------------------------------------
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
- -------------------------------------------------------------------------------
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
- -------------------------------------------------------------------------------
SUCH ACT AND SUCH LAWS."
- ----------------------
(b) Such Purchaser understands that the Preferred Shares have not
been, and the shares of Common Stock or Redeemable Preferred Stock to be issued
upon conversion of Preferred Shares will not be, registered under the Securities
Act, by reason of their issuance by the Company in a transaction exempt from the
registration requirements of the Securities Act and that this transaction has
not been reviewed by, passed on or submitted to any Federal or state agency
where an exemption is being relied upon, and that the Company's reliance thereon
is based in part upon the representations made by each Purchaser in this
Agreement.
(c) Such Purchaser is an "Accredited Investor" (as defined in
Rule 501(a) under the Securities Act).
(d) Such Purchaser has read the PPM, and has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the sale of the Preferred Shares.
31
<PAGE>
6.4 Broker's, Finder's or Similar Fees.
----------------------------------
Except for the transaction fee of $50,000.00, as specified in Section 2.3(a)
hereof, payable to J.H. Whitney & Co. by the Company, there are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with any Purchaser or any action taken by any Purchaser.
ARTICLE 7
INDEMNIFICATION
---------------
7.1 Indemnification. In addition to all other sums due hereunder or
---------------
provided for in this Agreement, the Company agrees, but subject to Section 7.3,
to indemnify and hold harmless each of the Purchasers and their Affiliates and
their respective officers, directors, agents, employees, subsidiaries, partners
and controlling persons (each, an "INDEMNIFIED PARTY") to the fullest extent
-----------------
permitted by law from and against any and all losses, claims, damages, expenses
(including, without limitation, reasonable fees, disbursements and other charges
of counsel) or other liabilities (collectively, "LIABILITIES") resulting from or
-----------
arising out of any breach of any representation or warranty, covenant or
agreement of the Company in this Agreement, any other Transaction Agreement, or
any legal, administrative or other actions (including actions brought by the
Purchasers or the Company or any equity holders of the Company or derivative
actions brought by any Person claiming through or in the Company's name),
proceedings or investigations (whether formal or informal), or written threats
thereof, based upon, relating to or arising out of this Agreement, any other
Transaction Agreement or any transaction contemplated hereby or thereby or any
Indemnified Party's role therein or in any transaction contemplated hereby or
thereby; provided, however, that the Company shall not be liable under this
-------- -------
Section 7.1 to an Indemnified Party (a) for any amount paid in settlement of
claims without the Company's consent (which consent shall not be unreasonably
withheld), (b) to the extent that it is finally judicially determined that such
Liabilities resulted primarily from the willful misconduct or gross negligence
of such Indemnified Party or (c) to the extent that it is finally judicially
determined that such Liabilities resulted from the breach by such Indemnified
Party of any representation, warranty, covenant or other agreement of such
Indemnified Party contained in this Agreement or any other Transaction
Agreement. In connection with the obligations of the Company to indemnify for
expenses as set forth above, the Company further agrees, upon presentation
32
<PAGE>
to the Company of appropriate invoices containing reasonable detail, to
reimburse each Indemnified Party for all such reasonable expenses (including,
without limitation, reasonable fees, disbursements and other charges of counsel)
as they are incurred by such Indemnified Party; provided, however, that, if an
-------- -------
Indemnified Party is reimbursed hereunder for any expenses, such reimbursement
of expenses shall be refunded to the extent it is finally judicially determined
that the Liabilities in question resulted (a) primarily from the willful
misconduct or gross negligence of such Indemnified Party or (b) from the breach
by such Indemnified Party of any representation, warranty, covenant or other
agreement of such Indemnified Party contained in this Agreement or any other
Transaction Agreement.
7.2 Notification. Each Indemnified Party under this Article 7 will,
------------
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Company under this Article 7,
notify the Company in writing of the commencement thereof. The omission of any
Indemnified Party to so notify the Company of any such action shall not relieve
the Company from any liability which it may have to such Indemnified Party (a)
other than pursuant to this Article 7 or (b) under this Article 7 unless, and
only to the extent that, such omission results in the forfeiture of substantive
rights or defenses. In case any such action, claim or other proceeding shall be
brought against any Indemnified Party and it shall notify the Company of the
commencement thereof, the Company shall be entitled to assume the defense
thereof at its own expense, with counsel satisfactory to such Indemnified Party
in its reasonable judgment; provided, however, that any Indemnified Party may,
-------- -------
at its own expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any action, claim or proceeding in which the
Company, on the one hand, and an Indemnified Party, on the other hand, is, or is
reasonably likely to become, a party, such Indemnified Party shall have the
right to employ separate counsel at the Company's expense and to control its own
defense of such action, claim or proceeding if, in the reasonable opinion of
counsel to such Indemnified Party, a conflict or potential conflict exists
between the Company, on the one hand, and such Indemnified Party, on the other
hand, that would make such separate representation necessary to avoid prejudice
to the Indemnified Party. The Company agrees that it will not, without the
prior written consent of the Purchasers, settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated hereby (if any Indemnified Party
33
<PAGE>
is a party thereto or has been actually threatened to be made a party thereto)
unless such settlement, compromise or consent includes an unconditional release
of the Purchasers and each other Indemnified Party from all liability arising or
that may arise out of such claim, action or proceeding. The Company shall not
be liable for any settlement of any claim, action or proceeding effected against
an Indemnified Party without the Company's written consent, which consent shall
not be unreasonably withheld. The rights accorded to Indemnified Parties
hereunder shall be in addition to any rights that any Indemnified Party may have
at common law, by separate agreement or otherwise.
7.3 Registration Rights Agreement. Notwithstanding anything to the
-----------------------------
contrary in this Article 7, the indemnification and contribution provisions of
the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
7.4 Limitations on Indemnification. Notwithstanding any other
------------------------------
provision of this Article 7, the indemnification obligation of the Company
hereunder shall not exceed 100% of the aggregate payment received by the Company
from the Purchasers hereunder.
ARTICLE 8
AFFIRMATIVE COVENANTS
---------------------
8.1 Operation of Company. From and after the date hereof through the
--------------------
Closing Date, the Company and its Subsidiaries shall not enter into any
transaction or take any action other than in the ordinary course of business,
except that the Company may enter into such transactions and take such other
actions outside of the ordinary course of business, in each case as may be
specifically approved in writing by the Purchasers.
8.2 Exclusivity. From the date hereof through the earlier of the
-----------
Closing Date and March 31, 1996, the Company shall not enter into discussions or
negotiations with any Persons other than the Purchasers in respect of any
transaction similar in nature to any transaction contemplated by any Transaction
Agreement.
8.3 Use of Proceeds. The Company shall use the proceeds of the sale
---------------
of the Preferred Shares hereunder in the manner described in the PPM in the
Section entitled "Use of Proceeds."
34
<PAGE>
8.4 Taxes. The Company and its Subsidiaries shall prepare and
-----
timely file, in a manner consistent with prior years and applicable laws and
regulations, all Tax returns required to be filed on or before the Closing Date,
and all such Tax returns will be true and complete in all material respects.
The Company and its Subsidiaries shall timely pay all Taxes required to be paid
by them on or before the Closing Date, or that are claimed or asserted by any
taxing authority to be due on or before the Closing Date, except for those Taxes
that are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been set aside.
ARTICLE 9
MISCELLANEOUS
-------------
9.1 Obligations of the Purchasers. Each Purchaser's obligation and
-----------------------------
the obligations of the Company hereunder are subject to the execution and
delivery of this Agreement by the other Purchasers. The obligations of each
Purchaser shall be several and not joint and no Purchaser shall be liable or
responsible for the acts of any other Purchaser.
9.2 Termination.
-----------
(a) This Agreement may be terminated prior to the Closing as
follows:
(i) at the election of the Company if any one or more of the
conditions to its obligation to close has not been fulfilled as of the
Closing Date;
(ii) at the election of the Purchasers if any one or more of the
conditions to their obligation to close has not been fulfilled as of the
Closing Date;
(iii) at the election of the Company if the Purchasers
have breached a covenant or agreement contained in this Agreement, which
breach cannot be or is not cured by the Closing Date;
(iv) at the election of the Purchasers if the Company has
breached a covenant or agreement contained in this Agreement, which breach
cannot be or is not cured by the Closing Date; or
35
<PAGE>
(v) at any time on or prior to the Closing Date, by mutual
written consent of the Company and the Purchasers.
If this Agreement so terminates, it shall become null and void and
have no further force or effect, except as provided in Section 9.2(b).
(b) If this Agreement is terminated in accordance with Section 9.2(a)
and the transactions contemplated by this Agreement are not consummated, this
Agreement shall become null and void and of no further force and effect, except
for (i) the provisions of Section 2.3(b) relating to the obligation of the
Company to pay the Purchasers' reasonable out-of-pocket expenses and (ii) the
provisions of Article 7; provided, however, that none of the parties shall have
-------- -------
any liability in respect of a termination of this Agreement except to the extent
that failure to satisfy the conditions of Article 3 or Article 4, as the case
may be, results from the intentional or willful violation by such party of its
obligations contained in this Agreement or any documents delivered pursuant to
this Agreement.
9.3 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Purchasers,
acceptance of the Preferred Shares and payment therefor, conversion of the
Preferred Shares or termination of this Agreement and shall remain in full force
and effect until the second anniversary of the Closing Date.
9.4 Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(a) if to Whitney Equity Partners:
c/o J.H. Whitney & Co.
177 Broad Street
Stamford, Connecticut 06901
Telecopier No.: (203) 973-1422
Attention: Jeffrey R. Jay, M.D.
36
<PAGE>
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
Attention: Bruce A. Gutenplan, Esq.
(b) if to BSC:
Boston Scientific Corporation
One Boston Scientific Place
Natick, Massachusetts 01760-1537
Telecopier No.: (508) 650-8960
Attention: General Counsel
(c) if to the Company:
Nitinol Medical Technologies, Inc.
263 Summer Street, 7th Floor
Boston, Massachusetts 02210-1503
Telecopier No.: (617) 737-0924
Attention: Chief Executive Officer
with a copy to:
Squadron, Ellenoff, Plesent &
Sheinfeld, LLP
551 5th Avenue, 7th Floor
New York, New York 10176
Telecopier No.: (212)697-6686
Attention: Stephen H. Kay, Esq.
(d) if to Morrison or CDI:
Corporate Decisions, Inc.
1 International Plaza
100 Oliver Street
Boston, Massachusetts 02110
Telecopier No.: (617) 330-6898
Attention: David J. Morrison
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
9.5 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and permitted assigns of the
parties hereto.
37
<PAGE>
Subject to applicable securities laws, each of the Purchasers may assign any of
its rights and obligations under any of the Transaction Agreements to any of its
Affiliates. The Company may not assign any of its rights or obligations under
this Agreement without the written consent of the Purchasers. Except as
provided in Article 7, no Person other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of any of the
Transaction Agreements.
9.6 Determinations, Requests or Consents. All determinations,
------------------------------------
requests, consents, waivers or amendments to be made by the Purchasers in their
opinion or judgment, or with their approval or otherwise, pursuant to this
Agreement shall be made (i) if prior to the Closing Date, by the Purchasers that
will hold a majority of the Preferred Shares to be issued as set forth on
Schedule 2.1, or (ii) if after the Closing Date, by the holders of a majority of
- ------------
the Preferred Shares issued pursuant to this Agreement and shares of Common
Stock issued upon conversion of such Preferred Shares.
9.7 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of any party hereto in exercising
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. The remedies provided for herein are cumulative and are not
exclusive of any remedies that may be available to any party hereto at law, in
equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by any party hereto from the terms of any provision of
this Agreement, shall be effective (i) only if it is made or given in writing
and signed by the other parties hereto (to the extent required by Section 9.6)
and (ii) only in the specific instance and for the specific purpose for which
made or given. Except where notice is specifically required by this Agreement,
no notice to or demand on any party hereto in any case shall entitle such party
to any other or further notice or demand in similar or other circumstances.
9.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so exe-
38
<PAGE>
cuted shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
9.9 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
9.10 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law of such State.
9.11 Jurisdiction. Each party to this Agreement hereby irrevocably
------------
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby may be brought
in the courts of the State of New York or of the United States of America for
the Southern District of New York and hereby expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and expressly
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth or referred to in Section 9.6, such
service to become effective 10 days after such mailing.
9.12 Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.13 Rules of Construction. Unless the context otherwise requires,
---------------------
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
9.14 Variations in Pronouns. All pronouns and any variations thereof
----------------------
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
9.15 Entire Agreement. This Agreement and the other Transaction
----------------
Agreements are intended by the parties to be a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and
39
<PAGE>
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings other than those set forth or referred to herein or therein. This
Agreement and the other Transaction Agreements supersede all prior agreements
and understandings between the parties with respect to such subject matter.
9.16 Publicity. Except as may be required by applicable law, none of
---------
the parties hereto shall issue a publicity release or announcement or otherwise
make any public disclosure concerning this Agreement or the transactions
contemplated hereby, without prior approval by the other parties hereto;
provided, however, that the Purchasers and their Affiliates shall be permitted,
- -------- -------
without the prior approval of the other parties hereto, to arrange for the
publication on or after the Closing Date of customary "tombstone"
advertisements. If any announcement is required by law to be made by any party
hereto, prior to making such announcement such party will deliver a draft of
such announcement to the other parties and shall give the other parties a
reasonable opportunity to comment thereon.
9.17 Limitations on Rights of Third Parties. Nothing expressed or
--------------------------------------
implied in this Agreement is intended or shall be construed to confer upon or
give any person other than the Company, the Purchasers, their successors and
permitted assigns and the Indemnified Parties any rights or remedies under or by
reason of this Agreement.
9.18 Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
NITINOL MEDICAL TECHNOLOGIES, INC.
By /s/Thomas M.Tully
------------------------------
Name: Thomas M. Tully
Title: President and Chief Executive Officer
WHITNEY EQUITY PARTNERS, L.P.
By: J.H. WHITNEY EQUITY PARTNERS LLC
Its General Partner
By /s/Jeffrey R. Jay, M.D.
------------------------------
Name: Jeffrey R. Jay, M.D.
A Member
BOSTON SCIENTIFIC CORPORATION
By: /s/Larry Best
-----------------------------
Name:
Title:
/s/David J. Morrison
--------------------------------
David J. Morrison
CORPORATE DECISIONS, INC.
By /s/David J. Morrison
------------------------------
Name: David J. Morrison
Title: Chief Executive Officer
41
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
among
NITINOL MEDICAL TECHNOLOGIES, INC.,
WHITNEY EQUITY PARTNERS, L.P.,
BOSTON SCIENTIFIC CORPORATION,
DAVID J. MORRISON
and
CORPORATE DECISIONS, INC.
___________________________________
Dated as of February 16, 1996
__________________________________
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions................................................. 1
2. Securities Subject to this Agreement........................ 3
(a) Registrable Securities............................... 3
(b) Holders of Registrable Securities.................... 4
3. Demand Registration......................................... 4
(a) Request for Demand Registration...................... 4
(b) Effective Demand Registration........................ 5
(c) Expenses............................................. 5
(d) Underwriting Procedures.............................. 5
(e) Selection of Underwriters............................ 6
4. Piggy-Back Registration..................................... 7
(a) Piggy-Back Rights.................................... 7
(b) Priority of Registrations............................ 8
(c) Expenses............................................. 8
5. Holdback Agreements......................................... 9
(a) Restrictions on Public Sale by Holders............... 9
(b) Restrictions on Public Sale by the Company........... 9
6. Registration Procedures..................................... 9
(a) Obligations of the Company........................... 9
(b) Seller Information................................... 13
(c) Notice to Discontinue................................ 13
(d) Sale to Underwriter.................................. 13
7. Registration Expenses....................................... 14
8. Indemnification; Contribution............................... 14
(a) Indemnification by the Company....................... 14
(b) Indemnification by Holders........................... 15
(c) Conduct of Indemnification Proceedings............... 15
(d) Contribution......................................... 16
9. Rule 144; Other Exemptions.................................. 17
10. Miscellaneous............................................... 18
(a) Recapitalizations, Exchanges, etc.................... 18
(b) No Inconsistent Agreements; Other Registration Rights 18
(c) Remedies............................................. 18
(d) Amendments and Waivers............................... 19
(e) Notices.............................................. 19
(f) Successors and Assigns............................... 20
(g) Counterparts......................................... 20
(h) Headings............................................. 21
(i) Governing Law........................................ 21
(j) Jurisdiction......................................... 21
(k) Severability......................................... 21
<PAGE>
Page
----
(l) Rules of Construction................................ 21
(m) Entire Agreement..................................... 21
(n) Further Assurances................................... 21
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT, dated as of February 20, 1996, among
NITINOL MEDICAL TECHNOLOGIES, INC., a Delaware corporation (the "COMPANY"),
-------
WHITNEY EQUITY PARTNERS, L.P., a Delaware limited partnership ("WHITNEY EQUITY
--------------
PARTNERS"), BOSTON SCIENTIFIC CORPORATION, a Delaware corporation ("BSC"), DAVID
- -------- ---
J. MORRISON ("Morrison") and CORPORATE DECISIONS, INC. ("CDI").
This Agreement is made in connection with (i) the Stock Purchase
Agreement, dated as of the date hereof, among the Company, Whitney Equity
Partners, BSC, Morrison and CDI, relating to the acquisition by Whitney, BSC,
Morrison and CDI of an aggregate of 3,787,104 shares of Convertible Preferred
Stock, $.001 par value per share, of the Company (the "CONVERTIBLE PREFERRED
---------------------
STOCK"),for an aggregate purchase price of $8,500,000.00. In order to induce
- -----
Whitney Equity Partners, BSC, Morrison and CDI to acquire the Convertible
Preferred Stock, the Company has agreed to provide registration rights with
respect to the Registrable Securities (as hereinafter defined) as set forth in
this Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Act" means the Securities Act of 1933, as amended, and the rules
---
and regulations of the SEC promulgated hereunder.
"Approved Underwriter" has the meaning assigned such term in Section
--------------------
3(e).
"Approved Underwriter Amount" has the meaning assigned such term in
---------------------------
Section 3(d).
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Common Stock" means the Common Stock, $0.001 par value, of the
------------
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Company Underwriter" has the meaning assigned such term in Section
-------------------
4(a).
<PAGE>
"Demand Registration" has the meaning assigned such term in Section
-------------------
3(a).
"Designated Holder" means Whitney Equity Partners, BSC, Morrison, CDI
-----------------
and any of their respective transferees to whom Registrable Securities have been
transferred other than the transferee to whom such securities have been
transferred pursuant to a registration statement under the Act or Rule 144 under
the Act.
"Exchange Act" means the Securities and Exchange Act of 1934, as
------------
amended, and the rules and regulations of the SEC thereunder.
"Holder" has the meaning assigned such term in Section 2(b).
------
"Holders' Counsel" means (a) with respect to any Demand Registration
----------------
that has been requested pursuant to Section 3, the one counsel selected by the
Initiating Holders holding a majority of the Registrable Securities held by all
Initiating Holders being registered in such registration, and (b) with respect
to a request for registration of Registrable Securities pursuant to Section 4,
the one counsel selected by the Holders holding a majority of the Registrable
Securities being registered in such registration.
"Indemnified Party" has the meaning assigned such term in Section
-----------------
8(c).
"Indemnifying Party" has the meaning assigned such term in Section
------------------
8(c).
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its capital stock pursuant to a registration
statement on Form S-1 or otherwise under the Act.
"Initiating Holders" has the meaning assigned to such term in
------------------
Section 3(a).
"Inspector" has the meaning assigned such term in Section
---------
6(a)(viii).
"NASD" has the meaning assigned such term in Section 6(a)(xv).
----
"Other Investors" means holders of the Common Stock of the Company
not entitled to distribute such shares of Common Stock to the
public pursuant to Rule 144(k) (or any successor provision then in
effect) under the Act.
<PAGE>
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind, and shall include any successor (by merger or otherwise) of any such
entity.
"Redeemable Preferred Stock" means the Redeemable Preferred Stock,
--------------------------
$.001 par value per share, of the Company, or any other capital stock of the
Company into which such stock is reclassified or reconstituted.
"Registrable Securities" means, subject to Section 2(a), each of the
----------------------
following: (a) any shares of Common Stock issued or issuable upon conversion of
or in exchange for shares of the Convertible Preferred Stock and (b) any shares
of Common Stock issued or issuable in respect of shares of Common Stock issued,
issuable or held pursuant to clause (a) above by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise.
"Registration Expenses" has the meaning assigned such term in
---------------------
Section 7.
"SEC" means the Securities and Exchange Commission.
---
"Convertible Preferred Stock" has the meaning assigned such term in
---------------------------
the second paragraph of this Agreement.
"Shares" means the Common Stock, the Convertible Preferred Stock, the
------
Redeemable Preferred Stock, any class of common stock of the Company authorized
after the date of this Agreement, or any other class of stock resulting from
successive changes or reclassifications of the Shares.
"Stockholders' Agreement" means the Stockholders' Agreement, dated the
-----------------------
date hereof, among the Company, Whitney Equity Partners, BSC and the other
parties named therein.
"Total Securities" has the meaning assigned such term in Section
----------------
4(a).
"Underwriters" has the meaning assigned such term in Section 6(d).
------------
<PAGE>
"Valid Business Reason" has the meaning assigned such term in
---------------------
Section 3(f).
2. Securities Subject to this Agreement.
------------------------------------
(a) Registrable Securities. For the purposes of this Agreement,
----------------------
Registrable Securities will cease to be Registrable Securities when (i) a
registration statement covering such Registrable Securities has been declared
effective under the Act by the SEC and such Registrable Securities have been
disposed of pursuant to such effective registration statement or (ii) the entire
amount of Registrable Securities proposed to be sold in a single sale are or, in
the opinion of counsel satisfactory to the Company and the Holder, each in their
reasonable judgment, may, be distributed to the public pursuant to Rule 144 in
compliance with the requirements of paragraphs (c), (e), (f) and (g) of Rule 144
(notwithstanding the provisions of paragraph (k) of such Rule) (or any successor
provision then in effect) under the Act.
(b) Holders of Registrable Securities. A Person is deemed to be a
---------------------------------
holder of Registrable Securities (a "HOLDER") whenever such Person (i) is a
------
party to this Agreement (or a permitted transferee thereof) and (ii) owns of
record Registrable Securities, or holds a security convertible into or
exercisable or exchangeable for, Registrable Securities, whether or not such
purchase or conversion has actually been effected and disregarding any legal
restrictions upon the exercise of such rights. If the Company receives
conflicting instructions, notices or elections from two or more persons with
respect to the same Registrable Securities, the Company may act upon the basis
of the instructions, notice or election received from the registered owner of
such Registrable Securities. Registrable Securities issuable upon conversion of
another security shall be deemed outstanding for the purposes of this Agreement.
3. Demand Registration.
-------------------
(a) Request for Demand Registration. Subject to Section 3(f) below,
-------------------------------
at any time after 6 months from the date of the consummation of an Initial
Public Offering, the Designated Holders holding at least 25% of the Registrable
Securities held by all of the Designated Holders (the "INITIATING HOLDERS") may
------------------
request in writing the registration of Registrable Securities under the Act, and
under the securities or blue sky laws of any jurisdiction designated by such
holder or holders (each such registration under this Section 3(a) that satisfies
the requirements set forth in Section 3(b) is referred to herein as a "DEMAND
------
REGISTRATION"). Notwithstanding the foregoing, in no event shall the Company be
- ------------
required to effect more than three Demand Registrations. Two or more
registrations filed in response to one demand shall be counted as one
registration statement. Each request for a Demand Registration by the
<PAGE>
Initiating Holders in respect thereof shall specify the amount of the
Registrable Securities proposed to be sold, the intended method of disposition
thereof and the jurisdictions in which registration is desired. Upon a request
for a Demand Registration, the Company shall promptly take such steps as are
necessary or appropriate to prepare for the registration of the Registrable
Securities to be registered. Within fifteen (15) days after the receipt of such
request, the Company shall give written notice thereof to all other Designated
Holders and include in such registration all Registrable Securities held by a
Designated Holder from whom the Company has received a written request for
inclusion therein at least ten (10) days prior to the filing of the registration
statement. Each such request will also specify the number of Registrable
Securities to be registered, the intended method of disposition thereof and the
jurisdictions in which registration is desired. Subject to Section 3(d), the
Company shall be entitled to include in any registration statement and offering
made pursuant to a Demand Registration, authorized but unissued shares of Common
Stock, shares of Common Stock held by the Company as treasury shares or shares
of Common Stock held by Stockholders other than the Holders; provided, that such
inclusion shall be permitted only to the extent that it is pursuant to and
subject to the terms of the underwriting agreement or arrangements, if any,
entered into by the Initiating Holders exercising the Demand Registration
rights.
(b) Effective Demand Registration. The Company shall use its best
-----------------------------
efforts to cause any such Demand Registration to become effective not later than
ninety (90) days after it receives a request under Section 3(a). A registration
requested pursuant to Section 3(a) hereof shall not count as one of the three
demands to which the Designated Holders are entitled thereunder unless such
registration statement is declared effective and remains effective for at least
ninety (90) days.
(c) Expenses. In any registration initiated as a Demand Registration,
--------
the Company shall pay all Registration Expenses in connection therewith, whether
or not such requested Demand Registration becomes effective.
(d) Underwriting Procedures. If the Initiating Holders holding a
-----------------------
majority of the Registrable Securities held by all Initiating Holders to which
the requested Demand Registration relates so elect, the offering of such
Registrable Securities pursuant to such requested Demand Registration shall be
in the form of a firm commitment underwritten offering and the managing
underwriter or underwriters selected for such offering shall be the Approved
Underwriter selected in accordance with Section 3(e). In such event, if the
Approved Underwriter advises the Company in writing that, in its opinion, the
aggregate amount of such Registrable Securities requested to be included in such
offering (including those securities requested by the Company to
<PAGE>
be included in such registration) is sufficiently large to have an adverse
effect on the success of such offering, then the Company shall include in such
registration only the aggregate amount of Registrable Securities that in the
opinion of the Approved Underwriter may be sold without any such effect on the
success of such offering (the "APPROVED UNDERWRITER AMOUNT"), and (i) each
---------------------------
Designated Holder be entitled to have included in such registration Registrable
Securities equal to its pro rata portion of the Approved Underwriter Amount, as
based on the amounts of Registrable Securities sought to be registered by the
Designated Holders in their requests for participation in the requested Demand
Registration and (ii) to the extent that the number of Registrable Securities to
be included by the Designated Holders is less than the Approved Underwriter
Amount, securities that the Company proposes to register shall also be included.
If, as a result of the proration provision of this Section 3(d), any
Designated Holder shall not be entitled to include all Registrable Securities in
a registration that such Designated Holder has requested to be included, such
Designated Holder may elect to withdraw his request to include Registrable
Securities in such registration or may reduce the number requested to be
included; provided, however, that (x) such request must be made in writing prior
to the earlier of the execution of the underwriting agreement or the execution
of the custody agreement with respect to such registration and (y) such
withdrawal or reduction shall be irrevocable.
(e) Selection of Underwriters. If any requested Demand Registration
-------------------------
is in the form of an underwritten offering, the Initiating Holders holding a
majority of the Registrable Securities held by all Initiating Holders to be
included in the requested Demand Registration shall select and obtain an
investment banking firm of national reputation to act as the managing
underwriter of the offering (the "APPROVED UNDERWRITER"); provided, that such
--------------------
underwriter shall be reasonably satisfactory to the Company.
(f) Limitations on Demand Registrations. The Demand Registration
-----------------------------------
rights granted to the Holders in Section 3(a) are subject to the following
limitations: (i) each registration in respect of a Demand Registration must
include Registrable Securities having an aggregate market value of at least
$5,000,000.00, which market value shall be determined by multiplying the number
of Registrable Securities to be included in the Demand Registration by the
proposed per share offering price (provided that the limitation set forth in
this clause (i) shall not be in effect at any time the Holders' Registrable
Securities are not able to be sold under Rule 144 under the Act because of the
Company's failure to comply with the information requirements thereunder, unless
at such time, the Company's outside counsel (which shall be reasonably
acceptable to the
<PAGE>
Holders requesting such registration) delivers a written opinion of counsel to
such Holders to the effect that such Holders' Registrable Securities may be
publicly offered and sold without registration under the Act); (ii) the Company
shall not be required to cause a registration pursuant to Section 3(a) to be
declared effective within a period of 150 days after the effective date of any
registration statement of the Company effected in connection with a Demand
Registration; and (iii) if the Board of Directors of the Company, in its good
faith judgment, determines that any registration of Registrable Securities
should not be made or continued because it would materially interfere with any
material financing, acquisition, corporate reorganization or merger or other
transaction involving the Company or any of its subsidiaries (a "VALID BUSINESS
--------------
REASON"), the Company may (x) postpone a registration statement relating to a
- ------
Demand Registration until such Valid Business Reason no longer exists, but in no
event for more than ninety (90) days, and,(y) in case a registration statement
has been filed relating to a Demand Registration, if the Valid Business Reason
has not resulted from actions taken by the Company, the Company, upon the
approval of a majority of the Company's Board of Directors, such majority to
include at least one Whitney Equity Partners Director, may cause such
registration statement to be withdrawn and its effectiveness terminated or may
postpone amending or supplementing such registration statement; the Company
shall give written notice of its determination to postpone or withdraw a
registration statement and of the fact that the Valid Business Reason for such
postponement or withdrawal no longer exists, in each case, promptly after the
occurrence thereof. Notwithstanding anything to the contrary contained herein,
the Company may not postpone or withdraw a filing under Section 3(f)(iii) hereof
more than once in any twelve-month period.
Each Holder of Registrable Securities agrees that, upon receipt of any
notice from the Company that the Company has determined to withdraw any
registration statement pursuant to clause (iii) above, such Holder will
discontinue its disposition of Registrable Securities pursuant to such
registration statement and, if so directed by the Company, will deliver to the
Company (at the Company's expenses) all copies, other than permanent file
copies, then in such Holder's possession, of the prospectus covering such
Registrable Securities that was in effect at the time of receipt of such notice.
If the Company shall give any notice of postponement or withdrawal of a
registration statement, the Company shall, at such time as the Valid Business
Reason that caused such postponement or withdrawal no longer exists (but in no
event later than ninety (90) days after the date of the postponement), use its
best efforts to promptly effect the registration under the Act of the
Registrable Securities covered by the postponed or withdrawn registration
statement in accordance with this Section 3 (unless the Holder(s) delivering
<PAGE>
the Demand Registration request shall have withdrawn such request, in which case
the Company shall not be considered to have effected an effective registration
for the purposes of this Agreement), and such registration shall not be
postponed or withdrawn pursuant to clause (iii) above.
4. Piggy-Back Registration.
-----------------------
(a) Piggy-Back Rights. If the Company proposes to file a registration
-----------------
statement under the Act with respect to an offering by the Company for its own
account of any class of security (other than a registration statement on Form S-
4 or S-8 (or any successor form thereto)) under the Act, then the Company shall
give written notice of such proposed filing to each of the Holders at least
twenty (20) days before the anticipated filing date, and such notice shall
describe in detail the proposed registration and distribution (including those
jurisdictions where registration under the securities or blue sky laws is
intended) and offer such Holders the opportunity to register the number of
Registrable Securities as each such Holder may request. The Company shall use
its best efforts (within ten (10) days of the notice provided for in the
preceding sentence) to permit the Holders who have requested to participate in
the registration for such offering to include such Registrable Securities in
such offering on the same terms and conditions as the securities of the Company
included therein. Notwithstanding the foregoing, if such registration involves
an underwritten offering and the managing underwriters or underwriters (the
"COMPANY UNDERWRITER") shall advise the Holders of Registrable Securities in
-------------------
writing that, in its opinion, the total amount of securities requested to be
included in such offering (the "TOTAL SECURITIES") is sufficiently large so as
----------------
to have an adverse effect on the success of the distribution of the Total
Securities, then the Company shall include in such registration, to the extent
of the number of Registrable Securities which the Company is so advised can be
sold in (or during the time of) such offering, first, all Common Stock or
-----
securities convertible into, or exchangeable or exercisable for, Common Stock
that the Company proposed to register for its own account, second, all
------
securities proposed to be registered by all Designated Holders and Other
Investors, pro rata among such Designated Holders and Other Investors, and
third, all other securities proposed to be registered. Notwithstanding anything
in this Section 4 to the contrary, the Company shall not be required to include
any Registrable Securities in its Initial Public Offering.
(b) Priority of Registrations. Subject to the provisions of Section
-------------------------
3(f)(iii), if the Company proposes to register securities pursuant to Section
4(a) hereof on the same day that the Designated Holders request a registration
pursuant to Section 3(a) hereof, then the Demand Registration requested pursuant
to Section 3(a) hereof shall be given priority.
<PAGE>
(c) Expenses. The Company shall bear all Registration Expenses in
--------
connection with any registration pursuant to this Section 4.
(d) Conditions and Limitations on Piggyback Registrations. If, at any
-----------------------------------------------------
time after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to all Holders of record of
Registrable Securities and (i) in the case of a determination not to register,
shall be relieved of its obligation to register the Registrable Securities in
connection with such abandoned registration, without prejudice, however, to the
rights of Holders under Section 3, and (ii) in the case of a determination to
delay the registration of its securities, shall be permitted to delay the
registration of such Registrable Securities for the same period as the delay in
registering such other equity securities.
Any Holder shall have the right to withdraw its request for inclusion
of its Registrable Securities in any registration statement pursuant to this
Section 4 by giving written notice to the Company of its request to withdraw;
provided, however, that (i) such request must be made in writing prior to the
earlier of the execution of the underwriting agreement or the execution of the
custody agreement with respect to such registration and (ii) such withdrawal
shall be irrevocable and, after making such withdrawal, a Holder shall no longer
have any right to include Registrable Securities in the registration as to which
such withdrawal was made.
5. Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by Holders. To the extent not
--------------------------------------
inconsistent with applicable law, each Holder agrees not to effect any public
sale or distribution of any Registrable Securities being registered or of any
securities convertible into or exchangeable or exercisable for such Registrable
Securities, including a sale pursuant to Rule 144 under the Act, during the
ninety (90) day period beginning on the effective date of such Demand
Registration or Piggy-Back Registration or other underwritten offering (except
as part of such registration), if and to the extent requested by any other
Holder, in the case of a non-underwritten public offering, or if and to the
extent requested by the Company Underwriter, in the case of an underwritten
public offering. To the extent not inconsistent with applicable law, each
Holder also agrees that, during the period of duration (not to exceed 180 days)
specified by the Company and an underwriter of Common Stock in
<PAGE>
connection with an Initial Public Offering, following the effective date of a
registration statement of the Company filed under the Act relating to such
Initial Public Offering, it shall not, to the extent requested by the Company
and such underwriter, directly or indirectly sell, offer to sell, contract to
sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to donees who agree to
be similarly bound) any securities of the Company held by it at any time during
such period (except Registrable Securities included in such registration).
(b) Restrictions on Public Sale by the Company. The Company agrees
------------------------------------------
not to effect any public sale or distribution of any of its securities for its
own account (except pursuant to registrations on Form S-4 or S-8 (or any
successor form thereto) under the Act) during the ninety (90) day period
beginning on the effective date of any registration statement in which the
Holders are participating.
6. Registration Procedures.
-----------------------
(a) Obligations of the Company. Whenever registration of Registrable
--------------------------
Securities has been requested pursuant to Section 3 or 4 of this Agreement, the
Company shall use its best efforts to effect the registration and sale of such
Registrable Securities in accordance with the intended method of distribution
thereof as quickly as practicable, and in connection with any such request, the
Company shall, as expeditiously as possible:
(i) prepare and file with the SEC (in any event not later than sixty
(60) Business Days after receipt of a request to file a registration statement
with respect to Registrable Securities) a registration statement on any form on
which registration is requested for which the Company then qualifies, which
counsel for the Company and Holders' Counsel shall deem appropriate and which
shall be available for the sale of such Registrable Securities in accordance
with the intended method of distribution thereof, and use its best efforts to
cause such registration statement to become effective; provided, however, that
before filing a registration statement or-------- -------prospectus or any
amendments or supplements thereto, the Company shall (A) provide Holders'
Counsel with an adequate and appropriate opportunity to participate in the
preparation of such registration statement and each prospectus included therein
(and each amendment or supplement thereto) to be filed with the SEC, which
documents shall be subject to the review of Holders' Counsel, and (B) notify
Holders' Counsel and each seller of Registrable Securities pursuant to such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable action required to prevent the entry of such stop order or
to remove it if entered;
<PAGE>
(ii) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and to comply
with the provisions of the Act with respect to the disposition of all
Registrable Securities covered by such registration statement until the earlier
of (a) such time as all of such Registrable Securities and other securities have
been disposed of in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement and (b) 180 days after
the effective date of such registration statement, except with respect to any
such registration statement filed pursuant to Rule 415 (or any successor Rule)
under the Act if the Company is eligible to file a registration statement on
Form S-3, in which case such period shall be two (2) years;
(iii) as soon as reasonably possible, furnish to each seller of
Registrable Securities, prior to filing a registration statement, copies of such
registration statement as it is proposed to be filed, and thereafter such number
of copies of such registration statement, each amendment and supplement thereto
(in each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as each such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(iv) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller of Registrable Securities may request, and to continue such
qualification in effect in each such jurisdiction for as long as is permissible
pursuant to the laws of such jurisdiction, or for as long as any such seller
requests or until all of such Registrable Securities are sold, whichever is
shortest, and do any and all other acts and things which may be reasonably
necessary or advisable to enable any such seller to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such seller;
provided, however, that the Company shall not be required to (A) qualify
-------- -------
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 6(a)(iv), (B) subject itself to
taxation in any such jurisdiction or (C) consent to general service of process
in any such jurisdiction;
(v) use its best efforts to obtain all other approvals, covenants,
exemptions or authorizations from such governmental agencies or authorities as
may be necessary to enable the sellers of such Registrable Securities to
consummate the disposition of such Registrable Securities;
<PAGE>
(vi) notify each seller of Registrable Securities at any time when a
prospectus relating thereto is required to be delivered under the Act, upon
discovery that, or upon the happening of any event as a result of which, the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, and the Company shall promptly
prepare a supplement or amendment to such prospectus and furnish to each such
seller a reasonable number of copies of a supplement to or amendment of such
prospectus as may be necessary so that, after delivery to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances under which they were made;
(vii) enter into and perform customary agreements (including an
underwriting agreement in customary form with the Approved Underwriter or
Company Underwriter, if any, selected as provided in Section 3 or 4; provided,
that the underwriting agreement, if any, shall be reasonably satisfactory in
form and substance to the Company) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
(viii) make available for inspection by any seller of Registrable
Securities,
any managing underwriter participating in any disposition pursuant to such
registration statement, Holders' Counsel and any attorney, accountant or other
agent retained by any such seller or any managing underwriter (each, an
"INSPECTOR" and, collectively, the "INSPECTORS"), all financial and other
- ---------- ----------
records, pertinent corporate documents and properties of the Company and any
subsidiaries thereof as may be in existence at such time (collectively, the
"RECORDS") as shall be reasonably necessary to enable them to exercise their
-------
due diligence responsibility, and cause the Company's and any subsidiaries'
officers, directors and employees, and the independent public accountants of the
Company, to supply all information reasonably requested by any such Inspector in
connection with such registration statement; provided, that such Inspector
agrees to keep all such information confidential.
(ix) obtain a "cold comfort" letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by "cold comfort" letters, as Holders' Counsel or the
managing underwriter reasonably request;
<PAGE>
(x) furnish, at the request of any seller of Registrable Securities on
the date such securities are delivered to the underwriters for sale pursuant to
such registration or, if such securities are not being sold through
underwriters, on the date the registration statement with respect to such
securities becomes effective, an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the seller making such request, covering such legal
matters with respect to the registration in respect of which such opinion is
being given as such seller may reasonably request and as are customarily
included in such opinions;
(xi) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable but no later than fifteen (15) months after the
effective date of the registration statement, an earnings statement covering a
period of twelve (12) months beginning after the effective date of the
registration statement, in a manner which satisfies the provisions of Section
11(a) of the Act;
(xii) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed (if any) if the listing of such Registrable Securities is then permitted
under the rules of such exchange or, if no similar securities are then so
listed, cause all such Registrable Securities to be listed on an exchange on
which the Initiating Holders request that such Registrable Securities be listed,
subject to the satisfaction of the applicable listing requirements of each such
exchange;
(xiii) keep each seller of Registrable Securities advised in writing
as to the initiation and progress of any registration under Section 3 or 4
hereunder;
(xiv) provide officers' certificates and other customary
closing documents;
(xv) cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD"); and
----
(xvi) use its best efforts to take all other steps necessary to
effect the registration of the Registrable Securities contemplated hereby.
(b) Seller Information. The Company may require as a condition
------------------
precedent of the Company's obligations under this
<PAGE>
Section 6 that each seller of Registrable Securities as to which any
registration is being effected furnish to the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
(c) Notice to Discontinue. Each Holder agrees that, upon receipt of
---------------------
any notice from the Company of the happening of any event of the kind described
in Section 6(a)(vi), such Holder shall forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 6(a)(vi) and, if so
directed by the Company, such Holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
which is current at the time of receipt of such notice. If the Company shall
give any such notice, the Company shall extend the period during which such
registration statement shall be maintained effective pursuant to this Agreement
(including, without limitation, the period referred to in Section 6(a)(ii)) by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 6(a)(vi) to and including the date when the
Holder shall have received the copies of the supplemented or amended prospectus
contemplated by and meeting the requirements of Section 6(a)(vi).
(d) Sale to Underwriter. Subject to the limitations on inclusion of
-------------------
Registrable Securities in a registration under Sections 3(d) and 4(a), in lieu
of converting any shares of Convertible Preferred Stock into Registrable
Securities to be included in a registration under Section 3 or 4 prior to or
simultaneously with the filing or the effectiveness of any registration
statement filed pursuant thereto, the holder of such Convertible Preferred Stock
may sell such Convertible Preferred Stock to the Approved Underwriter or the
Company Underwriter, as the case may be, and any other underwriters of the
offering being registered (collectively, the Approved Underwriter or Company
Underwriter, as the case may be, and such other underwriters, the
"UNDERWRITERS") if the Underwriters consent thereto and if the Underwriters
------------
undertake to convert such shares of Convertible Preferred Stock into Registrable
Securities before making any distribution pursuant to such registration
statement and to include such Registrable Securities among the Registrable
Securities being offered pursuant to such registration statement. Assuming
timely delivery by the Holder of the Convertible Preferred Stock certificates to
or for the account of the Underwriters, the Company agrees to cause the relevant
Registrable Securities to be issued so as to permit the Underwriters to make and
complete the distribution (including the distribution of such Registrable
Securities) contemplated by the underwriting .
<PAGE>
7. Registration Expenses. The Company shall pay all expenses (other
---------------------
than underwriting discounts and commissions) arising from or incident to the
performance of, or compliance with, this Agreement, including, without
limitation, (a) SEC, stock exchange and NASD registration and filing fees, (b)
all fees and expenses incurred in complying with securities or blue sky laws
(including, without limitation, reasonable fees, charges and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), (c) all printing, messenger and delivery expenses, (d) the fees,
charges and disbursements of counsel to the Company and of its independent
public accountants and any other accounting and legal fees, charges and expenses
incurred by the Company (including, without limitation, any expenses arising
from any special audits incident to or required by any registration or
qualification) and (e) the reasonable fees, charges and expenses of any special
experts retained by the Company in connection with any requested Demand
Registration or piggy-back registration pursuant to the terms of this Agreement,
regardless of whether the registration statement filed in connection with such
registration is declared effective. In connection with each registration
hereunder, the Company shall reimburse the Holders of Registrable Securities
being registered in such registration for the reasonable fees, charges and
disbursements of not more than one Holders' Counsel. All of the expenses
described in this Section 7 are referred to in this Agreement as "REGISTRATION
------------
EXPENSES." Notwithstanding the foregoing provisions of this Section 7, in
- --------
connection with any registration hereunder, each Holder of Registrable
Securities being registered shall pay all underwriting discounts and commissions
and any capital gains, income or transfer taxes, if any, attributable to the
sale of such Registrable Securities, pro rata with respect to payments of
--- ----
discounts and commissions in accordance with the number of shares sold in the
offering.
8. Indemnification; Contribution.
-----------------------------
(a) Indemnification by the Company. In the event of any proposed
------------------------------
registration of securities of the Company pursuant to Section 3 or Section 4,
the Company agrees to indemnify and hold harmless each Holder, its directors,
officers, partners, employees, advisors and agents, and each Person who controls
(within the meaning of the Act or the Exchange Act) such Holder, to the extent
permitted by law, from and against any and all losses, claims, damages, expenses
(including, without limitation, reasonable costs of investigation and fees,
disbursements and other charges of counsel) or other liabilities resulting from
or arising out of or based upon any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, prospectus or preliminary
prospectus or notification or offering circular (as amended or supplemented if
the Company shall have furnished any amendments or supplements
<PAGE>
thereto) or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Company by or on behalf of such
Holder expressly for use therein. The Company shall also indemnify any
underwriters of the Registrable Securities, their officers, directors and
employees, and each Person who controls any such underwriter (within the meaning
of the Act and the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities.
