<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______ to ______
Commission file number: 0-21001
Nitinol Medical Technologies, Inc.
----------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4090463
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
27 Wormwood Street, Boston, Massachusetts 02210
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
617-737-0930
------------
(Registrant's Telephone Number, Including Area Code)
N/A
---
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
----- -----
As of August 4, 1997, there were 9,449,412 shares of Common Stock, $.001
par value per share, outstanding.
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC.
INDEX
-----
<TABLE>
<CAPTION>
Part 1. Financial Information Page Number
--------------------- -----------
<S> <C>
Item 1. Consolidated Balance Sheets at December 31, 1996 and 3
June 30, 1997
Consolidated Statements of Operations for the Three 4
and Six Months Ended June 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows for 5
the Six Months Ended June 30, 1997 and 1996
Notes to Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial 12-18
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market N/A
Risk
Part II. Other Information
-----------------
Item 2. Changes in Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 11.1
Exhibit 27.1
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Nitinol Medical Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At At
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,992,424 $ 4,082,486
Marketable securities 19,055,858 25,273,555
Accounts receivable 1,511,399 782,230
Inventories 923,981 745,977
Prepaid expenses and other current assets 1,051,602 610,017
------------ ------------
Total current assets 28,535,264 31,494,265
------------ ------------
Property and equipment, at cost:
Leasehold improvements 1,115,504 1,191,498
Laboratory and computer equipment 1,008,815 925,166
Equipment under capital lease 572,143 548,063
Office furniture and equipment 124,501 93,031
------------ ------------
2,820,963 2,757,758
Less- Accumulated depreciation and amortization (599,298) (504,909)
------------ ------------
2,221,665 2,252,849
------------ ------------
Long-term investments 1,866,295 1,083,763
Other assets 125,397 98,627
------------ ------------
$ 32,748,621 $ 34,929,504
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 485,951 $ 420,424
Accrued expenses 527,770 678,163
Current portion of capital lease obligation 103,231 94,954
------------ ------------
Total current liabilities 1,116,952 1,193,542
------------ ------------
Capital lease obligation, net of current portion 381,768 415,591
Stockholders' equity
Common stock, $.001 par value-
Authorized-30,000,000 shares
Issued and outstanding-9,553,107 and 9,435,922 shares
at June 30, 1997 and December 31, 1996, respectively 9,554 9,437
Paid-in Capital 35,766,636 35,321,821
Accumulated deficit (4,526,289) (2,010,887)
------------ ------------
Total stockholders' equity 31,249,901 33,320,371
------------ ------------
$ 32,748,621 $ 34,929,504
============ ============
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1997 1996 1997 1996
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 1,990,672 $ 1,139,223 $ 3,889,715 $ 1,998,777
License fees 250,000 187,500 500,000 625,000
Product development 19,754 14,211 50,394 79,027
--------------------------- ---------------------------
2,260,426 1,340,934 4,440,109 2,702,804
--------------------------- ---------------------------
Expenses:
Cost of product sales 921,091 546,435 1,816,684 924,013
Research and development 721,956 639,891 1,474,709 1,163,037
General and administrative 724,570 487,708 1,400,796 939,971
Selling and marketing 246,607 55,110 384,348 103,278
In-process research and development 2,449,072 -- 2,449,072 1,111,134
Restructuring charge 193,635 193,635
--------------------------- ---------------------------
5,256,931 1,729,144 7,719,244 4,241,433
--------------------------- ---------------------------
Loss from operations (2,996,505) (388,210) (3,279,135) (1,538,629)
--------------------------- ---------------------------
Interest expense (10,317) (8,371) (19,747) (25,720)
Interest income 394,558 84,727 806,479 127,066
--------------------------- ---------------------------
384,241 76,356 786,732 101,346
--------------------------- ---------------------------
Loss before provision for
income taxes (2,612,264) (311,854) (2,492,403) (1,437,283)
Provision (benefit) for income taxes (17,500) - 23,000 -
--------------------------- ---------------------------
Net loss $(2,594,764) $ (311,854) $(2,515,403) $(1,437,283)
=========================== ===========================
Net loss per common and common
equivalent share $ (0.27) $ (0.05) $ (0.26) $ (0.22)