(b) Indemnification by Holders. In connection with any proposed
--------------------------
registration in which a Holder is participating pursuant to Section 3 or 4
hereof, each such Holder shall furnish to the Company in writing such
information with respect to such Holder as the Company may reasonably request or
as may be required by law for use in connection with any registration statement
or prospectus to be used in connection with such registration and each Holder
agrees to indemnify and hold harmless the Company, any underwriter retained by
the Company and their respective directors, officers, employees and each Person
who controls (within the meaning of the Act and the Exchange Act) the Company or
such underwriter to the same extent as the foregoing indemnity from the Company
to the Holders (subject to the proviso to this sentence and applicable law), but
only with respect to any such information furnished in writing by or on behalf
of such Holder expressly for use therein; provided, however, that the liability
-------- -------
of any Holder under this Section 8(b) shall be limited to the amount of the net
proceeds received by such Holder in the offering giving rise to such liability.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
--------------------------------------
indemnification hereunder (the "INDEMNIFIED PARTY") agrees to give prompt
-----------------
written notice to the indemnifying party (the "INDEMNIFYING PARTY") after the
------------------
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, that, the failure so to notify the
-------- ----
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder. If notice of commencement
of any such action is given to the Indemnifying Party as above provided, the
Indemnifying Party shall be entitled to participate in and, to the extent it may
wish, jointly with any other Indemnifying Party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by it and
satisfactory to such Indemnified Party. The Indemnified Party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and
<PAGE>
expenses of such counsel (other than reasonable costs of investigation) shall be
paid by the Indemnified Party unless (i) the Indemnifying Party agrees to pay
the same, (ii) the Indemnifying Party fails to assume the defense of such action
with counsel satisfactory to the Indemnified Party in its reasonable judgment,
(iii) the named parties to any such action (including any impleaded parties)
have been advised by such counsel that either (A) representation of such
Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (B) there
may be one or more legal defenses available to it which are different from or
additional to those available to the Indemnifying Party; provided, however, that
the Indemnifying Party shall only have to pay the fees and expenses of one firm
of counsel for all Indemnified Parties in each jurisdiction, except to the
extent representation of all Indemnified Parties by the same counsel is
inappropriate under applicable standards of professional conduct. In either of
such cases the Indemnifying Party shall not have the right to assume the defense
of such action on behalf of such Indemnified Party. No Indemnifying Party shall
be liable for any settlement entered into without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall,
without the written consent of the Indemnified Party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the Indemnified Party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment (A) includes an unconditional release of the Indemnified
Party from all liability arising out of such action or claim and (B) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any Indemnified Party. The rights accorded to any
Indemnified Party hereunder shall be in addition to any rights that such
Indemnified Party may have at common law, by separate agreement or otherwise.
(d) Contribution. If the indemnification provided for in Section 8(a)
------------
from the Indemnifying Party is unavailable to an Indemnified Party in respect of
any losses, claims, damages, expenses or other liabilities referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages, expenses or other liabilities in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such losses, claims, damages, expenses or other liabilities, as well as any
other relevant equitable considerations. The relative faults of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any
<PAGE>
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, was made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the Indemnifying
Party's and Indemnified Party's relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, expenses or
other liabilities referred to above shall be deemed to include, subject to the
limitations set forth in Sections 8(a), 8(b) and 8(c), any legal or other fees,
charges or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution pursuant to this Section
8(d).
9. Rule 144; Other Exemptions. If the Company shall have filed a
--------------------------
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the Act
in respect of Common Stock or securities of the company convertible into or
exchangeable or exercisable for Common Stock, the Company covenants that it
shall file any reports required to be filed by it under the Exchange Act and the
rules and regulations adopted by the SEC thereunder, and that it shall take such
further action as each Holder may reasonably request (including, but not limited
to, providing any information necessary to comply with Rules 144 and 144A under
the Act), all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Act within the
limitation of the exemptions provided by (a) Rule 144 or Rule 144A under the
Act, as such rules may be amended from time to time, or (b) any other rules or
regulations now existing or hereafter adopted by the SEC. The Company shall,
upon the request of any Holder, deliver to such Holder a written statement as to
whether the Company has complied with such requirements.
<PAGE>
10. Certain Limitations on Registration Rights. In the case of a
------------------------------------------
registration under Section 4 if the Company has determined to enter into an
underwriting agreement in connection therewith, no person may participate in
such registration unless such person (a) agrees to sell such person's securities
on the basis provided therein and (b) completes and executes all questionnaires,
powers of attorney, indemnities, lock-up agreements, underwriting agreements and
other documents reasonably required under the terms of such underwriting
agreements.
11. Miscellaneous.
-------------
(a) Recapitalizations, Exchanges, etc. The provisions of this
---------------------------------
Agreement shall apply, to the full extent set forth herein with respect to the
Shares, to any and all shares of capital stock of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for or in substitution
of, the Shares and shall be appropriately adjusted for any stock dividends,
splits, reverse splits, combinations, recapitalizations and the like occurring
after the date hereof.
(b) No Inconsistent Agreements; Other Registration Rights. The
-----------------------------------------------------
Company shall not enter into any agreement with respect to its securities that
is inconsistent with or adversely affects the rights granted to the Holders in
this Agreement other than any lock-up agreement with the underwriters in
connection with an underwritten offering pursuant to which the Company agrees,
for a period not in excess of 180 days if such underwritten offering is an
Initial Public Offering or, for a period not in excess of 90 days if such
underwritten offering is not an Initial Public Offering, not to register for
sale, and not to sell or otherwise dispose of, Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock. The Company
shall not grant any other Person registration rights without the written consent
of the Designated Holders holding at least a majority of the Registrable
Securities held by all of the Designated Holders. If the Company shall at any
time hereafter provide to any holder of any securities of the Company rights
with respect to the registration of such securities and such rights are provided
on terms or conditions more favorable to such holder than the terms and
conditions applicable to the Designated Holders herein, the Company shall
provide (by way of amendment to this Agreement or otherwise) such more favorable
terms or conditions to the Designated Holders under this Agreement.
(c) Remedies. The Holders, in addition to being entitled to exercise
--------
all rights granted by law, including
<PAGE>
recovery of damages, shall be entitled to specific performance of their rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive in any action for
specific performance the defense that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions of such section may not be
given unless the Company has obtained the prior written consent of (i) the
Designated Holders holding at least a majority of the Registrable Securities
held by all of the Designated Holders and (ii) the Holders holding at least a
majority of the Registrable Securities.
(e) Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to Whitney Equity Partners:
c/o J.H. Whitney & Co.
177 Broad Street
Stamford, Connecticut 06901
Telecopier No.: (203) 973-1422
Attention: Jeffrey R. Jay, M.D.
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
Attention: Bruce A. Gutenplan, Esq.
<PAGE>
(ii) if to BSC:
Boston Scientific Corporation
One Boston Scientific Place
Natick, Massachusetts 01760-1537
Telecopier No.: (508) 650-8960
Attention: General Counsel
(iii) if to the Company:
Nitinol Medical Technologies, Inc.
263 Summer Street, 7th Floor
Boston, Massachusetts 02210-1503
Telecopier No.: (617) 737-0924
Attention: Chief Executive Officer
with a copy to:
Squadron, Ellenoff, Plesent &
Sheinfeld, L.L.P.
551 Fifth Avenue, 7th Floor
New York, New York 10176
Telecopier No.: (212) 697-6686
Attention: Stephen H. Kay, Esq.
(iv) if to Morrison, CDI or any other Holder, to its, his or her
address as it appears on the record books of the Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of the parties
hereto; provided, however, that the registration rights and the
other obligations of the-------- -------Company contained in this
Agreement shall, with respect to any Registrable Security, be
automatically transferred from a Holder to any subsequent holder
of such Registrable Security (including any pledgee).
Notwithstanding any transfer of such rights, all of the
obligations of the Company hereunder shall survive any such
transfer and shall continue to inure to the benefit of all
transferees.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be
<PAGE>
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such State.
(j) Jurisdiction. Each party to this Agreement hereby irrevocably
------------
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby may be brought
in the courts of the State of New York or of the United States of America for
the Southern District of New York and hereby expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and expressly
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 10(e), such service to
become effective 10 days after such mailing.
(k) Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, it being intended that all
of the rights and privileges of the Holders shall be enforceable to the fullest
extent permitted by law.
(l) Rules of Construction. Unless the context otherwise requires,
---------------------
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
(m) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings in respect of the subject matter contained herein,
other than those set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
<PAGE>
(n) Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
NITINOL MEDICAL TECHNOLOGIES, INC.
By /s/Thomas M. Tully
-------------------------------------
Name: Thomas M. Tully
Title: President and Chief Executive Officer
WHITNEY EQUITY PARTNERS, L.P.
By J.H. WHITNEY EQUITY PARTNERS LLC
Its General Partner
By /s/Jeffrey R. Jay
-------------------------------------
Name: Jeffrey R. Jay, M.D.
A Member
BOSTON SCIENTIFIC CORPORATION
By /s/Larry Best
-------------------------------------
Name:
Title:
/s/David J. Morrison
-------------------------------------
David J. Morrison
CORPORATE DECISIONS, INC.
By /s/David J. Morrison
------------------------------------
Name: David J. Morrison
Title: Chief Executive Officer
<PAGE>
EXHIBIT 10.3
AGREEMENT AND PLAN OF MERGER
AMONG
NITINOL MEDICAL TECHNOLOGIES, INC.
NMT HEART, INC.
INNERVENTIONS, INC.
AND
FLETCHER SPAGHT, INC.
DATED AS OF JANUARY 25, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I THE MERGER
Section 1.1 The Merger
Section 1.2 Closing
Section 1.3 Effective Time
Section 1.4 Conversion of Securities
Section 1.5 Adjustment of Exchange Ratio
Section 1.6 Exchange of Securities
ARTICLE II CERTAIN MATTERS RELATING TO THE SURVIVING
CORPORATION
Section 2.1 Certificate of Incorporation of the
Surviving Corporation
Section 2.2 By-Laws of the Surviving Corporation
Section 2.3 Directors and Officers of the Surviving Corporation
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Section 3.1 Existence, Good Standing, Corporate Authority
Section 3.2 Authorization, Validity and Effect of Agreements
Section 3.3 Capitalization
Section 3.4 No Violation
Section 3.5 No Brokers
Section 3.6 Parent Common Stock
Section 3.7 Financial Statements
Section 3.8 Interim Operations of Merger Sub
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Section 4.1 Existence, Good Standing, Corporate
Authority
Section 4.2 Authorization, Validity and Effect of
Agreements
Section 4.3 Compliance with Laws
Section 4.4 Capitalization
Section 4.5 Other Interests
Section 4.6 No Violation
Section 4.7 Conduct of Business
Section 4.8 Litigation
Section 4.9 Absence of Certain Changes
Section 4.10 Proprietary Rights
Section 4.11 Properties
Section 4.12 Material Contracts
Section 4.13 Taxes
Section 4.14 Employees
Section 4.15 Absence of Indemnifiable Claims, etc
Section 4.16 No Brokers
Section 4.17 Financial Condition
Section 4.18 Questionable Payments
Section 4.19 Insurance
Section 4.20 Full Disclosure
Section 4.21 Non-Distributive Intent
Section 4.22 Available Information
<PAGE>
ARTICLE V COVENANTS
Section 5.1 Alternative Proposals
Section 5.2 Interim Operations of InnerVentions
and Clamshell
Section 5.3 Filings; Other Action
Section 5.4 Inspection of Records
Section 5.5 Further Action
Section 5.6 Expenses
Section 5.7 Survival of Representations and Warranties
of Stockholder
Section 5.8 Board of Directors Representation
ARTICLE VI CONDITIONS
Section 6.1 Conditions to Obligation of InnerVentions and
Stockholder to Effect the Merger
Section 6.2 Conditions to Obligation of Parent and
Merger Sub to Effect the Merger
ARTICLE VII TERMINATION
Section 7.1 Termination
Section 7.2 Effect of Termination
ARTICLE VIII INDEMNIFICATION
Section 8.1 Obligation of Stockholder to Indemnify
Section 8.2 Obligation of Parent to Indemnify
Section 8.3 Notice and Opportunity to Defend
Section 8.4 Collateral for Limited Recourse Claim
for Indemnification
ARTICLE IX GENERAL PROVISIONS
Section 9.1 Notices
Section 9.2 Assignment, Binding Effect
Section 9.3 Entire Agreement
Section 9.4 Amendment
Section 9.5 Governing Law
Section 9.6 Counterparts
Section 9.7 Headings
Section 9.8 Interpretation
Section 9.9 Waivers
Section 9.10 Incorporation of Schedules and Exhibits
Section 9.11 Severability
Section 9.12 Enforcement of Agreement
- i -
<PAGE>
EXHIBITS
- --------
Exhibit A Certificate of Merger
Exhibit B Form of Parent Common Stock Warrant
Exhibit C Form of Opinion of Counsel to Parent
Exhibit D Form of Registration Rights Agreement
Exhibit E Form of Pledge Agreement
Exhibit F Form of Opinion of Counsel to InnerVentions
- ii -
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of January __, 1996 (the
"Agreement") among Nitinol Medical Technologies, Inc, a Delaware corporation
("Parent"), NMT Heart, Inc., a Delaware corporation and the wholly-owned
subsidiary of Parent ("Merger Sub"), InnerVentions, Inc., a Delaware corporation
("InnerVentions"), and Fletcher Spaght, Inc., the sole stockholder of
InnerVentions ("Stockholder").
WHEREAS, the parties wish to provide for the terms and conditions upon
which InnerVentions will be acquired by Parent by means of a merger of
InnerVentions with and into Merger Sub;
WHEREAS, it is the intention of the parties to this Agreement that for
federal income tax purposes, the merger provided for herein shall qualify as a
"reorganization" within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
NOW THEREFORE, in consideration of the premises and of the representations,
warranties, covenants and agreements set forth herein, the parties hereto hereby
agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions of
----------
this Agreement, at the Effective Time (as defined in Section 1.3 of this
Agreement), InnerVentions shall be merged with and into Merger Sub in accordance
with the laws of the State of Delaware and the terms of this Agreement (the
"Merger"), whereupon the separate corporate existence of InnerVentions shall
cease, and Merger Sub shall continue as the surviving corporation of the Merger
(Merger Sub, in such capacity hereinafter sometimes referred to as the
"Surviving Corporation"). The name of Merger Sub as the Surviving Corporation,
shall remain "NMT Heart, Inc."
Section 1.2 Closing. Subject to the terms and conditions of this
-------
Agreement, the closing of the Merger (the "Closing") shall take place (a) at the
offices of Squadron, Ellenoff, Plesent & Sheinfeld LLP, 551 Fifth Avenue, New
York, New York 10176 at 10:00 a.m. on the second business day after all the
conditions set forth in Article VI of this Agreement (other than those that are
waived by the party or parties for whose benefit such conditions exist) are
satisfied; or (b) at such other place, time, and/or date upon which the parties
hereto may otherwise agree. The date upon which the Closing shall occur is
referred to herein as the "Closing Date."
Section 1.3 Effective Time. As soon as practical after all the conditions
--------------
to the Merger set forth in Article VI of this Agreement have been fulfilled or
waived, and provided, that this Agreement shall not have been terminated as
provided in Article VII hereof, the parties hereto shall cause a certificate of
merger to be properly executed and filed in accordance with the provisions of
the Delaware General Corporation Law (the "DGCL") and the terms of this
Agreement. The parties hereto shall also take such further actions as may be
required under the law of the State of Delaware in connection with the
consummation of the Merger. The Merger shall become effective at such time as
the Certificate of Merger (substantially in the form of Exhibit A attached
hereto) is duly filed with the Secretary of State of the State of Delaware in
<PAGE>
accordance with the provisions of Section 251 of the DGCL (the "Certificate of
Merger") or at such later time as is specified in the Certificate of Merger (the
"Effective Time"). From and after the Effective Time, the Surviving Corporation
shall possess all the rights, privileges, powers and franchises and be subject
to all of the restrictions, disabilities, liabilities and duties of
InnerVentions and Merger Sub, all as provided under applicable law.
Section 1.4 Conversion of Securities. At the Effective Time, by virtue of
------------------------
the Merger and without any action on the part of Parent, Merger Sub,
InnerVentions or the holder of any of the following securities:
(a) InnerVentions Common Stock. Subject to Section 1.6, each share
--------------------------
of Common Stock, par value $0.001 per share, of InnerVentions (the "IV
Common Stock"), then issued and outstanding shall be converted into and
represent the right to receive 977.838 validly issued, fully paid and non-
assessable shares of Common Stock, par value $.001 per share, of Parent
(the "Parent Common Stock") (such ratio, as adjusted as contemplated
pursuant to Section 1.5 being referred to herein as the "Exchange Ratio").
All such shares of IV Common Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive the shares of
Parent Common Stock to be issued pursuant to this Section 1.4 with respect
thereto upon the surrender of such certificate in accordance with Section
1.7.
(b) IV Stock Owned by InnerVentions. All shares of IV Common Stock
-------------------------------
which immediately prior to the Effective Time are held directly by
InnerVentions in its treasury, shall be cancelled and retired and shall
cease to exist, and no capital stock of Parent or other consideration shall
be delivered with respect thereto.
(c) Merger Sub Common Stock. Each share of capital stock of Merger
-----------------------
Sub issued and outstanding immediately prior to the Effective Time shall
remain outstanding and shall continue as one share of capital stock of the
Surviving Corporation and each certificate evidencing ownership of any such
shares shall continue to evidence ownership of the same number and kind of
shares of the Surviving Corporation.
Section 1.5 Adjustment of Exchange Ratio. In the event that, subsequent
----------------------------
to the date of this Agreement, but prior to the Effective Time, the outstanding
shares of Parent Common Stock or IV Common Stock, respectively, shall have been
changed into a different number of shares or a different class as a result of a
stock split, reverse stock split, stock dividend, subdivision, reclassification,
split, combination, exchange, recapitalization or other similar transaction, the
Exchange Ratio shall be appropriately adjusted.
Section 1.6 Exchange of Securities.
-----------------------
(a) Promptly after the Effective Time, Parent shall upon surrender of
the stock certificates representing all of the issued and outstanding
shares of IV Common Stock deliver to Stockholder (i) a certificate
representing 977,838 shares of Parent Common Stock, which represents 12
- 2 -
<PAGE>
percent of the issued and outstanding Parent Common Stock (the "FS Parent
Stock") and (ii) common stock purchase warrants (the "Parent Common Stock
Warrants") in the form of Exhibit B to purchase 212,455 shares of Parent
Common Stock at an initial exercise price of $1.13. Stockholder will then
re-deliver to Parent the certificates for the FS Parent Stock and the
Parent Common Stock Warrants to Parent, in accordance with the terms of the
pledge of stock referred to in Section 6.2(f) of this Agreement. In
addition, the shares of Parent Common Stock issued or issuable to
Stockholder shall have certain "piggy-back" registration rights as set
forth in a Registration Rights Agreement to be dated as of the Closing Date
by and between Parent and Stockholder. The shares of IV Common Stock so
surrendered shall forthwith be cancelled. No interest will be paid or
accrued on the unpaid dividends and distributions, if any, payable to the
holder of shares of IV Common Stock.
(b) All shares of Parent Common Stock issued upon conversion of the
shares of IV Common Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of IV Common Stock.
ARTICLE II
CERTAIN MATTERS RELATING TO
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation of the Surviving Corporation.
---------------------------------------------------------
The Certificate of Incorporation of Merger Sub, as in effect at the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by law.
Section 2.2 By-laws of the Surviving Corporation. The By-laws of Merger
------------------------------------
Sub, as in effect at the Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter amended as provided by law.
Section 2.3 Directors and Officers of the Surviving Corporation. The
---------------------------------------------------
directors of Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation and all such directors will hold office
from the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the Certificate of Incorporation
and By-laws of the Surviving Corporation, or as otherwise provided by applicable
law. The officers of Merger Sub immediately prior to the Effective Time shall
be the officers of the Surviving Corporation and all such officers will hold
office until their respective successors are duly appointed and qualify in the
manner provided in the By-laws of the Surviving Corporation, or as otherwise
provided by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to InnerVentions as of the date
hereof and at the Effective Time as follows:
- 3 -
<PAGE>
Section 3.1 Existence, Good Standing, Corporate Authority. Parent and
---------------------------------------------
Merger Sub are corporations duly organized, validly existing and in good
standing under the laws of the State of Delaware. The only subsidiary of Parent
is Merger Sub. Each of Parent and Merger Sub is duly licensed or qualified to
do business as a foreign corporation and is in good standing under the laws of
any other state of the United States in which the character of the properties
owned or leased by it or in which the transaction of its respective business
makes such qualification necessary, except where the failure to be so qualified
or to be in good standing would not have a material adverse effect on the
business, results of operations or financial condition of Parent and Merger Sub
taken as a whole (a "Parent Material Adverse Effect"). Parent and Merger Sub
have all requisite corporate power and authority to own, operate and lease their
respective properties.
Section 3.2 Authorization, Validity and Effect of Agreements. Each of
------------------------------------------------
Parent and Merger Sub has the requisite corporate power and authority to execute
and deliver this Agreement and all agreements and documents to be executed and
delivered in connection herewith. The execution and delivery of this Agreement
(and the agreements contemplated hereby) and the consummation by Parent and
Merger Sub of the transactions contemplated hereby has been duly authorized by
all requisite corporate action. This Agreement constitutes, and all agreements
and documents to be executed and delivered in connection herewith (when executed
and delivered pursuant hereto for value received) will constitute, the valid and
legally binding obligations of Parent and Merger Sub, enforceable against Parent
and Merger Sub in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
Section 3.3 Capitalization. (a) The authorized capital stock of Parent
--------------
consists of 20,000,000 shares of Parent Common Stock and 5,000,000 shares of
preferred stock par value $.001 per share (the "Parent Preferred Stock"). As of
December 31, 1995, there were 7,170,812.5 shares of Parent Common Stock, issued
and outstanding and no shares of Parent Preferred Stock were issued. All issued
and outstanding shares of Parent Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights.
(b) Except as set forth on Schedule 3.3(b) and as contemplated by this
Agreement, there are not at the date of this Agreement, any existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate Parent or any of its Subsidiaries to
issue, transfer, redeem or sell any shares of capital stock of Parent or Merger
Sub.
Section 3.4 No Violation. Neither the execution and delivery by Parent
------------
and Merger Sub of this Agreement, nor the consummation by Parent and Merger Sub
of the transactions contemplated hereby in accordance with the terms hereof,
will (a) conflict with or result in a breach of any provisions of the
Certificate of Incorporation or Bylaws of Parent or Merger Sub; (b) result in a
breach of any provision of, constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) or give rise to any right
of termination, cancellation or acceleration under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust or any
material license, franchise, permit, lease, contract, agreement or other
- 4 -
<PAGE>
instrument, commitment or obligation to which Parent or Merger Sub is a party,
or by which Parent or Merger Sub or any of their respective properties is bound
or affected, except for any of the foregoing matters which would not have a
Parent Material Adverse Effect; (c) contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgement, injunction, order
or decree binding upon or applicable to Parent or Merger Sub which would have a
Parent Material Adverse Effect; or (d) other than the filings provided for in
Section 1.3, require filings under applicable federal, state and local
regulatory laws, filings required under the Securities Exchange Act of 1934, as
amended, the Securities Act of 1933, as amended, (the "Securities Act") or
applicable state securities and "Blue Sky" laws or filings in connection with
the maintenance of qualification to do business in other jurisdictions
(collectively, the "Regulatory Filings"), require any material consent, approval
or authorization of, or declaration, of or registration with, any domestic
governmental or regulatory authority, the failure to obtain or make would have a
Parent Material Adverse Effect.
Section 3.5 No Brokers. Except as set forth on Schedule 3.5, Parent has
---------- ------------
not entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of Innerventions or Parent to pay any
finder's fee, brokerage or agent's commissions or other like payment in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
Section 3.6 Parent Common Stock. The issuance and delivery by Parent of
-------------------
shares of Parent Common Stock in connection with the Merger and this Agreement
have been duly and validly authorized by all necessary corporate action on the
part of Parent. The shares of Parent Common Stock to be issued in connection
with the Merger and this Agreement, when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable and not
subject to preemptive rights of any sort.
Section 3.7 Financial Statements. Parent has furnished to Stockholder
--------------------
the unaudited balance sheet of Parent as of September 30, 1995 (the "Balance
Sheet"), in accordance with the books and records of Parent, which Balance Sheet
fairly presents in all material respects the financial position of Parent as of
September 30, 1995. Parent had been a "Subchapter S" corporation for federal
income tax purposes from its inception until October 20, 1995, when Parent
became a "C" corporation for federal income tax purposes. The Balance Sheet
includes pro forma income taxes as if Parent had been a "C" corporation as of
September 30, 1995.
Section 3.8 Interim Operations of Merger Sub. Merger Sub will be formed
--------------------------------
solely for the purpose of engaging in the transactions contemplated hereby, and
immediately prior to the Effective Time will have engaged in no other business
activities, will have no subsidiaries, and will have conducted its operations
only as contemplated hereby.
- 5 -
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder hereby represents and warrants to Parent as of the date hereof
and at the Effective Time as follows:
Section 4.1 Existence, Good Standing, Corporate Authority. The only
---------------------------------------------
subsidiary of InnerVentions is Clamshell Asset, Corp. ("Clamshell"). Each of
InnerVentions and Clamshell is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation. Each
of InnerVentions and Clamshell is duly licensed or qualified to do business as a
foreign corporation in each jurisdiction set forth beside either InnerVentions'
or Clamshell's name, as the case may be, on Schedule 4.1, and such jurisdictions
------------
constitute the only jurisdictions where the character of the properties owned or
leased by it or in which the transaction of its business makes such
qualification necessary, except where the failure to be so qualified or to be in
good standing would not have a material adverse effect on the business, results
or operations or financial condition of InnerVentions and Clamshell taken as a
whole (an "IV Material Adverse Effect"). Each of InnerVentions and Clamshell
has all requisite corporate power and authority to own, operate and lease its
properties. The copies of InnerVentions' and Clamshell's respective
Certificates of Incorporation and Bylaws previously delivered or made available
to Parent are true and correct.
Section 4.2 Authorization, Validity and Effect of Agreements. Each of
------------------------------------------------
InnerVentions and Stockholder has the requisite corporate power and authority to
execute and deliver this agreement and all agreements and documents to be
executed and delivered in connection herewith. The execution and delivery of
this Agreement (and the agreements contemplated hereby) and the consummation by
each of InnerVentions and Stockholder of the transactions contemplated hereby
has been duly authorized by all requisite corporate action. This Agreement
constitutes, and all agreements and documents to be executed and delivered in
connection herewith (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of each of
InnerVentions and Stockholder, enforceable against each of them respectively in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
Section 4.3 Compliance with Laws.
--------------------
(a) Each of InnerVentions and Clamshell holds all permits, licenses,
variances, exemptions, orders and approvals of any court, arbitral,
tribunal, administrative agency or commission and other governmental or
other regulatory authority or agency, foreign or domestic, ("Governmental
Entities") necessary for the lawful conduct of its business as presently
conducted (the "Permits").
(b) Each of InnerVentions and Clamshell is in substantial compliance
with the terms of the Permits.
- 6 -
<PAGE>
(c) Each of InnerVentions and Clamshell is in substantial compliance
with all laws, ordinances or regulations of all Governmental Entities
except where failure to comply would not have an IV Material Adverse
Effect.
(d) As of the date of this Agreement, no investigation, review,
inquiry or proceeding by any Governmental Entity with respect to either
InnerVentions or Clamshell is pending or threatened.
(e) Neither of InnerVentions nor Clamshell is subject to any
agreement, contract or decree with any Governmental Entities arising out of
any current or previously existing violations.
Section 4.4 Capitalization. The authorized capital stock of InnerVentions
--------------
consists of 3,000 shares of IV Common Stock. As of December 31, 1995, there were
1000 shares of IV Common Stock issued and outstanding, all of which are owned of
record and beneficially by Stockholder. The authorized capital stock of
Clamshell consists of 100,000 shares of Common Stock, par value $.01 per share
("Clamshell Common Stock") and 1,000 shares of Preferred Stock, $.10 par value
$.01 per share ("Clamshell Preferred Stock"). As of December 31, 1995, there
were 100 shares of Clamshell Common Stock issued and outstanding all of which
are owned of record and beneficially by InnerVentions, and no shares of
Clamshell Preferred Stock were issued. As of December 31, 1995, no additional
shares of capital stock of either InnerVentions or Clamshell have been issued.
Neither InnerVentions nor Clamshell has any outstanding bonds, debentures, notes
or other obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of InnerVentions and Clamshell, respectively, on any matter.
All issued and outstanding shares of IV Common Stock and Clamshell Common Stock
are duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. There are not at the date of this Agreement any existing
options, warrants, calls, subscriptions, convertible securities, or other
rights, agreements or commitments which obligate either InnerVentions or
Clamshell to issue, transfer, redeem or sell any shares of capital stock of
either InnerVentions or Clamshell.
Section 4.5 Other Interests. Except for the capital stock of Clamshell,
---------------
InnerVentions does not own, directly or indirectly, any interest or investment
(whether equity or debt) in any corporation, partnership, joint venture,
business, trust or entity.
Section 4.6 No Violation. Neither the execution and delivery by
------------
InnerVentions of this Agreement, nor the consummation by InnerVentions of the
transactions contemplated hereby in accordance with the terms hereof, will (a)
conflict with or result in a breach of any provisions of the Certificate of
Incorporation or Bylaws of either InnerVentions or Clamshell; (b) result in a
breach of any provision of, constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) or give rise to any right
of termination, cancellation or acceleration under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust or any
material license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which either InnerVentions or Clamshell
is a party, or by which either InnerVentions, Clamshell or their respective
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<PAGE>
properties is bound or affected; (c) contravene or conflict with or constitute a
violation of any provisions of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to InnerVentions or Clamshell; or (d) other
than the Regulatory Filings, require any consent, approval or authorization of,
or declaration, of or registration with, any domestic governmental or regulatory
authority.
Section 4.7 Conduct of Business. The business of InnerVentions and
-------------------
Clamshell is not being conducted in default or violation of any term, condition
or provisions of (a) its respective Certificate of Incorporation or By-Laws or
similar organizational documents; (b) any note, bond, mortgage, indenture,
contract, agreement, lease or other instrument or agreement of any kind to which
either InnerVentions or Clamshell is now a party or by which either
InnerVentions or Clamshell or its respective properties or assets may be bound;
or (c) any federal, state, local or foreign statute, law, ordinance, rule,
regulation or approval applicable to either InnerVentions or Clamshell, except
where failure to comply would not have an IV Material Adverse Effect.
Section 4.8 Litigation. There are no actions suits or proceedings
----------
pending against either Innerventions or Clamshell or threatened against
InnerVentions at law or in equity, or before or by any federal or state
commission, board, bureau, agency or instrumentality.
Section 4.9 Absence of Certain Changes. Since their respective formation
--------------------------
each of InnerVentions and Clamshell has not conducted any business other than
the acquisition and ownership of their respective assets, and there has not been
(a) any IV Material Adverse Effect; (b) any declaration, setting aside or
payment of any dividend or other distribution with respect to its capital stock;
or (c) any material change in its accounting principles, practices or methods,
except any such change after the date of this Agreement required by generally
accepted accounting principles.
Section 4.10 Proprietary Rights.
------------------
(a) A list of all of each of InnerVentions' and Clamshell's, patents,
patent applications, trademarks, trademark applications, trade secrets,
formulations, service marks, trade names, copyrights, inventions, drawings,
designs, customer lists, proprietary know-how or information or other
rights with respect thereto (collectively, the "Proprietary Rights") are
listed in Schedule 4.10 hereto.
-------------
(b) Each of InnerVentions and Clamshell owns or possesses adequate
licenses or other rights to use any and all of the Proprietary Rights used
in or required for its respective business as currently conducted free and
clear of any liens, claims or encumbrances.
(c) There are no claims, disputes, actions, proceedings, suits or
appeals pending or threatened against either InnerVentions or Clamshell
relating to any of its Proprietary Rights.
(d) To the knowledge of InnerVentions and Stockholder, none of the
Proprietary Rights of either InnerVentions or Clamshell infringes on the
proprietary rights of any third party nor are the Proprietary Rights
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<PAGE>
of any third party infringing on the Proprietary Rights of either
InnerVentions or Clamshell.
(e) Except as set forth on Schedule 4.10, neither InnerVentions nor
Clamshell has disclosed any of its material trade secrets to any Person
without obtaining an agreement obligating the recipient to maintain the
confidentiality thereof and both InnerVentions and Clamshell have taken
reasonable security measures to protect the confidentiality and value of
its trade secrets.
(f) Neither InnerVentions nor Clamshell has disposed of or granted any
license to use any of its Proprietary Rights, nor has InnerVentions or
Clamshell granted any options to purchase or obtain a license to, or any
other lien, claim or encumbrance on, any of its Proprietary Rights.
(g) Without limiting the generality of the foregoing, InnerVentions
and Clamshell have all Proprietary Rights necessary to use the "Clamshell
II Septal Occluder", the "Delivery System" and "Device-Related Products" as
set forth in the Stock Transfer Agreement (the "Stock Transfer Agreement")
between Children's Medical Center Corporation ("Hospital") and
InnerVentions dated as of June 19, 1995; the License Agreement (the
"License Agreement") between Hospital and InnerVentions dated June 19,
1995; and the Sublicense Agreement (the "Sublicense Agreement") between
Hospital and InnerVentions dated June 19, 1995.
(h) C.R. Bard, Inc. ("Bard") developed the Clamshell II Septal
Occluder as well as a delivery system for its implantation which was then
assigned to Hospital together with certain tangible assets and intellectual
property rights pursuant to an Asset and Technology Donation and Transfer
Agreement (the "Technology Donation Agreement") between Bard and Hospital
dated as of May 12, 1995. In connection with such transfer, Bard and
Hospital entered into a Patent and Know-How License Agreement dated as of
June 19, 1995. Hospital then assigned all of the rights received from Bard
to InnerVentions pursuant to the Stock Transfer Agreement, the License
Agreement and the Sublicense Agreement. Bard then entered into a Supply
Agreement with InnerVentions dated as of July 19, 1995 for the supply of
certain related products. All such agreements are valid, subsisting, in
full force and effect and binding upon all parties thereto in accordance
with their terms, no person or entity which is a party thereto or otherwise
bound thereby is in default of any material term thereunder, and, no event,
occurrence, condition or act exists which does (or which with or without
the giving of notice or the lapse of time or both would) give rise to a
material default, or a cancellation, acceleration or loss of material
contractual benefits thereunder, and there are no outstanding disputes
thereunder nor threatened cancellations thereof.
Section 4.11 Properties. Neither InnerVentions nor Clamshell owns or
----------
leases any real property. Each of InnerVentions and Clamshell has good and
valid title to all of its assets and properties, free and clear of any lien,
claim or other encumbrance. Schedule 4.11 sets forth a complete list of all
-------------
leases of personal property to which either InnerVentions or Clamshell is a
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<PAGE>
party. Such leases are valid and subsisting leases, upon consummation of the
transaction contemplated hereby, shall continue to entitle the Surviving
Corporation to the use and possession of the real or personal property purported
to be covered thereby for the terms specified in such leases and for the
purposes for which such real or personal property is now used.
Section 4.12 Material Contracts. Schedule 4.12 contains a complete, true
------------------ -------------
and correct list of all contracts, commitments, obligations and understandings
to which either InnerVentions or Clamshell is a party or otherwise bound (the
"IV Contracts"). All the IV Contracts are valid, subsisting, in full force and
effect, and binding upon InnerVentions or Clamshell, as the case may be, in
accordance with their terms, and binding upon the other parties thereto in
accordance with their terms. Neither InnerVentions nor Clamshell is (with or
without notice or lapse of time or both) in default under any IV Contract nor is
any other party to any such contract or other agreement (with or without notice
or lapse of time or both) in default thereunder; and each of InnerVentions and
Clamshell has performed all of their respective obligations under each IV
Contract which are required to be performed for all activity up to the Effective
Time.
Section 4.13 Taxes. Each of InnerVentions and Clamshell (a) has timely
-----
filed all material federal, state and foreign tax returns required to be filed
by it for tax years ended prior to the date of this Agreement or requests for
extensions have been timely filed and any such request shall have been granted
and not expired, and all such returns are complete and accurate in all material
respects; (b) has paid or accrued all taxes shown to be due and payable on such
returns; and (c) has properly accrued all such taxes for such periods subsequent
to the periods covered by such returns.
Section 4.14 Employees. Neither InnerVentions nor Clamshell has had any
---------
employees from the date of its incorporation to the date hereof.
Section 4.15 Absence of Indemnifiable Claims, etc. There are no losses,
-------------------------------------
claims, damages, costs, expenses, liabilities or judgments which would entitle
any director, officer or employee of either InnerVentions or Clamshell to
indemnification by either InnerVentions or Clamshell under applicable law, the
articles of incorporation or by-laws of either InnerVentions or Clamshell or any
insurance policy maintained by either InnerVentions or Clamshell.
Section 4.16 No Brokers. Neither InnerVentions nor Stockholder has
----------
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of InnerVentions or Parent to pay any
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby. Except as set forth in
Schedule 3.5, neither InnerVentions nor Stockholder is aware of any claim for
- ------------
payment of any finder's fees, brokerage or agent's commission or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transaction contemplated hereby.
Section 4.17 Financial Condition.
-------------------
(a) Except as set forth on Schedule 4.17, neither InnerVentions nor
Clamshell have any liabilities or obligations (absolute, accrued,
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<PAGE>
contingent or otherwise) and whether due, which arise out of or relate to
the operations or assets of either InnerVentions or Clamshell. Neither
InnerVentions nor Clamshell has had any operations from the date of its
incorporation to the date hereof.
(b) The financial records, ledgers and account books of each of
InnerVentions and Clamshell have been kept in the ordinary course of
business and are true, complete and accurate.
(c) Since each of their respective formation, there has not been an IV
Material Adverse Effect or any event that, individually or in the
aggregate, would reasonably be expected to result in an IV Material Adverse
Effect.
Section 4.18 Questionable Payments. Neither InnerVentions, Clamshell, nor
---------------------
any director, officer, agent, employee, or other person associated with or
acting on behalf of either InnerVentions or Clamshell, nor any stockholder of
InnerVentions or Clamshell has, directly or indirectly: used any corporate funds
for unlawful contributions, gifts, entertainment, or unlawful expenses relating
to political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback, or other unlawful payment.
4.19 Insurance. Schedule 4.19 sets forth all policies or binders of
--------- -------------
professional liability and commercial general liability or other insurance held
by or on behalf of either InnerVentions or Clamshell (specifying the insurer,
the policy number or covering note number with respect to binders, and
describing each pending claim thereunder of more than $10,000, setting forth the
aggregate amounts paid out under each such policy through the date of this
Agreement and the aggregate limit of any of the insurer's liability thereunder).
Such policies and binders are in full force and effect and insure against risks
and liabilities customary for the business in which either InnerVentions or
Clamshell is engaged. Neither InnerVentions nor Clamshell is in default with
respect to any provision contained in any such policy or binder and has not
failed to give any notice or present any claim under any such policy or binder
in due and timely fashion. Except for claims set forth on Schedule 4.20 there
-------------
are no outstanding unpaid claims under any such policy or binder. Neither
InnerVentions nor Clamshell has received a notice of cancellation or non-renewal
of any such policy or binder. Neither InnerVentions nor Clamshell has knowledge
of any inaccuracy in any application for such policies or binders, any failure
to pay premiums when due or any similar state of facts which might form the
basis for termination of any such insurance.
4.20 Full Disclosure. All documents and other papers delivered by or
---------------
on behalf of either InnerVentions or Clamshell in connection with this Agreement
and the transactions contemplated hereby are true, complete and authentic. Such
documents and papers do not contain any untrue statement of a material fact and
do not omit to state a material fact required to be stated therein or necessary
to make the statements made, in the context in which made, not false or
misleading. There is no fact known to InnerVentions or Stockholder which either
InnerVentions or Clamshell has not disclosed to Parent in writing
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<PAGE>
which materially adversely affects, or so far as either InnerVentions or
Clamshell can reasonably foresee will materially adversely affect, the assets,
properties, business or condition (financial or otherwise) or prospects of
either InnerVentions or Clamshell or the ability of either InnerVentions or
Clamshell to perform this Agreement.
4.21 Non-Distributive Intent. The Stockholder is acquiring the Parent
-----------------------
Common Stock and the Parent Common Stock Warrants to be issued hereunder to it
for its own account (and not for the account of others) for investment and not
with a view to the distribution thereof. Stockholder understands that it may
not sell or otherwise dispose of such shares in the absence of either a
registration statement under the Securities Act or an exemption from the
registration provisions of the Securities Act. The Stockholder will not sell or
otherwise dispose of such securities without registration under the Securities
Act, or an exemption therefrom, and the certificate or certificates representing
such shares may contain a legend to the foregoing effect.
4.22 Available Information. Stockholder acknowledges that (i) Parent
---------------------
has heretofore made available to Stockholder all financial and other information
relating to the Parent requested by Stockholder and (ii) it has been offered the
opportunity to ask questions of, and receive answers from, the management of
Parent concerning all material aspects of Parent and its business and that any
request for such information has been fully complied with to the extent
management of Parent possess such information.
ARTICLE V
COVENANTS
Section 5.1 Alternative Proposals. Prior to the Effective Time
---------------------
InnerVentions and Stockholder each agree (a) that they shall not, and shall
direct and cause officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by them) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of all or any signification portion of
the assets of or any equity securities of InnerVentions or Clamshell (any such
proposal or offer being hereinafter referred to as an" "Alternative Proposal")
or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Alternative Proposal, or otherwise facilitate any effort or attempt to make or
implement an Alternative Proposal; (b) that they will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing, and it
will take the necessary steps to inform the individuals or entities referred to
above of the obligations undertaken in this Section 5.1; and (c) that they will
notify Parent immediately if any such inquiries or proposals are received by,
any such information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with them.
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<PAGE>
Section 5.2 Interim Operations of InnerVentions and Clamshell. Prior to the
-------------------------------------------------
Effective Time, unless Parent has consented in writing thereto, InnerVentions
and Clamshell:
(i) Shall conduct their respective operations according to its usual,
regular and ordinary course in substantially the same manner as heretofore
conducted;
(ii) Shall use their respective reasonable efforts to preserve intact
their business organizations and goodwill, keep available the services of
officers and employees and maintain satisfactory relationships with those
persons having business relationships with each of them;
(iii) Shall not amend their respective Certificate of Incorporation or
Bylaws or comparable governing instruments;
(iv) Shall promptly notify Parent of any material emergency or other
material change in its condition (financial or otherwise), business, properties,
assets, liabilities, prospects or the normal course of its business or of its
properties, any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the breach of any representation or warranty contained herein;
(v) Shall not (A), issue any shares of its capital stock, effect any
stock split or otherwise change its capitalization as it existed on the date
hereof; (B) grant, confer or award any option, warrant, conversion right or
other right not existing on the date hereof to acquire any shares of its capital
stock; (C) increase any compensation or enter into or amend any employment
agreement with any of its present or future officers, directors or employees;
(D) grant any severance or termination package to any employee or consultant; or
(E) adopt any new employee benefit plan (including any stock option, stock
benefit or stock purchase plan) or amend any existing employee benefit plan in
any respect;
(vi) Shall not declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital stock or
other ownership interests;
(vii) Shall not enter into any material transaction, or agree to
enter into any material transaction, outside the ordinary course of business,
including, without limitation, any transaction involving a merger,
consolidation, joint venture, partial or complete liquidation or dissolution,
reorganization, recapitalization, restructuring or a purchase, sale, lease or
other disposition of a substantial portion of assets or capital stock;
(viii) Shall not incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or warrants
or rights to acquire any debt securities of others;
(ix) Shall not make any loans, advances or capital contributions
to, or investments in, any other person;
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<PAGE>
(x) Shall not make or commit to make any capital expenditures;
(xi) Shall not apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any Affiliate or enter into any transaction
with any Affiliate.
(xii) Shall not alter the manner of keeping its books, accounts or
records, or change in any manner the accounting practices therein reflected;
(xiii) Shall not grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge or encumbrance of
any kind; and
(xiv) Shall maintain insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are currently in
effect.
Section 5.3 Filings; Other Action.
---------------------
(a) Subject to the terms and conditions herein provided, InnerVentions
and Parent shall use all reasonable efforts to take, or cause to be taken, all
action and do, or cause to be done, all things necessary, proper or appropriate
to consummate and make effective the transactions contemplated by this
Agreement. If, at any time after the Effective Time, any further reasonable
action is necessary or desirable to carry out the purpose of this Agreement, the
proper officers and directors of Parent and InnerVentions shall take all such
necessary action.
(b) (i) InnerVentions and Parent shall give any notices to third
parties, and use all reasonable efforts to obtain any third party consents,
necessary, proper or advisable to consummate the transactions contemplated in
this Agreement, including but not limited to the written consent of Hospital and
Bard.
(ii) In the event that either party shall fail to obtain any third
party consent described in subsection (b) (i) above, such party shall use all
reasonable efforts, and shall take any such actions reasonably requested by the
other party hereto, to minimize any adverse effect upon InnerVentions, Clamshell
and Parent, and their respective businesses resulting, or which could reasonably
be expected to result after the Effective Time, from the failure to obtain such
consent.
(c) From and after the date of this Agreement until the Effective
Time, each party hereto shall promptly notify the other of (i) the occurrence,
or non-occurrence, of any event the occurrence, or non-occurrence, of which
would be likely to cause any condition to the obligations of any party to effect
the Merger and the other transactions contemplated by this Agreement not to be
satisfied, or (ii) the failure of InnerVentions or Parent, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it pursuant to this Agreement which would be
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<PAGE>
likely to result in any condition to the obligations of any party to effect the
Merger and the other transactions contemplated by this Agreement not to be
satisfied; provided, however, that the delivery of any notice pursuant hereto
-------- -------
shall not cure any breach of any representation or warranty requiring disclosure
of such matter prior to the date of this Agreement or otherwise limit or affect
the remedies available hereunder to the party receiving such notice.
Section 5.4 Inspection of Records. From the date hereof to the Effective
---------------------
Time, InnerVentions and Clamshell shall (a) allow all designated officers,
attorneys, accountants and other representatives of Parent reasonable access at
all reasonable times to the offices, records and files, correspondence, audits
and properties, as well as to all information relating to commitments,
contracts, titles and financial position, or otherwise pertaining to the
business and affairs, of InnerVentions and Clamshell; (b) furnish to Parent and
its representatives such financial and operating data and other information as
such persons may reasonably request; and (c) instruct the employees, counsel and
financial advisors of InnerVentions and Clamshell to cooperate with the Parent
and its representatives in its investigation of InnerVentions and Clamshell the
business of.
Section 5.5 Further Action. Each party hereto shall, subject to the
--------------
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Merger.
In addition, InnerVentions, Clamshell and Stockholder agree, at any time before
or after the Effective Time, to fully cooperate with Parent to cause the
financial statements of InnerVentions and Clamshell to be audited.
Section 5.6 Expenses. Whether or not the Merger is consummated, all costs
--------
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall, except as otherwise provided herein, be paid by
Stockholder if incurred by Stockholder, InnerVentions or Clamshell and by Parent
if incurred by Parent or Merger Sub.
Section 5.7 Survival of Representations and Warranties of Stockholder.
---------------------------------------------------------
Notwithstanding any right of Parent to investigate the affairs of InnerVentions
and Clamshell and notwithstanding any knowledge of facts determined or
determinable by Parent pursuant to such investigation or right of investigation,
Parent has the right to rely fully upon the representations, warranties,
covenants and agreement of Stockholder contained in this Agreement. All such
representations, warranties, covenants and agreements shall survive for a period
of two years following the Closing Date.
Section 5.8 Board of Directors Representation. For so long as the License
---------------------------------
Agreement remains in effect, Parent shall use its best efforts to nominate a
designee of Stockholder as a director of Parent. Upon the Closing, Parent shall
obtain written Voting Agreements in form and substance reasonably satisfactory
to Stockholder from its shareholders listed on Schedule 5.8 hereof, pursuant to
which Voting Agreements such shareholders shall agree to vote all shares of
Common Stock held by them for any designees of Stockholder nominated pursuant to
this Section 5.8.
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<PAGE>
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Obligation of InnerVentions and Stockholder to
------------------------------------------------------------
Effect the Merger. The obligation of InnerVentions to effect the Merger shall
- -----------------
be subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Parent shall have performed, in all material respects, all of its
agreements contained herein that are required to be performed by Parent on or
prior to the Closing Date, and Stockholder shall have received a certificate of
the President or Executive Vice President of Parent dated the Closing Date,
certifying to such effect.
(b) The representations and warranties of Parent and Merger Sub
contained in this Agreement and in any document delivered in connection herewith
shall be true and correct as of the Closing, and Stockholder shall have received
a certificate of the President or Executive Vice President of Parent, dated the
Closing Date, certifying to such effect.
(c) Stockholder shall have received the opinion of Squadron, Ellenoff,
Plesent & Sheinfeld, LLP, counsel to Parent, dated the Closing Date, in the form
of Exhibit C.
(d) The Stockholder and Parent shall have entered into a Registration
Rights Agreement, substantially in the form of Exhibit D.
(e) The Stockholder shall have received the Voting Agreements referred
to in Section 5.8 hereof.
Section 6.2 Conditions to Obligation of Parent and Merger Sub to Effect
-----------------------------------------------------------
the Merger. The obligations of Parent and Merger Sub to effect the Merger shall
- ----------
be subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) InnerVentions and Stockholder shall have performed, in all
material respects, all of their respective agreements contained herein that are
required to be performed by each of them on or prior to the Closing Date, and
Parent shall have received a certificate of the President or a Vice President of
InnerVentions, dated the Closing Date, certifying to such effect.
(b) The representations and warranties of Stockholder contained in
this Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing, and Parent shall have received a certificate
from Stockholder, dated the Closing Date, certifying to such effect.
(c) Parent shall have received the written consent of both the
Hospital and Bard to this Agreement.
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<PAGE>
(d) Parent shall have received Hospital's written consent to the
assignment of the License Agreement and the Sublicense Agreement.
(e) Parent shall have received written confirmation from Hospital that
Parent shall be deemed to be a third party beneficiary of the rights of Hospital
and obligations of Bard under the Technology Donation Agreement, with full
rights of substitution to enforce such rights and obligations.
(f) Parent shall have received a pledge of all of the FS Parent Stock
and the Parent Common Stock Warrants (the "Pledge"), (which represent all
securities held by Stockholder in Parent), dated the Closing Date, in
substantially the form of Exhibit E, together with all certificates and
documentation required to be delivered under the Pledge.
(g) Parent shall have received the opinion of Testa, Hurwitz &
Thibeault counsel to InnerVentions, dated the Closing Date, in the form of
Exhibit F.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the Merger
-----------
contemplated hereby may be abandoned, by written notice promptly given to the
other parties hereto, at any time prior to the Effective Time, whether prior to
or after approval by their respective stockholders:
Section 7.1.1 By mutual written consent of Parent and InnerVentions;
Section 7.1.2 By either Parent or InnerVentions, if a court of
competent jurisdiction or a Governmental Entity shall have issued an order,
decree or ruling or taken any other action, in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable;
Section 7.1.3 By Parent, if InnerVentions fails to perform in all
material respects its obligations under this Agreement;
Section 7.1.4 By Parent, if there shall have occurred an IV Material
Adverse Effect since the date of this Agreement; or
Section 7.1.5 By InnerVentions, if Parent fails to perform in all
material respects its obligations under this Agreement.
Section 7.2 Effect of Termination. In the event of the termination of
---------------------
this Agreement and abandonment of the Merger as provided in Section 7.1 hereof,
this Agreement shall forthwith become void and there shall be no liability on
the part of Parent or InnerVentions, except as set forth in this Section,
Section 3.7 hereof and Article VIII and except to the extent that such
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<PAGE>
termination results from the willful breach of a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Obligation of Stockholder to Indemnify. Stockholder shall
--------------------------------------
indemnify, defend and hold harmless Parent and its assigns from and against any
losses, liabilities, damages or deficiencies (including interest, penalties and
reasonable attorneys' fees and disbursements) ("Losses") based upon, arising out
of or otherwise in respect of:
(i) the breach of any representation, warranty, covenant or
agreement of InnerVentions, Clamshell or Stockholder contained in this
Agreement or in any document or other writing delivered pursuant to
this Agreement; and
(ii) any liabilities or obligations of InnerVentions or its
predecessors arising prior to the Closing Date, which is not expressly
referred to in this Agreement or, if such liability or obligation is
expressly referred to in this Agreement, to the extent the actual
liability or obligation exceeds the amount of such liability or
obligation as herein stated.
Anything to the contrary notwithstanding, any indemnification obligation of
Stockholder for any Losses under Section 8.1 shall be satisfied in accordance
with Section 8.4.
Section 8.2 Obligation of Parent to Indemnify. Parent shall indemnify,
---------------------------------
defend and hold harmless Stockholder from and against any Losses arising out of
or due to a breach of any representation, warranty, covenant or agreement of
Parent contained in this Agreement or in any document or other papers delivered
by Parent pursuant to this Agreement.
Section 8.3 Notice and Opportunity to Defend. If any party (the
--------------------------------
"Indemnified Party") receives notice of any claim or the commencement of any
action or proceeding with respect to which any other party (or parties ) is
obligated to provide indemnification (the "Indemnifying Party") pursuant to
Section 8.1 or 8.2, the Indemnified Party shall promptly give the Indemnifying
Party notice thereof; provided, however, that failure to give such notification
-------- -------
shall not affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually prejudiced as a result of such
failure. The Indemnified Party shall have the right to retain counsel of its
own choice to represent it, and the Indemnifying Party shall pay the fees,
expenses and disbursements of such counsel; and such counsel shall, to the
extent consistent with its professional responsibilities, cooperate with the
Indemnifying Party and any counsel designated by the Indemnifying Party. The
Indemnifying Party shall be liable for any settlement of any claim against the
Indemnified Party made with the Indemnifying Party's written consent, which
consent shall not be unreasonably withheld. The Indemnifying Party shall not,
- 18 -
<PAGE>
without the prior written consent of the Indemnified Party, settle or compromise
any claim, or permit a default or consent to the entry of any judgment in
respect thereof, unless such settlement, compromise or consent includes, as a
unconditional term thereof, the giving by the claimant to the Indemnified Party
of an unconditional release from all liability in respect of such claim.
8.4 Collateral for Limited Recourse Claim for Indemnification.
---------------------------------------------------------
(a) The indemnification obligations of Stockholder for any Losses
under Section 8.1 shall be satisfied only in accordance with this Section 8.4.
Any amount payable by Stockholder pursuant to Section 8.1 (the "Claim Amount")
shall be paid, at the option of Stockholder, (x) by the delivery of cash in an
amount equal to the Claim Amount or (y) by the transfer of the FS Parent Stock
or, subject to Section 8.4 (c) below, the Parent Common Stock Warrants, which
are subject of the Pledge referred to in Section 6.2(f) (the "Stock Collateral")
with a value (the "Stock Value"), determined as set forth below as of the date
that the Claim Amount is required to be paid (the "Payment Date").
(b) For purposes of this Section 8.4, the Stock Value shall be
determined as follows:
(x) Each share of FS Parent Stock shall be valued at $1.13; and
(y) Parent Common Stock Warrants shall be valued by multiplying the
number of shares of Common Stock issuable upon exercise of the Parent Common
Stock Warrants by the difference between the exercise price of the Parent Common
Stock Warrants and the Fair Market Value (as defined below) of a share of Parent
Common Stock.
(c) To the extent that Stockholder elects to satisfy its obligations
under Section 8.1 by delivery of Stock Collateral in accordance with Section
8.4(a) hereof, such obligations shall first be satisfied by the transfer of
Parent Common Stock, and then only after all Parent Common Stock has been
transferred to the Parent, shall remaining Claim Amounts be satisfied by
transfer of Parent Common Stock Warrants.
(d) For the purposes of this Section 8.4, "Fair Market Value" on any
day shall mean the average of the daily market prices of a share of Parent
Common Stock over a period of 30 consecutive Business Days prior to the day as
of which "Fair Market Value" is being determined. The market price for each
such Business Day shall be the average of the closing prices on such day of the
Parent Common Stock on all domestic exchanges on which the Parent Common Stock
is then listed, or, if there shall have been no sales on any such exchange on
such day, the average of the closing bid and asked prices on all such exchanges
at the end of such day, or, if the Parent Common Stock shall not be so listed,
the average of the representative bid and asked prices quoted in the NASDAQ
System as of 3:30 P.M., New York time, on such day, or if the Parent Common
Stock shall not be quoted, in the NASDAQ System, the average of the closing bid
and asked prices on such day in the domestic over-the-counter market as reported
by the National Quotation Bureau, Incorporated, or any similar successor
organization. If the Parent Common Stock is listed on any domestic exchange,
the term "Business Days" as used in this clause shall mean Business Days on
- 19 -
<PAGE>
which such exchange is open for trading. If at any time the Parent Common Stock
is not listed on any domestic exchange or quoted in the NASDAQ System or the
domestic over-the-counter market, the "Fair Market Value" shall be deemed to be
determined in good faith by the Board of Directors of Parent.
(e) The liability of Stockholder in respect of the Claim Amount shall
be limited to recourse by Parent against the Stock Collateral only, in
accordance with the terms of the Pledge and this Section 8.4, and Stockholder,
upon the satisfactory transfer of the Stock Collateral to Parent or its assigns,
shall not be liable for any such excess of the Claim Amount over the Stock
Value.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Notices. Any notice required to be given hereunder shall be
-------
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to Parent or Merger Sub: If to InnerVentions or Stockholder:
Nitinol Medical Technologies, Inc. c/o Fletcher Spaght, Inc.
263 Summer Street 222 Berkeley Street
Boston, MA 02210 Boston, MA 02116-3761
Fax: (617) 737-0924 Fax: (617) 247-7757
Attn: Tom Tully, CEO Attn: John Fletcher
With copies to: With copies to:
Squadron, Ellenoff, Plesent & Testa, Hurwitz & Thibeault
Sheinfeld, LLP 125 High Street
551 Fifth Avenue Boston, MA 02110
New York, New York 10176 Fax: (617) 248-7100
Fax: (212) 697-6686 Attn: William B. Asher, Jr., Esq.
Attn: Stephen H. Kay, Esq.
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
Section 9.2 Assignment, Binding Effect. Neither this Agreement nor any of
--------------------------
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
- 20 -
<PAGE>
Section 9.3 Entire Agreement. This Agreement and any documents delivered
----------------
by the parties in connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
Section 9.4 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed on behalf of each of the parties hereto.
Section 9.5 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws.
Section 9.6 Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.
Section 9.7 Headings. Headings of the Articles and Sections of this
--------
Agreement are for the convenience of the parties only and shall be given no
substantive or interpretive effect whatsoever.
Section 9.8 Interpretation. In this Agreement, unless the context
--------------
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
Section 9.9 Waivers. Except as provided in this Agreement, no action
-------
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
Section 9.10 Incorporation of Schedules and Exhibits. The Schedules and
---------------------------------------
Exhibits attached hereto and referred to herein are hereby incorporated herein
and made a part hereof for all purposes as if fully set forth herein.
Section 9.11 Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
Section 9.12 Enforcement of Agreement. The parties hereto agree that
------------------------
irreparable damage would occur in the event that any of the provisions of this
- 21 -
<PAGE>
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to seek an injunction or injunctions to prevent breaches of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which they are entitled at law or in equity.
- 22 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
NITINOL MEDICAL TECHNOLOGIES, INC.
By: /s/Thomas M. Tully
----------------------------
Name: Thomas M. Tully
Title: President
NMT HEART, INC.
By: /s/Thomas M. Tully
----------------------------
Name: Thomas M. Tully
Title: President
INNERVENTIONS, INC.
By: /s/R. John Fletcher/s/David Chazanovitz
----------------------------
Name: R. John Fletcher/David Chazanovitz
Title: Chairman/President & C.E.O
FLETCHER SPAGHT, INC.
By: /s/R. John Fletcher
----------------------------
Name: R. John Fletcher
Title: Chairman
- 23 -
<PAGE>
EXHIBIT 10.4
Warrant No. FS-1
Warrant to Purchase 212,455 Shares
SHARE PURCHASE WARRANT
To Purchase Shares of Common Stock (par value $0.001)
of
Nitinol Medical Technologies, Inc.
(Delaware corporation)
Expires February 14, 2001
<PAGE>
Warrant No. FS-1
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE
TRANSFERRED EXCEPT IN A TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR WHICH IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THAT ACT.
VOID AFTER 5:00 P.M. NEW YORK TIME, ON February 14, 2001
Nitinol Medical Technologies, Inc.
Warrant to Purchase Shares of Common Stock
212,455 Shares
THIS CERTIFIES that, for good and valuable consideration received,
Fletcher Spaght, Inc. (the "Holder"), is entitled to subscribe for and purchase
------
from Nitinol Medical Technologies, Inc., a Delaware corporation (the "Company"),
-------
upon the terms and conditions set forth herein, at any time or from time to time
until 5:00 P.M. New York City time on February 14, 2001 (the "Expiration Date"),
---------------
all or any portion of 212,455 Shares of common stock of the Company, par value
$0.001 per share, subject to adjustment as provided herein (the "Warrant
-------
Shares"), at a price of $1.13 per share, subject to adjustment as provided
herein (the "Exercise Price"). This Warrant shall not be redeemable by the
--------------
Company. The term "Shares" as used herein shall mean the Company's Shares of
------
Common Stock, par value $0.001 per share. This Warrant may be sold,
transferred, assigned or hypothecated at any time and the term the "Holder" as
------
used herein shall include any transferee to whom this Warrant has been
transferred.
1. Method of Exercise. This Warrant may be exercised at any time
------------------
prior to the Expiration Date, as to the whole or any lesser number of Warrant
Shares, by the surrender of this Warrant (with the election at the end hereof
duly executed) to the Company at its office at 263 Summer Street, Boston, MA
02210 or at such other place as may be designated in writing by the Company,
together with a certified or bank cashier's check payable to the order of the
Company in an amount equal to the Exercise Price multiplied by the number of
Warrant Shares for which this Warrant is being exercised. To the extent that
the holders of options to purchase Shares granted pursuant to the Company's 1994
Stock Option Incentive Plan are accorded a "net exercise" right with respect to
such options whereby the Company will withhold from the Shares that would
otherwise be issued upon exercise of such options that number of Shares having a
fair market value equal to the option exercise price, the Company will grant
such "net exercise" right to the Holder with respect to the exercise of this
Warrant for the Warrant Shares.
2. Issuance of Certificates. Upon each exercise of the Holder's
------------------------
rights to purchase Warrant Shares, the Holder shall, as of the close of business
on such day, be deemed
<PAGE>
to be the holder of record of the Warrant Shares issuable upon such exercise,
notwithstanding that the transfer books of the Company shall then be closed or
certificates representing such Warrant Shares shall not then have been actually
delivered to the Holder. As soon as practicable after each such exercise of
this Warrant, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, upon surrender of this Warrant for cancellation, the Company shall
execute and deliver a new Warrant evidencing the right of the Holder to purchase
the balance of the Warrant Shares (or portions thereof) subject to purchase
hereunder.
3. Recording of Transfer. Any warrants issued upon the transfer or
---------------------
exercise in part of this Warrant shall be numbered and shall be registered in an
Warrant Register as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant on the Warrant Register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Warrant on the part of any other person, and
shall not be liable for any registration or transfer of warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his or its duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new warrant or warrants to
the person entitled thereto. This Warrant may be exchanged, at the option of
the Holder hereof, for another warrant, or other warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause this Warrant to be transferred on its
books to any person if counsel to the Company reasonably requests a legal
opinion that such transfer does not violate the provisions of the Securities Act
of 1933, as amended (the "Act"), and the rules and regulations thereunder,
---
unless such opinion is delivered.
4. Reservation of Shares. The Company shall at all times reserve and
---------------------
keep available out of its authorized and unissued Shares, solely for the purpose
of providing for the exercise of the warrants, such number of shares of Shares
as shall, from time to time, be sufficient therefor. The Company covenants that
all shares of Shares issuable upon exercise of this Warrant, upon receipt by the
Company of the full payment therefor, shall be validly issued, fully paid,
nonassessable and free of preemptive rights.
5. Exercise Price Adjustments. Subject to the provisions of this
--------------------------
Section 5, the Exercise Price in effect from time to time shall be subject to
adjustment, as follows:
-2-
<PAGE>
(a) In case the Company shall at any time after the date hereof (i)
declare a dividend or make a distribution on the outstanding Shares payable in
shares of its capital stock or securities convertible into or exchangeable for
capital stock, (ii) subdivide the outstanding Shares, (iii) combine the
outstanding Shares into a smaller number of shares, or (iv) issue any shares by
reclassification of the Shares (other than a change in par value, or from par
value to no par value, or from no par value to par value), then, in each case,
----
the Exercise Price in effect, and the number of Shares issuable upon exercise of
the warrants outstanding, at the time of the record date for such dividend or at
the effective date of such subdivision, combination or reclassification, shall
be proportionately adjusted so that the holders of the warrants after such time
shall be entitled to receive upon exercise of the warrant the aggregate number
and kind of shares which, if such warrants had been exercised immediately prior
to such time, such holders would have owned upon such exercise and immediately
thereafter been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall distribute to all holders of Shares
(including any such distribution made to the stockholders of the Company in
connection with a consolidation or merger in which the Company is the surviving
or continuing corporation) evidences of its indebtedness, cash, or assets (other
than distributions and dividends payable as contemplated by Section 5(a) above),
or rights, options, or warrants to subscribe for or purchase Shares or
securities convertible into or exchangeable for Shares, then, in each case, the
Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for the determination of stockholders
entitled to receive such distribution by a fraction, the numerator of which
shall be the Current Market Price (as determined pursuant to Section 5(e)
hereof) per Share on such record date, less the fair market value (as determined
in good faith by the board of directors of the Company, whose determination
shall be conclusive absent manifest error) of the portion of the evidences of
indebtedness or assets so to be distributed, or of such rights, options, or
warrants or convertible or exchangeable securities, or the amount of such cash,
applicable to one share, and the denominator of which shall be such Current
Market Price per Share. Such adjustment shall become effective at the close of
business on such record date.
(c) Whenever there shall be an adjustment as provided in this Section
5, the Company shall within 15 days thereafter cause written notice thereof to
be sent by registered mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable
hereunder and the exercise price thereof after such adjustment and setting forth
a brief statement of the facts requiring such adjustment and the computation
thereof, which officer's certificate shall be conclusive evidence of the
correctness of any such adjustment absent manifest error.
(d) The Company shall not be required to issue fractions of Shares or
other shares of the Company upon the exercise of this Warrant. If any fraction
of a share would be issuable upon the exercise of this Warrant (or specified
portions thereof), the Company may issue a whole share in lieu of such fraction
or the Company may purchase such fraction for an
-3-
<PAGE>
amount in cash equal to the same fraction of the Current Market Price of such
Shares on the date of exercise of this Warrant.
(e) The Current Market Price per Share on any date shall be deemed to
be the average of the daily closing prices for the thirty (30) consecutive
trading days immediately preceding the date in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the closing bid price regular way, in
either case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the highest reported
bid price for the Common Stock as furnished by the National Association of
Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is
no longer reporting such information. If on any such date the Common Stock is
not listed or admitted to trading on any national securities exchange and is not
quoted by NASDAQ or any similar organization, the fair value of a share of
Common Stock on such date, as determined in good faith by the Board of Directors
of the Company, whose determination shall be conclusive absent manifest error,
shall be used.
(f) No adjustment in the Exercise Price shall be required if such
adjustment is less than $0.05; provided, however, that any adjustments which by
reason of this Section 5 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
this Section 5 shall be made to the nearest cent or to the nearest thousandth of
a share, as the case may be.
(g) Upon each adjustment of the Exercise Price as a result of the
calculations made in this Section 5, the warrants shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of Shares
(calculated to the nearest hundredth) obtained by dividing (i) the product
obtained by multiplying the number of Shares purchasable upon exercise of the
warrants prior to adjustment of the number of Shares by the Exercise Price in
effect prior to adjustment of the Exercise Price by (ii) the Exercise Price in
effect after such adjustment of the Exercise Price.
6. (a) Consolidations and Mergers. In case of any consolidation
--------------------------
with or merger of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the surviving or continuing
corporation and which does not result in any reclassification of the outstanding
Shares or the conversion of such outstanding Shares into shares of other stock
or other securities or property), or in case of any sale, lease or conveyance to
another corporation of the property and assets of any nature of the Company as
an entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be
---------------
deliverable upon exercise of this Warrant (in lieu of the number of Shares
theretofore deliverable) the kind and amount of shares of stock or other
securities, cash or other property which would otherwise have been deliverable
to a holder of the number of Shares upon the exercise of this Warrant upon such
Reorganization if this Warrant had been exercised in full immediately prior to
such Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, shall be made
in the application of the provisions herein set forth with respect
-4-
<PAGE>
to the rights and interests of the Holder so that the provisions set forth
herein shall thereafter be applicable, as nearly as possible, in relation to any
shares or other property thereafter deliverable upon exercise of this Warrant.
Any such adjustment shall be made by and set forth in a supplemental agreement
between the Company, or any successor thereto, and the Holder and shall for all
purposes hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization unless upon or prior to the
consummation thereof the successor corporation, or if the Company shall be the
surviving corporation in any such Reorganization and is not the issuer of the
shares of stock or other securities or property to be delivered to holders of
Shares outstanding at the effective time thereof, then such issuer, shall assume
by written instrument the obligation to deliver to the Holder such shares of
stock, securities, cash or other property as the Holder shall be entitled to
purchase in accordance with the foregoing provisions.
(b) In case of any reclassification or change of the Shares issuable
upon exercise of this Warrant (other than a change in par value or from no par
value to a specified par value, or as a result of a subdivision or combination,
but including any change in the shares into two or more classes or series of
shares), or in case of any consolidation or merger of another corporation into
the Company in which the Company is the continuing corporation and in which
there is a reclassification or change (including a change to the right to
receive cash or other property) of the Shares (other than a change in par value,
or from no par value to a specified par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), the Holder shall have the right thereafter to receive
upon exercise of this Warrant solely the kind and amount of shares of stock and
other securities, property, cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger by a holder of the number of
Shares for which this Warrant might have been exercised immediately prior to
such reclassification, change, consolidation or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of Shares and to successive
consolidations, mergers, sales, leases, or conveyances.
7. Notice of Certain Events. In case at any time any of the
------------------------
following occur:
(a) The Company shall take a record of the holders of its Shares for
the purpose of entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the Company; or
(b) The Company shall offer to all the holders of its Shares any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
-5-
<PAGE>
(c) The Company shall take any action to effect any reclassification
or change of outstanding Shares or any consolidation, merger, sale, lease or
conveyance of property, described in Section 6; or
(d) The Company shall take any action to effect any liquidation,
dissolution or winding-up of the Company or a sale of all or substantially all
of its property, assets and business;
then, and in any one or more of such cases, the Company shall give written
- ----
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least
fifteen (15) days prior to (i) the date as of which the holders of record of
Shares to be entitled to receive any such dividend, distribution, rights,
warrants or other securities are to be determined, (ii) the date on which any
such offer to holders of Shares is made, or (iii) the date on which any such
reclassification, change of outstanding Shares, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution or winding-up is
expected to become effective and the date as of which it is expected that
holders of record of Shares shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
change of outstanding shares, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution or winding-up. Nothing herein shall allow a
Holder to delay or prevent any of the foregoing actions.
8. Registration Rights. The holders of any Warrants or Warrant
-------------------
Shares shall have, in respect of the shares of Common Stock underlying the
Warrants or the Warrant Shares, as the case may be, those certain registration
rights as are set forth in the Registration Rights Agreement, dated as of the
date hereof, between the Company and the Holder, a copy of which is attached
hereto.
9. Taxes. The issuance of any shares or other securities upon the
-----
exercise of this Warrant and the delivery of certificates or other instruments
representing such shares or other securities shall be made without charge to the
Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder (except for any tax that is payable in respect of
any such transfer and any related exercise of this Warrant and that would be
payable pursuant to the first sentence of this Section 9 were such certificate
to be issued in the name of the Holder) and the Company shall not be required to
issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
10. Legend. Unless registered pursuant to the provisions of Section
------
8 hereof, the certificate or certificates evidencing the Warrant Shares, shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
-6-
<PAGE>
AMENDED (THE "ACT"), OR STATE SECURITIES LAWS, BUT HAVE BEEN ISSUED
OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT. NO DISTRIBUTION, SALE, OFFER FOR SALE,
TRANSFER, DELIVERY, PLEDGE, OR OTHER DISPOSITION OF THESE
SECURITIES MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH THE ACT, ANY
APPLICABLE STATE LAWS, AND THE RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION AND STATE AGENCIES PROMULGATED
THEREUNDER."
11. Replacement of Warrants. Upon receipt of evidence satisfactory
-----------------------
to the Company of the loss, theft, destruction or mutilation of any Warrant (and
upon surrender of any Warrant if mutilated), and upon reimbursement of the
Company's reasonable incidental expenses and execution of a reasonable lost
security indemnification agreement, the Company shall execute and deliver to the
Holder thereof a new Warrant of like date, tenor and denomination.
12. No Rights as Stockholder. The Holder of any Warrant shall not
------------------------
have, solely on account of such status, any rights of a stockholder of the
Company, either at law or in equity, or to any notice of meetings of
stockholders or of any other proceedings of the Company, except as provided in
this Warrant.
13. Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of this Warrant, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first page of
this Warrant or to such other address as the Company may designate by notice to
the Holder.
14. Successors. All the covenants, agreements, representations and
----------
warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
15. Headings. The Article and Section headings in this Warrant are
--------
inserted for purposes of convenience only and shall have no substantive effect.
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<PAGE>
16. Governing Law. This Warrant shall be construed in accordance
-------------
with the laws of the State of Delaware applicable to contracts made and
performed within such State, without regard to principles of conflicts of law.
17. Modification of Agreement. This Warrant shall not otherwise be
-------------------------
modified, supplemented or amended in any respect unless such modification,
supplement or amendment is in writing and signed by the Company and the Holder
of this Warrant and Holders of any portion of the Warrant subsequently assigned
or transferred in accordance with the terms of this Warrant.
-8-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the date set forth below.
Dated: February 14, 1996 NITINOL MEDICAL TECHNOLOGIES, INC.
By: /s/Thomas M. Tully
--------------------------
Name: Thomas Tully
Title: President and Chief Executive Officer
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<PAGE>
EXHIBIT 10.5
PLEDGE AGREEMENT
----------------
Pledge Agreement, dated February 14, 1996, made by Fletcher Spaght, Inc., a
Massachusetts corporation ("Pledgor"), to Nitinol Medical Technologies, Inc., a
Delaware corporation ("Pledgee").
Whereas Pledgor, Pledgee, a wholly owned subsidiary of Pledgor
("InnerVentions") and a wholly owned subsidiary of Pledgee ("Merger Sub") are
party to an Agreement and Plan of Merger (the "Agreement"), dated the date
hereof, pursuant to which InnerVentions is merged into and with Merger Sub. All
capitalised terms used, but not defined herein shall have the respective
meanings attributed thereto in the Agreement;
Whereas Pledgor has certain limited recourse indemnity obligations to
Pledgee under Section 8 of the Agreement, which obligations are to be secured by
the collateral pledged pursuant to the terms of this Pledge Agreement;
In consideration of the premises, the mutual covenants, terms and
conditions herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Pledgor hereby
covenants and agrees as follows:
Section 1. Hypothecation and Pledge of Stock and Warrants; Grant of
--------------------------------------------------------
Security Interest. To secure the payment and performance of the obligations of
- ------------------
Pledgor to Pledgee under Section 8 of the Agreement and under this Pledge
Agreement (collectively, the "Obligations"), Pledgor hereby hypothecates,
pledges, assigns, transfers, sets over, delivers and grants to Pledgee a
continuing first priority security interest in the shares of the Parent Common
Stock owned by Pledgor evidenced by the certificates listed on Schedule A and
the Common Stock Purchase Warrants owned by the Pledgor (the "Pledged
Securities"), together with all additions thereto, substitutions and
replacements therefor and Proceeds (hereinafter defined) of all of the foregoing
(the "Pledged Collateral"), and Pledgor shall simultaneously herewith deliver to
Pledgee, in form transferable by delivery, the certificates representing the
Pledged Securities, accompanied by stock powers duly executed in blank, to be
held by Pledgee, as security as aforesaid.
As used herein, the term "Proceeds" shall have the meaning assigned to it
under Article 9 of the Uniform Commercial Code as in effect in the State of
Delaware as the same may be amended from time to time (the "UCC") and, to the
extent not otherwise included, shall include, but not be limited to, (i) any and
all proceeds of any causes and rights of action or settlements thereof payable
to Pledgor from time to time with respect to the Pledged Collateral, and (ii)
any and all other amounts from time to time paid or payable under or in
connection with the Pledged Collateral, and shall also include, without
limitation, any cash, other stock or property received in exchange or in
substitution for or by the exercise of any of the Pledged Securities,
distributions which may be made on, or distributed in consequence of the
ownership of the Pledged Securities, instruments or distributions of any kind
issuable, issued or received upon conversion of, in respect of, or in exchange
for any of the Pledged
<PAGE>
Securities, including, without limitation, those arising from a dividend, split,
reclassification, reorganization, merger, consolidation, sale of assets, or
other exchange of securities or any dividends or other distributions, warrants,
options or other rights of any kind upon or with respect to the Pledged
Securities.
If, after receipt of any payment under Section 8 of the Agreement, Pledgee
is for any reason compelled to surrender such payment to any person or entity,
because such payment is determined to be void or voidable as a preference,
impermissible setoff, or a diversion of trust funds, or for any other reason,
this Pledge Agreement shall continue in full force notwithstanding any contrary
action which may have been taken by Pledgee in reliance upon such payment, and
any such contrary action so taken shall be without prejudice to Pledgee's rights
under this Pledge Agreement and shall be deemed to have been conditioned upon
such payment having become final and irrevocable. Pledgor hereby agrees to take
any actions necessary to effect the foregoing, including without limitation,
redelivery to Pledgee, in form transferable by delivery, the certificates and/or
documents representing the Pledged Securities, accompanied by the requisite
transfer documents for the Pledged Securities, duly executed in blank, to be
held by Pledgee, as security as aforesaid.
Section 2. Representations and Warranties. Pledgor hereby represents and
-------------------------------
warrants to Pledgee that:
(a) Except for the security interest granted to Pledgee pursuant to this
Pledge Agreement, Pledgor is the holder of record and sole beneficial owner of
the Pledged Securities, having good and valid title thereto, free and clear of
any and all liens, pledges, mortgages, hypothecation, claims, encumbrances,
security interests, attachments, charges or rights of others ("Liens").
(b) The security interest granted to Pledgee pursuant to this Pledge
Agreement constitutes and creates a valid and continuing and first perfected
Lien on and first security interest in the Pledged Collateral in favor of
Pledgee superior to and prior to the rights of all parties, and no other Lien or
security interest in and to the Pledged Collateral exists.
(c) This Pledge Agreement constitutes the valid and binding agreement of
Pledgor enforceable against Pledgor in accordance with its terms.
(d) Pledgor has full power and authority to execute, deliver and perform
this Pledge Agreement and to pledge and assign the Pledged Collateral and has
taken all action required by law or otherwise to authorize the delivery and
performance of this Pledge Agreement in accordance with its terms.
(e) The Pledged Securities (other than the Common Stock Purchase Warrants)
delivered to Pledgee pursuant to this Pledge Agreement are duly authorized,
validly issued, fully paid and non-assessable.
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<PAGE>
(f) The execution, delivery and performance by Pledgor of the Agreement and
this Pledge Agreement do not and will not (i) contravene its certificate of
incorporation or by-laws, (ii) violate any law, statute or regulation or any
order or decree of any court or governmental authority, (iii) conflict with or
result in a breach of, or constitute a default under, or result in or permit the
termination or acceleration of any contractual obligation of Pledgor, or (iv)
result in the creation or imposition of any Lien upon any of the property of
Pledgor other than in favor of Pledgee.
(g) No consent, approval, authorization or other order of any person and no
order, consent, permit, license, authorization, approval, validation of,
exemption by, notice to or registration, recording, filing or declaration with
or other action by, any governmental or public authority or regulatory body is
required to be made or obtained by Pledgor either (i) for the pledge of the
Pledged Collateral pursuant to this Pledge Agreement or for the execution,
delivery or performance of this Pledge Agreement by Pledgor, or (ii) for the
exercise by Pledgee of the rights provided for in this Pledge Agreement or the
remedies in respect of the Pledged Collateral pursuant to this Pledge Agreement,
other than compliance with applicable securities laws.
Section 3. Covenants and Agreements.
-------------------------
(a) Pledgor shall defend Pledgee's right, title and security interest in
and to the Pledged Collateral against all claims and demands of all persons
(other than Pledgee) at any time claiming the same or any interest therein and
will have like title to and right to pledge any other property at any time
hereafter constituting Pledged Collateral and will likewise defend the right
thereto and security interest therein of Pledgee.
(b) At any time and from time to time, upon the request of Pledgee and at
the sole expense of Pledgor, Pledgor will promptly execute, deliver, file and
record any and all such further instruments, documents, deeds and instruments
and will cause such opinions of counsel to be delivered and will take such
further action as may be deemed necessary or desirable in the reasonable
judgment of Pledgee to obtain, maintain, perfect and enforce the security
interest granted hereby and the rights, remedies and powers hereunder,
including, without limitation, the provision of instruments and documents
reasonably necessary to perfect the security interest granted hereby under
Article 9 of the UCC, and the execution and delivery of one or more proxies and
powers of attorney (in addition to those granted herein). In connection
herewith, Pledgee is hereby irrevocably authorized and empowered as Pledgor's
attorney-in-fact, at its option (but without any obligation of Pledgee to do
so), to make all other filings (including the filing of financing and
continuation statements) and to give all other notices as it shall deem
necessary with respect to the Pledged Collateral, all of which may be done with
or without the signature of Pledgor. Pledgor agrees that the foregoing power
constitutes a power coupled with an interest which shall survive until all of
the Obligations are fully satisfied. Pledgor and Pledgor agrees to cooperate,
promptly making, or causing to be made, any filings which are necessary to
permit Pledgee to enforce its rights hereunder. Pledgor agrees that a carbon,
photographic or other reproduction of this Pledge Agreement is sufficient as a
financing statement. Pledgor agrees to reimburse Pledgee on demand for any
-3-
<PAGE>
expenses incurred by Pledgee in connection with such matters and the fees and
expenses of Pledgee's counsel in connection with the preparation and closing
hereof and further services (including collection activity) in connection
herewith; until such reimbursement, all such expenses shall be a part of the
Obligations.
(c) Pledgor will not sell, encumber, transfer or otherwise dispose of or
hypothecate the Pledged Collateral or any portion thereof or sign, file or
authorize the signing or filing of any document effecting such act, except in
favor of Pledgee pursuant hereto, including, without limitation, any shareholder
or membership agreements, voting agreements, voting trust agreements, trust
agreements, trust deeds, irrevocable proxies or any other similar agreements or
instruments. Notwithstanding the foregoing, the Pledgor may transfer its
interest in the Pledged Collateral; provided, that prior to any proposed
transfer, the Pledgor shall deliver to Pledgee a writing, in form and substance
satisfactory to the Pledgee and its counsel, pursuant to which each transferee
shall acknowledge the first priority of Pledgee's security interest in the
Pledged Collateral and shall agree to comply with the provisions of this
Agreement.
(d) Pledgor will at all times maintain, or cause to be maintained, accurate
books and records with respect to the Pledged Collateral. Pledgee is hereby
given the right to inspect, audit and copy the books and records of Pledgor
relating to the Pledged Collateral at such reasonable times as Pledgee may
desire.
(e) Pledgor will notify Pledgee of any change in Pledgor's mailing address,
and of any material change in any fact or circumstance warranted or represented
by Pledgor in this Pledge Agreement or otherwise furnished to Pledgee, or if any
Event of Default (hereinafter defined) occurs, prior to or immediately following
the occurrence thereof.
(f) Pursuant to this Pledge Agreement, Pledgor shall have transferred
possession of all instruments, securities and documents which are part of the
Pledged Collateral, appropriately endorsed to Pledgee's order, or with
appropriate powers. Regardless of the form of such endorsement, Pledgor hereby
waives presentment, demand, notice of dishonor, protest, and notice of protest,
and all other notices with respect to any of the foregoing which would otherwise
require the same.
(g) Pledgor will not sign or file or authorize the signing or filing of any
document or instrument creating or perfecting any security interest, lien or
other encumbrance in all or part of the Pledged Collateral, except in favor of
Pledgee as required hereby.
(h) With respect to the Pledged Collateral, Pledgee shall not be under any
duty to present, send or file any claim or notices, perform any services,
exercise any rights of collection, enforcement, conversion or exchange, vote,
pay for any insurance, or pay any taxes or other charges, make any demand, or
make any inquiry as to the nature or sufficiency of any payment received by it,
or take any action of any kind in connection with the management thereof, and
its only duty with respect thereto shall be to use reasonable care in the
custody and
-4-
<PAGE>
preservation of the Pledged Collateral while the Pledged Collateral is in its
actual possession, which shall not include any steps necessary to preserve
rights against prior or third parties.
(i) Pledgor will, upon Pledgee's request, do, file, record, make, execute
and deliver all such acts, deeds, things notices and instruments as may be
reasonably necessary or desirable to vest in and assure to Pledgee a continuing
first priority security interest in and to the Pledged Collateral and the
enforcement of, and giving effect to, the rights, remedies and powers hereunder,
(including, without limitation, upon the exercise of the Common Stock Purchase
Warrants(or any part thereof) deliver the certificates for any Parent Common
Stock issued as a result of such exercise to Pledgee, together with stock powers
in blank, duly executed, and any outstanding Common Stock Purchase Warrants).
(j) In the event that all or any part of the securities constituting the
Pledged Collateral are lost, destroyed or wrongfully taken while such securities
are in the possession of Pledgee, Pledgor agrees that it will cause the issuance
of new securities in place of the lost, destroyed or wrongfully taken securities
upon request therefor by Pledgee without the necessity of the provision by
Pledgee of any indemnity bond or other security, other than Pledgee's agreement
of indemnity, in form and substance reasonably satisfactory to Pledgor and its
counsel, therefor.
(k) Any additions to, accumulations of, substitutions for, and proceeds of
the Pledged Collateral in any form whatsoever which shall come into the
possession of Pledgor shall be held in trust for Pledgee, and, upon receipt
thereof, shall be promptly delivered to Pledgee in the form received together
with such stock powers or other documents as Pledgee shall request in connection
therewith.
(l) Pledgee, may at any time, and from time to time, extend the time of
payment or performance or renew, in whole or in part, any of, or modify,
compromise, waive, supplement or otherwise change in any way, the Obligations
for such time or times as Pledgee may determine and all of the provisions and
authorizations contained herein shall continue to remain in full force and
effect.
(m) The security interest granted hereby constitutes and shall at all times
constitute a continuing first priority security interest in the Pledged
Collateral.
Section 4. Defaults. The following events shall be an "Events of Default"
---------
hereunder:
(a) The security interest granted hereby shall cease to be a perfected
first priority security interest as provided herein;
(b) the failure by the Pledgor to perform its obligations to indemnify
Pledgee under Section 8.1 of the Agreement; or
-5-
<PAGE>
(c) The failure by Pledgor to perform or observe any covenant or agreement
herein for thirty (30) days after receipt by Pledgor of notice of such default
from Pledgee.
Section 5. Rights and Powers of Pledgee on Default.
----------------------------------------
(a) In General. After the occurrence of an Event of Default, or at any
----------
time thereafter during the continuance thereof, Pledgee may proceed to enforce
all of its rights, powers and remedies hereunder in the Agreement or by law,
including, without limitation, all rights and remedies of a secured party of a
debtor in default under the UCC, by suit in equity, action at law and/or other
appropriate proceedings, whether for payment or the specific performance of any
covenant or agreement contained in this Pledge Agreement. Without limiting the
foregoing, Pledgee may, in its discretion (without any duty or obligation to do
so):
(i) endorse as Pledgor's agent any instruments or securities pertaining to
the Pledged Collateral;
(ii) take control of Proceeds, including, if any, securities received as
dividends or by reason of splits, and use cash Proceeds to reduce any part of
the Obligations;
(iii) take any action Pledgor is required to take or any other necessary
action to obtain, preserve and enforce this Pledge Agreement, and maintain and
preserve the Pledged Collateral, without notice to Pledgor, and add the costs of
same to the Obligations;
(iv) release the Pledged Collateral in its possession to Pledgor,
temporarily or otherwise;
(v) take control of funds generated by the Pledged Collateral, such as cash
dividends and use the same to reduce any part of the Obligations;
(vi) vote any securities (whether or not transferred into the name of
Pledgee) which is part of the Pledged Collateral and give consents, waivers and
ratifications in respect of such securities and otherwise act with respect
thereto as though it were the outright owner thereof;
(vii) exercise all other rights which an owner of such Pledged Collateral
may exercise; and
(viii) transfer any of the Pledged Collateral or evidence thereof into its
own name or that of its nominee and receive the Proceeds therefrom and hold the
same as security for the Obligations, or apply the same thereto.