=========================== ===========================
Weighted average common and common
equivalent shares outstanding 9,551,895 6,580,128 9,495,101 6,592,333
=========================== ===========================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE>
Nitinol Medical Technologies, Inc and Subsidiary
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1997 1996
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,515,403) $ (1,437,283)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 210,144 143,812
Acceleration of stock options 111,576
Common stock issued for in-process research and development - 806,174
Warrant grant in exchange for license - 11,200
Changes in assets and liabilities-
Accounts receivable (729,169) (282,288)
Inventories (178,004) (141,089)
Prepaid expenses and other current assets (441,585) (77,513)
Accounts payable 65,527 56,179
Accrued expenses (150,395) (84,536)
Deferred revenue - (87,124)
-----------------------------
Net cash used in operating activities (3,627,309) (1,092,468)
-----------------------------
Cash flows from investing activities:
Maturities of marketable securities, net 5,435,165 -
Purchases of property and equipment (150,597) (275,394)
Increase in other assets (31,052) (175,534)
-----------------------------
Net cash provided by (used in) investing activities 5,253,516 (450,928)
-----------------------------
Cash flows from financing activities:
Payments of subordinated debt - (309,356)
Payments of loan from distributor - (382,000)
Proceeds from issuance of convertible preferred stock, net - 7,510,998
Proceeds from issuance of common stock 335,956 8,475
Redemption of fractional shares of common stock (2,600)
Distributions to stockholders - (100,000)
Payments of capital lease obligations (49,625) -
-----------------------------
Net cash provided by financing activities 283,731 6,728,117
-----------------------------
Net increase in cash and cash equivalents 1,909,938 5,184,721
Cash and cash equivalents, beginning of period 4,082,486 533,247
-----------------------------
Cash and cash equivalents, end of period $ 5,992,424 $ 5,717,968
=============================
Supplemental disclosure of cash flow information:
Cash paid during the period for-
Interest $ 19,747 $ 11,840
=============================
Taxes $ 14,000 $ -
=============================
Supplemental disclosure of non-cash investing and financing transactions:
Write-off of abandoned leasehold improvements $ 111,472 $ 35,606
=============================
Equipment acquired under capital lease obligation $ 24,079 $ 35,606
=============================
Accretion of dividends on convertible preferred stock $ - $ 75,556
=============================
Common stock issued for property and equipment $ - $ 298,783
=============================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Operations
Nitinol Medical Technologies, Inc. (the Company) designs, develops, and
markets innovative medical devices that utilize advanced technologies and
are delivered by minimally invasive procedures. The Company's products are
designed to offer alternative approaches to existing complex treatments,
thereby reducing patient trauma, shortening procedure, hospitalization and
recovery times, and lowering overall treatment costs. The Company's patented
medical devices include self-expanding stents, vena cava filters, and septal
repair devices. At this time, the Company's stents have been commercially
launched in Europe and in the United States for certain indications, its
vena cava filters are marketed in the United States and abroad, and the
CardioSEAL device is in the clinical trials stage in the U.S. and has begun
commercial sales in certain European and other international markets. The
Company is subject to a number of risks similar to those of other companies
in this stage of development, including uncertainties regarding the
development of commercially viable products, competition from alternative
procedures and larger companies, dependence on key personnel and government
regulation.
2. Interim Financial Statements
The accompanying Consolidated Financial Statements as of June 30, 1997 and
for the three and six month periods then ended are unaudited. In
management's opinion, these unaudited Consolidated Financial Statements have
been prepared on the same basis as the audited Consolidated Financial
Statements included in the Company's Annual Report as of December 31, 1996
as filed on Form 10-K on March 12, 1997 and include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the results for such interim periods. The results of
operations for the three and six months ended June 30, 1997 are not
necessarily indicative of the results expected for the fiscal year ending
December 31, 1997.