After the occurrence of an Event of Default, or at any time thereafter
during the continuance thereof, Pledgee may, but shall be under no duty or
obligation to, demand, collect, receipt for, settle, compromise, adjust, sue
for, foreclose, or realize upon the Pledged Collateral, in its own name or in
the name of Pledgor, as Pledgee may determine. The cost
-6-
<PAGE>
of such collection and enforcement, including attorneys' fees and expenses,
shall be borne by Pledgor, whether the same is incurred by Pledgee, or an agent
or representative thereof, or by Pledgor. If paid by Pledgee, such payment
shall become a part of the Obligations. The foregoing rights and powers of
Pledgee shall be in addition to, and not a limitation upon, any rights and
powers of Pledgee given by law, custom, elsewhere by this Pledge Agreement or
otherwise.
(b) Power of Sale; Enforcement. In case an Event of Default shall have
---------------------------
occurred and be continuing, Pledgee, personally or by agents or representatives,
(i) may to the extent permitted by law, including any federal or state laws
governing the sales of securities, grant options to purchase, sell at one or
more sales, all or any part of the Pledged Collateral, such sale or other
disposition to be made at the discretion of Pledgee at one or more private sales
or to the highest bidder at public auction at such place or places, at such time
or times, and upon such terms, including, without limitation, credit, as Pledgee
may fix and briefly specify in the notice of sale or other disposition to be
given as herein provided or as may be required by law;
(ii) may proceed to protect and enforce the rights of Pledgee under this
Pledge Agreement by suit, whether for specific performance of any covenant
herein contained, or in aid of the execution of any power herein granted, or for
the foreclosure of or other realization upon the security interest provided in
this Pledge Agreement and the sale of the Pledged Collateral under the judgment
or decree of a court of competent jurisdiction, or for the enforcement of any
other right, as Pledgee in its sole discretion shall determine; and
(iii) may exercise any and all of the rights and remedies provided by the
UCC as well as all other rights and remedies possessed by Pledgee under this
Pledge Agreement, at law, in equity or otherwise.
(c) Notice of Sale or other Disposition. If notice of any sale or other
------------------------------------
disposition of all or any part of the Pledged Collateral is required by law to
be given, Pledgor agrees that a notice sent to it at least 10 days before the
time of any intended public sale or of the time after which any private sale or
other disposition of the Pledged Collateral is to be made, shall be reasonable
notice of such sale or other disposition.
(d) Delivery to Purchaser. Upon the completion of any sale or other
----------------------
disposition of all or any part of the Pledged Collateral under this paragraph 5,
full title and right of possession to such Pledged Collateral shall pass to such
purchaser or purchasers forthwith upon the completion of such sale without any
action required on the part of Pledgor. Nevertheless, if so requested by
Pledgee or by any purchaser, Pledgor shall confirm any such sale or transfer by
executing and delivering to such purchaser all proper instruments of conveyance
and transfer and releases as may be designated in any such request. Every such
sale or other disposition shall operate to divest all right, title, interest,
claim and demand whatsoever of Pledgor of, in and to the Pledged Collateral so
sold or disposed of and shall be a perpetual bar, both at law and in equity,
against Pledgor, all persons claiming the Pledged
-7-
<PAGE>
Collateral sold or disposed of, or any parts thereof, through Pledgor, and their
successors and assigns.
(e) Application of Proceeds. The proceeds of any sale of the Pledged
------------------------
Collateral or any part thereof under this Section 5, together with any other
sums then held by Pledgee as part of the Pledged Collateral, shall be applied in
the manner set forth in Article 9 of the UCC.
(f) Pledgee May Purchase; Purchaser May Apply Obligations Toward Purchase.
----------------------------------------------------------------------
At any sale or other disposition hereunder, Pledgee may bid for and purchase the
Pledged Collateral offered for sale, and, upon compliance with the terms of sale
or other disposition, may hold, retain and dispose of such Pledged Collateral
without further accountability therefor. Any such purchaser at any sale or
other disposition hereunder shall be entitled, for the purpose of making payment
for the Pledged Collateral purchased, to apply any part of the Obligations due
and payable to it as a credit against the purchase price of such Pledged
Collateral.
(g) Waiver of Appraisement, etc., Laws. Pledgor agrees, to the fullest
-----------------------------------
extent that it may lawfully so agree, that neither it nor anyone claiming from,
through or under it, will claim, seek or take advantage of any appraisement,
valuation, stay, extension or redemption law now or hereafter in force in order
to prevent, hinder or delay the enforcement or foreclosure of this Pledge
Agreement, or the absolute sale or other disposition of the Pledged Collateral
or any part thereof, or the final and absolute taking of possession thereof,
immediately after such sale or other disposition, by the purchaser thereof.
Pledgor, for itself and all who may at any time claim from, through or under it,
hereby waives, to the fullest extent that it may lawfully do so, the benefit of
all such laws, and any and all right to have any of the property comprising the
Pledged Collateral marshalled upon any such sale, and agrees that Pledgee or any
court having jurisdiction to foreclose the security interest granted herein may
sell the Pledged Collateral as an entirety or in such parcels as Pledgee may
determine.
(h) Registration. Upon the occurrence of an Event of Default, or at any
-------------
time thereafter during the continuance thereof, any or all shares of capital
stock constituting the Pledged Collateral may be registered in the name of
Pledgee or its nominee, as Pledgee shall, in its discretion, decide. Pledgee or
such nominee, in its sole discretion, may thereafter, without notice, exercise
all voting and other shareholder rights at any meetings thereof, and exercise
any and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any shares of the Pledged Collateral as if
Pledgee or such nominee were the absolute owner thereof, including, without
limitation, the right to exchange, at Pledgee's or such nominee's discretion,
any and all of the Pledged Collateral. In connection therewith, Pledgee or such
nominee may deposit and deliver any or all of the capital stock constituting the
Pledged Collateral with any committee, depositary, transfer agent, registrar or
other designated agency upon such terms and conditions as Pledgee or its nominee
may determine, all without liability, except to account for property actually
received by it, but Pledgee or its nominee shall have no obligation or duty to
exercise any of the aforesaid rights, privileges or options, and shall not be
responsible for any failure to do so or delay in so doing.
-8-
<PAGE>
If, at any time when Pledgee shall determine to exercise its right to sell all
or any part of the Pledged Collateral pursuant to Section 5 hereof, such Pledged
Collateral or the part thereof to be sold shall not, for any reason whatsoever,
be effectively registered under the Securities Act of 1933, as then in effect,
Pledgee may, in its sole and absolute discretion, sell such Pledged Collateral
or part thereof by private sale in such manner and under such circumstances as
Pledgee may deem necessary or advisable in order that such sale may legally be
effected without such registration. Pledgor understands that compliance with
applicable federal and state securities laws may very strictly limit the course
of conduct of Pledgee if Pledgee were to attempt to dispose of all or any part
of the Pledged Collateral, and may also limit the extent to which or the manner
in which any subsequent transferee of any Pledged Collateral may dispose of the
same. Accordingly, Pledgor hereby agrees that the private sale or other private
disposition of the Pledged Collateral consisting of securities shall be
commercially reasonable notwithstanding the possibility that a substantially
higher price might be realized if such sale or other disposition were public and
deferred until after registration under such federal and state securities laws.
Without limiting the generality of the foregoing, in any such event Pledgee, in
its sole and absolute discretion, may approach and negotiate with a single
possible purchaser to effect such sale and may restrict such sale to a purchaser
who will represent and agree that such purchaser is purchasing for its own
account, for investment, and not with a view to the distribution or sale of such
Collateral or part thereof.
Section 6. Voting and Other Rights. Unless and until an Event of Default
------------------------
shall occur hereunder, Pledgor shall be entitled to vote the securities
constituting the Pledged Collateral and to give consents, waivers and
ratifications in respect of such securities, provided, however, that Pledgor
shall not take any action which would be inconsistent with, or violate any
provision of, this Pledge Agreement. Upon the occurrence of an Event of
Default, and at all times thereafter during the continuance thereof, Pledgee
shall have the right to vote such shares and to give consents, waivers and
ratifications with respect thereto pursuant to paragraph 5 hereof.
Section 7. No Segregation of Moneys; No Interest. No moneys received by
--------------------------------------
Pledgee need be segregated in any manner except to the extent required by law,
and any such moneys may be deposited under such general conditions as may be
prescribed by law applicable to Pledgee, and Pledgee shall not be liable for any
interest thereon.
Section 8. Notices. Except as otherwise specifically provided herein, all
--------
notices, requests, consents, demands, waivers and other communications hereunder
and all statements, reports, documents, certificates and papers to be delivered
hereunder shall be given to the respective parties hereto in writing to the
address set forth herein under the signature line of such party and in the
manner set forth in the Funding Agreement between Pledgor and Pledgee.
Section 9. Assignment. Pledgee may assign or otherwise transfer this
-----------
Pledge Agreement or any interest herein, and any instrument evidencing all or
any of the Obligations, and any agreement relating thereto, and Pledgee shall
thereafter be forever relieved and fully discharged from any liability or
responsibility with respect thereto, all without prejudice to the
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<PAGE>
retention by Pledgee of all rights and powers hereby given with respect to any
and all Pledged Collateral, instruments, rights or property not so transferred.
Section 10. Severability. Whenever possible, each provision of this
-------------
Pledge Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under the applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Pledge Agreement.
Section 11. Paragraph Titles. The paragraph titles contained in this
-----------------
Pledge Agreement shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties.
Section 12. Waiver. Pledgee's failure, at any time or times hereafter, to
-------
require strict compliance with or performance by Pledgor of any provision of
this Pledge Agreement or to fail to exercise, or delay in exercising any right
or remedy hereunder, shall not waive, affect or diminish any right of Pledgee
thereafter to demand strict compliance therewith and performance thereby. Any
suspension or waiver by Pledgee of an Event of Default under this Pledge
Agreement shall not suspend, waive or affect any other Event of Default under
this Pledge Agreement, whether the same is prior or subsequent thereto and
whether of the same or of a different kind or character. None of the
undertakings, agreements, warranties, covenants and representation of Pledgor
contained in this Pledge Agreement, and no Event of Default by Pledgor under
this Pledge Agreement shall be deemed to have been suspended or waived by
Pledgee unless such suspension or waiver is in writing and signed by an
authorized officer of Pledgee, specifying such suspension or waiver. This
Pledge Agreement may not be modified or amended except in a written agreement
signed by Pledgor and Pledgee.
Section 13. Waiver; Consent to Amendments. The liability of Pledgor
-----------------------------
hereunder and with respect to the Pledged Collateral shall be in no way affected
or impaired by any waiver, amendment, extension or other modification of the
Guaranty or by any acceptance by Pledgee of any direct or indirect security for
any indebtedness, liability or obligation of Pledgor to Pledgee, or by any
failure, delay, neglect or omission by Pledgee to realize upon or perfect any
such security, indebtedness, liability or obligation, or by any direct or
indirect collateral security therefor, or by the bankruptcy, reorganization or
insolvency of, or by any other proceeding for the relief of debtors commenced
against, Pledgor, or any other person or entity, or by any other reason
whatsoever.
Section 14. Rights Cumulative. The rights and remedies of Pledgee under
------------------
the Guaranty and this Pledge Agreement shall be cumulative and not exclusive of
any rights or remedies which they would otherwise have, and no failure or delay
by Pledgee in exercising any right shall operate as a waiver of it, nor shall
any single or partial exercise of any power or right preclude its other or
further exercise or the exercise of any other power or right.
-10-
<PAGE>
Section 15. Power of Attorney. Pledgor hereby makes, constitutes and
------------------
appoints Pledgee as its true and lawful attorney-in-fact in its name, place and
stead in any way, and to do any act, which Pledgor could so do or act, with
respect to the following matters, with full and unqualified authority to
delegate any and all of the following powers to any person or persons whom
Pledgee shall select to do the following acts as Pledgor's attorney-in-fact:
To take in its own name or in the name of Pledgor, all action which Pledgee
may deem necessary or desirable to perfect or otherwise protect, perfect and
maintain the Liens created under, and to obtain the benefits of, this Pledge
Agreement, and to otherwise protect and preserve the Pledged Collateral,
including, without limitation, the signing of any UCC or other type of financing
statements, any security agreements, mortgages, deeds of trust and amendments to
any of the foregoing; to endorse any notes, checks, drafts, money orders or
other instruments of payment (including payments payable under or in respect of
any policy of insurance) in respect of the Pledged Collateral that may come into
possession of Pledgee; to execute and deliver all agreements, instruments,
papers, certificates, powers and other documents and chattel paper relating to
the Pledged Collateral; to pay or discharge taxes, liens, security interests or
other encumbrances at any time levied or placed on or threatened against the
Pledged Collateral; to demand, collect, receipt for, compromise, settle and sue
for monies due in respect of the Pledged Collateral; to execute any proof of
claim, subrogation receipt and any other document required by any insurance
company as a condition to or otherwise in connection with payment under any
policy of insurance; to cancel, assign or surrender any such policies; and,
generally, to do, at the option of Pledgee and at the expense of Pledgor, at any
time, or from time to time, all acts and things which Pledgee deems necessary to
protect, preserve and realize upon the Pledged Collateral and Pledgee's Lien
thereon in order to effect the intent of this Pledge Agreement, all as fully and
effectually as Pledgor might or could do; and Pledgor hereby ratifies all that
Pledgee shall lawfully do or cause to be done by virtue hereof.
This power of attorney is a power coupled with an interest and irrevocable
for as long as any of the Obligations shall be outstanding.
Section 16. Governing Law. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY
---------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
-11-
<PAGE>
IN WITNESS WHEREOF, Pledgor has caused this Pledge Agreement to be duly
executed on the day and year first above written.
FLETCHER SPAGHT, INC.
By: /s/R. John Fletcher
--------------------------------
Its: Chairman
Address: 222 Berkeley Street
Boston, MA 02116-3761
Accepted:
NITINOL MEDICAL TECHNOLOGIES, INC.
By: /s/Thomas M. Tully
------------------------------
Name: Thomas Tully
Title: President and Chief Executive Officer
Address: 263 Summer Street, 7th Floor
Boston, MA 02210-1503
[SIGNATURE PAGE FOR PLEDGE AGREEMENT]
-12-
<PAGE>
EXHIBIT 10.6
REGISTRATION RIGHTS AGREEMENT
Agreement dated as of February 14, 1996, between Fletcher Spaght, Inc., with an
address at 222 Berkeley Street, Boston, MA 02116-3761 (the "Holder") and Nitinol
Medical Technologies, Inc., with an address at 263 Summer Street, Boston, MA
02210 (the "Company")
WHEREAS, the Holder is a holder of 977,838 shares (the "Shares") of the common
stock, par value $.001 per share, of the Company ("Common Stock") and common
stock purchase warrants to purchase 212,455 shares of Common Stock at an initial
exercise price of $1.13 (the "Warrants");
WHEREAS, the Holder desires to have certain registration rights for the Shares
and any shares of Common Stock issued pursuant to the terms of the Warrants (the
"Warrant Shares") (the Shares and the Warrant Shares, collectively, the "NMT
Shares") under the securities laws, and the Company desires that the Holder have
such registration rights;
NOW, THEREFORE, in consideration of the mutual agreements contained herein and
other good and valuable consideration, the parties hereby agree as follows:
1. If, at any time during the period commencing after the effective date
of the initial public offering of the Company's securities pursuant to a
registration statement under the Securities Act of 1933, as amended (the "Act")
and terminating on the date on which the NMT Shares become saleable under Rule
144(k) (or any successor provision) promulgated under the Act, the Company shall
determine to file any registration statement, or any post-effective amendment
<PAGE>
to a registration statement, under the Act, covering equity securities of the
Company (other than registration statements on Form S-8 or S-4 or any other form
not generally available for the registration of securities for sale to the
public) for its own account or for the account of others, the Company shall
advise the Holder, by written notice at least 10 business days prior to any
filing, and shall, upon the request of the Holder, and at the expense of the
Company, include in any such registration statement, or any such post-effective
amendment to a registration statement, all of the Registrable Securities (as
hereinafter defined) that the Holder has requested in writing to be registered,
provided that such written request is delivered to the Company within seven
business days of the Holder's receipt of notice from the Company. As used in
this Agreement, Registrable Securities shall mean (i) the Shares, (ii) the
Warrant Shares, and (iii) any Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any convertible security, option, warrant
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of any of the NMT Shares.
All costs and expenses of such registration statement shall be borne by the
Company, except underwriting discounts or commissions applicable to any of the
Registrable Securities sold by the Holder and any counsel to the Holder. The
Company shall not be required to register securities of the Holder on more than
three occasions; provided that if the Holder has been prevented from selling all
of the NMT Shares Holder wished to sell because of limitations imposed under
paragraph (c) of this Section 1, then the Holder shall be entitled to include
the NMT Shares in one or more additional registration statements under the terms
of this Section 1 until the Holder has been able to sell all of the NMT Shares
the Holder wishes to sell.
-2-
<PAGE>
(a) The Company shall supply prospectuses and such other documents as
the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its reasonable best efforts
to register and qualify any of the Registrable Securities for sale in a
reasonable number of states and do any and all other acts and things which may
be necessary or desirable to enable the Holder to consummate the public sale or
other disposition of the Registrable Securities subject to the rights of others
with similar rights.
(b) The Company shall also furnish indemnification in the manner
provided in Section 2 hereof, except that the maximum amount of such
indemnification shall be limited to the amount of proceeds received by the
Holder from the sale of the Registrable Securities. The Holder shall furnish
information and indemnification as set forth in Section 2 hereof, except that
the maximum amount which may be recovered from the Holder shall be limited to
the amount of proceeds received by the Holder from the sale of the Registrable
Securities.
(c) In connection with any offering involving an underwriting of
shares of the Company's Common Stock, the Company shall not be required under
Section 1 hereof to include any of the Holder's securities in such underwriting
unless the Holder accepts the terms of the underwriting as agreed upon between
the Company and the underwriters selected by it (or by other persons entitled to
select the underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize or limit the success of
the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in
-3-
<PAGE>
such offering exceeds the amount of securities to be sold other than by the
Company that the underwriters determine in their sole discretion is compatible
with the success of the offering, then the Company shall be required to include
in the offering only that number of such securities, including Registrable
Securities, which the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata, subject to prior existing rights, among the selling
stockholders according to the total amount of securities entitled to be included
therein owned by each selling stockholder or in such other proportions as shall
mutually be agreed to by such selling stockholders).
2. (a) Whenever pursuant to Section 1, a registration statement
relating to any of the Registrable Securities is filed under the Act, amended or
supplemented, the Company shall, to the extent permitted by law, indemnify and
hold harmless the Holder, and each person, if any, who controls (within the
meaning of the Act) the Holder, and each underwriter (within the meaning of the
Act) of such securities and each person, if any, who controls (within the
meaning of the Act) any such underwriter, against such losses, claims, damages,
liabilities or actions, joint or several, to which the Holder, any such
controlling person or any such underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages, liabilities or actions in
respect thereof, arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such registration
statement or any preliminary prospectus or final prospectus constituting a part
thereof or any amendment or supplement thereto, or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
-4-
<PAGE>
the Holder and each such controlling person and underwriter for any legal or
other expenses reasonably incurred by Holder or such controlling person or
underwriter in connection with investigating or defending any such losses,
claims, damages, liabilities or actions; provided, however, that the Company
will not be liable in any such case to the extent that any such losses, claims,
damages, liabilities or actions arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said preliminary prospectus, said final prospectus
or said amendment or supplement in reliance upon and in conformity with written
information furnished by Holder or any other underwriter, for use in the
preparation thereof.
(b) The Holder shall indemnify and hold harmless the Company, each of
its directors, each of its officers and each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages,
liabilities or actions, to which the Company or any such director, officer or
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages, liabilities or actions arise out of or are based
upon any untrue or alleged untrue statement of any preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Holder for use
-5-
<PAGE>
in the preparation thereof; and shall reimburse the Company or any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such losses, claims, damages, liabilities or actions.
(c) Promptly after receipt by an indemnified party under this Section
2 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party, give
the indemnifying party notice of the commencement thereof; but the omission to
so notify the indemnifying party shall not relieve it from any liability which
it may have to an indemnified party otherwise than under this Section 2.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party, the indemnifying party shall not be liable to such
indemnified party under this Section 2 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof, other than reasonable costs of investigation.
(e) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise
-6-
<PAGE>
be liable under this Section 2 to the extent permitted by law, provided that (i)
no contribution shall be made under circumstances where the indemnifying party
would not have been liable for indemnification under the fault standards set
forth in this Section 2, (ii) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (iii) contribution by
the Holder shall be limited in amount to the net amount of proceeds received by
him from the sale of the Registrable Securities pursuant to such Registration
Statement or prospectus.
3. The Holder agrees that, during the period of duration (not to exceed
180 days) specified by the Company and an underwriter of Common Stock or other
securities of the Company, following the effective date of a registration
statement of the Company filed under the Act, it shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of the Company held by it
at any time during such period except Registrable Securities included in such
registration; provided, however, that all directors of the Company enter into
agreements containing substantially equivalent restrictions.
4. The provisions of Section 9.1 and 9.5 of the Agreement and Plan of
Merger, among the Company, NMT Heart, Inc., the Holder and InnerVentions, Inc.,
dated the date hereof, shall be applicable to this agreement as if fully set
forth herein.
-7-
<PAGE>
5. The Holder may assign its rights and obligations under this
Registration Rights Agreement to any stockholder, employee or consultant of the
Holder to whom the Holder distributes the Registrable Securities.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
NITINOL MEDICAL TECHNOLOGIES, INC.
/s/Thomas M. Tully
- ----------------------------------
By: Thomas Tully
------------
Title: President and Chief Executive Officer
---------------------------------------
FLETCHER SPAGHT, INC.
- ---------------------
By: /s/R. John Fletcher
--------------------------------
Title: Chairman
-----------------------------
-9-
<PAGE>
EXHIBIT 10.18
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER.
April 15, 1996
WARRANT TO PURCHASE SHARES OF COMMON
STOCK OF NITINOL MEDICAL TECHNOLOGIES, INC.
This certifies that Lloyd A. Marks (the "Holder"), for value received is
entitled, subject to the adjustment and to the other terms set forth below, to
purchase from NITINOL MEDICAL TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), Ten Thousand (10,000) fully paid and nonassessable shares of the
Company's Common Stock, $.001 par value (the "Stock"), at a price of $.01 per
share (the "Stock Purchase Price") at any time or from time to time, on or after
April 15, 1996 but before 5:00 p.m. (New York Time) on the Expiration Date (as
defined below), upon surrender to the Company at its principal office at 263
Summer Street, 7th Floor, Boston, Massachusetts 02210 Attention: President (or
at such other location as the Company may advise Holder in writing) of this
Warrant properly endorsed with the form of Subscription Agreement attached
hereto duly filled in and signed upon payment in cash or cashier's check of the
aggregate Stock Purchase Price for the number of shares for which this Warrant
is being exercised determined in accordance with the provisions hereof. To the
extent that the holders of options to purchase Stock granted pursuant to the
Company's 1994 Stock Option Incentive Plan are accorded a "net exercise" right
with respect to such options whereby the Company will withhold from the Stock
that would otherwise be issued upon exercise of such options that number of
shares of Stock having a fair market value equal to the option exercise price,
the Company will grant such "net exercise" right to the Holder with respect to
the exercise of this Warrant. The Stock Purchase Price and, in some cases, the
number of shares purchasable hereunder are subject to adjustment as provided in
Section 3 of this Warrant. This Warrant and all rights hereunder, to the extent
not exercised in the manner set forth herein shall terminate and become null and
void on the Expiration Date. "Expiration Date" shall mean April 16, 2001.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares; Duration of
-------------------------------------------------------------------
Exercise of Warrant. This Warrant is exercisable at the option of Holder at any
- -------------------
time or from time to time on or after April 15, 1996 but before 5:00 p.m. (New
York Time) on the Expiration Date for all or a portion of the shares of Stock
which may be purchased hereunder. The Company agrees that the shares of Stock
purchased under this Warrant (the "Warrant Shares") shall be and are deemed to
be issued to Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for such shares. Subject to the provisions of Section 2,
certificates for the shares of Stock so purchased, together with any other
securities or property to which Holder is entitled upon such exercise, shall be
delivered to Holder by the Company or its transfer agent at the Company's
expense within a reasonable time after the rights represented by this Warrant
<PAGE>
have been exercised. Each stock certificate so delivered shall be in such
denominations of Stock as may be requested by Holder and shall be registered in
the name of Holder. If, upon exercise of this Warrant, fewer than all of the
shares of Stock evidenced by this Warrant are purchased prior to the Expiration
Date of this Warrant, one or more new warrants substantially in the form of, and
on the terms in, this Warrant will be issued for the remaining number of shares
of Stock not purchased upon exercise of this Warrant.
2. Shares to Be Fully Paid; Reservation of Shares. The Company covenants
-----------------------------------------------
and agrees that all shares of Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable and free from all preemptive rights
of any stockholder and free of all taxes, liens and charges with respect to the
issue thereof. The Company covenants that it will reserve and keep available a
sufficient number of shares of its authorized but unissued Stock for such
exercise. The Company will take all such reasonable action as may be necessary
to assure that such shares of Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of any
domestic securities exchange or automated quotation system upon which the Stock
may be listed.
3. Adjustment of Stock Purchase Price and Number of Shares. The Stock
-------------------------------------------------------
Purchase Price and, in some cases, the number of shares purchasable upon the
exercise of this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events described in this Section 3.
3.1 Subdivision or Combination of Stock and Stock Dividend. In case
------------------------------------------------------
the Company shall at any time subdivide its outstanding shares of Stock into a
greater number of shares or declare a dividend upon its Stock payable solely in
shares of Stock, the Stock Purchase Price in effect immediately prior to such
subdivision or declaration shall be proportionately reduced, and the number of
shares issuable upon exercise of the Warrant shall be proportionately increased.
Conversely, in case the outstanding shares of Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased, and
the number of shares issuable upon exercise of the Warrant shall be
proportionately reduced.
3.2 Notice of Adjustment. Promptly after adjustment of the Stock
---------------------
Purchase Price or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the registered
Holder of this Warrant at the address of such Holder as shown on the books of
the Company. The notice shall be signed by the Company's chief financial
officer and shall state the effective date of the adjustment and the Stock
Purchase Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
4. Issue Tax. The issuance of certificates for shares of Stock upon the
----------
exercise of the Warrant shall be made without charge to the Holder of the
Warrant for any issue tax in respect thereof; provided, however, that the
-2-
<PAGE>
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then holder of the Warrant being exercised.
5. No Voting or Dividend Rights; Limitation of Liability. Nothing
------------------------------------------------------
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder in
respect of meetings of stockholders for the election of directors of the Company
or any other matters or any rights whatsoever as a stockholder of the Company.
Notwithstanding the foregoing, the Company agrees that it will provide Holder
with copies of all financial statements, reports, notices and other statements
sent by the Company to its shareholders. Except for the adjustment to the Stock
Purchase Price pursuant to Section 3.1 in the event of a dividend on the Stock
payable in shares of Stock, no dividends or interest shall be payable or accrued
in respect of this Warrant or the interest represented hereby or the shares
purchasable hereunder until, and only to the extent that, this Warrant shall
have been exercised. No provisions hereof, in the absence of affirmative action
by the Holder to purchase shares of Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a stockholder of the Company
whether such liability is asserted by the Company or by its creditors.
6. Restrictions on Transferability of Securities; Compliance With
--------------------------------------------------------------
Securities Act.
- ---------------
6.1 Restrictions on Transferability. This Warrant and the Stock issuable
--------------------------------
upon exercise hereof (collectively, the "Securities"), shall not be transferable
in the absence of registration under the Act or an exemption therefrom under
said Act and the Company is not required to register this Warrant or the Stock
issuable upon exercise hereof or to take any action or make such an exemption
available.
6.2 Restrictive Legend. Each certificate representing the Stock or any
-------------------
other securities issued in respect of the Stock upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall be
stamped or otherwise imprinted with a legend substantially in the following form
(in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR ANY STATE SECURITIES
LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR SUCH LAWS AND
THE RULES AND REGULATIONS THEREUNDER.
7. Modification and Waiver. This Warrant and any provision hereof may be
------------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
8. Notices. Any notice, request or other document required or permitted
-------
to be given or delivered to the Holder hereof or the Company shall be delivered
or shall be sent by certified or registered mail, postage prepaid, to
-3-
<PAGE>
each such Holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor in the first paragraph of this
Warrant.
9. Descriptive Headings and Governing Law. The descriptive headings of
---------------------------------------
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of Delaware.
10. Lost Warrants or Stock Certificates. The Company represents and
------------------------------------
warrants to Holder that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any Warrant or stock
certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity and, if requested, bond reasonably satisfactory to the
Company, or in the case of any such mutilation, upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
11. Fractional Shares. No fractional shares shall be issued upon exercise
------------------
of this Warrant. The Company shall, in lieu of issuing any fractional share pay
the holder entitled to such fraction a sum in cash equal to the fair market
value of any such fractional interest as it shall appear on the public market,
or if there is no public market for such shares, then as shall be reasonably
determined by the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer, thereunto duly authorized as of the 15th day of April, 1996.
NITINOL MEDICAL TECHNOLOGIES, INC.
By: /s/Thomas M. Tully
---------------------------
Thomas M. Tully
President
-4-
<PAGE>
EXHIBIT 10.19
NITINOL MEDICAL TECHNOLOGIES, INC.
REGISTRATION RIGHTS AGREEMENT
Agreement dated as of April 15, 1996, between Lloyd A. Marks, (the "Holder" or
collectively, the "Holder", as the case may be) and Nitinol Medical
Technologies, Inc., with an address at 263 Summer Street, Boston, MA 02210 (the
"Company")
WHEREAS, the Holder is a holder of a Warrant to purchase 10,000 shares (the
"Shares") of the common stock, par value $.001 per share, of the Company
("Common Stock");
WHEREAS, the Holder desires to have certain registration rights for the Shares
under the securities laws, and the Company desires that the Holder have such
registration rights;
NOW, THEREFORE, in consideration of the mutual agreements contained herein and
other good and valuable consideration, the parties hereby agree as follows:
1. If, at any time during the period commencing after the effective date
of the initial public offering of the Company's securities pursuant to a
registration statement under the Securities Act of 1933, as amended (the "Act")
and terminating on the date on which the Shares become saleable under Rule
144(k) (or any successor provision) promulgated under the Act, the Company shall
determine to file any registration statement, or any post-effective amendment to
a registration statement, under the Act, covering equity securities of the
Company (other than registration statements on Form S-8 or S-4 or any other form
not generally available for the registration of securities for sale to the
public) for its own account or for the account of others, the Company shall
advise the Holder, by written notice at least 10 business days prior to any
filing, and shall, upon the request of the Holder, and at the expense of the
Company, include in any such registration statement, or any such post-effective
amendment to a registration statement, all of the Registrable Securities (as
hereinafter defined) that the Holder has requested in writing to be registered,
provided that such written request is delivered to the Company within seven
business days of the Holder's receipt of notice from the Company. As used in
this Agreement, Registrable Securities shall mean (i) the Shares and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any convertible security, option, warrant right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of any of the Shares. All costs and expenses of
such registration statement shall be borne by the Company, except underwriting
discounts or commissions applicable to any of the Registrable Securities sold by
the Holder and any counsel to the Holder. The Company shall not be required
<PAGE>
to register securities of the Holder on more than three occasions; provided that
if the Holder has been prevented from selling all of the Shares Holder wished to
sell because of limitations imposed under paragraph (c) of this Section 1, then
the Holder shall be entitled to include the Shares in one or more additional
registration statements under the terms of this Section 1 until the Holder has
been able to sell all of the Shares the Holder wishes to sell.
(a) The Company shall supply prospectuses and such other documents as the
Holder may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities, use its reasonable best efforts to
register and qualify any of the Registrable Securities for sale in a reasonable
number of states and do any and all other acts and things which may be necessary
or desirable to enable the Holder to consummate the public sale or other
disposition of the Registrable Securities subject to the rights of others with
similar rights.
(b) The Company shall also furnish indemnification in the manner provided
in Section 2 hereof, except that the maximum amount of such indemnification
shall be limited to the amount of proceeds received by the Holder from the sale
of the Registrable Securities. The Holder shall furnish information and
indemnification as set forth in Section 2 hereof, except that the maximum amount
which may be recovered from the Holder shall be limited to the amount of
proceeds received by the Holder from the sale of the Registrable Securities.
(c) In connection with any offering involving an underwriting of shares of
the Company's Common Stock, the Company shall not be required under Section 1
hereof to include any of the Holder's securities in such underwriting unless the
Holder accepts the terms of the underwriting as agreed upon between the Company
and the underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize or limit the success of the offering
by the Company. If the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering exceeds
the amount of securities to be sold other than by the Company that the
underwriters determine in their sole discretion is compatible with the success
of the offering, then the Company shall be required to include in the offering
only that number of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the success
of the offering (the securities so included to be apportioned pro rata, subject
to prior existing rights, among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders).
2. (a) Whenever pursuant to Section 1, a registration statement
relating to any of the Registrable Securities is filed under the Act, amended or
supplemented, the Company shall, to the extent permitted by law, indemnify and
hold harmless the Holder against such losses, claims, damages, liabilities or
actions, joint or several, to which the Holder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions in
respect thereof, arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such registration
statement or any preliminary prospectus or final prospectus constituting a part
thereof or any amendment or supplement thereto, or arise out
-2-
<PAGE>
of or are based upon the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and shall reimburse the Holder for any legal or other expenses reasonably
incurred by Holder in connection with investigating or defending any such
losses, claims, damages, liabilities or actions; provided, however, that the
Company will not be liable in any such case to the extent that any such losses,
claims, damages, liabilities or actions arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said preliminary prospectus, said final prospectus
or said amendment or supplement in reliance upon and in conformity with written
information furnished by Holder or any underwriter, for use in the preparation
thereof.
(b) The Holder shall indemnify and hold harmless the Company, each of its
directors, each of its officers and each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages,
liabilities or actions, to which the Company or any such director, officer or
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages, liabilities or actions arise out of or are based
upon any untrue or alleged untrue statement of any preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Holder for use in the preparation
thereof; and shall reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such losses, claims, damages,
liabilities or actions.
(c) Promptly after receipt by an indemnified party under this Section 2 of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the omission to so
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 2.
(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party, the
indemnifying party shall not be liable to such indemnified party under this
Section 2 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than reasonable
costs of investigation.
-3-
<PAGE>
(e) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 2 to the extent permitted by law, provided that (i) no
contribution shall be made under circumstances where the indemnifying party
would not have been liable for indemnification under the fault standards set
forth in this Section 2, (ii) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (iii) contribution by
the Holder shall be limited in amount to the net amount of proceeds received by
him from the sale of the Registrable Securities pursuant to such Registration
Statement or prospectus.
3. The Holder agrees that, during the period of duration (not to exceed
180 days) specified by the Company and an underwriter of Common Stock or other
securities of the Company, following the effective date of a registration
statement of the Company filed under the Act, it shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of the Company held by it
at any time during such period except Registrable Securities included in such
registration; provided, however, that all officers and directors of the Company
and all other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements.
4. (a) Any notice required to be given hereunder shall be sufficient if in
writing, and sent by facsimile transmission and by courier service (with proof
of service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to the Holder: If to the Company:
To the address written below the Nitinol Medical Technologies, Inc.
signature of the Holder on the last 263 Summer Street
page of this Agreement Boston, MA 02210
Fax: (617) 737-0924
Attn: Thomas Tully, CEO
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to its rules of conflict of
laws.
5. The Holder may assign its rights and obligations under this
Registration Rights Agreement to any "Family Member" or an "Affiliate" (as
-4-
<PAGE>
defined below) of the Holder to whom the Holder distributes the Registrable
Securities. Any such assignment shall be subject to and conditioned upon such
assignee being subject to this Agreement and executing a counterpart of this
Agreement to that effect; provided, however, that if such assignee fails to
execute such counterpart, the terms and conditions of this Agreement shall
nevertheless apply to the assignee and his/her/its Common Stock to the same
extent as it applied to the Holder. For purposes of this Agreement:
(i) "Family Member" means a member of such Holder's immediate family,
which shall include his or her parents, spouse, children or
grandchildren; and
(ii) "Affiliate" means with respect to a Holder, any individual,
corporation, partnership, limited liability company, association,
trust or other entity or organization, directly or indirectly
controlling, controlled by, or under common control with such
Holder. For the purposes hereof, "control" means possession
(direct or indirect) of the power to direct or cause the
direction of the management and policies of a company, whether
through ownership of voting securities, by contract, or
otherwise.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
NITINOL MEDICAL TECHNOLOGIES, INC.
/s/Thomas M. Tully
- ----------------------------------
By: Thomas Tully
Title: President and Chief Executive Officer
By: /s/Lloyd A. Marks
--------------------------------
Name: Lloyd A. Marks
-6-
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
This Agreement is made and entered into on the 13th day of February, 1996,
by and between Thomas M. Tully (the "Executive") and Nitinol Medical
Technologies, Inc., a Delaware corporation (the "Company"), effective as
provided in Section 1 below.
WHEREAS, the Company wishes to employ the Executive as the President and
Chief Executive Officer of the Company under the terms and conditions set forth
below; and
WHEREAS, the Executive wishes to accept such employment under those terms
and conditions;
NOW, THEREFORE, in consideration of the provisions and mutual covenants
contained in this agreement and for other good and valuable consideration, the
Company and the Executive (the "Parties") agree as follows:
1. TERM OF EMPLOYMENT.
------------------
The Company agrees to employ the Executive, and the Executive agrees
to serve, on the terms and conditions of this Agreement, for a period commencing
on September 1, 1995 (the "Effective Date") and ending on August 31, 1998, or
such shorter period as may be provided for herein. If the Executive is employed
by the Company on June 1, 1998, the term of the Executive's employment shall
automatically be extended until August 31, 1999, provided that either the
Company or the Executive may limit such renewal by giving at least three months
notice to the other in writing that the employment term is to end on a date on
or after August 31, 1998 and before August 31, 1999. (The employment term
described above is hereinafter referred to as the "Employment Term").
2. POSITION, DUTIES, RESPONSIBILITIES.
----------------------------------
During the Employment Term, the Executive shall serve as President and
Chief Executive Officer of the Company. In such capacity, the Executive shall
report to the Chairman of the Board and the Board of Directors of the
<PAGE>
Company and shall perform such duties and have such responsibilities of an
executive nature as are customarily performed by a person holding such office,
it being recognized that the Executive's duties and responsibilities, consistent
with his titles hereunder, may be changed by the Board of Directors of the
Company from time to time. The Executive shall devote his full business time
and attention to the performance of his duties under this Agreement. The
Executive shall serve without additional compensation as a director of the
Company and on any committees of the Board of Directors, if requested.
3. SALARY.
------
During the Employment Term, the Executive shall be paid a base
salary ("Salary"), as follows:
(a) From September 1, 1995 until January 1, 1996 - $10,000 per month
(b) From January 1, 1996 until August 31, 1996 - $175,000 per year;
(c) From September 1, 1996 until August 31, 1997 - $200,000 per year;
and
(d) After September 1, 1997 - $250,000 per year.
The Executive's Salary shall be payable in accordance with the
Company's standard payroll practice. Consideration of any additional Salary
increases must be made annually by the Board of Directors, upon the anniversary
of this Agreement, provided however that any actual additional Salary increases
shall be in the sole discretion of the Board of Directors. The Executive shall
be entitled to receive further bonuses, determined upon the achievement of goals
as the Executive and the Board of Directors of the Company shall agree.
In addition, on January 1, 1996, the Executive shall receive a lump
sum payment equal to $4,583.33 multiplied by the number of monthly or partial
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<PAGE>
monthly payments made to Executive at the rate of $10,000 prior to January 1,
1996; and upon the Closing, as defined below, the Executive shall receive a lump
sum payment of $125,000.
For purposes hereof the Closing shall have the meaning ascribed to it
in that certain Agreement and Plan of Merger dated as of January 25, 1996 among
the Company, InnerVentions, Inc. and others providing for the merger of
InnerVentions, Inc. into a wholly-owned subsidiary of the Company.
4. STOCK OPTIONS.
-------------
Immediately after the Closing, the Executive shall be issued non-
qualified stock options to purchase an aggregate of 500,000 shares of the
Company's Common Stock, par value $.001 per share, (the "Options"). The exercise
price for the Options shall be the current fair market value of the Company's
Common Stock of $1.13 per share. So long as the Employment Term has not
terminated prior to such date, Options to purchase 81,000 shall become
exercisable immediately upon the grant of the Options, and the remaining 419,000
Options shall become exercisable at the rate of 3.45% per month commencing on
the first day of the month following the Closing. Once exercisable, all Options
shall remain exercisable (in any order) for a period of ten (10) years from the
date of grant. Notwithstanding the above, all of the Options shall become
immediately exercisable in the event of a change of control of the Company. For
purposes of this Agreement, a "change of control of the Company" shall be deemed
to have occurred upon (1) any merger, consolidation or reorganization of the
Company in which the Company is not the continuing or surviving entity, or (2)
the sale, lease, exchange or transfer of all or substantially all of the
Company's assets, other than a sale, lease, exchange or transfer to an entity of
which the holders of the Company's Common Stock hold more than 50% of the
capital stock of such entity. The shares issuable upon exercise of the Options
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<PAGE>
and the exercise price shall be subject to adjustment as follows: In case the
Company shall at any time prior to the exercise of the Options hereunder (i)
declare a dividend on the outstanding Common Stock payable in shares of capital
stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a merger or consolidation in which
the Company is the continuing corporation), then, in each case, the exercise
price of the Options and the number and kind of shares issuable upon exercise of
the Options at the time of the record date for such dividend or at the effective
date of such subdivision, combination, or reclassification, shall be
proportionately adjusted so that the Executive after such time shall be entitled
to receive the aggregate number and kind of shares which, had the Options been
exercised immediately prior to such time, the Executive would have owned and
been entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur. In addition, the shares issuable to the Executive upon
exercise of the Options shall have certain registration rights as set forth in a
Registration Rights Agreement to be dated as of the Effective Date by and
between the Company and the Executive.
5. EMPLOYEE BENEFITS.
-----------------
(a) Benefit Programs. During the Employment Term, the Company shall
----------------
provide the Executive and eligible family members with medical, dental, and
disability insurance and such other benefits and perquisites as are provided in
the Company's applicable plans and programs to its employees generally;
provided, that the Executive meets the qualifications therefor ("Benefits").
-4-
<PAGE>
(b) Vacation. During each twelve month period of the Employment Term,
--------
Executive shall be entitled to no less than four weeks of vacation; provided,
however, that any vacation time not taken during any year shall be forfeited.
The Executive shall also be entitled to all paid holidays given by the Company
to its officers and employees.
6. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE.
-----------------------------------------------
The Executive represents and warrants to the Company that the
Executive is under no contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the performance of his duties
hereunder, or the other rights of the Company hereunder.
7. NON-COMPETITION; NON-SOLICITATION.
---------------------------------
In view of the unique and valuable services it is expected Executive
will render to the Company, Executive's knowledge of the customers, trade
secrets, and other proprietary information relating to the business of the
Company and its customers and suppliers and similar knowledge regarding the
Company it is expected Executive will obtain, and in consideration of the
compensation to be received hereunder, Executive agrees that he will not, during
the period he is employed by the Company under this Agreement or otherwise, and
for a period of one year after he ceases to be employed by the Company under
this Agreement or otherwise, compete with or be engaged in, or Participate In
(as defined below) any other business or organization (which shall not include a
university, hospital, or other non-profit organization) which during such one
year period is or as a result of the Executive's engagement or participation
would become competitive with the Company's business of designing, developing,
manufacturing, marketing and selling vena cava filters, stents, septal repair
devices or other medical devices designed and manufactured using nitinol, with
respect to any product or service sold or activity engaged in by the Company up
-5-
<PAGE>
to the time of such cessation; provided, however that the provisions of this
Section 7 shall not be deemed breached merely because the Executive owns less
than 1% of the outstanding common stock of a corporation, if, at the time of its
acquisition by the Executive such stock is listed on a national securities
exchange. The term "Participate In" shall mean: "directly or indirectly, for
his own benefit or for, with, or through any other person (including the
Executive's immediate family), firm, or corporation, own, manage, operate,
control, loan money to, or participate in the ownership, management, operation,
or control of, or be connected as a director, officer, employee, partner,
consultant, agent, independent contractor, or otherwise with, or acquiesce in
the use of his name in."
The Executive will not, directly or indirectly, solicit or interfere
with, or endeavor to entice away from the Company any of its suppliers,
customers, or employees. The Executive will not directly or indirectly employ
any person who was an employee of the Company within a period of one year after
such person leaves the employ of the Company.
If any restriction contained in this Section 7 shall be deemed to be
invalid, illegal, or unenforceable by reason of the extent, duration, or
geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form such restriction
shall then be enforceable in the manner contemplated hereby.
8. INTELLECTUAL PROPERTY RIGHTS.
----------------------------
Any interest in patents, patent applications, inventions,
technological innovations, copyrights, copyrightable works, developments,
discoveries, designs, and processes which the Executive during the period he is
employed by the Company under this Agreement or otherwise may acquire, conceive
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<PAGE>
of or develop, either alone or in conjunction with others, utilizing the time,
material, facilities, or information of the Company ("Such Inventions") shall
belong to the Company; as soon as the Executive owns, conceives of, or develops
any Such Invention, he agrees immediately to communicate such fact in writing to
the Chairman of the Company, and without further compensation, but at the
Company's expense, forthwith upon request of the Company, the Executive shall
execute all such assignments and other documents (including applications for
patents, copyrights, trademarks, and assignments thereof) and take all such
other action as the Company may reasonably request in order (a) to vest in the
Company all of the Executive's right, title, and interest in and to Such
Inventions, free and clear of liens, mortgages, security interests, pledges,
charges, and encumbrances and (b), if patentable or copyrightable, to obtain
patents or copyrights (including extensions and renewals) therefor in any and
all countries in such name as the Company shall determine.
9. NONDISCLOSURE.
-------------
The Executive shall execute an Employee Nondisclosure and Secrecy
Agreement dated as of the Effective Date.
10. INJUNCTIVE RELIEF.
-----------------
Since a breach of the provisions of Section 7 or 8 could not
adequately be compensated by money damages, the Company shall be entitled, in
addition to any other right and remedy available to it, to an injunction
restraining such breach or a threatened breach, and in either case no bond or
other security shall be required in connection therewith. The Executive agrees
that the provisions of Sections 7 and 8 are necessary and reasonable to protect
the Company in the conduct of its business.
-7-
<PAGE>
11. TERMINATION OF THE EXECUTIVE UPON DEATH OR DISABILITY.
-----------------------------------------------------
(a) The term of the Executive's employment shall terminate
automatically upon his death. In addition, the Company shall have the right to
terminate the Term of Employment upon the Disability (as defined below) of the
Executive. If the Executive's employment is terminated by the Company due to
the Executive's death or due the Disability of the Executive, then the
Executive, his guardian or his estate, as applicable, shall be entitled to:
(i) Salary and Benefits earned to the date of termination of
employment;
(ii) other benefits as are provided under the applicable plans
and programs of the Company as then in effect.
(b) In addition, the number of Options deemed to be exercisable shall
be an amount up to the maximum number of Options which is determined by
multiplying the number of Options exercisable by the Executive at the date of
such termination by two. All other Options that have not become exercisable
shall expire (except as provided in this Section).
(c) In addition, a portion of the Options due to become exercisable on
the first day of the month coincident with or next following the date the
Executive's employment terminates, pro-rated for the number of days during which
he was employed during such month, shall become exercisable and all other
Options that have not become exercisable shall expire (except as otherwise
provided in this Section).
(d) In addition, if the Executive's employment is terminated due to
his death all exercisable Options shall remain exercisable for a period of one
year following termination of employment pursuant to this Section, and shall
thereafter expire.
-8-
<PAGE>
(e) For purposes of this Agreement, "Disability" shall mean any physical or
mental disability or incapacity that renders the Executive incapable of
performing his duties hereunder for a period of 180 consecutive calendar days
or, for shorter periods aggregating 210 calendar days during any consecutive
twelve-month period.
12. TERMINATION BY THE COMPANY WITHOUT CAUSE.
----------------------------------------
If the Company terminates the Executive's employment at any time
without Cause (as defined below), the Executive shall be entitled to:
(i) Salary and Benefits earned to the date of termination of
employment; and
(ii) Continued Salary for a period of one year from the date of
termination of employment.
In addition, all exercisable Options shall expire 90 days after the
termination of employment.
13. TERMINATION BY THE COMPANY FOR CAUSE.
------------------------------------
(a) GENERAL.
-------
The Company shall have the right to terminate the Executive's
employment for Cause, as defined in subsection (b) below; and the Executive
shall be entitled only to Salary and Benefits earned to the date of termination
of employment.
In addition, all exercisable Options shall expire 90 days after
termination of employment.
(b) CAUSE.
-----
For purposes of this Agreement, "Cause" means:
(i) fraud, embezzlement or gross insubordination on the part of
the Executive;
-9-
<PAGE>
(ii) conviction of or the entry of a plea of nolo contendere by
---------------
the Executive to any felony or crime of moral turpitude;
(iii) a material breach of, or the willful failure or refusal by
the Executive to perform and discharge, his duties,
responsibilities or obligations under this Agreement that is not
corrected within 20 days following written notice thereof to the
Executive by the Company, such notice to state with specificity
the nature of the breach, failure or refusal; provided, that if
such breach, failure or refusal cannot reasonably be corrected
within 20 days of written notice thereof, correction shall be
commenced by the Executive within such period and shall be
corrected as soon as practicable thereafter; or
(iv) any act of willful misconduct by the Executive which is
intended to result in substantial personal enrichment of the
Executive at the expense of the Company or any of its
subsidiaries or affiliates.
14. WITHHOLDING.
-----------
Anything to the contrary notwithstanding, all payments required to be
made by the Company under this Agreement to the Executive, his spouse, his
estate or beneficiaries, shall be subject to withholding of such amounts
relating to taxes as the Company may reasonably determine it should withhold
pursuant to any applicable law or regulation. In addition, in the event that
the Company reasonably determines that it is required to make any payments of
withholding taxes as a result of Executive's receipt of any other income
pursuant to the terms of this Agreement, the Company may, as a condition to
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<PAGE>
such receipt, require that the Executive provide the Company with an amount of
cash sufficient to enable the Company to pay such withholding taxes.
15. LOCK-UP AGREEMENT.
-----------------
In the event that the Company seeks to consummate a public offering of
its securities during the Employment Term, the Executive shall execute an
agreement, in form and substance satisfactory to the managing underwriter or
underwriters of the Company's securities, not to sell, pledge, contract to sell,
grant any option or otherwise dispose of any shares of stock owned or acquired
by the Executive for such period of time as requested by such underwriter of all
other executive officers of the Company.
16. ASSIGNABILITY; BINDING NATURE.
-----------------------------
This Agreement and all rights of the Executive shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, estates, executors, administrators, heirs and beneficiaries.
All amounts payable to the Executive hereunder shall be paid, in the event of
the Executive's death, to the Executive's estate, heirs and representatives.
This Agreement shall inure to the benefit of, be binding upon, and be
enforceable by, any successor, surviving or resulting Company or other entity to
which all or substantially all of the Company's business and assets shall be
transferred. This Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Company.
17. ENTIRE AGREEMENT.
----------------
This Agreement, together with the Employee Nondisclosure and Secrecy
Agreement, contains the entire agreement between the Parties concerning the
subject matter hereof and supersedes all prior agreements, understandings,
discussions, negotiations, and undertakings, whether written or oral, between
the Parties with respect thereto.
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<PAGE>
18. AMENDMENTS AND WAIVERS.
----------------------
This Agreement may not be modified or amended except by a writing
signed by both Parties. A Party may waive compliance by the other Party with
any term or provision of this Agreement, or any part thereof, provided that the
term or provision, or part thereof, is for the benefit of the waiving Party.
Any waiver will be limited to the facts or circumstances giving rise to the
noncompliance and will not be deemed either a general waiver or modification
with respect to the term or provision, or part thereof, being waived, or as to
any other term or provision of this Agreement, nor will it be deemed a waiver of
compliance with respect to any other facts or circumstances then or thereafter
occurring.
19. NOTICE.
------
Any notice given under this Agreement shall be in writing and shall be
deemed given when delivered personally or by courier, or five days after being
mailed, certified or registered mail, duly addressed to the Party concerned at
the address indicated below or at such other address as such Party may
subsequently provide, in accordance with the notice and delivery provisions of
this section 18:
To the Company: Nitinol Medical Technologies, Inc.
263 Summer Street, 7th Floor
Boston, MA 02210-1503
ATTN.: Chairman
with a copy to: Stephen H. Kay, Esq.
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176-0001
To the Executive: Thomas M. Tully
712 High Street
Dedham, MA 02026
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<PAGE>
20. SEVERABILITY.
------------
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions or portions of this Agreement will be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
21. SURVIVORSHIP.
------------
The respective rights and obligations of the Parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
22. REFERENCES.
----------
In the event of the Executive's death or a judicial determination of
his incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his legal representative or, where appropriate,
to his beneficiary or beneficiaries.
23. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the Commonwealth of Massachusetts without reference
to the principles of conflicts of law.
24. HEADINGS.
--------
The headings of sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
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<PAGE>
THE UNDERSIGNED have executed this Agreement on the date first written
above. NITINOL MEDICAL TECHNOLOGIES, INC.
By: /s/ C. Leonard Gordon
-------------------------
/s/Thomas M. Tully
----------------------------
Thomas M. Tully
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<PAGE>
EXHIBIT 10.21
REGISTRATION RIGHTS AGREEMENT
Agreement dated as of February 13th, 1996, between Thomas M. Tully residing at
712 High Street, Dedham, MA 02026 ("Holder") and Nitinol Medical Technologies,
Inc., with an address at 263 Summer Street, 7th Floor, Boston, MA 02210 (the
"Company").
WHEREAS, Holder is the President and Chief Executive Officer of the Company and
is the holder of common stock options, entitling Holder to purchase shares (the
"Shares") of the common stock, par value $.001 per share, of the Company
("Common Stock");
WHEREAS, Holder desires to have certain registration rights under the securities
laws, and the Company desires that Holder have such registration rights;
NOW, THEREFORE, in consideration of the mutual agreements contained herein and
other good and valuable consideration, the parties hereby agree as follows:
1. (a) If, at any time during the period commencing after the effective
date of the initial public offering of the Company's securities pursuant to a
registration statement under the Securities Act of 1933, as amended (the "Act")
and terminating on the date on which the Shares become saleable under Rule
144(k) (or any successor provision) promulgated under the Act, the Company shall
file any registration statement, or any post-effective amendment to a
registration statement, under the Act, covering equity securities of the Company
(other than registration statements on Form S-8 or S-4 or any other form not
generally available for the registration of securities for sale
<PAGE>
to the public) for its own account or for the account of others, the Company
shall advise Holder, by written notice at least 10 business days prior to any
filing, and shall, upon the request of the Holder, and at the expense of the
Company, include in any such registration statement, or any such post-effective
amendment to a registration statement, all of Registrable Securities (as
hereinafter defined) that Holder has requested in writing to be registered,
provided that such written request is delivered to the Company within seven
business days of Holder's receipt of notice from the Company. As used in this
Agreement, Registrable Securities shall mean (i) the Shares, and (ii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any convertible security, option, warrant right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of the Shares. All costs and expenses of such registration
statement shall be borne by the Company, except underwriting discounts or
commissions applicable to any of the Registrable Securities sold by Holder and
any counsel to Holder. The Company shall not be required to register securities
of Holder on more than one occasion; provided that if Holder has been prevented
from selling all of the Shares Holder wished to sell because of limitations
imposed under paragraph (d) of this Section 1, then Holder shall be entitled to
include the Shares in one or more additional registration statements under the
terms of this Section 1 until Holder has been able to sell all of the Shares of
Common Stock Holder wishes to sell.
(b) The Company shall supply prospectuses and such other documents as
the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its reasonable best efforts
to register and qualify any of the Registrable Securities for sale in
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<PAGE>
a reasonable number of states and do any and all other acts and things which may
be necessary or desirable to enable Holder to consummate the public sale or
other disposition of the Registrable Securities subject to the rights of others
with similar rights.
(c) The Company shall also furnish indemnification in the manner
provided in Section 2 hereof, except that the maximum amount of such
indemnification shall be limited to the amount of proceeds received by Holder
from the sale of the Registrable Securities. Holder shall furnish information
and indemnification as set forth in Section 2 hereof, except that the maximum
amount which may be recovered from Holder shall be limited to the amount of
proceeds received by Holder from the sale of the Registrable Securities.
(d) In connection with any offering involving an underwriting of
shares of the Company's Common Stock, the Company shall not be required under
Section 1 hereof to include any of Holder's securities in such underwriting
unless Holder accepts the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (or by other persons entitled to
select the underwriters), and then only in such quantity as the underwriters
determine, in their sole discretion, will not jeopardize or limit the success of
the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
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<PAGE>
the success of the offering (the securities so included to be apportioned pro
rata, subject to prior existing rights, among the selling stockholders according
to the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders).
2. (a) Whenever pursuant to Section 1, a registration statement
relating to any of the Registrable Securities is filed under the Act, amended or
supplemented, the Company shall, to the extent permitted by law, indemnify and
hold harmless Holder, and each person, if any, who controls (within the meaning
of the Act) Holder, and each underwriter (within the meaning of the Act) of such
securities and each person, if any, who controls (within the meaning of the Act)
any such underwriter, against such losses, claims, damages, liabilities or
actions, joint or several, to which Holder, any such controlling person or any
such underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages, liabilities or actions in respect thereof, arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse Holder and each such
controlling person and underwriter for any legal or other expenses reasonably
incurred by Holder or such controlling person or underwriter in connection with
investigating or defending any such losses, claims, damages, liabilities or
actions; provided, however, that the Company will not be liable in any such case
to the extent that any such losses, claims, damages, liabilities or actions
-4-
<PAGE>
arise out of or are based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus or said amendment or supplement in
reliance upon and in conformity with written information furnished by Holder or
any other underwriter, for use in the preparation thereof.
(b) Holder shall indemnify and hold harmless the Company, each of its
directors, each of its officers and each person, if any, who controls the
Company (within the meaning of the Act) against any losses, claims, damages,
liabilities or actions, to which the Company or any such director, officer or
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages, liabilities or actions arise out of or are based
upon any untrue or alleged untrue statement in any preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Holder for use in the preparation
thereof; and shall reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such losses, claims, damages,
liabilities or actions.
-5-
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section
2 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party, give
the indemnifying party notice of the commencement thereof; but the omission to
so notify the indemnifying party shall not relieve it from any liability which
it may have to an indemnified party otherwise than under this Section 2.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying parties similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party, the indemnifying party shall not be liable to such
indemnified party under this Section 2 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof, other than reasonable costs of investigation.
(e) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 2 to the extent permitted by law, provided that (i) no
contribution shall be made under circumstances where the indemnifying party
would not have been liable for indemnification under the fault standards set
forth in this Section 2, (ii) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
-6-
<PAGE>
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (iii) contribution by
Holder shall be limited in amount to the net amount of proceeds received by him
from the sale of the Registrable Securities pursuant to such Registration
Statement or prospectus.
3. The provisions of Sections 19 and 23 of the Employment Agreement, among
the Company and Holder, dated the date hereof shall be applicable to this
agreement as if fully set forth herein.
4. Holder may assign its rights and obligations under this Registration
Rights Agreement to any partner of Holder to whom Holder distributes the
Registrable Securities.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
NITINOL MEDICAL TECHNOLOGIES, INC.
By: /s/ C. Leonard Gordon
-----------------------------
Title: Chairman of The Board
----------------------------
/s/ Thomas M. Tully
-------------------------------
Thomas M. Tully
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<PAGE>
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
This Agreement is made and entered into on the 13th day of February,
1996, by and between David Chazanovitz (the "Executive") and Nitinol Medical
Technologies, Inc., a Delaware corporation (the "Company"), effective as
provided in Section 1 below.
WHEREAS, the Company wishes to employ the Executive as the President,
Septal Defect Repair Division of the Company under the terms and conditions set
forth below; and
WHEREAS, the Executive wishes to accept such employment under those terms
and conditions;
NOW, THEREFORE, in consideration of the provisions and mutual covenants
contained in this Agreement and for other good and valuable consideration, the
Company and the Executive (the "Parties") agree as follows:
1. TERM OF EMPLOYMENT.
------------------
The Company agrees to employ the Executive, and the Executive agrees
to serve, on the terms and conditions of this Agreement, for a period commencing
on January 1, 1996 (the "Effective Date") and ending on December 31, 1998, or
such shorter period as may be provided for herein. The parties may, by an
agreement in writing, extend such employment term. (The employment term
described above is hereinafter referred to as the "Employment Term").
2. POSITION, DUTIES, RESPONSIBILITIES.
----------------------------------
During the Employment Term, the Executive shall serve as President,
Septal Defect Repair Division of the Company. In such capacity, the Executive
shall report to Chief Executive Officer and the Board of Directors of the
Company and shall perform such duties and have such responsibilities of an
executive nature as are customarily performed by a person holding such office,
it being recognized that the Executive's duties and responsibilities, consistent
with his title hereunder, may be changed by the Chief Executive Officer and
<PAGE>
Board of Directors of the Company from time to time. The Executive shall devote
his full business time and attention to the performance of his duties under this
Agreement. The Executive shall be considered for a promotion to Chief Operating
Officer of the Company twelve (12) months after the Closing as defined below
based upon performance.
For purposes of this Agreement the Closing shall mean the date on which the
Company shall close a private placement financing under Regulation D of the
Securities Act of 1933, as amended.
3. COMPENSATION.
------------
During the Employment Term, the Executive shall be paid a base
salary ("Salary"), as follows:
(a) From January 1, 1996 until December 31, 1996 - $160,000 per year;
(b) From January 1, 1997 until December 31, 1997 - $175,000 per year;
and
(c) From January 1, 1998 until December 31, 1998 - $185,000 per year.
The Executive's Salary shall be payable in accordance with the
Company's standard payroll practice.
In addition, Executive shall receive a lump sum payment of $5,000 upon
the Closing, and a lump sum payment of $5,000 upon completion of staffing for
the septal defect repair project.
The Executive shall be entitled to receive further bonuses, determined
based upon achievement of goals as the Executive and the Chief Executive Officer
of the Company shall agree. Any such bonuses, however shall first be approved
by the Board of Directors of the Company.
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<PAGE>
4. STOCK OPTIONS.
-------------
Immediately after the Closing, the Executive shall be issued non-
qualified stock options to purchase an aggregate of 225,000 shares of the
Company's Common Stock, par value $.001 per share, (the "Options"). The exercise
price for the Options shall be $1.13 per share, the current fair market value of
the Company's Common Stock. So long as the Employment Term has not terminated
prior to such date, Options to purchase 175,000 shares of Common Stock shall
become exercisable at the rate of 2.77% per month commencing on the first day of
the month following the Closing, Options to purchase 20,000 shares of Common
Stock shall become exercisable upon completion of clinical trials and market
launch in Europe of the Company's septal repair device by no later than mid-year
1998, and the remaining Options shall become exercisable upon PMA approval by
the United States Federal Food and Drug Administration, to the extent such
approval is obtained no later than December 31, 2000. Once exercisable, all
Options shall remain exercisable (in any order) for a period of ten (10) years
from the date of grant. Notwithstanding the above, all of the Options shall
become immediately exercisable upon (1) any merger, consolidation or
reorganization of the Company in which the Company is not the continuing or
surviving entity, or (2) the sale, lease, exchange or transfer of all or
substantially all of the Company's assets, other than a sale, lease, exchange or
transfer to an entity of which the holders of the Company's Common Stock hold
more than 50% of the capital stock of such entity. The shares issuable upon
exercise of the Options and the exercise price shall be subject to adjustment as
follows: In case the Company shall at any time prior to the exercise of the
Options hereunder (i) declare a dividend on the outstanding Common Stock payable
in shares of capital stock, (ii) subdivide the outstanding Common Stock, (iii)
combine the outstanding Common Stock into a smaller number of shares, or (iv)
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<PAGE>
issue any shares of its capital stock by reclassification of the Common Stock
(including any such reclassification in connection with a merger or
consolidation in which the Company is the continuing corporation), then, in each
case, the exercise price of the Options and the number and kind of shares
issuable upon exercise of the Options at the time of the record date for such
dividend or at the effective date of such subdivision, combination, or
reclassification, shall be proportionately adjusted so that the Executive after
such time shall be entitled to receive the aggregate number and kind of shares
which, had the Options been exercised immediately prior to such time, the
Executive would have owned and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. Such adjustment shall
be made successively whenever any event listed above shall occur.
5. EMPLOYEE BENEFITS.
-----------------
(a) Benefit Programs. During the Employment Term, the Company shall
----------------
provide the Executive and eligible family members with medical, dental, and
disability insurance and such other benefits and perquisites as are provided in
the Company's applicable plans and programs to its employees generally;
provided, that the Executive meets the qualifications therefor ("Benefits").
(b) Vacation. During each twelve month period of the Employment Term,
--------
the Executive shall be entitled to no less than four weeks of vacation;
provided, however, that any vacation time not taken during any year shall be
forfeited. The Executive shall also be entitled to all paid holidays given by
the Company to its officers and employees.
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<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE.
-----------------------------------------------
The Executive represents and warrants to the Company that the
Executive is under no contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the performance of his duties
hereunder, or the other rights of the Company hereunder.
7. NON-COMPETITION; NON-SOLICITATION.
---------------------------------
In view of the unique and valuable services it is expected Executive
will render to the Company, Executive's knowledge of the customers, trade
secrets, and other proprietary information relating to the business of the
Company and its customers and suppliers and similar knowledge regarding the
Company it is expected Executive will obtain, and in consideration of the
compensation to be received hereunder, Executive agrees that he will not, during
the period he is employed by the Company under this Agreement or otherwise, and
for a period of one year after he ceases to be employed by the Company under
this Agreement or otherwise, compete with, be engaged in, or Participate In (as
defined below) any other business or organization (which shall not include a
university, hospital, or other non-profit organization) which during such one
year period is or as a result of the Executive's engagement or participation
would become competitive with the Company's business of designing, developing,
manufacturing, marketing and selling vena cava filters, stents, septal repair
devices or other medical devices designed and manufactured using nitinol with
respect to any product or service sold or activity engaged in by the Company up
to the time of such cessation; provided, however that the provisions of this
Section 7 shall not be deemed breached merely because the Executive owns less
than 1% of the outstanding common stock of a corporation, if, at the time of its
acquisition by the Executive such stock is listed on a national securities
exchange. The term "Participate In" shall mean: "directly or indirectly, for
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<PAGE>
his own benefit, or for, with, or through any other person (including the
Executive's immediate family), firm, or corporation, own, manage, operate,
control, loan money to, or participate in the ownership, management, operation,
or control of, or be connected as a director, officer, employee, partner,
consultant, agent, independent contractor, or otherwise with, or acquiesce in
the use of his name in."
The Executive will not, directly or indirectly, solicit, interfere
with, or endeavor to entice away from the Company any of its suppliers,
customers, or employees. The Executive will not directly or indirectly employ
any person who was an employee of the Company within a period of one year after
such person leaves the employ of the Company.
If any restriction contained in this Section 7 shall be deemed to be
invalid, illegal, or unenforceable by reason of the extent, duration, or
geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form such restriction
shall then be enforceable in the manner contemplated hereby.
8. INTELLECTUAL PROPERTY RIGHTS.
----------------------------
Any interest in patents, patent applications, inventions,
technological innovations, copyrights, copyrightable works, developments,
discoveries, designs, and processes which the Executive, during the period he is
employed by the Company under this Agreement or otherwise may acquire, conceive
of or develop, either alone or in conjunction with others, utilizing the time,
material, facilities, or information of the Company ("Such Inventions") shall
belong to the Company; as soon as the Executive owns, conceives of, or develops
any Such Invention, he agrees immediately to communicate such fact in writing to
the Chairman of the Company, and without
-6-
<PAGE>
further compensation, but at the Company's expense, forthwith upon request of
the Company, the Executive shall execute all such assignments and other
documents (including applications for patents, copyrights, trademarks, and
assignments thereof) and take all such other action as the Company may
reasonably request in order (a) to vest in the Company all of the Executive's
right, title, and interest in and to Such Inventions, free and clear of liens,
mortgages, security interests, pledges, charges, and encumbrances and (b), if
patentable or copyrightable, to obtain patents or copyrights (including
extensions and renewals) therefor in any and all countries in such name as the
Company shall determine.
9. NONDISCLOSURE.
-------------
The Executive shall execute an Employee Nondisclosure and Secrecy
Agreement dated as of the Effective Date.
10. INJUNCTIVE RELIEF.
-----------------
Since a breach of the provisions of Section 7 or 8 could not
adequately be compensated by money damages, the Company shall be entitled, in
addition to any other right and remedy available to it, to an injunction
restraining such breach or a threatened breach, and in either case no bond or
other security shall be required in connection therewith. The Executive agrees
that the provisions of Sections 7 and 8 are necessary and reasonable to protect
the Company in the conduct of its business.
11. TERMINATION OF EXECUTIVE UPON DEATH OR DISABILITY.
-------------------------------------------------
The term of Executive's employment shall terminate automatically upon
his death. In addition, the Company shall have the right to terminate the Term
of Employment upon the Disability (as defined below) of Executive. If the
Executive's employment is terminated by the Company due to the Executive's death
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<PAGE>
or due the Disability of the Executive, then the Executive, his guardian or his
estate, as applicable, shall be entitled to:
(i) Salary and Benefits earned to the date of termination of
employment; and
(ii) other benefits as are provided under the applicable plans
and programs of the Company as then in effect.
In addition, a portion of the Options due to become exercisable on the
first day of the month coincident with or next following the date the
Executive's employment terminates, pro-rated for the number of days during
which he was employed during such month, shall become exercisable and all
other Options that have not become exercisable shall expire. In addition,
if the Executive's employment is terminated due to his death all
exercisable Options shall remain exercisable for a period of one year
following termination of employment pursuant to this Section, and shall
thereafter expire.
For purposes of this Agreement, "Disability" shall mean any physical
or mental disability or incapacity that renders the Executive incapable of
performing his duties hereunder for a period of 180 consecutive calendar days
or, for shorter periods aggregating 210 calendar days during any consecutive
twelve-month period.
12. TERMINATION BY THE COMPANY WITHOUT CAUSE.
----------------------------------------
If the Company terminates the Executive's employment at any time
without Cause (as defined below), the Executive shall be entitled to:
(i) Salary and Benefits earned to the date of termination of
employment; and
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<PAGE>
(ii) Continued Salary for a period of six months from the date of
termination of employment.
In Addition, all exercisable Options shall expire 90 days after the
termination of employment.
13. TERMINATION BY THE COMPANY FOR CAUSE.
------------------------------------
(a) GENERAL.
-------
The Company shall have the right to terminate the Executive's
employment for Cause, as defined in subsection (b) below; and the Executive
shall be entitled only to Salary and Benefits earned to the date of termination
of employment
In addition, all exercisable Options shall expire 90 days after
termination of employment.
(b) CAUSE.
-----
For purposes of this Agreement, "Cause" means:
(i) fraud, embezzlement or gross insubordination on the part of
the Executive;
(ii) conviction of or the entry of a plea of nolo contendere by
---------------
the Executive to any felony or crime of moral turpitude;
(iii) a material breach of, or the willful failure or refusal by
the Executive to perform and discharge, his duties,
responsibilities or obligations under this Agreement that is not
corrected within 20 days following written notice thereof to the
Executive by the Company, such notice to state with specificity
the nature of the breach, failure or refusal; provided, that if
such breach, failure or refusal cannot reasonably be corrected
within 20 days of written notice thereof, correction shall be
commenced by the
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<PAGE>
Executive within such period and shall be corrected as soon as
practicable thereafter; or
(iv) any act of willful misconduct by the Executive which is
intended to result in substantial personal enrichment of the
Executive at the expense of the Company or any of its
subsidiaries or affiliates.
14. WITHHOLDING.
-----------
Anything to the contrary notwithstanding, all payments required to be
made by the Company under this Agreement to the Executive, his spouse, his
estate or beneficiaries, shall be subject to withholding of such amounts
relating to taxes as the Company may reasonably determine it should withhold
pursuant to any applicable law or regulation. In addition, in the event that
the Company reasonably determines that it is required to make any payments of
withholding taxes as a result of Executive's receipt of any other income
pursuant to the terms of this Agreement, the Company may, as a condition to
such receipt, require that the Executive provide the Company with an amount of
cash sufficient to enable the Company to pay such withholding taxes.
15. LOCK-UP AGREEMENT.
-----------------
In the event that the Company seeks to consummate a public offering of
its securities during the Employment Term, the Executive shall execute an
agreement, in form and substance satisfactory to the managing underwriter or
underwriters of the Company's securities, not to sell, pledge, contract to sell,
grant any option or otherwise dispose of any shares of stock owned or acquired
by the Executive for such period of time as requested by such underwriter of all
other executive officers of the Company.
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<PAGE>
16. ASSIGNABILITY; BINDING NATURE.
-----------------------------
This Agreement and all rights of the Executive shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, estates, executors, administrators, heirs and beneficiaries.
All amounts payable to the Executive hereunder shall be paid, in the event of
the Executive's death, to the Executive's estate, heirs and representatives.
This Agreement shall inure to the benefit of, be binding upon, and be
enforceable by, any successor, surviving or resulting Company or other entity to
which all or substantially all of the Company's business and assets shall be
transferred. This Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Company.
17. ENTIRE AGREEMENT.
----------------
This Agreement, together with the Employee Nondisclosure and Secrecy
Agreement, contains the entire agreement between the Parties concerning the
subject matter hereof and supersedes all prior agreements, understandings,
discussions, negotiations, and undertakings, whether written or oral, between
the Parties with respect thereto.
18. AMENDMENTS AND WAIVERS.
----------------------
This Agreement may not be modified or amended except by a writing
signed by both Parties. A Party may waive compliance by the other Party with
any term or provision of this Agreement, or any part thereof, provided that the
term or provision, or part thereof, is for the benefit of the waiving Party.
Any waiver will be limited to the facts or circumstances giving rise to the
noncompliance and will not be deemed either a general waiver or modification
with respect to the term or provision, or part thereof, being waived, or as to
any other term or provision of this Agreement, nor will it be deemed a waiver
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<PAGE>
of compliance with respect to any other facts or circumstances then or
thereafter occurring.
19. NOTICE.
------
Any notice given under this Agreement shall be in writing and shall be
deemed given when delivered personally or by courier, or five days after being
mailed, certified or registered mail, duly addressed to the Party concerned at
the address indicated below or at such other address as such Party may
subsequently provide, in accordance with the notice and delivery provisions of
this section 19:
To the Company: Nitinol Medical Technologies, Inc.
263 Summer Street, 7th Floor
Boston, MA 02210-1503
ATTN.: Chairman
with a copy to: Stephen H. Kay, Esq.
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176-0001
To the Executive: David Chazanovitz
31 Deerhaven Drive
Nashua, NH 03060
20. SEVERABILITY.
------------
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions or portions of this Agreement will be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
21. SURVIVORSHIP.
------------
The respective rights and obligations of the Parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
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<PAGE>
22. REFERENCES.
----------
In the event of the Executive's death or a judicial determination of
his incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his legal representative or, where appropriate,
to his beneficiary or beneficiaries.
23. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the Commonwealth of Massachusetts without reference
to the principles of conflicts of law.
24. HEADINGS.
--------
The headings of sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
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<PAGE>
THE UNDERSIGNED have executed this Agreement on the date first written
above.
NITINOL MEDICAL TECHNOLOGIES, INC.
/s/ Thomas M. Tully
By:_____________________________________
/s/ David Chazanovitz
----------------------------------------
David Chazanovitz
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<PAGE>
Amendment No.1 to Employment Agreement
Amendment dated as of June 15, 1996 to the Employment Agreement dated
February 13, 1996 (the "Employment Agreement") by and between David Chazanovitz
(the "Executive") and Nitinol Medical Technologies, Inc. (the "Company").
Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Employment Agreement.
The parties hereto hereby agree to amend the third sentence of Section 4 of
the Employment Agreement to read in its entirety as follows:
"So long as the Employment Term has not terminated prior to such date,
Options to purchase 175,000 shares of Common Stock shall become
exercisable at the rate of 2.77% per month commencing on the first day
of the month following the Closing, Options to purchase 20,000 shares
of Common Stock shall become exercisable upon the earlier of (x)
completion of clinical trials and market launch in Europe of the
Company's septal repair device or (y) July 1, 1998, and the remaining
Options shall become exercisable on the earlier of (i) PMA approval by
the United States Federal Food and Drug Administration of the
Company's septal repair device or (ii) December 31, 2000."
Except as expressly provided herein, this Amendment neither amends nor
alters any other provision of the Employment Agreement and all other provisions
contained therein remain in full force and effect and constitute binding and
enforceable obligations of the Company and the Executive.
This Amendment shall be governed by and construed and interpreted under the
laws of the Commonwealth of Massachusetts without reference to the principles of
conflicts of law.
The undersigned have executed this Amendment on the date first written
above.
Nitinol Medical Technologies, Inc.
/s/ Thomas M. Tully
By:_______________________________
Thomas M. Tully
President
/s/ David Chazanovitz
________________________________
David Chazanovitz
-15-
<PAGE>
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
This Agreement is made and entered into on the 17th day of May, 1996, by
and between Theodore I. Pincus (the "Executive") and Nitinol Medical
Technologies, Inc., a Delaware corporation (the "Company"), effective as
provided in Section 1 below.
WHEREAS, the Company wishes to employ the Executive as the Executive Vice
President and Chief Financial Officer of the Company under the terms and
conditions set forth below; and
WHEREAS, the Executive wishes to accept such employment under those terms
and conditions;
NOW, THEREFORE, in consideration of the provisions and mutual covenants
contained in this Agreement and for other good and valuable consideration, the
Company and the Executive (the "Parties") agree as follows:
1. TERM OF EMPLOYMENT.
------------------
The Company agrees to employ the Executive, and the Executive agrees
to serve, on the terms and conditions of this Agreement, for a period commencing
on May 1, 1996 (the "Effective Date") and ending on April 30, 1999, or such
shorter period as may be provided for herein. The parties may, by an agreement
in writing, extend such employment term. (The employment term described above
is hereinafter referred to as the "Employment Term").
2. POSITION, DUTIES, RESPONSIBILITIES.
----------------------------------
During the Employment Term, the Executive shall serve as Executive
Vice President and Chief Financial Officer of the Company. In such capacity,
the Executive shall report to Chief Executive Officer of the Company and shall
perform such duties and have such responsibilities of an executive nature as are
customarily performed by a person holding such office, it being recognized that
the Executive's duties and responsibilities, consistent with his title
hereunder, may be changed by the Chief Executive Officer and Board of Directors
<PAGE>
of the Company from time to time. The Executive shall devote his full business
time and attention to the performance of his duties under this Agreement.
3. COMPENSATION.
------------
During the Employment Term, the Executive shall
be paid the following:
(a) Base Salary. A base salary ("Salary") as follows:
-----------
(i) From May 1, 1996 until April 30, 1997 - $160,000 per year;
(ii) From May 1, 1997 until April 30, 1998 - $175,000 per year; and
(iii) From May 1, 1998 until April 30, 1999 - $185,000 per year.
The Executive's Salary shall be payable in accordance with the
Companys standard payroll practice.
(b) Bonus. Subject to the approval of the Board of Directors, the Chief
-----
Executive Officer and the Executive shall establish goals, the achievement of
which shall entitle the Executive to receive certain bonus payments ("Bonuses").
Bonuses shall not be deemed earned unless the established goals are achieved
during the Employment Term. Any such Bonuses may be paid, at the option of the
Company, in the form of forgiveness of outstanding indebtedness on the Loan (as
defined below).
(c) Living Expenses. In lieu of receiving the Company's relocation
---------------
benefits package, living expenses shall be paid to Executive during the
Employment Term as follows:
(i) From May 1, 1996 until April 30, 1997 - $35,000 per year, payable
in monthly installments of $2,916.66 on the last day of the
month; and
-2-
<PAGE>
(ii) From May 1, 1997 until April 30, 1998 - $20,000 per year, payable
in monthly installments of $1,666.66 on the last day of the
month.
4. STOCK OPTIONS.
-------------
Upon the Effective Date, the Executive shall be issued non-qualified
stock options to purchase an aggregate of 75,000 shares of the Company's Common
Stock, par value $.001 per share (the "Options"). The Options shall be
evidenced by a Stock Option Agreement. The exercise price for the Options shall
be $1.13 per share, the current fair market value of the Company's Common Stock.
So long as the Employment Term has not terminated prior to such date, the
Options shall become exercisable in equal monthly installments on the first day
of each month over a 36 month period commencing on the Effective Date, except
that no options shall be exercised for fractional shares. Once exercisable, all
Options shall remain exercisable (in any order) for a period of ten (10) years
from the date of grant. Notwithstanding the above, all of the Options shall
become immediately exercisable upon (1) any merger, consolidation or
reorganization of the Company in which the Company is not the continuing or
surviving entity, or (2) the sale, lease, exchange or transfer of all or
substantially all of the Company's assets, other than a sale, lease, exchange or
transfer to an entity of which the holders of the Company's Common Stock hold
more than 50% of the capital stock of such entity. The shares issuable upon
exercise of the Options and the exercise price shall be subject to adjustment as
follows: In case the Company shall at any time prior to the exercise of the
Options hereunder (i) declare a dividend on the outstanding Common Stock payable
in shares of capital stock, (ii) subdivide the outstanding Common Stock, (iii)
combine the outstanding Common Stock into a smaller number of shares, or (iv)
issue any shares of its capital stock by reclassification of the Common Stock
-3-
<PAGE>
(including any such reclassification in connection with a merger or
consolidation in which the Company is the continuing corporation), then, in each
case, the exercise price of the Options and the number and kind of shares
issuable upon exercise of the Options at the time of the record date for such
dividend or at the effective date of such subdivision, combination, or
reclassification, shall be proportionately adjusted so that the Executive after
such time shall be entitled to receive the aggregate number and kind of shares
which, had the Options been exercised immediately prior to such time, the
Executive would have owned and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. Such adjustment shall
be made successively whenever any event listed above shall occur.
5. EMPLOYEE BENEFITS.
-----------------
(a) Benefit Programs. During the Employment Term, the Company shall
----------------
provide the Executive and eligible family members with medical, dental, and
disability insurance and such other benefits and perquisites as are provided in
the Companys applicable plans and programs to its employees generally;
provided, that the Executive meets the qualifications therefor ("Benefits").
(b) Vacation. During each twelve month period of the Employment Term,
--------
the Executive shall be entitled to no less than four weeks of vacation;
provided, however, that any vacation time not taken during any year shall be
forfeited. The Executive shall also be entitled to all paid holidays given by
the Company to its officers and employees.
6. LOAN. The Executive shall receive an unsecured loan in the principal
----
amount of $65,000 (the "Loan") which Loan shall be upon the terms and conditions
set forth in, and shall be evidenced by the Note attached as Exhibit A hereto
and hereby made a part hereof (the "Note"), which Loan shall be made
-4-
<PAGE>
to the Executive upon the Executive's execution, and delivery to the Company, of
this Agreement and the Note.
7. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE.
-----------------------------------------------
The Executive represents and warrants to the Company that the
Executive is under no contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the performance of his duties
hereunder, or the other rights of the Company hereunder.
8. NON-COMPETITION; NON-SOLICITATION.
---------------------------------
In view of the unique and valuable services it is expected Executive
will render to the Company, Executive's knowledge of the customers, trade
secrets, and other proprietary information relating to the business of the
Company and its customers and suppliers and similar knowledge regarding the
Company it is expected Executive will obtain, and in consideration of the
compensation to be received hereunder, Executive agrees that he will not, during
the period he is employed by the Company under this Agreement or otherwise, and
for a period of one year after he ceases to be employed by the Company under
this Agreement or otherwise, compete with, be engaged in, or Participate In (as
defined below) any other business or organization (which shall not include a
university, hospital, or other non-profit organization) which during such one
year period is or as a result of the Executive's engagement or participation
would become competitive with the Company's business of designing, developing,
manufacturing, marketing and selling vena cava filters, stents, septal repair
devices and other medical devices designed and manufactured using nitinol,
provided, however that the provisions of this Section 8 shall not be deemed
breached merely because the Executive owns less than 1% of the outstanding
common stock of a corporation, if, at the time of its acquisition by the
Executive such stock is listed on a national securities exchange. The term
-5-
<PAGE>
"Participate In" shall mean: "directly or indirectly, for his own benefit, or
for, with, or through any other person (including the Executive's immediate
family), firm, or corporation, own, manage, operate, control, loan money to, or
participate in the ownership, management, operation, or control of, or be
connected as a director, officer, employee, partner, consultant, agent,
independent contractor, or otherwise with, or acquiesce in the use of his name
in."
The Executive will not, directly or indirectly, solicit, interfere
with, or endeavor to entice away from the Company any of its suppliers,
customers, or employees. The Executive will not directly or indirectly employ
any person who was an employee of the Company within a period of one year after
such person leaves the employ of the Company.
If any restriction contained in this Section 8 shall be deemed to be
invalid, illegal, or unenforceable by reason of the extent, duration, or
geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form such restriction
shall then be enforceable in the manner contemplated hereby.
9. INTELLECTUAL PROPERTY RIGHTS.
----------------------------
Any interest in patents, patent applications, inventions,
technological innovations, copyrights, copyrightable works, developments,
discoveries, designs, and processes which the Executive, during the period he is
employed by the Company under this Agreement or otherwise may acquire, conceive
of or develop, either alone or in conjunction with others, utilizing the time,
material, facilities, or information of the Company ("Such Inventions") shall
belong to the Company; as soon as the Executive owns, conceives of, or develops
any Such Invention, he agrees immediately to
-6-
<PAGE>
communicate such fact in writing to the Chairman of the Company, and without
further compensation, but at the Company's expense, forthwith upon request of
the Company, the Executive shall execute all such assignments and other
documents (including applications for patents, copyrights, trademarks, and
assignments thereof) and take all such other action as the Company may
reasonably request in order (a) to vest in the Company all of the Executive's
right, title, and interest in and to Such Inventions, free and clear of liens,
mortgages, security interests, pledges, charges, and encumbrances and (b), if
patentable or copyrightable, to obtain patents or copyrights (including
extensions and renewals) therefor in any and all countries in such name as the
Company shall determine.
10. NONDISCLOSURE.
-------------
The Executive shall execute an Employee Nondisclosure and Secrecy
Agreement dated as of the Effective Date.
11. INJUNCTIVE RELIEF.
-----------------
Since a breach of the provisions of Section 8 or 9 could not
adequately be compensated by money damages, the Company shall be entitled, in
addition to any other right and remedy available to it, to an injunction
restraining such breach or a threatened breach, and in either case no bond or
other security shall be required in connection therewith. The Executive agrees
that the provisions of Sections 8 and 9 are necessary and reasonable to protect
the Company in the conduct of its business.
-7-
<PAGE>
12. TERMINATION OF THE EXECUTIVE'S EMPLOYMENT UPON DEATH OR DISABILITY.
------------------------------------------------------------------
The term of the Executive's employment shall terminate automatically
upon his death. In addition, the Company shall have the right to terminate the
term of the Executive's Employment upon the Disability (as defined below) of
Executive. If the Executives employment is terminated by the Company due to
the Executives death or due the Disability of the Executive, then the
Executive, his guardian or his estate, as applicable, shall be entitled to:
(i) Salary, Bonuses and Benefits earned to the date of
termination of employment; and
(ii) other benefits as are provided under the applicable plans
and programs of the Company as then in effect.
In addition, a portion of the Options due to become exercisable on the
first day of the month coincident with or next following the date the
Executives employment terminates, pro-rated for the number of days during
which he was employed during such month, shall become exercisable and all
other Options that have not become exercisable shall expire. In addition,
if the Executive's employment is terminated due to his death or Disability
all exercisable Options shall remain exercisable for a period of one year
following termination of employment pursuant to this Section, and shall
thereafter expire.
For purposes of this Agreement, "Disability" shall mean any physical
or mental disability or incapacity that renders the Executive incapable of
performing his duties hereunder for a period of 180 consecutive calendar days
or, for shorter periods aggregating 210 calendar days during any consecutive
twelve-month period.
-8-
<PAGE>
13. TERMINATION BY THE COMPANY WITHOUT CAUSE.
---------------------------------------------
If the Company terminates the Executive's employment at any time
without Cause (as defined below), the Executive shall be entitled to:
(i) Salary, Bonuses and Benefits earned to the date of termination
of employment; and
(ii) Continued Salary for a period of six months from the date of
termination of employment.
In addition, all exercisable Options shall expire 90 days after the
termination of employment.
14. TERMINATION BY THE COMPANY FOR CAUSE.
------------------------------------
(a) GENERAL.
-------
The Company shall have the right to terminate the Executive's
employment for Cause, as defined in subsection (b) below; and the Executive
shall be entitled only to Salary and Benefits earned to the date of termination
of employment. In the event that the Executive's employment is terminated for
Cause, all exercisable Options shall expire 90 days after such termination.
(a) CAUSE.
-----
For purposes of this Agreement, "Cause" means:
(i) fraud, embezzlement or gross insubordination on the part of
the Executive;
(ii) conviction of or the entry of a plea of nolo contendere by
---------------
the Executive to any felony or crime of moral turpitude;
(iii) a material breach of, or the willful failure or refusal by
the Executive to perform and discharge, his duties,
responsibilities or obligations under this Agreement that is not
corrected within 20 days following written notice
-9-
<PAGE>
thereof to the Executive by the Company, such notice to state
with specificity the nature of the breach, failure or refusal;
provided, that if such breach, failure or refusal can be
corrected by the Executive, but cannot reasonably be corrected
within 20 days of written notice thereof, correction shall be
commenced by the Executive within such period and shall be
corrected as soon as practicable thereafter; or
(IV) any act of willful misconduct by the Executive which is
intended to result in substantial personal enrichment of the
Executive at the expense of the Company or any of its
subsidiaries or affiliates.