3. Cash and Cash Equivalents, Marketable Securities, and Long-Term
Investments
In accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities, the Company
has classified certain of its marketable securities and long-term investments
as held-to-maturity and certain of its marketable securities as available-for-
sale.
6
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
1. Cash and Cash Equivalents, Marketable Securities, and Long-Term
Investments--(continued)
Held-to-maturity securities represent those securities for which the Company
has the intent and ability to hold to maturity and are reported at amortized
cost. Available-for-sale securities represent those securities that do not
meet the classification of held-to-maturity, are not actively traded and are
reported at fair market value with any unrealized gains and losses included
in stockholders' equity. There were no unrealized gains and losses at June
30, 1997. The Company considers all investments with maturities of 90 days
or less from the date of the purchase to be cash equivalents.
Cash and cash equivalents, which are carried at cost and approximate market,
consist of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Cash $ 868,941 $ 816,124
Cash equivalents--
Commercial paper 4,962,512 2,994,829
Money market 160,971 271,533
----------- -----------
$ 5,992,424 $ 4,082,486
=========== ===========
<CAPTION>
Marketable securities consist of the following at:
June 30, December 31,
1997 1996
<S> ---- ----
Held-to-maturity-- <C> <C>
Eurodollar bonds $ 9,509,764 $11,084,143
Commercial paper 4,991,920 10,958,453
Corporate debt securities 1,142,384 329,363
Medium-term notes 311,790 501,596
----------- -----------
15,955,858 22,873,555
Available-for-sale--
Taxable auction securities 3,100,000 2,400,000
----------- -----------
$19,055,858 $25,273,555
=========== ===========
</TABLE>
7
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
3. Cash and Cash Equivalents, Marketable Securities, and Long-Term
Investments--(continued)
Long-term investments, which are carried at cost and approximate market, are
comprised of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Held-to-maturity--
Eurodollar bonds $1,209,342 $1,083,763
Corporate debt securities 656,953 --
---------- ----------
$1,866,295 $1,083,763
========== ==========
</TABLE>
In addition, the following amounts of interest receivable generated from the
Company's cash and cash equivalents, marketable securities, and long-term
investments are included in prepaid expenses and other current assets and in
other assets in the accompanying balance sheets at:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Short-term interest receivable $277,579 $237,643
Long-term interest receivable 27,914 16,953
-------- --------
$305,493 $254,596
======== ========
</TABLE>
4. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Components $648,785 $307,778
Finished Goods 275,196 438,199
-------- --------
$923,981 $745,977
======== ========
</TABLE>
Finished goods consist of materials, labor and manufacturing overhead.
8
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
5. Depreciation and Amortization
The Company provides depreciation and amortization by charges to operations
using the straight-line method, which allocates the cost of property and
equipment over the following estimated useful lives:
<TABLE>
<CAPTION>
Asset Classification Estimated Useful Life
-------------------- ---------------------
<S> <C>
Leasehold improvements Life of Lease
Laboratory and computer equipment 3-7 Years
Equipment under capital leases Life of Lease
Office furniture and equipment 5-10 Years
</TABLE>
6. Net Loss per Common and Common Equivalent Share
Net loss per common and common equivalent share is based on the weighted-
average number of shares of common stock and common stock equivalents
outstanding during the respective periods. All shares of capital stock,
options and warrants issued during the 12 months immediately preceding the
initial public offering on October 2, 1996 were treated as if they had been
outstanding for all periods presented in 1996, in accordance with the
Securities and Exchange Commission rules and regulations, calculated under
the treasury stock method and based on the offering price of $11.00 per
share.