15. WITHHOLDING.
-----------
Anything to the contrary notwithstanding, all payments required to be
made by the Company under this Agreement to the Executive, his spouse, his
estate or beneficiaries, shall be subject to withholding of such amounts
relating to taxes as the Company may reasonably determine it should withhold
pursuant to any applicable law or regulation. In addition, in the event that
the Company reasonably determines that it is required to make any payments of
withholding taxes as a result of Executive's receipt of any other compensation
or benefits pursuant to the terms of this Agreement, the Company may, as a
condition to such receipt, require that the Executive provide the Company with
an amount of cash sufficient to enable the Company to pay such withholding
taxes.
16. LOCK-UP AGREEMENT.
-----------------
In the event that the Company seeks to consummate a public offering of
its securities during the Employment Term, the Executive shall execute an
-10-
<PAGE>
agreement, in form and substance satisfactory to the managing underwriter or
underwriters of the Company's securities, not to sell, pledge, contract to sell,
grant any option or otherwise dispose of any shares of stock owned or acquired
by the Executive for such period of time as requested by such underwriter of all
other executive officers of the Company.
17. ASSIGNABILITY; BINDING NATURE.
-----------------------------
This Agreement and all rights of the Executive shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, estate, executors, administrators, heirs and beneficiaries.
Subject to Section 12 hereof, all amounts payable to the Executive hereunder
shall be paid, in the event of the Executive's death, to the Executive's estate,
heirs and representatives. This Agreement shall inure to the benefit of, be
binding upon, and be enforceable by, any successor, surviving or resulting
Company or other entity to which all or substantially all of the Company's
business and assets shall be transferred. This Agreement shall not be
terminated by the voluntary or involuntary dissolution of the Company.
18. ENTIRE AGREEMENT.
----------------
This Agreement, together with the Employee Nondisclosure and Secrecy
Agreement, the Note and the Stock Option Agreement, contain the entire agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations, and undertakings,
whether written or oral, between the Parties with respect thereto.
19. AMENDMENTS AND WAIVERS.
----------------------
This Agreement may not be modified or amended except by a writing
signed by both Parties. A Party may waive compliance by the other Party with
any term or provision of this Agreement, or any part thereof, provided that the
term or provision, or part thereof, is for the benefit of the waiving Party.
-11-
<PAGE>
Any waiver will be limited to the facts or circumstances giving rise to the
noncompliance and will not be deemed either a general waiver or modification
with respect to the term or provision, or part thereof, being waived, or as to
any other term or provision of this Agreement, nor will it be deemed a waiver of
compliance with respect to any other facts or circumstances then or thereafter
occurring.
20. NOTICE.
------
Any notice given under this Agreement shall be in writing and shall be
deemed given when delivered personally or by courier, or five days after being
mailed, certified or registered mail, duly addressed to the Party concerned at
the address indicated below or at such other address as such Party may
subsequently provide, in accordance with the notice and delivery provisions of
this section 20:
To the Company: Nitinol Medical Technologies, Inc.
263 Summer Street, 7th Floor
Boston, MA 02210-1503
ATTN.: Chairman
with a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176-0001
ATTN.: Stephen H. Kay, Esq.
To the Executive: Theodore I. Pincus
38 Devon Drive
Piscataway, New Jersey 08854
21. SEVERABILITY.
------------
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions or portions of this Agreement will be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
-12-
<PAGE>
22. SURVIVORSHIP.
------------
The respective rights and obligations of the Parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
23. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the Commonwealth of Massachusetts without reference
to the principles of conflicts of law.
24. HEADINGS.
--------
The headings of sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
-13-
<PAGE>
THE UNDERSIGNED have executed this Agreement on the date first written
above.
NITINOL MEDICAL TECHNOLOGIES, INC.
/s/Thomas M. Tully
By:_____________________________________
President & Chief Executive Officer
/s/ Theodore I. Pincus
------------------------------------
Theodore I. Pincus
-14-
<PAGE>
EXHIBIT 10.26
NITINOL MEDICAL TECHNOLOGIES, INC.
STOCKHOLDER
REGISTRATION RIGHTS AGREEMENT
Agreement dated as of Februay 14th , 1996, between ______________, (the "Holder"
or collectively, the "Holder", as the case may be) and Nitinol Medical
Technologies, Inc., with an address at 263 Summer Street, Boston, MA 02210 (the
"Company")
WHEREAS, the Holder is a holder of ___ shares (the "Shares") of the common
stock, par value $.001 per share, of the Company ("Common Stock");
WHEREAS, the Holder desires to have certain registration rights for the Shares
under the securities laws, and the Company desires that the Holder have such
registration rights;
NOW, THEREFORE, in consideration of the mutual agreements contained herein and
other good and valuable consideration, the parties hereby agree as follows:
1. If, at any time during the period commencing after the effective date
of the initial public offering of the Company's securities pursuant to a
registration statement under the Securities Act of 1933, as amended (the "Act")
and terminating on the date on which the Shares become saleable under Rule
144(k) (or any successor provision) promulgated under the Act, the Company shall
determine to file any registration statement, or any post-effective amendment to
a registration statement, under the Act, covering equity securities of the
Company (other than registration statements on Form S-8 or S-4 or any other form
<PAGE>
not generally available for the registration of securities for sale to the
public) for its own account or for the account of others, the Company shall
advise the Holder, by written notice at least 10 business days prior to any
filing, and shall, upon the request of the Holder, and at the expense of the
Company, include in any such registration statement, or any such post-effective
amendment to a registration statement, all of the Registrable Securities (as
hereinafter defined) that the Holder has requested in writing to be registered,
provided that such written request is delivered to the Company within seven
business days of the Holder's receipt of notice from the Company. As used in
this Agreement, Registrable Securities shall mean (i) the Shares and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any convertible security, option, warrant right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of any of the Shares. All costs and expenses of
such registration statement shall be borne by the Company, except underwriting
discounts or commissions applicable to any of the Registrable Securities sold by
the Holder and any counsel to the Holder. The Company shall not be required to
register securities of the Holder on more than three occasions; provided that if
the Holder has been prevented from selling all of the Shares Holder wished to
sell because of limitations imposed under paragraph (c) of this Section 1, then
the Holder shall be entitled to include the Shares in one or more additional
registration statements under the terms of this Section 1 until the Holder has
been able to sell all of the Shares the Holder wishes to sell.
(a) The Company shall supply prospectuses and such other documents as
the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its reasonable best
- 2 -
<PAGE>
efforts to register and qualify any of the Registrable Securities for sale in a
reasonable number of states and do any and all other acts and things which may
be necessary or desirable to enable the Holder to consummate the public sale or
other disposition of the Registrable Securities subject to the rights of others
with similar rights.
(b) The Company shall also furnish indemnification in the manner
provided in Section 2 hereof, except that the maximum amount of such
indemnification shall be limited to the amount of proceeds received by the
Holder from the sale of the Registrable Securities. The Holder shall furnish
information and indemnification as set forth in Section 2 hereof, except that
the maximum amount which may be recovered from the Holder shall be limited to
the amount of proceeds received by the Holder from the sale of the Registrable
Securities.
(c) In connection with any offering involving an underwriting of
shares of the Company's Common Stock, the Company shall not be required under
Section 1 hereof to include any of the Holder's securities in such underwriting
unless the Holder accepts the terms of the underwriting as agreed upon between
the Company and the underwriters selected by it (or by other persons entitled to
select the underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize or limit the success of
the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities to be sold other than by the Company
that the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include
- 3 -
<PAGE>
in the offering only that number of such securities, including Registrable
Securities, which the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata, subject to prior existing rights, among the selling
stockholders according to the total amount of securities entitled to be included
therein owned by each selling stockholder or in such other proportions as shall
mutually be agreed to by such selling stockholders).
2. (a) Whenever pursuant to Section 1, a registration statement
relating to any of the Registrable Securities is filed under the Act, amended or
supplemented, the Company shall, to the extent permitted by law, indemnify and
hold harmless the Holder against such losses, claims, damages, liabilities or
actions, joint or several, to which the Holder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions in
respect thereof, arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such registration
statement or any preliminary prospectus or final prospectus constituting a part
thereof or any amendment or supplement thereto, or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
the Holder for any legal or other expenses reasonably incurred by Holder in
connection with investigating or defending any such losses, claims, damages,
liabilities or actions; provided, however, that the Company will not be liable
in any such case to the extent that any such losses, claims, damages,
liabilities or actions arise out of or are based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus
- 4 -
<PAGE>
or said amendment or supplement in reliance upon and in conformity with written
information furnished by Holder or any underwriter, for use in the preparation
thereof.
(b) The Holder shall indemnify and hold harmless the Company, each of
its directors, each of its officers and each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages,
liabilities or actions, to which the Company or any such director, officer or
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages, liabilities or actions arise out of or are based
upon any untrue or alleged untrue statement of any preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Holder for use in the preparation
thereof; and shall reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such losses, claims, damages,
liabilities or actions.
(c) Promptly after receipt by an indemnified party under this Section
2 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any
- 5 -
<PAGE>
indemnifying party, give the indemnifying party notice of the commencement
thereof; but the omission to so notify the indemnifying party shall not relieve
it from any liability which it may have to an indemnified party otherwise than
under this Section 2.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party, the indemnifying party shall not be liable to such
indemnified party under this Section 2 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof, other than reasonable costs of investigation.
(e) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 2 to the extent permitted by law, provided that (i) no
contribution shall be made under circumstances where the indemnifying party
would not have been liable for indemnification under the fault standards set
forth in this Section 2, (ii) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (iii) contribution by
the Holder shall be limited in amount to the net amount of proceeds received by
- 6 -
<PAGE>
him from the sale of the Registrable Securities pursuant to such Registration
Statement or prospectus.
3. The Holder agrees that, during the period of duration (not to exceed
180 days) specified by the Company and an underwriter of Common Stock or other
securities of the Company, following the effective date of a registration
statement of the Company filed under the Act, it shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of the Company held by it
at any time during such period except Registrable Securities included in such
registration.
4. (a) Any notice required to be given hereunder shall be sufficient if in
writing, and sent by facsimile transmission and by courier service (with proof
of service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to the Holder: If to the Company:
To the address written below the Nitinol Medical Technologies, Inc.
signature of the Holder on the last 263 Summer Street
page of this Agreement Boston, MA 02210
Fax: (617) 737-0924
Attn: Thomas Tully, CEO
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
- 7 -
<PAGE>
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to its rules of conflict
of laws.
5. The Holder may assign its rights and obligations under this
Registration Rights Agreement to any "Family Member" or an "Affiliate" (as
defined below) of the Holder to whom the Holder distributes the Registrable
Securities. Any such assignment shall be subject to and conditioned upon such
assignee being subject to this Agreement and executing a counterpart of this
Agreement to that effect; provided, however, that if such assignee fails to
execute such counterpart, the terms and conditions of this Agreement shall
nevertheless apply to the assignee and his/her/its Common Stock to the same
extent as it applied to the Holder. For purposes of this Agreement:
(i) "Family Member" means a member of such Holder's immediate family,
which shall include his or her parents, spouse, children or
grandchildren; and
(ii) "Affiliate" means with respect to a Holder, any individual,
corporation, partnership, limited liability company, association,
trust or other entity or organization, directly or indirectly
controlling, controlled by, or under common control with such
Holder. For the purposes hereof, "control" means possession
(direct or indirect) of the power to direct or cause the
direction of the management and policies of a company, whether
through ownership of voting securities, by contract, or
otherwise.
- 8 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
NITINOL MEDICAL TECHNOLOGIES, INC.
__________________________________
By: Thomas Tully
Title: President and Chief Executive Officer
By: ________________________________
Name:
- 9 -
<PAGE>
EXHIBIT 10.27
LEASE
BY AND BETWEEN
TRUSTEES OF WORMWOOD REALTY TRUST
AND
NITINOL MEDICAL TECHNOLOGIES, INC.
<PAGE>
LEASE Dated: as of May 8, 1996
ARTICLE I REFERENCE DATA
1.1 Subjects Referred To
Each reference in this Lease to any of the following subjects shall be construed
to incorporate the data stated for that subject in this Article:
LANDLORD: Henry DiRico and Alfred DiRico, as Trustees
of Wormwood Realty Trust under Declaration of Trust dated
August 10, 1985 recorded with Suffolk Deeds in Book 12075,
Page 280
LANDLORD'S ORIGINAL
ADDRESS: c/o Hub Folding Box, Co.
774 Norfolk Street
Mansfield, Massachusetts 02048
TENANT: Nitinol Medical Technologies, Inc.
TENANT'S ORIGINAL
ADDRESS: 263 Summer Street
Boston, Massachusetts 02210
BUILDINGS: The buildings located at 27-43 Wormwood Street, Boston,
Massachusetts containing approximately 147,603 rentable
square feet and shown crosshatched on attached Exhibit B-1.
TENANT'S SPACE: 27,399 rentable square feet ("RSF") of which 11,016
RSF are located on the first floor of the Buildings as shown
on attached Exhibit B-2 and 16,383 RSF are located on the
second floor of the Buildings as shown on Exhibit
B-2.
TERM COMMENCEMENT
DATE: As defined in Section 2.5.
TERM: Ten (10) years plus the period from the Rent
Commencement Date to the
Term Commencement Date,
however, if the Term
Commencement Date shall
be other than the first
day of a calendar month
then the term shall
<PAGE>
be ten (10) years plus
the number of days
between the Term
Commencement Date and
the first day of the
first full calendar
month thereafter.
OPTION TO EXTEND: One (1) period of five (5) years as provided in Section
2.11.
ANNUAL FIXED RENT: Years 1-5 inclusive: First Floor $16.50/RSF
Years 1-5 inclusive: Second Floor $17.50/RSF
Years 6-10 inclusive: First Floor $19.50/RSF
Years 6-10 inclusive: Second Floor $20.50/RSF
Aggregate Fixed Rent
--------------------
Years 1-5 inclusive: $468,466.50 per annum
Years 6-10 inclusive: $550,663.50 per annum
TENANT'S TAX BASE: Tenant's Proportionate Share of the fiscal year 1997 Real
Estate Taxes for the Property as adjusted by the results of
any abatement, reassessment or litigation.
TENANT'S OPERATING
EXPENSE BASE: Tenant's Proportionate Share of the total Operating Expenses
for the Property incurred for the first Lease Year.
TOTAL RENTABLE
FLOOR AREA OF
THE BUILDINGS: 147,603 rentable square feet
TENANT'S
PROPORTIONATE
SHARE: Tenant's Proportionate Share is based on a fraction, the
total rentable square feet of the Buildings as the
denominator (147,603
<PAGE>
sq.ft.) and the total rentable square feet of the Premises
as the numerator (27,399 sq.ft.). Tenant's Proportionate
Share is eighteen and 6/10ths percent (18.6%).
PERMITTED USES: Light manufacturing, research and development and office
use.
SECURITY DEPOSIT: $500,000.00.
PUBLIC LIABILITY
INSURANCE: Bodily Injury - $2,000,000 per accident
Property Damage - $500,000 per accident
TENANT'S WORKMEN'S
COMPENSATION
INSURANCE: Statutory Amounts
1.2 Exhibits. There are incorporated as a part of this Lease:
EXHIBIT A - Property Description
EXHIBIT B-1- Plan Showing the Buildings
EXHIBIT B-2- Floor Plans
EXHIBIT C - Tenant Work Letter
EXHIBIT D - Landlord's Services
EXHIBIT E - Landlord's Rules and Regulations
EXHIBIT F - Disbursements for Tenant Work
EXHIBIT G Environmental Materials
1.3 Table of Contents
Articles & Sections
ARTICLE I REFERENCE DATA............................. 2
1.1 Subjects Referred To....................... 2
1.2 Exhibits................................... 3
1.3 Table of Contents, Articles and Sections... 3
ARTICLE II PREMISES, TERM AND RENT
2.1 The Premises............................... 7
2.2 Parking.................................... 8
2.3 Rights to Use Common Facilities............ 8
2.4 Landlord's Reservations.................... 8
2.5 Habendum; Term Commencement Date; Rent
Commencement Date.......................... 9
<PAGE>
2.6 Monthly Fixed Rent Payments................ 9
2.7 Adjustments for Operating Expenses......... 9
2.8 Adjustments for Real Estate Taxes.......... 13
2.9 Parking Charges............................ 15
2.10 Due Date of Additional Payments; No Offsets 15
2.11 Extension Option........................... 15
2.12 Expansion Option........................... 17
2.13 Right of First Offer....................... 17
ARTICLE III CONSTRUCTION
3.1 Premises As Is............................. 18
3.2 Landlord Work.............................. 18
3.3 Tenant Work; Allowance..................... 19
<PAGE>
3.4 Alterations and Additions..................... 19
3.5 General Provisions Applicable to
Construction................................. 20
ARTICLE IV LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS
4.1 Services Furnished by Landlord................ 21
4.2 Additional Services Available to Tenant....... 21
4.3 Roof, Exterior Wall, Floor Slab, and
<PAGE>
Common Facility Repair...................... 21
4.4 Quiet Enjoyment............................... 21
4.5 Interruptions and Delays in Service and
Repairs, etc................................ 21
4.6 Payment of Litigation Expenses................ 22
4.7 Landlord to Maintain Insurance................ 22
ARTICLE V TENANT'S COVENANTS
5.1 Payments...................................... 23
5.2 Repair and Yield Up........................... 23
5.3 Use........................................... 23
5.4 Obstructions; Items Visible from Exterior
Rules and Regulations; Signs................ 24
5.5 Safety Appliances; Hazardous Materials........ 24
5.6 Assignment; Sublease.......................... 26
5.7 Indemnity; Insurance.......................... 27
5.8 Personal Property at Tenant's Risk............ 28
5.9 Right of Entry................................ 28
5.10 Floor Load; Prevention of Vibration and Noise. 29
5.11 Personal Property Taxes....................... 29
5.12 Payment of Litigation Expenses................ 29
5.13 Compliance with Insurance Regulations......... 29
ARTICLE VI CASUALTY AND TAKING
6.1 Termination or Restoration; Rent Adjustment... 30
6.2 Eminent Domain Award.......................... 31
ARTICLE VII DEFAULT
7.1 Events of Default........................... 31
7.2 Landlord's Rights and Tenant's Obligations
After Termination......................... 32
ARTICLE VIII MISCELLANEOUS
8.1 Notice of Lease; Consent and Approval;
Notices; Bind and Inure.................... 33
8.2 Failure to Enforce........................... 34
8.3 Acceptance of Partial Payments of Rent;
Delivery of Keys........................... 34
8.4 Cumulative Remedies.......................... 35
8.5 Partial Invalidity........................... 35
8.6 Self-Help and Late Charge.................... 35
8.7 Estoppel Certificate......................... 36
8.8 Waiver of Subrogation........................ 36
<PAGE>
8.9 All Agreements Contained............................. 36
8.10 Brokerage............................................ 36
8.11 Submission Not an Option............................. 37
8.12 Applicable Law....................................... 37
8.13 Waiver of Jury Trial................................. 37
8.14 Access and Security.................................. 37
8.15 Holdover............................................. 37
8.16 Limitation on Liability.............................. 38
8.17 Security Deposit..................................... 38
ARTICLE IX RIGHTS OF PARTIES HOLDING PRIOR INTERESTS
9.1 Lease Subordinate................................... 40
9.2 Rights of Holder of Mortgage to Notice of
Defaults by Landlord and to Cure Same............. 40
EXHIBIT A Property Description........................ 42
EXHIBIT B-1 Plan Showing the Buildings.................. 43
EXHIBIT B-2 Floor Plans................................. 43
EXHIBIT C Tenant Work Letter.......................... 44
EXHIBIT D Landlord's Services......................... 48
EXHIBIT E Landlord's Rules and Regulations............ 53
EXHIBIT F Disbursements for Tenant Work............... 58
EXHIBIT G Environmental Materials.................... 61
<PAGE>
ARTICLE II
PREMISES, TERM AND RENT
2.1 The Premises
------------
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
Tenant's Space in the Buildings, excluding exterior faces of exterior walls, the
common stairways and stairwells, elevators and elevator shafts, fan rooms,
electric and telephone closets, janitor closets, freight elevator vestibules,
and pipes, ducts, conduits, wires and appurtenant fixtures serving exclusively
or in common other parts of the Buildings, and if Tenant's Space includes less
than the entire rentable area of any floor, excluding the common corridors,
elevator lobbies and toilets located on such floor.
Excluded from the Premises is the equipment room on the first floor of
Building 3 used by Cellular One and the other areas on the first and second
floors of Building 3 identified as "Other Tenant" on Exhibit B-2, and the
Premises are subject to the right of Cellular One and tenants of such other
areas to have access to the equipment room and such other areas and to their
cables running from the equipment room to the exterior of the Buildings. Access
to such excluded areas shall be by prearrangement with Tenant and accompanied by
building security personnel. In connection with any work done by or for Tenant
in the Premises, Tenant and its contractors shall exercise due diligence to
avoid any damage to, or interference with the operation of, said cables, and
shall indemnify and hold Landlord harmless in the event of any such damage or
interference.
As part of the Tenant Work, Tenant shall take such actions as it desires
and deems appropriate to shield the Premises or any equipment therein from any
emissions resulting from the operations of Cellular One or other emissions.
Landlord shall cause tenants or licensees of the Buildings who produce new
electronic emissions to shield such emissions from such equipment as Tenant
operates in the Premises at that time which might be adversely affected by such
emissions. Tenant shall be responsible for shielding any equipment Tenant
thereafter brings into the Premises from any emissions being generated in or
about the Buildings at the time such new equipment is brought into the
<PAGE>
Buildings.
Tenant's Space with such exclusions is hereinafter referred to as "the
Premises." The term "Buildings" means the buildings on the Lot, and the term
"Lot" means all, and also any part of, the land described in Exhibit A in whole
or in part. The "Property" means the Buildings and Lot.
2.2 Parking
-------
Landlord shall provide Tenant with six (6) reserved parking spaces on the
Lot. Two (2) of these spaces shall be at market rates, currently $80.00 per
month, and four (4) of these spaces shall be free. Landlord agrees to
accommodate Tenant with a reasonable number of additional parking spaces within
two (2) blocks of the Buildings at market rates upon Tenant's request.
2.3 Rights to Use Common Facilities
-------------------------------
Tenant shall have, as appurtenant to the Premises, rights to use in common,
subject to reasonable rules of general applicability to tenants of the Buildings
from time to time made by Landlord of which Tenant is given notice (which rules
shall not interfere with Tenant's access to the Premises): (a) the common
lobbies, corridors, stairways, elevators and loading area in the rear of the
Premises between Phase I and Phase II, and the pipes, ducts, conduits, wires and
appurtenant meters and equipment serving the Premises in common with others, (b)
common walkways and driveways necessary for access to the Buildings, and (c) if
the Premises include less than the entire rentable area of any floor, the common
toilets, corridors and elevator lobbies of such floor.
2.4 Landlord's Reservations
-----------------------
Landlord reserves the right from time to time, without unreasonable
interference with Tenant's Permitted Use and upon reasonable prior notice: (a)
to install, use, maintain, repair, replace and relocate for service to the
Premises and other parts of the Buildings, or either, pipes, ducts, conduits,
wires and appurtenant fixtures, wherever located in the Premises or Buildings,
and (b) to alter or relocate any other common facility, provided that
substitutions are substantially equivalent or better and (c) to relocate
Tenant's reserved parking spaces to other designated areas on the Lot.
Installations, replacements and relocations referred to in clause (a) above
shall be located so far as practicable in the central core area of the
Buildings, above ceiling surfaces, below floor surfaces or within perimeter
walls of the Premises. Except in case of emergencies: Landlord shall perform
work within the Premises during nonbusiness hours following not less than 24
<PAGE>
hours prior notice to Tenant; in areas of the Premises designated by Tenant in
writing from time to time as "Secured Areas", accompanied by an officer of
Tenant if Tenant so requests; and due care shall be exercised to maintain the
integrity of Tenant's clean room.
2.5 Habendum: Term Commencement Date; Rent Commencement Date
---------------------------------------------------------
Tenant shall have and hold the Premises for a period commencing on the
earlier of the first Rent Commencement Date and the Term Commencement Date and
continuing for the Term unless sooner terminated as provided in Section 6.1 or
Article VII. The Rent Commencement Date(s) shall be the day(s) on which
Tenant's personnel shall first occupy portions of the Premises for the conduct
of business. It is anticipated that Tenant Work, defined in Exhibit C, will be
completed in stages for different portions of the Premises, that Tenant will
occupy such portions at differing times and that accordingly there will be
different Rent Commencement Dates for portions of the Premises. The Term
Commencement Date shall be the earliest of (a) the day Tenant Work in the entire
Premises is substantially complete as described in Section 3.3 hereunder, or (b)
the day on which Tenant's personnel shall first occupy substantially all of the
Premises for the conduct of business, or (c) October 15, 1996 as extended by the
number of days that the "Removal Completion Date" is delayed beyond the "Target
Delivery Date" as those terms are defined in Section 3.2. Tenant shall, upon
the request of Landlord, execute a certificate confirming the Term Commencement
Date.
2.6 Monthly Fixed Rent Payments
---------------------------
Tenant shall pay, commencing on the Term Commencement Date, without notice,
demand, offset or deduction, monthly installments of Fixed Rent in advance on
the first day of each month to such person and at such place as Landlord shall
from time to time designate by notice to Tenant.
Fixed Rent for any partial calendar month following the Term Commencement
Date shall be prorated on a daily basis, and shall be due and payable in advance
on the Term Commencement Date.
Tenant shall pay, commencing on each Rent Commencement Date,
<PAGE>
without notice, demand, offset or deduction, monthly installments of Fixed Rent
with respect to that portion of the Premises for which a Rent Commencement Date
has occurred, in advance on the first day of each month to such person and at
such place as Landlord shall from time to time designate by notice to Tenant.
Fixed Rent for any partial calendar month following a Rent Commencement
Date shall be prorated on a daily basis, and shall be due and payable in advance
on the Rent Commencement Date.
2.7 Adjustments for Operating Expenses
----------------------------------
A. Terms used herein are defined as follows:
(1) "Operating Expenses for the Property" means the cost of operation
of the Property which shall EXCLUDE costs of special services rendered to
-------
tenants (including Tenant) for which a separate charge is made and items of
expense referred to in Section 2.8 hereof, but shall INCLUDE, without
-------
limitation, the following: premiums for insurance carried with respect to the
Property; compensation and all fringe benefits, workmen's compensation insurance
premiums and payroll taxes paid to, for or with respect to all persons engaged
in the operating, repairing, maintaining, or cleaning of the Buildings and Lot;
steam, water, sewer, electric, gas, oil and telephone and other utility charges;
costs of building and cleaning supplies, materials and equipment; costs of
maintenance, cleaning and repairs; costs of snow removal and care of
landscaping; payments under service contracts for any of the foregoing services
with independent contractors or subsidiaries or affiliates of Landlord;
management fees at reasonable and competitive rates consistent with the type of
occupancy and the service rendered and all other reasonable and necessary
expenses paid in connection with the operation, repair, cleaning and maintenance
of the Buildings and Lot. Any of the services may be performed by subsidiaries
or affiliates of Landlord, provided that the contracts for the performance of
such services shall be competitive with similar contracts and transactions with
unaffiliated entities for the performance of such services in comparable
buildings in the Boston area.
For purposes of the preceding definition, the Operating Expenses for
the Property shall include the cost (amortized with interest using generally
accepted accounting principles) of any capital improvement (including, without
limitation any equipment installed as a fixture) made by Landlord for the
purpose of (a) reducing other operating costs; or (b) complying with any
governmental requirement (including, without limitation, any law, ordinance,
code, regulation or bylaw) which shall first become applicable to the Buildings
after the date of this Lease.
There shall be excluded from Operating Expenses the
<PAGE>
following:
(i) depreciation of the Buildings in which the Premises are
located;
(ii) principal, interest, or other charges with respect to any
mortgages or other loans on or with respect to the Buildings in which the
Premises are located or the Lot;
(iii) rent or other charges under any ground leases or other
underlying leases with respect to the Buildings in which the Premises are
located or the Lot;
(iv) costs of constructing additions to the Buildings in which the
Premises are located or of further developing of the Lot;
(v) costs of testing, containing, remediating, abating, or removing
any hazardous substances, toxic substances or oil as those terms are defined by
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) 42 U.S.C. Section 9601 et seq., or the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 or the Massachusetts Oil and
Hazardous Material Release Prevention and Response Act, G.L.c. 21E, or as
defined by the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. 6901 et
seq., any radioactive material including any source, special nuclear or by-
product material as defined in 42 U.S.C. 2011 et seq., asbestos in any form or
condition and any polychlorinated biphenyls (PCBS) or substances or compounds
containing PCBS on or from the Lot or the Buildings in which the Premises are
located which were not brought, deposited or discharged therein or thereon by
the Tenant;
(vi) advertising and marketing costs, brokerage fees, signing bonuses,
free rent, build-out allowances, moving expenses, assumption of rent under
existing leases, other concessions or inducements granted or paid to tenants and
any other costs of locating, obtaining, securing and retaining tenants for the
Buildings in which the Premises are located or the Lot;
(vii) costs of constructing leasehold improvements
<PAGE>
to rentable areas of the Buildings in which the Premises are located whether for
Tenant or any other tenant;
(viii) the amounts of any judgments against or liabilities or damages
incurred by the Landlord and/or any affiliate of the Landlord as a result of a
violation of law, breach of contract, tortious conduct, or the negligence of or
by the Landlord and/or any affiliate of the Landlord or any tenant of the
Buildings;
(ix) except as set forth above, capital expenditures or
amortization with respect to the Buildings or the Lot;
(x) costs relating to Landlord and its affiliate's rent-free tenancy,
occupancy and use of the Buildings in which the Premises are located or the Lot,
to the extent applicable;
(xi) roof replacement, structural maintenance and structural repair
with respect to the Buildings in which the Premises are located;
(xii) correction of latent defects in construction with respect
to the Buildings;
(xiii) to the extent otherwise included in operating expenses, any
loss, cost, or damage with respect to which Landlord is compensated through
insurance proceeds.
(2) The "Operating Statement" shall mean a statement rendered to
Tenant by Landlord within approximately one hundred twenty (120) days or as soon
thereafter as reasonably possible after the end of each Lease Year during the
Term and not later than one hundred twenty (120) days after Lease termination.
The Operating Statement shall be in reasonable detail, certified by Landlord's
representative, and show the amount of the Operating Expenses for the Property
for the preceding Lease Year or fraction thereof, as the case may be.
(3) The phrase "Operating Expenses Allocable to the Premises" means
Tenant's Proportionate Share of the Operating Expenses for the Property.
(4) In any Lease Year when the Buildings have an average annual
occupancy rate of less than 95% then, for the purpose of this Section 2.7, items
which are variable according to occupancy comprising the Operating Expenses for
the Property shall be equitably adjusted as though the Buildings were 95%
occupied. In any Lease Year when the Buildings have an average annual occupancy
rate of 95% or more then the Operating Expenses
<PAGE>
for the Property shall be the actual Operating Expenses for the Property.
(5) The phrase "Lease Year" means, in the case of the first Lease
Year, the period of twelve consecutive calendar months commencing on the Term
Commencement Date, if the Term Commencement Date is the first day of a month,
and otherwise commencing on the first day of the first month after the Term
Commencement Date. Each succeeding period of twelve consecutive calendar months
shall constitute a Lease Year.
B. Tenant shall pay to Landlord 100% of the excess of Operating Expenses
Allocable to the Premises over Tenant's Operating Expense Base. Landlord shall
have the right from time to time by notice to Tenant to estimate amounts
required to be paid by Tenant under this Section 2.7 to reflect Landlord's
latest reasonable estimate of the actual amounts which will be due from Tenant
hereunder based upon then current budgets and expenditures incurred to date.
Following any notice by Landlord requesting that Tenant make estimated monthly
payments toward its obligation under this Section 2.7, Tenant shall make such
monthly payments in accordance with such notice, until further notice is given
by Landlord. If the Term of this Lease expires prior to the determination by
Landlord and payment by Tenant of any amounts due hereunder, Tenant's obligation
to pay such amounts for any portion of the Term of this Lease shall survive the
termination of this Lease even though determination of such amounts may not be
made until after such termination.
C. If, with respect to any Lease Year or fraction thereof ending within
the Term, the Operating Expenses Allocable to the Premises for a full Lease Year
exceed Tenant's Operating Expense Base then, on or before the thirtieth (30th)
day following receipt by Tenant of the Operating Statement, Tenant shall pay to
Landlord, as additional rent, the amount of such excess, less any amounts
previously paid by Tenant pursuant to Paragraph B. above. In the event the
actual amounts due for the period encompassed by Landlord's statement are less
than the estimated amounts theretofore paid by Tenant with respect to such
period, Tenant shall receive a credit for the excess amounts paid, which credit
shall be applied against the monthly installments of Fixed Rent next thereafter
coming due.
<PAGE>
D. Landlord agrees to keep books and records showing Operating Expenses
for the Property in accordance with a system of accounts and accounting
practices consistently maintained. Tenant shall have the right, at its sole
expense, upon reasonable prior notice to Landlord, to inspect such books and
records at Landlord's office during business hours.
2.8 Adjustments for Real Estate Taxes
---------------------------------
A. Terms used herein are defined as follows:
(1) "Tax Year" means the twelve-month period beginning July 1 each
year during the Term or if the appropriate governmental tax fiscal period shall
begin on any date other than July 1, such other date.
(2) "Landlord's Tax Expenses" with respect to any Tax Year means the
aggregate Real Estate Taxes on the Property with respect to that Tax Year,
reduced by any abatements actually received with respect to that Tax Year.
(3) "Real Estate Taxes for the Property" means all taxes and special
assessments of every kind and nature assessed by any governmental authority on
the Lot or the Buildings or the Property which Landlord shall become obligated
to pay because of or in connection with the ownership, leasing and operation of
the Lot, the Buildings and the Property and reasonable expenses of any
proceedings for abatement of taxes. The amount of special taxes or special
assessments to be included shall be limited to the amount of the installment
(plus any interest, other than penalty interest, payable thereon) of such
special tax or special assessment required to be paid during the year in respect
of which such taxes are being determined. There shall be excluded from such
taxes all income, estate, succession, inheritance and transfer taxes; provided,
however, that if at any time during the Term the present system of ad valorem
tax of real property shall be changed so that in lieu of the whole or any part
of the ad valorem tax on real property, there shall be assessed on Landlord a
capital levy or other tax on the gross rents received with respect to the Lot or
Buildings or Property, or a federal, state, county, municipal, or other local
income, franchise, excise or similar tax, assessment, levy or charge (distinct
from any now in effect in Massachusetts) measured by or based, in whole or in
part, upon any such gross rents, then any and all of such taxes shall be
included within the term "Real Estate Taxes" but only to the extent that the
same would be payable if the Lot, Buildings, or Property were the only property
of Landlord.
(4) The "Tax Statement" shall mean a statement rendered to Tenant by
Landlord within thirty (30) days or as soon
<PAGE>
thereafter as reasonably possible after receipt of the real estate tax bills for
the fiscal year (or partial year, if applicable) during the Term and within
ninety (90) days or as soon thereafter as reasonably possible after Lease
termination. The Tax Statement shall be in reasonable detail and certified by a
representative of Landlord showing for the respective fiscal year or fraction
thereof, as the case may be, Real Estate Taxes for the Property and shall
include a copy of the subject tax bill.
(5) "Tax Expenses Allocable to the Premises" means Tenant's
Proportionate Share of Real Estate Taxes for the Property.
B. On or about April 1, 1997, Landlord shall deliver to Tenant the Tax
Statement referred to above which will set forth Real Estate Taxes for the
Property for the 1997 Tax Year (July 1, 1996 to June 30, 1997).
On or about April 1, 1998, Landlord shall deliver the Tax Statement with
respect to the 1998 Tax Year, and Tenant shall pay to Landlord 100% of the
excess of Tax Expenses Allocable to the Premises over Tenant's Tax Base on
account of Tax Expenses Allocable to the Premises for the 1998 Tax Year.
Commencing July 1, 1998 and continuing on the first of each successive month
until delivery to Tenant of the next such Tax Statement, Tenant shall pay to
Landlord, on account toward increases in Tax Expenses Allocable to the Premises
for the then current Tax Year, 1/12th of the Tax Expenses Allocable to the
Premises for the current Tax Year in excess of Tenant's Tax Base and this
process shall be repeated each year during the Term of this Lease.
C. If with respect to any Tax Year of the Term, Tax Expenses Allocable to
the Premises exceed Tenant's Tax Base (the excess being referred to as the
"Excess Amount"), then Tenant shall pay to Landlord as additional rent the
amount of such Excess Amount, less any amounts previously paid by Tenant as
additional rent pursuant to Paragraph B. of this Section 2.8 (said amounts are
"Tenant Payments"). If the Tenant Payments are greater than the Excess Amount,
Landlord shall credit to Tenant the difference, which credit shall be applied
against the monthly installments of Fixed Rent next thereafter coming due.
Within thirty (30) days after the date of delivery of such Tax
<PAGE>
Statement, Tenant shall pay to Landlord or Landlord shall credit to Tenant the
amounts due, if any. Appropriate prorations shall be made for those periods at
the end of the Term which are less than a full Tax Year.
D. To the extent that Real Estate Taxes shall be payable to the taxing
authority in installments for periods less than a Tax Year, the foregoing
statement shall be rendered and payments made on account of such installments
with respect to such periods rather than with respect to such full Tax Year.
E. Notwithstanding the foregoing provisions, no decrease in Real Estate
Taxes for the Property with respect to any Tax Year shall result in a reduction
of the amount otherwise payable by Tenant if and to the extent said decrease is
attributable to vacancies in the Buildings rather than to any other causes.
2.9 Parking Charges
---------------
Tenant shall pay on the first day of each month in advance, as additional
rent, the rate from time to time in effect for each parking space, other than
the four (4) free spaces.
2.10 Due Date of Additional Payments; No Offsets
-------------------------------------------
Except as otherwise specifically provided herein, any sum, amount, item or
charge designated or considered as additional rent in this Lease shall be paid
by Tenant to Landlord on the first day of the month following the date on which
Landlord notifies Tenant of the amount payable or on the tenth (10th) day after
the giving of such notice, whichever shall be later. Any such notice shall
specify in reasonable detail the basis of such additional rent. Additional rent
shall be paid by Tenant to Landlord without offset or deduction.
2.11 Extension Option
----------------
Provided that both (i) a default as described in Section 7.1 has not
occurred and remains uncured on the day on which Tenant purports to exercise the
Extension Option or on the first day of the Extension Term, and (ii) the Tenant
named herein or any permitted assignee or sublessee is actually occupying
substantially the entire Premises as of each of said dates, Tenant shall have
the option ("Extension Option") to extend the Term of this Lease for one
additional period of five (5) years (the "Extension Term"), unless sooner
terminated as hereinafter provided, subject to all the terms of this Lease
except for the change in Fixed Rent as provided below.
Tenant shall exercise the Extension Option, if at all, by giving written
notice ("Notice to Extend") of exercise to
<PAGE>
Landlord not earlier than twelve (12) months prior to, nor later than nine (9)
months prior to, the last day of the Initial Lease Term. If Tenant fails to
give such notice to Landlord within such time, Tenant shall be deemed to have
waived the right to exercise the Extension Option.
The annual Fixed Rent payable during the Extension Term shall be 95% of the
fair market rent for comparable space in effect in Boston on the commencement
date of the Extension Term (the "Fair Market Rent"), but not less than the rent
payable during the Initial Term.
The Fair market Rent shall be determined as follows:
a. Within thirty (30) calendar days of receipt of the Notice to
Extend, Landlord shall furnish Tenant with Landlord's estimate of Fair market
Rent ("Landlord's Rent Estimate").
b. Within fifteen (15) calendar days of receipt of Landlord's Rent
Estimate, Tenant shall respond and specify whether and the extent to which
Tenant disputes Landlord's Rent Estimate.
c. If Tenant disputes Landlord's Rent Estimate, Tenant and Landlord
will negotiate in good faith for an additional thirty (30) calendar days to
reach agreement on the Fair market Rent.
d. If Tenant and Landlord shall not have reached agreement as to the
Fair Market Rent by the date which is seventy-five (75) calendar days from the
receipt by landlord of the Notice to Extend, Landlord and Tenant shall each
select an appraiser with an MAI designation to determine the Fair Market Tent.
The two selected appraisers shall within fourteen (14) calendar days appoint a
third appraiser (the "Third Appraiser"). Each party shall pay the fees and
expenses of the appraiser it selected and the fees and expenses of the Third
Appraiser shall be borne equally by both parties.
e. Within thirty (30) calendar days of the selection of the Third
Appraiser, the appraisers shall determine the Fair Market Rent. In the event
that all of the appraisers have not agreed upon the Fair Market Rent within such
thirty (30) day
<PAGE>
period, each appraiser shall deliver, within ten (10) calendar days, a written
appraisal of the Fair market Rent to Landlord and Tenant, and the Fair Market
Rent shall be the average of the two closest appraisals.
2.12 Expansion Option
----------------
Provided that both (i) a default as described in Section 7.1 has not
occurred and remains uncured on the day on which Tenant purports to exercise the
Expansion Option or on the first date on which the Expansion Space will be
occupied, and (ii) the Tenant named herein or any permitted assignee or
sublessee is actually occupying substantially the entire Premises as of each of
such dates, Tenant shall have the right and option ("Expansion Option") to lease
the adjacent space on the second floor of the Infill Building as shown on
Exhibit B-2 ("Expansion Space"); provided that Tenant's occupancy and obligation
-------- ----
to pay Rent therefor must commence, if at all, no later than the end of the
third Lease Year of the Initial Term. This option may be exercised by Tenant by
notice to Landlord given not less than sixty (60) days prior to the date on
which Tenant will take occupancy of the Expansion Space, and upon the exercise
of this option, the Premises shall include such space. All of the terms and
conditions of this Lease shall apply with respect to the Expansion Space, except
that the Fixed Rent shall be increased by the product of the rentable square
feet of the Expansion Space and $17.50 for the balance of Lease Years 1 to 5
inclusive and $20.50 for Lease Years 6 to 10 inclusive and Tenant's
Proportionate Share shall be adjusted to take account of the addition of the
Expansion Space. The Expansion Space shall be delivered to Tenant in its "as
is" condition and the fit-up allowance provisions of Section 3.3 shall not apply
to the Expansion Space.
2.13 Right of First Offer
--------------------
In the event during the Term Landlord intends to lease any space on the
first or second floors of the Buildings, before offering such space to a third
party Landlord shall first offer to lease such space to Tenant by a notice to
Tenant describing the space and the terms on which the space is being offered.
Tenant shall have ten (10) business days in which to accept or reject Landlord's
offer, and a failure to respond within such ten (10) day period shall be deemed
a rejection. If Tenant accepts such offer, an appropriate amendment to this
Lease shall be entered into between the parties.
ARTICLE III
CONSTRUCTION
<PAGE>
3.1 Premises As Is
--------------
EXCEPT AS PROVIDED IN SECTION 3.2, THE PREMISES ARE LEASED "AS IS" AND
"WHERE IS" AND WITHOUT ANY EXPRESS OR IMPLIED WARRANTY WHATSOEVER, INCLUDING ANY
WARRANTY OF MERCHANTABILITY, HABITABILITY OR FITNESS FOR INTENDED USE.
Landlord represents to Tenant that the Buildings are furnished with a
sprinkler system connected to a fire alarm system which, to Landlord's best
knowledge and belief, is in compliance with applicable legal requirements.
Tenant understands that the location of pipes and sprinkler heads in the
Premises may not conform to the Plans for Tenant Work and that any required
relocation shall be performed at Tenant's expense in accordance with applicable
legal requirements.
Tenant acknowledges receipt of the reports and other materials listed
on Exhibit G relating to investigations conducted pursuant to MGL c. 21E.
3.2 Landlord Work.
-------------
After the date of this Lease Landlord shall promptly commence and
diligently proceed to remove the boiler, oil tank and water pump and boiler
smokestack and the footings therefor from the first floor of the Premises in the
Infill Area and repair any damage caused by such removal ("Landlord Removal
Work"). The date on which the Landlord Removal Work is complete is referred to
herein as the "Removal Completion Date". Landlord shall use reasonable efforts
to cause the Removal Completion Date to occur on or before May 24, 1996 (the
"Target Delivery Date"). The cost of Landlord Removal Work shall be shared
equally by Landlord and Tenant except that Tenant's share of such cost shall not
exceed $75,000. Tenant's share of such cost shall be deducted from the
allowance provided for in Section 3.3.
Landlord shall also remove the shed containing Boston Edison equipment
in the vicinity of the loading dock area to be used by Tenant; enclose areas
labeled "Other Tenant" on Exhibit B-2; construct a corridor on the second floor
of the Infill Building adjacent to the Premises; and repair all roof leaks.
Landlord shall coordinate such work with Tenant Work to the extent feasible so
as to avoid interference with the progress of Tenant
<PAGE>
Work.
3.3 Tenant Work; Allowance
----------------------
Tenant shall prepare the Premises for Tenant's use in accordance with
the provisions of the Tenant Work Letter attached hereto as Exhibit C. Tenant
Work shall be considered substantially complete when Tenant Work has been
completed except for items of work (and, if applicable, adjustment of equipment
and fixtures) which can be completed after occupancy has been taken without
causing undue interference with Tenant's use of the Premises (i.e., so called
"punch list" items) and Tenant has obtained a Certificate of Occupancy from the
City of Boston Building Department. Landlord shall pay to Tenant a fit-up
allowance ("Tenant Allowance") of $18.50 per RSF of the Premises ($18.50 x
27,399 = $506,881.50) less Tenant's share of the cost of Landlord Removal Work
as provided in Section 3.2 at the times, in the manner and subject to the
provisions of Exhibit F.
3.4 Alterations and Additions
-------------------------
Tenant shall not make alterations or additions to the Premises except
in accordance with plans and specifications therefor first approved by Landlord
in writing which consent shall not be unreasonably withheld or delayed. The
provisions of the preceding sentence shall not apply to alterations or additions
which are non-structural and do not materially affect the base building
mechanical systems and do not cost more than $5,000, but Tenant shall advise
Landlord of its intent to perform same before commencing work. Landlord shall
not be deemed unreasonable for withholding approval of any alterations or
additions which (a) involve or might affect any structural or exterior element
of the Buildings, any area or element outside of the Premises, or any facility
including all utilities serving any area of the Buildings outside the Premises,
or (b) will require unusual expense to readapt the Premises to normal office use
on Lease termination or increase the cost of insurance or taxes on the Buildings
or of the services called for by Section 4.1 unless Tenant first gives assurance
acceptable to Landlord for payment of such increased cost and that such
readaptation will be made prior to such termination without expense to Landlord.
All alterations and additions shall be part of the Buildings unless and until
Landlord shall specify the same for removal pursuant to Section 5.2. Tenant
shall provide to Landlord as-built drawings of the alterations or additions,
whether or not Landlord's approval thereof was required, within thirty days
after completion thereof. All of Tenant's alterations and additions and
installation of furnishings shall be coordinated with any work being performed
by Landlord in such manner as to maintain harmonious labor relations and not to
damage the Property or interfere with the Building's operation and, except for
<PAGE>
installation of furnishings, shall be performed either by Landlord's general
contractor or at Tenant's election by contractors or workmen first approved by
Landlord, which approval shall not be unreasonably withheld. Except for work by
Landlord's general contractor, Tenant, before its work is started, shall: secure
all licenses and permits necessary therefor; deliver to Landlord a statement of
the names of all its contractors and subcontractors and the estimated cost of
all labor and material to be furnished by them; take out and maintain during the
course of construction of alterations or additions costing in excess of $50,000
so-called Builder's Risk insurance issued by responsible companies qualified to
do business in Massachusetts and covering loss by fire and other perils included
in extended coverage endorsements for the full cost of the improvements on a
completed value non-reporting form and naming Landlord as an additional insured;
and cause each contractor to carry workmen's compensation insurance in statutory
amounts covering all the contractor's and subcontractor's employees and
comprehensive public liability insurance and property damage insurance with such
limits as Landlord may reasonably require (naming Landlord and Landlord's
managing agent as additional insureds) but in no event less than, with respect
to public liability insurance $2,000,000/$2,000,000 and with respect to property
damage insurance, $500,000 as to the general contractor or design/builder and
respective limits of $1,000,000/$1,000,000 and $500,000 as to subcontractors
(all insurance to be written in companies approved by Landlord and insuring
Landlord and Tenant as well as the contractors), and to deliver to Landlord
copies of all such licenses and permits and certificates of all such insurance.
Subject to receipt of the Tenant Allowance, Tenant agrees to pay promptly when
due the entire cost of any work done on the Premises by Tenant, its agents,
employees, or independent contractors, and not to cause or permit any liens for
labor or materials performed or furnished in connection therewith to attach to
the Premises or the Property and immediately to discharge any such liens which
may so attach or provide a bond covering such liens. The provisions of this
Section shall apply to the Tenant Work as well as to work subsequent to the
Commencement Date except to the extent Exhibit C is inconsistent with this
Section, in which case the provisions of Exhibit C shall govern.
3.5 General Provisions Applicable to Construction
---------------------------------------------
<PAGE>
All construction work required or permitted by this Lease, whether by
Landlord or Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws and all lawful ordinances, regulations and
orders of governmental authority and insurers of the Property. Each party may
inspect the work of the other at reasonable times and shall promptly give notice
of observed defects.
ARTICLE IV
LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS
Landlord covenants:
4.1 Services Furnished by Landlord
------------------------------
To furnish, through Landlord's employees or independent contractors,
services, utilities, facilities and supplies set forth in Exhibit D equal in
quality to those customarily provided by landlords in similar buildings in the
Boston area.
4.2 Additional Services Available to Tenant
---------------------------------------
To furnish, through Landlord's employees or independent contractors,
at Tenant's expense, reasonable additional Buildings operation services which
are usual and customary in similar buildings in the Boston area upon reasonable
advance request of Tenant at reasonable and equitable rates from time to time
established by Landlord.
4.3 Roof, Exterior Wall, Floor Slab and Common Facility Repair
----------------------------------------------------------
Except as otherwise provided in Article VI, to make such repairs to
the roof, exterior walls, other structural components, floor slabs, exterior
glass (except as set forth in Section 5.2) and common areas and facilities
including all utilities and elevators, of the Buildings and Lot as may be
necessary to keep them in good order, repair and condition and in compliance
with applicable laws, codes and regulations, the expense of which shall be
charged in accordance with Section 2.7.
4.4 Quiet Enjoyment
---------------
That Tenant on paying the Fixed Rent and additional rent and
performing the tenant obligations in this Lease shall peacefully and quietly
have, hold and enjoy the Premises, subject to all of the terms and provisions
hereof.
4.5 Interruptions and Delays in Service and Repairs, etc.
-----------------------------------------------------
<PAGE>
Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss of
business arising from the necessity of Landlord or its agents' entering the
Premises for any of the purposes in this Lease authorized, or for repairing the
Premises or any portion of the Buildings, unless such necessity is caused by
Landlord's negligence. In case Landlord is prevented or delayed from making any
repairs, alterations or improvements, or furnishing any services or performing
any other covenant or duty to be performed on Landlord's part, by reason of any
cause reasonably beyond Landlord's control, Landlord shall not be liable to
Tenant therefor, nor except as expressly otherwise provided in Section 6.1 shall
Tenant be entitled to any abatement or reduction of rent by reason thereof, nor
shall the same give rise to a claim in Tenant's favor that such failure
constitutes actual or constructive, total or partial, eviction from the
Premises.
Landlord reserves the right to stop any service or utility system,
when necessary by reason of accident or emergency, or until necessary repairs
have been completed; provided, however, that in each instance of stoppage
Landlord shall exercise reasonable diligence to eliminate the cause thereof.
Except in case of emergency repairs, Landlord will give Tenant reasonable
advance notice of any contemplated stoppage and will use reasonable efforts to
avoid unnecessary inconvenience to Tenant by reason thereof.
4.6 Payment of Litigation Expenses
------------------------------
To pay all reasonable costs, counsel and other fees incurred by Tenant
in connection with the successful enforcement by Tenant of any obligations of
Landlord under this Lease.
4.7 Landlord to Maintain Insurance
------------------------------
Landlord shall obtain prior to the commencement of the Term and
throughout the Term shall maintain in responsible companies qualified to do
business in Massachusetts insurance against loss or damage to the Buildings in
which the Premises are located resulting from fire and such other coverages as
are normally covered by an "extended coverage" endorsement. Such insurance,
with reasonable deductibles, shall be in an amount equal to the full replacement
cost of the Buildings (excluding the value of
<PAGE>
the Lot and foundations) and, in any event, in an amount sufficient to preclude
any claim on the part of the insurer for co-insurance under the terms of the
applicable policy. The term "replacement cost" shall mean the actual cost of
restoration of the Buildings in which the Premises are located to as nearly as
practicable their condition immediately prior to the casualty. Landlord shall
provide Tenant with a certificate or other evidence of the existence of such
insurance. The cost of such insurance shall be an Operating Expense.
ARTICLE V
TENANT'S COVENANTS
Tenant covenants during the Term and such
further time as Tenant occupies any part of the Premises:
5.1 Payments
--------
To pay when due all Fixed Rent and additional rent and all charges for
utility services rendered to the Premises and, as further additional rent, all
charges for additional services and utilities rendered pursuant to Section 4.2.
5.2 Repair and Yield Up
-------------------
Except as otherwise provided in Article VI and Section 4.3, at its
sole cost and expense, to keep the Premises in good order, repair and condition,
and all glass in windows (except glass in exterior walls of the Buildings unless
the damage thereto is attributable to Tenant's negligence or misuse) and doors
of the Premises whole and in good condition with glass of the same quality as
that injured or broken, damage by fire and other casualty and reasonable wear
only excepted, and at the expiration or termination of this Lease peaceably to
yield up the Premises and all alterations and additions thereto in good order,
repair and condition, damage by fire and other casualty excepted, provided that
Tenant shall (i) remove all manufacturing equipment, trade fixtures, inventory
and all other personal property, (ii) reimburse Landlord for Landlord's cost of
removing all roof mounted equipment and roof penetrations installed or performed
by or for Tenant which Landlord elects to remove and the cost of all necessary
patching and sealing to return the roof to a waterproof condition, and (iii) to
the extent specified by Landlord by notice to Tenant given at the time Landlord
reviews Tenant's plans for alterations and additions as set forth in Section
3.4, all alterations and additions made by Tenant subsequent to the time when
Tenant Work is substantially complete and repairing any damage caused by such
removal and restoring the Premises and leaving them clean and neat. Tenant
shall not be required to remove the Tenant Work referred to in Section 3.3.
<PAGE>
5.3 Use
---
Continuously from the commencement of the Term to use and occupy the
Premises for the Permitted Uses, and not to injure or deface the Premises, or
the Property, nor to permit in the Premises any auction sale, or inflammable
fluids or chemicals (except that Tenant may keep and use in the Premises normal
office supplies in full compliance with law), nor to permit any nuisance, or
the emission from the Premises of any objectionable noise or odor, nor to use or
devote the Premises or any part thereof for any purpose other than the Permitted
Uses, nor any use thereof which is contrary to law or ordinance or liable to
invalidate any insurance on the Buildings or to increase the premiums for any
such insurance unless Tenant reimburses Landlord for such increase, or liable to
render necessary any alteration or addition to the Buildings. As part of the
Permitted Uses, Tenant may maintain a lunch room for its employees which may
include food warming devices, but Tenant shall not install any vending machines
in the Premises without Landlord's approval, which may be conditioned on the
vending machines being installed and supplied by Landlord or vendors of
Landlord's choosing.
5.4 Obstructions; Items Visible from Exterior; Rules and Regulations; Signs
---------------------------------------------------- ------------------
Not to obstruct in any manner any portion of the Buildings not hereby
leased or any portion thereof or of the Property; not without prior consent of
Landlord to permit the painting or placing of any signs, curtains, blinds,
shades, awnings, aerials or flagpoles, or the like, visible from outside the
Premises; and to comply with Landlord's Rules and Regulations set forth in
Exhibit E and all other reasonable Rules and Regulations now or hereafter made
by Landlord, of which Tenant has been given notice and uniformly applied to all
tenants of the Property, for the care and use of the Buildings and Lot and their
facilities and approaches; Landlord shall use reasonable efforts to enforce such
Rules and Regulations against all occupants of the Buildings but Landlord shall
not be liable to Tenant for the failure of other occupants of the Buildings to
conform to such Rules and Regulations. Tenant's name shall be displayed on the
tenant directory within the Buildings and on the doors to the Premises in
accordance with Landlord's standard graphics. Except on such directory and
doors to the Premises and on floors of the
<PAGE>
Buildings occupied solely by Tenant, no other signs for Tenant on the interior
of the Buildings will be permitted without Landlord's consent which will not be
unreasonably withheld.
5.5 Safety Appliances; Hazardous Materials
--------------------------------------
To keep the Premises equipped with all safety appliances required by law or
ordinance or any other regulation of any public authority because of any use
made by Tenant or its employees, agents, officers, customers or clients other
than normal office use, and to procure all licenses and permits so required
because of such use and, if requested by Landlord, to do any work so required
because of such use, it being understood that the foregoing provisions shall not
be construed to broaden in any way Tenant's Permitted Uses.
Tenant shall not cause, suffer or allow any hazardous materials to be used,
generated, stored or disposed of on, under or about the Premises except in
accordance with applicable law. Tenant shall defend, indemnify and save
harmless Landlord from and against any injuries, claims, accidents, damages,
liabilities and expenses and any contamination of or injury to the Premises or
the Buildings or the Lot (including reasonable counsel fees) arising out of any
breach of Tenant's obligations under this Section 5.5 or any storage, use,
disposal or release of the foregoing materials.
Tenant shall provide Landlord on February 1 and August 1 of each year of
the Term with a list of the names and quantities of all hazardous materials
generated, stored or used at the Premises. Material Safety Data Sheets shall be
provided for all such substances. Storage of all hazardous materials shall be
in accordance with applicable federal, state and local laws, regulations and
ordinances. Tenant shall prepare and follow a spill prevention and
countermeasure plan. Transfer and mixing of hazardous materials shall be
performed in a designated area designed and operated to prevent spilling,
leakage or runoff from escaping from the Premises. Tenant shall comply with all
applicable OSHA rules applicable to its business and the handling of hazardous
materials.
Tenant shall immediately notify Landlord both by telephone and in writing
of any spill or unauthorized discharge or release of hazardous materials. At
the expiration or termination of this Lease, Tenant shall yield up the Premises
free of all hazardous materials and contaminants of any kind resulting from
Tenant's use of the Premises or any action of Tenant, its employees, agents,
contractors and invitees.
For purposes of this paragraph the term hazardous material shall mean, (i)
"hazardous substances" or "toxic substances" or
<PAGE>
"oil" as those terms are defined by the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA), 42 U.S.C. (S) 9601, et seq., or the
Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 or the Massachusetts
Oil and Hazardous Material Release Prevention and Response Act, M.G.L.c. 21E;
(ii) "hazardous wastes," as that term is defined by the Resource Conservation
and Recovery Act (RCRA), 42 U.S.C. (S) 6901, et seq.; (iii) any pollutant or
contaminant or hazardous, dangerous, or toxic chemicals, materials, or
substances within the meaning of any other applicable federal, state, or local
law, regulation, ordinance, or requirement relating to or imposing liability or
standards of conduct concerning any hazardous, toxic, or dangerous waste
substance or material; (iv) any radioactive material, including any source,
special nuclear or by-product material as defined at 42 U.S.C. (S) 2011, et
seq.; (v) asbestos in any form or condition; and (vi) polychlorinated biphenyls
(PCBs) or substances or compounds containing PCBs.
5.6 Assignment; Sublease
--------------------
Without prior written consent of Landlord, not to assign, mortgage, pledge
or otherwise transfer this Lease or its rights hereunder, or to make any
sublease, or to permit occupancy of the Premises or any part thereof by anyone
other than Tenant, except that Tenant may assign this Lease without Landlord's
consent to (i) an entity controlling, controlled by or under common control with
Tenant, or (ii) an entity purchasing all of Tenant's business, assets and
liabilities if such entity has a net worth at least equal to that of Tenant as
of a date one month before the date of purchase. In connection with any request
by Tenant for such consent to assignment or subletting, to submit to Landlord in
writing (i) the name of the proposed assignee or sublessee, (ii) such
information as to its financial responsibility and standing as Landlord may
reasonably require, (iii) all of the terms and provisions upon which the
proposed assignment or subletting is to be made; and (iv) the nature of its
business and proposed use of the Premises. Tenant shall supply such additional
information as Landlord reasonably requests.
If Tenant intends to assign this Lease or sublease more than fifty percent
(50%) of the Premises, it shall notify Landlord thereof together with
identification of the space involved and
<PAGE>
the contemplated economic terms, and Landlord shall have the option, exercisable
by notice to Tenant given within ten (10) days after receipt of any such
notification and information, to terminate this Lease in the case of a proposed
assignment or to terminate this Lease with respect to the space to be sublet in
the case of a proposed sublease as of a date specified in such notice which date
shall not be more than thirty (30) days after the date of such notice. If
Landlord exercises such termination option, Tenant may waive its request for
Landlord's approval of assignment or subletting within ten (10) days of receipt
of Landlord's exercise, by written notice to Landlord, in which event Landlord's
notice of termination shall be of no force or effect.
If Landlord does not exercise its right to terminate this Lease pursuant to
the foregoing provisions, Landlord shall not unreasonably withhold or delay its
consent to an assignment or subletting consistent with the information supplied
by Tenant in its notification, provided that the terms and provisions of such
assignment or subletting shall specifically make applicable to the assignee or
sublessee all of the provisions of this Section 5.6 so that Landlord shall have
against the assignee or sublessee all rights with respect to any further
assignment and subletting which are set forth herein; no assignment or
subletting shall affect the continuing primary liability of Tenant (which,
following assignment, shall be joint and several with the assignee); no consent
to any of the foregoing in a specific instance shall operate as a waiver in a
subsequent instance; and no assignment shall be binding upon Landlord or any of
Landlord's mortgagees, unless Tenant shall deliver to Landlord an instrument in
recordable form which contains a covenant of assumption by the assignee running
to Landlord and all persons claiming by, through or under Landlord, but the
failure or refusal of the assignee to execute such instrument of assumption
shall not release or discharge assignee from its liability as Tenant hereunder.
Without limitation of the rights of Landlord hereunder, if there is an
assignment of this Lease by Tenant or a subletting of the Premises by Tenant at
a rent which, in either case, exceeds the rent payable hereunder by Tenant,
Tenant shall pay to Landlord, as additional rent, fifty percent (50%) of such
excess rent net of reasonable subletting expenses. For purposes of this Section
5.6, the term "rent" shall mean all Fixed Rent, additional rent or other payment
and/or consideration payable hereunder.
The term "subletting" or "sublease" shall not only mean a sublease, but
also any license or concession agreement or agreement for the use, occupancy or
utilization of the Premises.
5.7 Indemnity; Insurance
--------------------
<PAGE>
A. To defend with counsel first reasonably approved by Landlord, save
harmless, and indemnify Landlord, its agents and employees, from any liability
for injury, loss, accident or damage to any person or property, and from any
claims, actions, proceedings and expenses and costs in connection therewith
(including without limitation reasonable counsel fees), (i) arising from (a) the
omission, fault, willful act, negligence or other misconduct of Tenant, its
employees, agents or invitees, or (b) from any use made or thing done or
occurring on the Premises not (x) due to the omission, fault, willful act,
negligence or other misconduct of Landlord or its agents or employees, or other
tenants of the Property or (y) arising from the Building's mechanical, plumbing
or electrical systems for which Landlord and/or other tenants are responsible,
or (ii) resulting from the failure of Tenant to perform and discharge its
covenants and obligations under this Lease;
B. To maintain in responsible companies qualified to do business, and in
good standing in Massachusetts, public liability insurance covering the Premises
insuring Landlord and its agents as well as Tenant with limits which shall, at
the commencement of the Term, be at least equal to those stated in Section 1.1
and from time to time during the Term shall be for such higher limits, if any,
as are customarily carried in the Boston area with respect to similar
properties, and workmen's compensation insurance with statutory limits covering
all of Tenant's employees working in the Premises, and to deposit promptly with
Landlord certificates for such insurance, and all renewals thereof bearing the
endorsement that the policies will not be cancelled until after twenty (20)
days' written notice to Landlord.
5.8 Personal Property at Tenant's Risk
----------------------------------
That notwithstanding the provisions of Section 5.7.A.(i)(b)(y), all of the
furnishings, fixtures, equipment, effects and property of every kind, nature and
description of Tenant and all persons claiming by, through or under Tenant
which, during the continuance of this Lease or any occupancy of the Premises by
Tenant or anyone claiming under Tenant, may be on the Premises or elsewhere in
the Buildings or on the Lot shall be at the sole risk and hazard of Tenant, and
if the whole or any part thereof shall be destroyed or damaged by
<PAGE>
fire, water or otherwise, or by the leakage or bursting of water pipes, steam
pipes, or other pipes, by theft or from any other cause, no part of said loss or
damage is to be charged to or be borne by Landlord, unless such loss or damage
arises as a result of the negligence of Landlord or its agents, servants or
employees, in which case the provisions of Section 8.8 shall apply.
5.9 Right of Entry
--------------
To permit Landlord and its agents after reasonable notice (which may be
oral) except in the case of an emergency: to examine the Premises at reasonable
times and, if Landlord shall so elect, to make any repairs or replacements
Landlord may deem necessary; to remove, at Tenant's expense, any alterations,
additions, signs, curtains, blinds, shades, awnings, aerials, flagpoles, or the
like not consented to in writing; and to show the Premises to prospective
tenants during the nine (9) months preceding expiration of the Term and to
prospective purchasers and mortgagees by appointment. In exercising its rights
under this paragraph, Landlord shall use reasonable efforts to avoid
interference with Tenant's business. Except in case of emergencies: Landlord
shall perform work within the Premises during nonbusiness hours following not
less than 24 hours prior notice to Tenant; in areas of the Premises designated
by Tenant in writing from time to time as "Secured Areas", accompanied by an
officer of Tenant if Tenant so requests; and due care shall be exercised to
maintain the integrity of Tenant's clean room.
5.10 Floor Load; Prevention of Vibration and Noise
---------------------------------------------
Not to place a load upon the Premises exceeding an average rate of fifty
(50) pounds of live load per square foot of floor area (partitions shall be
considered as part of the live load); Landlord reserves the right to prescribe
the weight and position of all safes, files and heavy equipment which Tenant
desires to place in the Premises so as properly to distribute the weight
thereof; Tenant's business machines and mechanical equipment which cause
vibration or noise that may be transmitted to the Buildings structure or to any
other space in the Buildings shall be so installed, maintained and used by
Tenant as to eliminate such vibration or noise.
5.11 Personal Property Taxes
-----------------------
To pay promptly when due all taxes which may be imposed upon personal
property of Tenant (including without limitation, fixtures and equipment) in the
Premises if failure to pay would result in a lien on the Property.
5.12 Payment of Litigation Expenses
------------------------------
<PAGE>
As additional rent, to pay all reasonable costs, counsel and other fees
incurred by Landlord in connection with the successful enforcement by Landlord
of any obligations of Tenant under this Lease.
5.13 Compliance with Insurance Regulations
-------------------------------------
Not to do or permit to be done any act or thing upon the Premises which
will invalidate or be in conflict with the terms of the Massachusetts standard
form of fire, boiler, sprinkler, water damage or other insurance policies
covering the Buildings and the fixtures and property therein; Tenant shall, at
its own expense, comply with all rules, regulations, and requirements of the
National Board of Fire Underwriters or any state or other similar body having
jurisdiction, and shall not knowingly do or permit anything to be done in or
upon the Premises in a manner which increases the rate of fire insurance upon
the Buildings or on any property or equipment located therein. If activity,
use, or occupancy by Tenant, its employees, agents or invitees in or upon the
Premises results in the increase in the rate of fire insurance upon the
Buildings, Landlord shall bill Tenant for such excess and Tenant shall promptly
pay such excess insurance costs. Notwithstanding the foregoing, such billing by
Landlord and payment by Tenant shall not waive Landlord's right to require such
activity to cease unless the only result of Tenant's activity is to cause an
----
increase in the premiums for such insurance and such increase is paid by Tenant.
ARTICLE VI
CASUALTY AND TAKING
6.1 Termination or Restoration; Rent Adjustment
-------------------------------------------
If during the Term all or any substantial part of the Premises or the
Buildings or the Lot are damaged materially by fire or other casualty or by
action of public or other authority in consequence thereof, or are taken by
eminent domain, this Lease shall terminate at Landlord's election, which may be
made notwithstanding Landlord's entire interest may have been divested, by
notice given to Tenant within thirty (30) days after the date of casualty or
taking specifying the effective date of
<PAGE>
termination. If this Lease is not so terminated by Landlord, Landlord shall
provide to Tenant in writing within thirty (30) days after the casualty or
taking the estimate from a contractor engaged by Landlord of the cost of repair
and when the Premises or the Common Areas of the Buildings, as the case may be,
could be restored to proper condition for occupancy by Tenant. If such estimate
is five (5) months or more after the date of the estimate, or if there is a
taking of fifteen (15%) per cent or more of the area of the Premises and Tenant
certifies to Landlord that the remainder of the Premises is insufficient for the
operations of Tenant's business, then Tenant may terminate this Lease by written
notice to Landlord within twenty (20) days after receipt of such estimate or the
date possession of the Premises is taken, as the case may be. The effective
date of termination specified by either Landlord or Tenant shall not be less
than fifteen (15) nor more than thirty (30) days after the date of notice of
such termination. Unless terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect following any such damage or taking,
subject, however, to the following provisions. If in any such case the Premises
are rendered unfit for use and occupancy and this Lease is not so terminated,
Landlord shall use due diligence (following the expiration of the period in
which Landlord or Tenant may terminate this Lease pursuant to the foregoing
provisions of this Section 6.1) to put the Premises, or in case of taking what
may remain thereof (excluding in case of both casualty and taking any items
installed or paid for by Tenant which Tenant may be required to remove), into
substantially the condition existing before the casualty or taking (in the case
of a taking to the extent permitted by the net award of damages), and a just
proportion of the Fixed Rent and additional rent according to the nature and
extent of the injury shall be abated from the date of such casualty or taking
until the Premises or such remainder shall have been put by Landlord in such
condition; and in case of taking which permanently reduces the area of the
Premises, a just proportion of the Fixed Rent and additional rent shall be
abated for the remainder of the Term.
6.2 Eminent Domain Award
--------------------
Landlord reserves to itself any and all rights to receive awards made
for damages to the Premises and Buildings and Lot and the leasehold hereby
created, or any one or more of them, accruing by reason of exercise of eminent
domain or by reason of anything lawfully done in pursuance of public or other
authority. Tenant hereby releases and assigns to Landlord all Tenant's rights
to such awards, and covenants to deliver such further assignments and assurances
thereof as Landlord may from to time request. Tenant hereby irrevocably
designates and appoints Landlord as its attorney-in-fact to execute and deliver
in Tenant's name and on its behalf all such further assignments
<PAGE>
thereof. Notwithstanding the foregoing, Tenant shall be entitled to any damages
for personal property of Tenant and for relocation expenses which are available
to Tenant in a separate action or separate award.
ARTICLE VII
DEFAULT
7.1 Events of Default
-----------------
If any default, breach or failure of performance by Tenant of any
agreement, covenant, condition, provision, or warranty contained herein
continues, in case of failure to pay Fixed Rent or additional rent or other
payments required hereunder (i) within five (5) days after notice from Landlord
to be given no more than two (2) times in any calendar year and otherwise (ii)
on the date due, or in cases other than monetary defaults continuing for more
than thirty (30) days after notice from Landlord and such additional time, if
any, as is reasonably necessary to cure the default if the default is of such a
nature that it cannot reasonably be cured in thirty (30) days provided Tenant
commences to cure promptly and diligently pursues the cure to completion but in
no case more than ninety (90) days after notice from Landlord if Landlord may be
subjected to any enforcement action or fine by any governmental agency unless
Tenant is contesting the enforcement action before a court or administrative
agency having jurisdiction which has the effect of staying any such action or
fine; or if Tenant becomes insolvent, files or has filed against it (and in the
case of an involuntary petition such is not dismissed within ninety (90) days
after the filing) a petition under any chapter of the U.S. Bankruptcy Code (or
any similar petition under any insolvency law of any jurisdiction), proposes any
dissolution, liquidation, composition, financial reorganization or
recapitalization with creditors, makes an assignment or trust mortgage for the
benefit of creditors, or if a receiver, trustee, custodian or similar agent is
appointed or takes possession with respect to any property or business of Tenant
and is not discharged within ninety (90) days, then in any such case, whether or
not the Term shall have begun, Landlord may immediately, or at any time while
such default exists and without further notice, terminate this
<PAGE>
Lease by notice to Tenant, specifying the date on which this Lease shall
terminate, and this Lease shall come to an end on the date specified therein as
fully and completely as if such date were the date herein originally fixed for
the expiration of the Term, and Tenant shall then quit and surrender the
Premises to Landlord, but Tenant shall remain liable as hereinafter provided.
7.2 Landlord's Rights and Tenant's Obligations After Termination
------------------------------------------------------------
In the event that this Lease is terminated under any of the provisions
contained in Section 7.1 or shall be otherwise terminated for breach of any
obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as
compensation, the excess of the total rent reserved for the residue of the Term
over the fair market rental value of the Premises for said residue of the Term
discounted to present value determined by reference to the Wall Street Journal
listing of "Treasury Bonds, Notes, and Bills" (representative of New York, based
on transactions of $1,000,000 or more), of the yield to maturity on issues
closest to the expiration of the Term of this Lease. In calculating the rent
reserved there shall be included, in addition to the Fixed Rent and all
additional rent, the value of all other considerations agreed to be paid or
performed by Tenant for said residue. Tenant further covenants as an additional
and cumulative obligation after any such termination to pay punctually to
Landlord all the sums and perform all the obligations which Tenant covenants in
this Lease to pay and to perform in the same manner and to the same extent and
at the same time as if this Lease had not been terminated. In calculating the
amounts to be paid by Tenant under the next foregoing covenant Tenant shall be
credited with any amount paid to Landlord as compensation as in this Section 7.2
provided and also with the net proceeds of any rent obtained by Landlord by
reletting the Premises, after deducting reasonable expenses in connection with
such reletting, including, without limitation, repossession costs, brokerage
commissions, fees for legal services and expenses of preparing the Premises for
such reletting, it being agreed by Tenant that Landlord may (i) relet the
Premises or any part or parts thereof, for a term or terms which may, at
Landlord's option, be equal to or less than or exceed the period which would
otherwise have constituted the balance of the Term and may grant such
concessions and free rent as Landlord in its sole judgment considers advisable
or necessary to relet the same, and (ii) make such alterations, repairs and
decorations in the Premises as Landlord in its sole judgment considers advisable
or necessary to relet the same, and no action of Landlord in accordance with the
foregoing or failure to relet or to collect rent under reletting shall operate
or be construed to release or reduce Tenant's liability as aforesaid. Landlord
shall use reasonable efforts to relet the Premises in accordance with the
foregoing provisions.
<PAGE>
In lieu of any other damages or indemnity and in lieu of full recovery
by Landlord of all sums payable under all the foregoing provisions of this
Section 7.2, Landlord may, by written notice to Tenant, at any time after this
Lease is terminated under any of the provisions contained in Section 7.1 or is
otherwise terminated for breach of any obligation of Tenant and before such full
recovery, elect to recover, and Tenant shall thereupon pay, as liquidated
damages, an amount equal to the aggregate of the Fixed Rent and additional rent
accrued under Sections 2.6, 2.7 and 2.8 in the twelve (12) months ended next
prior to such termination plus the amount of Fixed Rent and additional rent of
any kind accrued and unpaid at the time of termination and less the amount of
any recovery by Landlord under the foregoing provisions of this Section 7.2 up
to the time of payment of such liquidated damages.
Nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by
reason of the termination of this Lease, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved.
ARTICLE VIII
MISCELLANEOUS
8.1 Notice of Lease; Consent and Approval; Notices; Bind and Inure
-------------------------------------------------------- -----
The titles of the Articles are for convenience only and are not to be
considered in construing this Lease. Tenant agrees not to record this Lease,
but upon request of either party both parties shall execute and deliver a notice
of this Lease pursuant to M.G.L. c. 183 (S)4, and if this Lease is terminated
before the term expires, an instrument in such form acknowledging the date of
termination. Whenever any notice, approval, consent, request or election is
given or made pursuant to this Lease it shall be in writing. Communications and
payments shall be addressed if to Landlord at Landlord's Original Address or at
such other address as may have been specified by prior notice to Tenant, and if
to Tenant, at Tenant's Original Address or after the Term
<PAGE>
Commencement Date at the Premises, or at such other place as may have been
specified by prior notice to Landlord. Any communication so addressed shall be
deemed duly given upon delivery in hand or one day after it is sent by overnight
mail or by regularly recognized overnight courier which supplies a receipt
therefor, or two (2) days after it is mailed by registered or certified mail,
return receipt requested. If Landlord by notice to Tenant at any time
designates some other person to receive payments or notices, all payments or
notices thereafter by Tenant shall be paid or given to the person designated
until notice to the contrary is received by Tenant from Landlord. The
obligations of this Lease shall run with the land, and this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, subject to the limitations set forth in Section 8.16.
8.2 Failure to Enforce
------------------
The failure of Landlord or Tenant to seek redress for violation of, or to
insist upon strict performance of, any covenant or condition of this Lease,
shall not be deemed a waiver of such violation nor prevent a subsequent act
which would have originally constituted a violation, from having all the force
and effect of an original violation. The receipt by Landlord or payment by
Tenant of Fixed Rent or additional rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach. No
provision of this Lease shall be deemed to have been waived by Landlord or
Tenant unless such waiver be in writing signed by the party to be charged. No
consent or waiver, express or implied, by Landlord or Tenant, to or of any
breach of any agreement or duty shall be construed as a waiver or consent to or
of any other breach of the same or any other agreement or duty.
8.3 Acceptance of Partial Payments of Rent; Delivery of Keys
--------------------------------------------------------
No acceptance by Landlord of a lesser sum than the Fixed Rent and
additional rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other remedy in this Lease provided. The delivery of keys to any
employee of Landlord or to Landlord's agent or any employee thereof shall not
operate as a termination of this Lease or surrender of the Premises.
8.4 Cumulative Remedies
-------------------
<PAGE>
The specific remedies to which Landlord may resort under the terms of this
Lease are cumulative and are not intended to be exclusive of any other remedies
or means of redress to which it may be lawfully entitled in case of any breach
or threatened breach by Tenant of any provisions of this Lease. In addition to
other remedies provided in this Lease, Landlord shall be entitled to the
restraint by injunction of the violation or attempted or threatened violation of
any of the covenants, conditions or provisions of this Lease or to a decree
compelling specific performance of any such covenants, conditions or provisions.
8.5 Partial Invalidity
------------------
If any term of this Lease, or the application thereof to any person or
circumstances, shall to any extent be invalid or unenforceable, the remainder of
this Lease, or the application of such term to persons or circumstances other
than those as to which it is invalid or unenforceable shall not be affected
thereby, and each term of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
8.6 Self-Help and Late Charge
-------------------------
If Tenant shall at any time default in the performance of any obligation
under this Lease and such default shall continue for more than thirty (30) days
after notice from Landlord (except in the case of emergencies when no notice
shall be required), Landlord shall have the right, but shall not be obligated,
to enter upon the Premises and to perform such obligation notwithstanding the
fact that no specific provision for such substituted performance by Landlord is
made in this Lease with respect to such default. In performing such obligation,
Landlord may make any payment of money or perform any other act. All sums so
paid by Landlord (together with interest at the rate of two and one-half (2.5%)
percentage points over the then prevailing prime rate as published in The Wall
--------
Street Journal) and all necessary incidental costs and expenses in connection
- -------------
with the performance of any such act by Landlord, shall be deemed to be
additional rent under this Lease and shall be payable to Landlord immediately on
demand. Landlord may exercise the foregoing rights without waiving any other of
its rights or releasing Tenant from any of its obligations under this Lease.
<PAGE>
If Tenant shall at any time default in the payment of Fixed Rent and
additional rent, Landlord shall be entitled to collect and Tenant shall promptly
pay a late charge at the rate of one and one-half (1.5%) per cent per month or
any fraction thereof of such delinquent payment, accruing after the due date.
8.7 Estoppel Certificate
--------------------
Each party agrees from time to time, upon not less than fifteen (15) days'
prior written request by the other party, to execute, acknowledge and deliver to
the requesting party a statement in writing certifying that this Lease is
unmodified and in full force and effect and that there are no uncured defaults
of Landlord or Tenant under this Lease, and if Landlord is the requesting party
that Tenant has no defenses, offsets or counterclaims against its obligations to
pay the Fixed Rent and additional rent and to perform its other covenants under
this Lease (or, if there have been any modifications that the same is in full
force and effect as modified and stating the modifications and, if there are any
defenses, offsets, counterclaims, or defaults, setting them forth in reasonable
detail), the dates to which the Fixed Rent, additional rent and other charges
have been paid and such other matters relating to the Lease as may be reasonably
requested. Any such statement delivered pursuant to this Section 8.7 may be
relied upon by a prospective purchaser or mortgagee of the Property or any
prospective assignee of any mortgagee of the Property, or by a prospective
assignee of Tenant's interest in this Lease, as the case may be.
8.8 Waiver of Subrogation
---------------------
Any insurance carried by either party with respect to the Premises or
property therein or occurrences thereon shall include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of injury or
loss. Each party, notwithstanding any provisions of this Lease to the contrary,
hereby waives any rights of recovery against the other for injury or loss due to
hazards covered by such insurance to the extent of the indemnification received
thereunder.
8.9 All Agreements Contained
------------------------
This Lease contains all of the agreements of the parties with respect to
the subject matter thereof and supersedes all prior dealings between them with
respect to such subject matter.
8.10 Brokerage
---------
Each party represents that it has had no dealings with any
<PAGE>
broker or agent other than R. M. Bradley and The Niles Company, Inc. in
connection with this Lease and covenants to defend, hold harmless and indemnify
the other party and its agents from and against any and all cost, expense or
liability resulting from a breach of the foregoing representation. Landlord
will pay the commissions due the aforesaid brokers in accordance with separate
commission agreements.
8.11 Submission Not an Option
------------------------
The submission of this Lease or a summary of some or all of its provisions
for examination does not constitute a reservation of or option for the Premises
or an offer to lease, and it is not effective as a lease or otherwise until the
execution by and delivery to both Landlord and Tenant.
8.12 Applicable Law
--------------
This Lease, and the rights and obligations of the parties hereto, shall be
construed and enforced in accordance with the laws of the Commonwealth of
Massachusetts.
8.13 Waiver of Jury Trial
--------------------
LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER, ON OR IN
RESPECT TO ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, TENANT'S USE OR
OCCUPANCY OF THE PREMISES, AND/OR CLAIM OF INJURY OR DAMAGES.
8.14 Access and Security
-------------------
Tenant shall have access to the Premises at all times. The Buildings are
accessed by an automated card key system. Tenant shall be responsible for any
security required for Tenant's property in or around the Premises, including,
but not limited to, the loading area.
8.15 Holdover
--------
Should Tenant holdover in occupancy of the Premises after
<PAGE>
the expiration or other termination of the Term of this Lease, without the
consent of Landlord, such holding over shall be construed to be a tenancy from
month to month on the same terms and conditions herein specified insofar as
applicable except Tenant shall be liable to Landlord for use and occupancy for
the first three (3) months equal to the greater of one hundred fifty (150%)
percent of the then-current market value rent or one hundred fifty (150%)
percent of the Fixed Rent and additional rent in effect at the end of the Term
and thereafter an amount equal to the greater of two hundred (200%) percent of
then-current market value rent or two hundred (200%) percent of the Fixed Rent
and additional rent in effect at the end of the Term, and also for all damages
sustained by Landlord on account of such holding over. The provisions of this
Section shall not operate as a waiver of any right of reentry provided in this
Lease.
8.16 Limitation on Liability
-----------------------
In consideration of the benefits accruing hereunder, Tenant hereby
covenants and agrees that, in the event of any actual or alleged failure, breach
or default hereunder by Landlord:
(a) The obligations of Landlord under this Lease do not constitute
personal obligations of the trustees, individual partners, directors, officers
or shareholders of Landlord, and Tenant shall not seek recourse against the
trustees, partners, directors, officers or shareholders of Landlord, or any of
their personal assets for satisfaction of any liability with respect to this
Lease.
(b) Tenant's sole and exclusive remedy shall be against Landlord's
interest in the Property.
(c) These covenants and agreements are enforceable by Landlord, and
shall bind Tenant and its successors and assigns.
In consideration of benefits accruing hereunder, Landlord hereby covenants
and agrees that, in the event of any actual or alleged failure, breach or
default hereunder by Tenant:
(a) The obligations of Tenant under this Lease do not constitute
personal obligations of the directors, officers or shareholders of Tenant, and
Landlord shall not seek recourse against the directors, officers or shareholders
of Tenant, or any of their personal assets for satisfaction of any liability
with respect to this Lease.
(b) These covenants and agreements are enforceable by Tenant, and
shall bind Landlord and its successors and assigns.
8.17 Security Deposit
----------------
<PAGE>
Landlord acknowledges receipt from Tenant of the Security Deposit, and
Landlord agrees that the Security Deposit shall be held by Landlord, as security
for the timely and complete performance of the obligations of Tenant hereunder,
and shall be returned to Tenant, provided there exists no breach of any
undertaking of Tenant, at the earlier of (a) such time as Tenant delivers to
Landlord audited financial statements of Tenant or other documentation
acceptable to Landlord such as the final prospectus and appropriate officers
closing certificates from an initial public offering which indicate that Total
Shareholders' Equity, net of the Redeemable Component of Convertible Preferred
Stock, is equal to or exceeds $10,000,000, or (b) thirty-six full calendar
months after the Commencement Date. If a default of Tenant shall occur and
continue beyond any applicable grace or cure period, Landlord may at its option,
but shall not be obligated to, apply a part or all of the Security Deposit to
cure such default or to compensate itself for any damages arising out of such
default. Tenant shall not have the right to call upon Landlord to apply all or
any part of the Security Deposit to cure any default or fulfill any obligation
of Tenant, but such use shall be solely in the discretion of Landlord. If all
or any part of the Security Deposit is applied to an obligation of Tenant
hereunder, Tenant shall immediately upon request by Landlord restore the
Security Deposit to its original amount. Upon any conveyance by Landlord of its
interest under this Lease, the Security Deposit may be delivered by Landlord to
Landlord's grantee or transferee. Upon any such delivery and written
acknowledgement by the grantee or transferee of receipt therefor and agreement
to be bound by the provisions of this Section 8.17, Tenant hereby releases
Landlord herein named of any and all liability with respect to the Security
Deposit, its application and return, and Tenant agrees to look solely to such
grantee or transferee. It is further understood that this provision shall also
apply to subsequent grantees and transferees.
Landlord shall invest, or cause to be invested, the Security Deposit in one
or more of the following investments as shall be selected from time to time by
Tenant, so long as no default of Tenant shall have occurred and continued beyond
any applicable grace or cure period and otherwise as selected from time to time
be Landlord: certificates of deposit at Fleet Bank; United States Treasury
Bills and Notes; money market mutual funds investing exclusively in United
States government obligations;
<PAGE>
commercial paper of a grade acceptable to Landlord's mortgagee; and repurchase
agreements collateralized by United States Government obligations . So long as
no default by Tenant shall have occurred and continued beyond any applicable
grace or cure period the interest earned thereon shall be delivered to Tenant at
Tenant's request from time to time as available; but following any such default
such interest may at Landlord's election be added to the Security Deposit.
Tenant's Federal identification number is _______________, and Tenant will sign
at Landlord's request such government reporting forms as are reasonably
requested.
Landlord contemplates obtaining a loan for all or a portion of the Tenant
Allowance and in connection therewith assigning the Security Deposit to the
lender. Provided that the lender is Fleet Bank of Rhode Island or some other
institutional lender having combined capital and surplus of at least
$50,000,000., Tenant agrees that the Security Deposit may be assigned or
otherwise transferred to such lender provided that such lender agrees with
Tenant in writing to return the Security Deposit to Tenant on the same terms and
conditions as are set forth in this Lease, and in such event Tenant shall look
to such lender and not to Landlord for return of the Security Deposit so long as
it is held by such lender and not by landlord.
ARTICLE IX
RIGHTS OF PARTIES HOLDING PRIOR INTERESTS
9.1 Lease Subordinate
-----------------
This Lease shall be subject and subordinate to any mortgage now or
hereafter on the Property and to each advance made thereunder, and to all
renewals, modifications, consolidation, replacements and extensions thereof and
all substitutions therefor, provided that the holder thereof enters into an
agreement with Tenant in recordable form by the terms of which such holder will
agree to recognize the rights of Tenant under this Lease and to accept Tenant as
tenant of the Premises under the terms and conditions of this Lease in the event
of acquisition of title by such holder through foreclosure proceedings or
otherwise and Tenant will agree to recognize and attorn to the holder of such
mortgage as Landlord in such event, which agreement shall be made expressly to
bind and inure to the benefit of the successors and assigns of Tenant and of the
holder and upon anyone purchasing the Premises at any foreclosure sale.
Notwithstanding the foregoing, any such holder may at its election subordinate
its mortgage to this Lease without the consent or approval of Tenant. Tenant
and Landlord agree to execute and deliver any appropriate instruments containing
terms and provisions commonly contained in such instruments necessary
<PAGE>
to carry out the agreements contained in this Section 9.1.
9.2 Rights of Holder of Mortgage to Notice of Defaults by Landlord and to Cure
--------------------------------------------------------------------------
Same
----
No act or failure to act on the part of Landlord which would entitle Tenant
under the terms of this Lease, or by law, to be relieved of Tenant's obligations
hereunder or to terminate this Lease, shall result in a release or termination
of such obligations or a termination of this Lease unless (i) Tenant shall have
first given written notice of Landlord's act or failure to act to Landlord's
mortgagees of record, if any, specifying the act or failure to act on the part
of Landlord which could or would give basis to Tenant's rights; and (ii) such
mortgagees after receipt of such notice, have failed or refused to correct or
cure the condition complained of within a reasonable time thereafter; but
nothing contained in this Section 9.2 shall be deemed to impose any obligation
on any such mortgagees to correct or cure any condition.
EXECUTED as a sealed instrument in two or more counterparts on the day
first above written.
Landlord:
/s/Henry DiRico
--------------------------------
Henry DiRico, as Trustee of
Wormwood Realty Trust and not
individually
/s/Alfred DiRico
--------------------------------
Alfred DiRico, as Trustee of
Wormwood Realty Trust and not
individually
Tenant:
<PAGE>
Nitinol Medical Technologies, Inc.
/s/Thomas M. Tully
By:___________________________________
___________________________ Name: Thomas M. Tully
Title: President & Chief Executive Officer
___________________________
<PAGE>
EXHIBIT 10.28
NITINOL MEDICAL TECHNOLOGIES, INC.
1994 STOCK OPTION PLAN
----------------------
1. Purpose. This 1994 Stock Option Plan (the "Plan") is intended to
-------
benefit and provide incentives to the employees of Nitinol Medical Technologies,
Inc. (the "Company"), its parent (if any) and any present or future subsidiaries
of the Company (collectively, "Related Corporations"), by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" ("ISO" or "ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
and to employees, directors and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options").
Both ISOs and Non-Qualified Options are referred to hereinafter
individually as an "Option" and collectively as "Options." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. Administration of the Plan.
--------------------------
A. Board or Committee Administration. The Plan shall be administered
---------------------------------
by a Committee of not less than two (2) persons, each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3(c)(2)(i) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and an "outside director" within the meaning of Section 162(m) of the Code.
The members of the Committee shall be appointed by the Company's Board of
Directors (the "Board") and shall serve at the pleasure of the Board. If no
Committee has been appointed to administer the Plan, the functions of the
Committee specified in the Plan shall be carried out by the Board, except
that at any time after a registration of any of the Company's
<PAGE>
stock under the Exchange Act or the Company otherwise becomes subject to the
reporting requirements of the Exchange Act, administration by a Committee is
required. Subject to the terms of the Plan, the Committee shall have the
authority to:
(i) determine the employees of the Company and Related Corporations (from
among the class of employees eligible under paragraph 3 to receive ISOs) to
whom ISOs may be granted, and to determine (from among the class of
individuals and entities eligible under paragraph 3 to receive Non-Qualified
Options) to whom Non-Qualified Options may be granted;
(ii) determine the time or times at which Options may be granted;
(iii) determine the option price of shares subject to each Option, which
price shall not be less than the minimum price specified in paragraph 6;
(iv) determine whether each Option granted shall be an ISO or a Non-Qualified
Option;
(v) determine (subject to paragraph 7) the time or times when each Option
shall become exercisable and the duration of the exercise period;
(vi) determine whether restrictions such as repurchase rights and other
vesting restrictions are to be imposed on shares subject to Options and the
nature of such restrictions, if any; and
(vii) interpret the Plan and prescribe and rescind rules and regulations
relating to it.
If the Committee determines to issue a Non-Qualified Option, it shall
designate the Non-Qualified Option as such upon grant and in the agreement
governing such Non-Qualified Option. The interpretation and construction by
the Committee of any provisions of the Plan
2
<PAGE>
or of any Option granted under it shall be final unless otherwise determined
by the Board. The Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem appropriate. No member
of the Board or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted under the
Plan.
B. Committee Actions. The Committee may select one of its members as
-----------------
its chairman, and shall hold meetings at such time and place as it may
determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be
the valid acts of the Committee. All references in this Plan to the Committee
shall mean the Board if no Committee has been appointed.
3. Eligible Employees and Others. ISOs may be granted to any employee
-----------------------------
(including employees who serve as officers or directors) of the Company or any
Related Corporation. Non-Qualified Options may be granted to any employee
(including employees who serve as officers or directors), director or consultant
(including consultants who also serve as directors) of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances and such other factors as it deems relevant in
determining whether to grant an Option. However, prior to the time any of the
Company's stock is registered under the Exchange Act or the Company otherwise
becomes subject to the reporting requirements of the Exchange Act, the Plan will
be amended to provide, among other things, that directors who are not employees
of the Company or a Related Corporation may only be granted Non-Qualified
Options on a non-discretionary formula basis which will be determined by the
Board. The granting of any Option to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him or her from,
participation in any other grant of Options.
4. Stock. The stock subject to Options shall be authorized but unissued
-----
shares of Common Stock of the Company, $.001 par value per share (the "Common
Stock"), or shares of
3
<PAGE>
Common Stock reacquired by the Company in any manner. The aggregate number of
shares which may be issued pursuant to the Plan is 600,000, subject to
adjustment as provided in paragraph 13. Any such shares may be issued pursuant
to ISOs or Non-Qualified Options, so long as the number of shares so issued does
not exceed such number, as adjusted. If any Option granted under the Plan shall
expire or terminate for any reason without having been exercised in full or
shall cease for any reason to be exercisable in whole or in part, the
unpurchased shares subject to such Options shall again be available for grants
of Options under the Plan.
5. Granting of Options. Options may be granted under the Plan at any time
-------------------
on or after May 31, 1994 and prior to May 31, 1999. The date of grant of an
Option under the Plan will be the date specified by the Committee at the time it
grants the Option; provided however, that such date shall not be prior to the
date on which the Committee acts to approve the grant. The Committee shall have
the right, with the consent of the optionee, to convert an ISO granted under the
Plan to a Non-Qualified Option pursuant to paragraph 16.
6. Minimum Option Price; ISO Limitations.
-------------------------------------
A. Exercise Price for Non-Qualified Options. The exercise price per
----------------------------------------
share specified in the agreement relating to each Non-Qualified Option
granted under the Plan shall in no event be less than the par value per share
of Common Stock as of the date of grant.
B. Exercise Price for ISOs. The exercise price per share of Common
-----------------------
Stock specified in the agreement relating to each ISO granted under the Plan
shall not be less than the fair market value per share of Common Stock on the
date of such grant. In the case of an ISO to be granted to an employee
owning stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement relating to such
ISO shall not be less than one hundred
4
<PAGE>
ten percent (110%) of the fair market value per share of Common Stock on the
date of such grant.
C. $100,000 Annual Limitation on ISOs. Each eligible employee may be
----------------------------------
granted ISOs only to the extent that, in the aggregate under this Plan and
all incentive stock option plans of the Company and any Related Corporation,
such ISOs do not become exercisable for the first time by such employee
during any calendar year in a manner which would entitle the employee to
purchase more than $100,000 in fair market value (determined at the time the
ISOs were granted) of Common Stock in that year. Any options granted to an
employee in excess of such amount will be granted as Non-Qualified Options.
D. Determination of Fair Market Value. If, at the time an Option is
----------------------------------
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business day for which the
prices or quotes referred to in this sentence are available prior to the date
such Option is granted and shall mean (i) the average (on that date) of the
high and low prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or (ii) the last reported sale
price (on that date) of the Common Stock on the NASDAQ National Market, if
the Common Stock is not then traded on a national securities exchange; or
(iii) the closing bid price (or average bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Common Stock is not then listed on the NASDAQ National Market. However,
if the Common Stock is not publicly traded at the time an Option is granted
under the Plan, "fair market value" shall be deemed to be the fair value of
the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
5
<PAGE>
7. Option Duration. Subject to earlier termination as provided in
---------------
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years from the date of grant in the case of
Non-Qualified Options and in the case of ISOs generally, and (ii) five years
from the date of grant in the case of ISOs granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Related Corporation. Subject to earlier
termination as provided in paragraphs 9 and 10, the term of each ISO shall be
the term set forth in the original instrument granting such ISO, except with
respect to any part of such ISO that is converted into a Non-Qualified Option
pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
------------------
12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the date
-------
of grant or shall become exercisable thereafter in such installments as the
Committee may specify in the instrument granting such Option.
B. Full Vesting of Installments. Once an installment becomes
----------------------------
exercisable, it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised at
----------------
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to
-----------------------
accelerate the date of exercise of any installment of any Option; provided
--------
that, the Committee shall not, without the consent of an optionee, accelerate
----
the exercise date of any installment of any Option granted to any employee as
an ISO (and not previously converted into a Non-Qualified Option pursuant to
paragraph 16) if such acceleration would violate the annual vesting
limi-
6
<PAGE>
tation contained in Section 422(d) of the Code, as described in paragraph
6(C).
9. Termination of Employment. If an ISO optionee ceases to be employed by
-------------------------
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his or her
ISOs shall become exercisable, and his or her ISOs which are exercisable on the
date of termination of his or her employment shall terminate after the passage
of three months from the date of termination of his or her employment, but in no
event later than on their specified expiration dates, except (i) in the case of
termination for "Misconduct", as defined in the instrument granting such ISOs,
in which case such ISOs shall terminate automatically on the date of such
termination, and (ii) to the extent that such ISOs (or unexercised installments
thereof) have been converted into Non-Qualified Options pursuant to paragraph
16. Employment shall be considered as continuing uninterrupted during any bona
fide leave of absence (such as those attributable to illness, military
obligations or governmental service); provided that, the period of such leave
-------- ----
does not exceed three months or, if longer, any period during which such
optionee's right to reemployment is guaranteed by statute. A bona fide leave of
absence with the written approval of the Committee shall not be considered an
interruption of employment under the Plan, provided that such written approval
contractually obligates the Company or any Related Corporation to continue the
employment of the optionee after the approved period of absence. ISOs granted
under the Plan shall not be affected by any change of employment within or among
the Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. Nothing in the Plan shall
be deemed to give any grantee of any Option the right to be retained in
employment or other service by the Company or any Related Corporation for any
period of time.
7
<PAGE>
10. Death; Disability.
-----------------
A. Death. If an ISO optionee ceases to be employed by the Company and
-----
all Related Corporations by reason of his or her death, any ISO of his or
hers may be exercised, to the extent of the number of shares with respect to
which he or she could have exercised it on the date of his or her death, by
his or her estate, personal representative or beneficiary who has acquired
the ISO by will or by the laws of descent and distribution, at any time prior
to the earlier of the specified expiration date of the ISO or 180 days from
the date of the optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the
----------
Company and all Related Corporations by reason of his or her disability, he
or she shall have the right to exercise any ISO held by him or her on the
date of termination of employment, to the extent of the number of shares with
respect to which he or she could have exercised it on that date, at any time
prior to the earlier of the specified expiration date of the ISO or 180 days
from the date of the termination of the optionee's employment. For the
purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or any successor
statute.
11. Assignability. No Option shall be assignable or transferable by
-------------
the optionee (a) except by will or by the laws of descent and distribution, or,
if then permitted under Rule 16b-3 of the Exchange Act, pursuant to a qualified
domestic relations order as defined under the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder, and (b) if such
assignment or transfer violates Section 162(m) of the Code. The Option shall be
exercisable during the lifetime of the optionee only by such optionee or his or
her guardian or legal representative.
12. Terms and Conditions of Options. Options shall be evidenced by
-------------------------------
instruments (which need not be identical)
8
<PAGE>
in such forms as the Committee may from time to time approve. Such instruments
shall conform to the terms and conditions set forth in paragraphs 6 through 11
hereof and may contain such other provisions as the Committee deems advisable
which are not inconsistent with the Plan, including restrictions applicable to
shares of Common Stock issuable upon exercise of Options (including, without
limitation, rights of repurchase by the Company and, in the event of an
underwritten public offering of the Company's securities, restrictions on any
sale or distribution by the optionee of any of the Company's common equity for a
period of time as the underwriters in such public offering shall determine). In
granting any Non-Qualified Option, the Committee may specify that such Non-
Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination, cancellation and other provisions
not inconsistent with the Plan as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events,
-----------
an optionee's rights with respect to Options granted to him or her hereunder
shall be adjusted as and to the extent hereinafter required, unless otherwise
specifically provided in the written agreement between the optionee and the
Company relating to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or
if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of Options shall be appropriately increased or
decreased proportionately and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
9
<PAGE>
B. Consolidations or Mergers. If the Company is to be consolidated
-------------------------
with or acquired by another entity in a merger, sale of all or substantially
all of the Company's assets or otherwise (an "Acquisition"), the Committee or
the board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either
(i) make appropriate provision for the continuation of such Options by
substitution on an equitable basis for the shares then subject to such
Options the consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition; (ii) upon written notice to
the optionees, provide that all Options must be exercised, to the extent then
exercisable (or in the discretion of the Committee or the Successor Board,
also provide that all unvested Options shall be, or become at the time which
the Committee shall determine, immediately exercisable), within a specified
number of days of the date of such notice, at the end of which period the
Options shall terminate; or (iii) terminate all Options in exchange for a
cash payment or other consideration equal to the excess of the fair market
value of the shares subject to such Options (to the extent then exercisable,
or in the discretion of the Committee or the Successor Board, whether or not
then exercisable) over the exercise price thereof.
C. Recapitalization or Reorganization. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect to the outstanding
shares of Common Stock, an optionee upon exercising an Option shall be
entitled to receive for the purchase price paid upon such exercise, the
securities he or she would have received if he or she had exercised his or
her Option immediately prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any
--------------------
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after
10
<PAGE>
the Committee, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs (as
that term is defined in Section 424 of the Code) or would cause any adverse
tax consequences for the holders of such ISOs. If the Committee determines
that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments.
E. Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by the
Committee.
F. Issuances of Securities. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued under the
-----------------
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. Adjustments. Upon the happening of any of the events described in
-----------
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Options which previously have
been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
If changes in the capitalization of the Company shall occur other than those
referred to above in this Paragraph 13, the Committee shall make such
adjustments, if any, in the number of shares covered by each Option and in
the per share pur-
11
<PAGE>
chase price as the Committee in its discretion may consider appropriate. The
Committee or, if applicable, the Successor Board, shall determine the
specific adjustments to be made under this paragraph 13 and its determination
shall be conclusive.
14. Means of Exercising Options. An Option (or any part or installment
---------------------------
thereof) shall be exercised by giving written notice to the Company at its
principal executive office or to the transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify
the number of shares as to which such Option is being exercised, accompanied by
full payment of the purchase price therefor either (a) in United States dollars
in cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock already owed by the optionee having a fair market value
equal as of the date of the exercise to the cash exercise price of the Option,
(c) at the discretion of the Committee, by delivery of the grantee's personal
recourse note bearing interest payable not less than annually at no less than
100% of the lowest applicable Federal rate, as defined in Section 1274(d) of the
Code or (d) at the discretion of the Committee, by any combination of (a), (b)
or (c) above. If the Committee exercises its discretion to permit payment of
the exercise price of an Option by means of the methods set forth in clauses
(b), (c) or (d) of the preceding sentence, such discretion shall be exercised in
writing at the time of the grant of the Option in question. The holder of a
Option shall not have the rights of a shareholder with respect to the shares
covered by his or her Option until the date of issuance of a stock certificate
to him or her for such shares. Except as expressly provided above in paragraph
13 with respect to changes in capitalization and stock dividends, no adjustment
shall be made for dividends or similar rights for which the record date is
before the date such stock certificate is issued.
15. Term and Amendment of Plan. The Plan was originally adopted by the
--------------------------
Board and the shareholders of the Company on May 31, 1994. The Plan shall
expire at the end of the day on May 31, 1999 . The Board may terminate or amend
the Plan in any respect at any time; provided that, no such amend-
-------- ----
12
<PAGE>
ment or termination shall adversely affect any Plan participant's rights under
any Option previously granted, without such participant's written consent. If
the scope of any amendment is such as to require shareholder approval in order
to comply with Rule 16b-3 of the Exchange Act or Section 162(m) of the Code,
then such amendment shall not be effective unless and until such shareholder
approval is obtained.
16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
-----------------------------------------------------------------
The Committee, at the written request of any optionee, may in its discretion,
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the Optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such ISOs. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine; provided that, such
-------- ----
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such conversion.
17. Governmental Regulation. The Company's obligation to sell and
-----------------------
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
18. Tax Withholding. Upon the exercise of an Option or the making of a
---------------
Disqualifying Disposition (as defined in paragraph 19), the Company, in
accordance with Section
13
<PAGE>
3402(a) of the Code, may require the optionee to pay withholding taxes in
respect of the amount that is considered compensation required to be included in
such person's gross income. The Committee, in its discretion, may condition the
exercise of an Option on the grantee's payment of such withholding taxes. The
Committee shall have the sole discretion to determine the form in which payment
of such withholding taxes will be made (i.e., cash, securities or a
----
combination thereof).
19. Notice to Company of Disqualifying Disposition. Each employee who
----------------------------------------------
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
20. Governing Law; Construction. The validity and construction of the
---------------------------
Plan and the instruments evidencing Options shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized. In construing this Plan, the singular
shall include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
14
<PAGE>
EXHIBIT 10.29
NITINOL MEDICAL TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
Adopted June __, 1996
SECTION 1. PURPOSE. The purpose of the Nitinol Medical Technologies, Inc.
-------
1996 Stock Option Plan (the "Plan") is to provide a means whereby selected
employees, officers, directors, agents, consultants, and independent contractors
of Nitinol Medical Technologies, Inc., a Delaware corporation (the "Company"),
or of any parent or subsidiary (as defined in subsection 5.7 hereof and referred
to hereinafter as "Affiliates") thereof, may be granted incentive stock options
and/or nonqualified stock options to purchase shares of common stock, $.001 par
value ("Common Stock") in order to attract and retain the services or advice of
such directors, employees, officers, agents, consultants, and independent
contractors and to provide additional incentive for such persons to exert
maximum efforts for the success of the Company and its Affiliates by encouraging
stock ownership in the Company.
SECTION 2. ADMINISTRATION. Subject to Section 2.3 hereof, the Plan shall
--------------
be administered by the Board of Directors of the Company (the "Board") or, in
the event the Board shall appoint and/or authorize a committee of two or more
members of the Board to administer the Plan, by such committee. The
administrator of the Plan shall hereinafter be referred to as the "Plan
Administrator".
The foregoing notwithstanding, in the event the Company shall register any
of its equity securities pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and any directors are
eligible to receive options under the Plan, then with respect to grants to be
made to directors: (a) the Plan Administrator shall be constituted so as to
meet the requirements of Section 16(b) of the Exchange Act and Rule 16b-3
thereunder, each as amended from time to time, or (b) if the Plan Administrator
cannot be so constituted, no options shall be granted under the Plan to any
directors.
2.1 PROCEDURES. The Board shall designate one of the members of the Plan
----------
Administrator as chairman. The Plan Administrator may hold meetings at such
times and places as it shall determine. The acts of a majority of the members
of the Plan Administrator present at meetings at which a quorum exists, or acts
approved in writing by all Plan Administrator members, shall be valid acts of
the Plan Administrator.
2.2 RESPONSIBILITIES. Except for the terms and conditions explicitly set
----------------
forth herein, the Plan Administrator shall have the authority, in its
discretion, to determine all matters relating to the options to be granted under
the Plan, including, without limitation, selection of whether an option will be
an incentive stock option or a nonqualified stock option, selection of the
individuals to be granted options, the number of shares to be subject to each
option, the exercise price per share, the timing of grants and all other terms
and conditions of the options. Grants under the Plan need not be identical in
any respect, even when made simultaneously. The Plan Administrator may also
establish, amend, and revoke rules and regulations for
<PAGE>
the administration of the Plan. The interpretation and construction by the Plan
Administrator of any terms or provisions of the Plan or any option issued
hereunder, or of any rule or regulation promulgated in connection herewith,
shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
corresponds to the requirements of Internal Revenue Code of 1986, as amended
(the "Code") Section 422, the regulations thereunder, and any amendments
thereto. The Plan Administrator shall not be personally liable for any action
made in good faith with respect to the Plan or any option granted thereunder.
2.3 RULE 16b-3 AND SECTION 16(b) COMPLIANCE; BIFURCATION OF PLAN. It is
------------------------------------------------------------
the intention of the Company that the Plan comply in all respects with Rule 16b-
3 under 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. The Board of Directors may act under
the Plan only if all members thereof are "disinterested persons" as defined in
Rule 16b-3 and further described in Section 4 hereof; and from and after the
date that the Company first registers a class of equity securities under Section
12 of the Exchange Act, no director or officer or other Company "insider"
subject to Section 16 of the Exchange Act may sell shares received upon the
exercise of an option during the six month period immediately following the
grant of the option. Notwithstanding anything in the Plan to the contrary, the
Board, in its absolute discretion, may bifurcate the Plan so as to restrict,
limit, or condition the use of any provision of the Plan to participants who are
officers and directors or other persons subject to Section 16(b) of the Exchange
Act without so restricting, limiting, or conditioning the Plan with respect to
other participants.
SECTION 3. STOCK SUBJECT TO THE PLAN. The stock subject to this Plan
-------------------------
shall be the Common Stock, presently authorized but unissued or subsequently
acquired by the Company. Subject to adjustment as provided in Section 7 hereof,
the aggregate amount of Common Stock to be delivered upon the exercise of all
options granted under the Plan shall not exceed in the aggregate ___________
shares as such Common Stock was constituted on the effective date of the Plan.
If any option granted under the Plan shall expire, be surrendered, exchanged for
another option, cancelled, or terminated for any reason without having been
exercised in full, the unpurchased shares subject thereto shall thereupon again
be available for purposes of the Plan, including for replacement options which
may be granted in exchange for such surrendered, cancelled, or terminated
options.
SECTION 4. ELIGIBILITY. An incentive stock option may be granted only to
-----------
any individual who, at the time the option is granted, is an employee of the
Company or any Affiliate thereof. A nonqualified stock option may be granted to
any director, employee, officer, agent, consultant, or independent contractor of
the Company or any Affiliate thereof, whether an individual or an entity. Any
party to whom an option is granted under the Plan shall be referred to
hereinafter as an "Optionee".
A director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of a director as a
person to whom options may be granted, or in the determination of the
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number of shares which may be covered by options granted to the director, the
Plan complies with the requirements of Rule 16b-3 under the Exchange Act.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS. Options granted under the
-------------------------------
Plan shall be evidenced by written agreements which shall contain such terms,
conditions, limitations, and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with the Plan. Notwithstanding the
foregoing, options shall include or incorporate by reference the following terms
and conditions:
5.1 NUMBER OF SHARES AND PRICE. The maximum number of shares that may be
--------------------------
purchased pursuant to the exercise of each option, and the price per share at
which such option is exercisable (the "exercise price"), shall be as established
by the Plan Administrator; provided, that the Plan Administrator shall act in
good faith to establish the exercise price which shall be not less than 100% of
the fair market value per share of the Common Stock at the time of grant of the
option with respect to incentive stock options and not less than 85% of the fair
market value per share of the Common Stock at the time the option is granted
with respect to non-qualified stock options; and provided, further, that, with
respect to incentive stock options granted to greater than ten percent
stockholders, the exercise price shall be as required by Section 6 hereof.
5.2 TERM AND MATURITY. Subject to the restrictions contained in Section 6
-----------------
hereof with respect to granting stock options to greater than ten percent
stockholders, the term of each stock option shall be as established by the Plan
Administrator and, if not so established, shall be ten years from the date of
its grant, but in no event shall the term of any incentive stock option exceed a
ten year period. The vesting period and time for exercising an option shall be
prescribed by the Plan Administrator in each particular case.
5.3 EXERCISE. Subject to any vesting schedule established by the Plan
--------
Administrator pursuant to Subsection 5.2 hereof, each option may be exercised in
whole or in part; provided, that only whole shares may be issued pursuant to the
exercise of any option. Subject to any other terms and conditions herein, the
Plan Administrator may provide that an option may not be exercised in whole or
in part for a stated period or periods of time during which such option is
outstanding; provided, that the Plan Administrator may rescind, modify, or waive
any such limitation at any time and from time to time after the grant date
thereof. During an Optionee's lifetime, any incentive stock options granted
under the Plan are personal to such Optionee and are exercisable solely by such
Optionee. Options shall be exercised by delivery to the Company of notice of
the number of shares with respect to which the option is exercised, together
with payment of the exercise price in accordance with Section 5.4 hereof.
5.4 PAYMENT OF EXERCISE PRICE. Payment of the option exercise 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, or personal
check (unless at the time of exercise the Plan Administrator in a particular
case determines not to accept a personal check) for shares of Common Stock being
purchased.
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The Plan Administrator can determine at the time the option is granted in
the case of incentive stock options, or at any time before exercise in the case
of nonqualified stock options, that additional forms of payment will be
permitted.
To the extent permitted by the Plan Administrator and applicable laws and
regulations (including, without limitation, federal tax and securities laws and
regulations and state corporate law), an option may be exercised by delivery of
a properly executed Notice of Exercise, together with irrevocable instructions
to a broker, all in accordance with the regulations of the Federal Reserve
Board, to promptly deliver to the Company the amount of sale or loan proceeds to
pay the exercise price and any federal, state, or local withholding tax
obligations that may arise in connection with the exercise; provided, that the
Plan Administrator, in its sole discretion, may at any time determine that this
sentence, to the extent the instructions to the broker call for an immediate
sale of the shares, shall not be applicable to any Optionee who is subject to
Section 16(b) of the Exchange Act, or is not an employee at the time of
exercise.
5.5 WITHHOLDING TAX REQUIREMENT. The Company or any Affiliate thereof
---------------------------
shall have the right to retain and withhold from any payment of cash or Common
Stock under the Plan the amount of taxes required by any government to be
withheld or otherwise deducted and paid with respect to such payment. No option
may be exercised unless and until arrangements satisfactory to the Company, in
its sole discretion, to pay such withholding taxes are made. At its discretion,
the Company may require an Optionee to reimburse the Company for any such taxes
required to be withheld by the Company and withhold any distribution in whole or
in part until the Company is so reimbursed. In lieu thereof, the Company shall
have the right to withhold from any other cash amounts due or to become due from
the Company to the Optionee an amount equal to such taxes or retain and withhold
a number of shares having a market value not less than the amount of such taxes
required to be withheld by the Company to reimburse the Company for any such
taxes and cancel (in whole or in part) any such shares of Common Stock so
withheld. If required by Section 16(b) of the Exchange Act, the election to pay
withholding taxes by delivery of shares of Common Stock held by any person who
at the time of exercise is subject to Section 16(b) of the Exchange Act shall be
made either six months prior to the date the option exercise becomes taxable or
at such other times as the Company may determine as necessary to comply with
Section 16(b) of the Exchange Act. Although the Company may, in its discretion,
accept Common Stock as payment of withholding taxes, the Company shall not be
obligated to do so.
5.6 NONTRANSFERABILITY.
------------------
5.6.1 OPTION. Options granted under the Plan and the rights and
------
privileges conferred hereby may not be transferred, assigned, pledged, or
hypothecated in any manner (whether by operation of law or otherwise) other than
by will or by the applicable laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in Section 414(p) of the Code, or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder, and shall not be subject to execution, attachment, or
similar process. Any attempt to transfer, assign, pledge, hypothecate, or
otherwise dispose of any option under the Plan or of any right or privilege
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conferred hereby, contrary to the Code or to the provisions of the Plan, or the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void ab initio. The designation by an
-- ------
Optionee of a beneficiary does not, in and of itself, constitute an
impermissible transfer under this subsection 5.6.1.
5.6.2 STOCK. The Plan Administrator may provide in the agreement granting
-----
the option that (a) the Optionee may not transfer or otherwise dispose of shares
acquired upon exercise of an option without first offering such shares to the
Company for purchase on the same terms and conditions as those offered to the
proposed transferee or (b) upon termination of employment of an Optionee the
Company shall have a six month right of repurchase as to the shares acquired
upon exercise, which right of repurchase shall allow for a maximum purchase
price equal to the fair market value of the shares on the termination date. The
foregoing rights of the Company shall be assignable by the Company upon
reasonable written notice to the Optionee.
5.7 TERMINATION OF RELATIONSHIP. If the Optionee's relationship with the
---------------------------
Company or any Affiliate thereof ceases for any reason other than termination
for cause, death, or total disability, and unless by its terms the option sooner
terminates or expires, then the Optionee may exercise, for a three month period,
that portion of the Optionee's option which is exercisable at the time of such
cessation, but the Optionee's option shall terminate at the end of the three
month period following such cessation as to all shares for which it has not
theretofore been exercised, unless, in the case of a nonqualified stock option,
such provision is waived in the agreement evidencing the option or by resolution
adopted by the Plan Administrator within 90 days of such cessation. If, in the
case of an incentive stock option, an Optionee's relationship with the Company
or Affiliate thereof changes from employee to nonemployee (i.e., from employee
to a position such as a consultant), such change shall constitute a termination
of an Optionee's employment with the Company or Affiliate and the Optionee's
incentive stock option shall terminate in accordance with this subsection 5.7.
If an Optionee is terminated for cause, any option granted hereunder shall
automatically terminate as of the first discovery by the Company of any reason
for termination for cause, and such Optionee shall thereupon have no right to
purchase any shares pursuant to such option. "Termination for cause" shall mean
dismissal for dishonesty, conviction or confession of a crime punishable by law
(except minor violations), fraud, misconduct, or disclosure of confidential
information. If an Optionee's relationship with the Company or any Affiliate
thereof is suspended pending an investigation of whether or not the Optionee
shall be terminated for cause, all Optionee's rights under any option granted
hereunder likewise shall be suspended during the period of investigation.
If an Optionee's relationship with the Company or any Affiliate thereof
ceases because of a total disability, the Optionee's option shall not terminate
or, in the case of an incentive stock option, cease to be treated as an
incentive stock option until the end of the 12 month period following such
cessation (unless by its terms it sooner terminates and expires). As used in
the Plan, the term "total disability" refers to a mental or physical impairment
of the Optionee which is expected to result in death or which has lasted or is,
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<PAGE>
in the opinion of the Company and two independent physicians, expected to last
for a continuous period of 12 months or more and which causes or is, in such
opinion, expected to cause the Optionee to be unable to perform his or her
duties for the Company and to be engaged in any substantial gainful activity.
Total disability shall be deemed to have occurred on the first day after the
Company and the two independent physicians have furnished their opinion of total
disability to the Plan Administrator.
For purposes of this subsection 5.7, a transfer of relationship between or
among the Company and/or any Affiliate thereof shall not be deemed to constitute
a cessation of relationship with the Company or any of its Affiliates. For
purposes of this subsection 5.7, with respect to incentive stock options,
employment shall be deemed to continue while the Optionee is on military leave,
sick leave, or other bona fide leave of absence (as determined by the Plan
Administrator). The foregoing notwithstanding, employment shall not be deemed
to continue beyond the first 90 days of such leave, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.
As used herein, the term "Affiliate" shall be defined as follows: (a) when
referring to a subsidiary corporation, "Affiliate" shall mean any corporation
(other than the Company) in, at the time of the granting of the option, an
unbroken chain of corporations ending with the Company, if stock possessing 50%
or more of the total combined voting power of all classes of stock of each of
the corporations other than the Company is owned by one of the other
corporations in such chain; and (b) when referring to a parent corporation,
"Affiliate" shall mean any corporation in an unbroken chain of corporations
ending with the Company if, at the time of the granting of the option, each of
the corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
5.8 DEATH OF OPTIONEE. If an Optionee dies while he or she has a
-----------------
relationship with the Company or any Affiliate thereof or within the three month
period (or 12 month period in the case of totally disabled Optionees) following
cessation of such relationship, any option held by such Optionee, to the extent
that the Optionee would have been entitled to exercise such option, may be
exercised within one year after his or her death by the personal representative
of his or her estate or by the person or persons to whom the Optionee's rights
under the option shall pass by will or by the applicable laws of descent and
distribution.
5.9 STATUS OF STOCKHOLDER. Neither the Optionee nor any party to which
---------------------
the Optionee's rights and privileges under the option may pass shall be, or have
any of the rights or privileges of, a stockholder of the Company with respect to
any of the shares issuable upon the exercise of any option granted under the
Plan unless and until such option has been exercised.
5.10 CONTINUATION OF EMPLOYMENT. Nothing in the Plan or in any option
--------------------------
granted pursuant to the Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of an Affiliate thereof, or to
interfere in any way with the right of the Company or of any such Affiliate to
terminate his or her employment or other relationship with the Company at any
time.
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<PAGE>
5.11 MODIFICATION AND AMENDMENT OF OPTION. Subject to the requirements of
------------------------------------
Section 422 of the Code with respect to incentive stock options and to the terms
and conditions and within the limitations of the Plan, including, without
limitation, Section 9.1 hereof, the Plan Administrator may modify or amend
outstanding options granted under the Plan. The modification or amendment of an
outstanding option shall not, without the consent of the Optionee, impair or
diminish any of his or her rights or any of the obligations of the Company under
such option. Except as otherwise provided herein, no outstanding option shall
be terminated without the consent of the Optionee. Unless the Optionee agrees
otherwise, any changes or adjustments made to outstanding incentive stock
options granted under the Plan shall be made in such a manner so as not to
constitute a "modification" as defined in Section 424(h) of the Code and so as
not to cause any incentive stock option issued hereunder to fail to continue to
qualify as an incentive stock option as defined in Section 422(b) of the Code.
5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS. As to all incentive
-----------------------------------------------
stock options granted under the terms of the Plan, to the extent that the
aggregate fair market value (determined at the time of the grant of the
incentive stock option) of the shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by the Optionee
during any calendar year (under the Plan and all other incentive stock option
plans of the Company, an Affiliate thereof or a predecessor corporation) exceeds
$100,000, such options shall be treated as nonqualified stock options. The
foregoing sentence shall not apply, and the limitation shall be that provided by
the Code or the Internal Revenue Service, as the case may be, if such annual
limit is changed or eliminated by (a) amendment of the Code or (b) issuance by
the Internal Revenue Service of (i) a Revenue ruling, (ii) a Private Letter
ruling to any of the Company, any Optionee, or any legatee, personal
representative, or distributee of any Optionee, or (iii) regulations.
5.13 VALUATION OF COMMON STOCK RECEIVED UPON EXERCISE. The value of
------------------------------------------------
Common Stock received by the Optionee from an exercise under the third paragraph
of Section 5.4 hereof shall equal the sales price received for such shares.
SECTION 6. GREATER THAN TEN PERCENT STOCKHOLDERS.
-------------------------------------
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS. If incentive
--------------------------------------------------
stock options are granted under the Plan to employees who, at the time of such
grant, own greater than ten percent of the total combined voting power of all
classes of stock of the Company or any Affiliate thereof, the term of such
incentive stock options shall not exceed five years and the exercise price shall
be not less than 110% of the fair market value of the Common Stock at the time
of grant of the incentive stock option. This provision shall control
notwithstanding any contrary terms contained in an option agreement or any other
document. The term and exercise price limitations of this provision shall be
amended to conform to any change required by a change in the Code or by ruling
or pronouncement of the Internal Revenue Service.
6.2 ATTRIBUTION RULE. For purposes of subsection 6.1, in determining
----------------
stock ownership, an employee shall be deemed to own the stock owned, directly or
indirectly, by or for his or her brothers, sisters, spouse,
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<PAGE>
ancestors, and lineal descendants. Stock owned, directly or indirectly, by or
for a corporation, partnership estate, or trust shall be deemed to be owned
proportionately by or for its stockholders, partners, or beneficiaries. If an
employee or a person related to the employee owns an unexercised option or
warrant to purchase stock of the Company, the stock subject to that portion of
the option or warrant which is unexercised shall not be counted in determining
stock ownership. For purposes of this Section 6, stock owned by an employee
shall include all stock owned by him or her which is actually issued and
outstanding immediately before the grant of the incentive stock option to the
employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate
------------------------------------------
number and class of shares for which options may be granted under the Plan, the
number and class of shares covered by each outstanding option, and the exercise
price per share thereof (but not the total price), and each such option, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a split or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
7.1. EFFECT OF LIQUIDATION, REORGANIZATION, OR CHANGE IN CONTROL.
-----------------------------------------------------------
7.1.1 CASH, STOCK, OR OTHER PROPERTY FOR STOCK. Except as provided in
----------------------------------------
subsection 7.1.2 hereof, upon a merger (other than a merger of the Company in
which the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation,
reorganization (other than mere reincorporation or creation of a holding
company), or liquidation of the Company (each, an "event"), as a result of which
the stockholders of the Company receive cash, stock, or other property in
exchange for, or in connection with, their shares of Common Stock, any option
granted hereunder shall terminate, but the time during which such options may be
exercised shall be accelerated as follows: the Optionee shall have the right
immediately prior to any such event to exercise such Optionee's option in whole
or in part whether or not the vesting requirements set forth in the option
agreement have been satisfied.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR EXCHANGE STOCK. If the
-------------------------------------------------
stockholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation,
or reorganization (other than mere reincorporation or creation of a holding
company), all options granted hereunder shall be converted into options to
purchase shares of Exchange Stock unless the Company and corporation issuing the
Exchange Stock, in their sole discretion, determine that any or all such options
granted hereunder shall not be converted into options to purchase shares of
Exchange Stock but instead shall terminate in accordance with the provisions of
subsection 7.1.1 hereof. The amount and price of converted options shall be
determined by adjusting the amount and price of the options granted hereunder in
the same proportion as used for determining the number of shares of Exchange
-8-
<PAGE>
Stock the holders of the Common Stock receive in such merger, consolidation,
acquisition, separation, or reorganization. Unless the Board determines
otherwise, the converted options shall be fully vested whether or not the
vesting requirements set forth in the option agreement have been satisfied.
7.2 FRACTIONAL SHARES. In the event of any adjustment in the number of
-----------------
shares covered by an option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL. Except as otherwise required for
----------------------------------
the Plan to qualify for the exemption afforded by Rule 16b-3 under the Exchange
Act, all adjustments under this Section 7 shall be made by the Board, and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding, and conclusive. Unless an Optionee agrees otherwise,
any change or adjustment to an incentive stock option shall be made in such a
manner so as not to constitute a "modification" as defined in Section 425(h) of
the Code and so as not to cause the incentive stock option issued hereunder to
fail to continue to qualify as an incentive stock option as defined in Section
422(b) of the Code.
SECTION 8. SECURITIES LAW COMPLIANCE. Shares shall not be issued with
-------------------------
respect to an option granted under the Plan unless the exercise of such option
and the issuance and delivery of such shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, any applicable
state securities laws, the Securities Act of 1933, as amended (the "Act"), the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance, including, without limitation, the availability of an
exemption from registration for the issuance and sale of any shares hereunder.
Inability of the Company to obtain from any regulatory body having jurisdiction,
the authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares hereunder or the unavailability of an exemption
from registration for the issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of an option, if, in the opinion of counsel
for the Company, assurances are required by any relevant provision of the
aforementioned laws, the Company may require the Optionee to give written
assurances satisfactory to the Company at the time of any such exercise (a) as
to the Optionee's knowledge and experience in financial and business matters
(and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters)
and that such Optionee is capable of evaluating, either alone or with the
purchaser representative, the merits and risks of exercising the option or (b)
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares. The foregoing requirements shall
be inoperative if the issuance of the shares upon the exercise of the option has
been registered under a then currently effective registration statement under
the Act.
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<PAGE>
At the option of the Company, a stop-transfer order against any shares may
be placed on the official stock books and records of the Company, and a legend
indicating that the stock may not be pledged, sold, or otherwise transferred
unless an opinion of counsel is provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on stock certificates in order to assure exemption
from registration. The Plan Administrator may also require such other action or
agreement by the Optionees as may from time to time be necessary to comply with
the federal and state securities laws. NONE OF THE ABOVE SHALL BE CONSTRUED TO
IMPLY AN OBLIGATION ON THE PART OF THE COMPANY TO UNDERTAKE REGISTRATION OF THE
OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities exchange
or on the NASDAQ National Market, all stock issued hereunder if not previously
listed on such exchange or market shall, if required by the rules of such
exchange or market, be authorized by that exchange or market for listing thereon
prior to the issuance thereof.
SECTION 9. USE OF PROCEEDS. The proceeds received by the Company from the
---------------
sale of shares pursuant to the exercise of options granted hereunder shall
constitute general funds of the Company.
SECTION 10. AMENDMENT AND TERMINATION.
-------------------------
10.1 BOARD ACTION. The Board may at any time suspend, amend, or terminate
------------
the Plan, provided, that no amendment shall be made without stockholder approval
within 12 months before or after adoption of the Plan if such approval is
necessary to comply with any applicable tax or regulatory requirement, including
any such approval as may be necessary to satisfy the requirements for exemptive
relief under Rule 16b-3 of the Exchange Act or any successor provision. Rights
and obligations under any option granted before amendment of the Plan shall not
be altered or impaired by any amendment of the Plan unless the Company requests
the consent of the person to whom the option was granted and such person
consents in writing thereto.
10.2 AUTOMATIC TERMINATION. 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.
SECTION 11. EFFECTIVENESS OF THE PLAN. The Plan shall become effective
-------------------------
upon adoption by the Board 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.
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<PAGE>
EXHIBIT 10.30
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
<PAGE>
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 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 ___________
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:
-2-
<PAGE>
(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 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.
-3-
<PAGE>
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.
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-
<PAGE>
EXHIBIT 11.1
NITINOL MEDICAL TECHNOLOGIES, INC.
STATEMENT RE: EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED YEAR ENDED YEAR ENDED ----------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1995 1996
------------ ------------ ------------ --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)....... $ 260,673 $ 289,361 $ 584,622 $ 126,364 $(1,125,429)
========== ========== ========== ========== ===========
Weighted average common
shares outstanding..... 3,588,485 3,622,447 3,763,587 3,758,353 4,037,189
Stock issued within
twelve months of
initial public
offering(1)............ 3,001,677 3,001,677 3,001,677 3,001,677 2,791,621
Common stock equiva-
lents.................. 87,903 231,426 219,660 224,431 --
---------- ---------- ---------- ---------- -----------
Weighted average number
of common and common
equivalent shares
outstanding............ 6,678,065 6,855,549 6,984,924 6,984,461 6,819,262
---------- ---------- ---------- ---------- -----------
Net income (loss) per
share amount........... $ 0.04 $ 0.04 $ 0.08 $ 0.02 $ (0.17)
========== ========== ========== ========== ===========
</TABLE>
- --------
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, stock, stock options and stock warrants issued at prices below the
the initial public offering price during the 12-month period immediately
preceding the initial filing date of the Company's Registration Statement
of its initial public offering have been included as outstanding for all
periods presented. The dilutive effect of the common stock equivalents was
computed in accordance with the treasury stock method.
<PAGE>
EXHIBIT 23.1
Upon the consummation of the reverse stock split discussed in Note 9(b) to
the Nitinol Medical Technologies, Inc. Consolidated Financial Statements, we
expect to be in the position to render the following consent.
Arthur Andersen LLP
Boston, Massachusetts
June 18, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 21, 1996 (except with respect to the matter discussed in
Note 9(b), as to which the date is , 1996) and to all references to our
firm included in or made part of this Registration Statement.
Boston, Massachusetts
June 18, 1996
<PAGE>
EXHIBIT 23.3
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-1) and related Prospectus of Nitinol Medical
Technologies, Inc. for the registration of shares of its Common Stock.
Sixbey, Friedman, Leedman & Ferguson
McLean, Virginia
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NITINOL
MEDICAL TECHNOLOGIES, INC.'S REGISTRATION STATEMENT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 MAR-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 533,247 6,884,019
<SECURITIES> 0 0
<RECEIVABLES> 323,217 623,256
<ALLOWANCES> 0 0
<INVENTORY> 208,061 220,511
<CURRENT-ASSETS> 1,227,851 7,919,738
<PP&E> 593,662 936,781
<DEPRECIATION> 208,777 236,823
<TOTAL-ASSETS> 1,660,750 8,641,673
<CURRENT-LIABILITIES> 2,504,985 1,995,382
<BONDS> 0 0
0 4,250,000
0 3,787
<COMMON> 3,775 4,290
<OTHER-SE> (848,010) 2,388,214
<TOTAL-LIABILITY-AND-EQUITY> 1,660,750 8,641,673
<SALES> 2,716,022 859,554
<TOTAL-REVENUES> 3,832,879 1,361,870
<CGS> 1,263,951 377,578
<TOTAL-COSTS> 1,911,365 2,134,711
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (29,301) 24,990
<INCOME-PRETAX> 628,262 (1,125,429)
<INCOME-TAX> 44,000 0
<INCOME-CONTINUING> 584,262 (1,125,429)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 584,262 (1,125,429)
<EPS-PRIMARY> 0.08 (0.17)
<EPS-DILUTED> 0 0
</TABLE>