7. In-Process Research and Development
On May 29, 1997 the Company entered into an agreement to invest $2.3 million
in Image Technologies Corporation (ITC) in exchange for 345,722 shares of
ITC's $.01 par value convertible preferred stock, representing a 23%
ownership interest in ITC. Under the terms of this agreement, the Company
has extended ITC a credit line of up to $2 million of senior debt,
convertible to convertible preferred stock at the option of the Company and
equivalent to up to an additional 20% ownership of ITC. ITC may draw against
this line of credit based upon meeting its approved business plan. The
Company, however, has the right to advance all of the line and convert to
convertible preferred stock at its option. The Company also has a 24 month
option to purchase the remaining 57% of ITC for $24.5 million of which up to
$8.5 million may be payable in cash. The option may be extended for an
additional six months under certain conditions.
9
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
7. In-Process Research and Development--(continued)
ITC is a development stage company with no revenues to date. Due to the
uncertainty regarding the realization for investment, the Company charged
the amount of the purchase price and related acquisition costs to operations
as in-process research and development.
8. Restructuring Charge
During the three months ended June 30, 1997, the Company reorganized its
vena cava filter operations and brought the assembly of its straight-line
vena cava filters in-house. In connection with this restructuring, the
Company reduced staff and incurred other non-recurring costs. The $194,000
restructuring charge in the accompanying statements of operations includes a
non-cash charge of $112,000 for the accelerated vesting of certain stock
options, accrued cash severance and benefits of $62,000, and $20,000 for the
transfer of assembly technology. Other start-up costs related to the in-
house assembly of the straight-line vena cava filter, including the training
of manufacturing personnel and associated materials and overhead, are
included in cost of goods sold in the accompanying statement of operations.
9. Lease Finance Facility Agreement
In June 1996, the Company entered into a one-year $1.5 million lease finance
facility agreement with a bank under which the Company leases equipment at
an interest rate that is 200 basis points above the bank's cost of funds.
Leases under this agreement are payable in equal monthly installments over a
period of 36-60 months and expire through November 2001. Upon the expiration
of this agreement in June 1997, the Company entered into a new agreement
with the bank that provides the Company with similar terms and the option to
borrow up to $1 million through March 31, 1998. As of June 30, 1997, no
borrowings were made under the $1 million agreement.
10
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
10. Accrued Expenses
Accrued expenses consist of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Payroll and payroll related $124,687 $231,212
Royalties 87,040 75,520
Legal expenses 75,669 --
Leasehold improvements 48,553 108,553
Other accrued expenses 191,821 262,878
-------- --------
Total accrued expenses $527,770 $678,163
======== ========
</TABLE>
11. New Accounting Standard
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 establishes standards for computing
and presenting earnings per share and applies to entities with publicly
held common stock or potential common stock. This statement is effective
for fiscal years ending after December 15, 1997 and early adoption is not
permitted. When adopted, the statement will require restatement of prior
years' earnings per share. The Company will adopt this statement for its
fiscal year ended December 31, 1997. The Company believes that the adoption
of SFAS No. 128 will not have a material effect on its previously reported
income (loss) per share.
11
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
This Quarterly Report on Form 10-Q, other than the historical financial
information, contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements involve known and unknown risks, uncertainties or other factors which
may cause actual results, performance or achievement of the Company to be
materially different from any future results, performance, or achievement
expressed or implied by such forward-looking statements. Factors that might
cause such a difference include uncertainties in market demand and acceptance,
government regulation and approvals, and intellectual property rights and
litigation; the impact of healthcare reform programs and competitive products
and pricing; risks associated with technology and product development and
commercialization, potential product liability, management of growth, and
dependence on significant corporate relationships, and other risks detailed
under the heading "Management's Discussion and Analysis of Financial Conditions
and Results of Operations - Certain Facts That May Affect Future Results" in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
and filed with the Securities and Exchange Commission on March 12, 1997.
Results of Operations
Three months ended June 30, 1997 compared with three months ended June 30, 1996
Revenues. Revenues for the three months ended June 30, 1997 increased to $2.3
million from $1.3 million for the three months ended June 30, 1996 (a 77%
increase). Product sales increased to $2.0 million for the three months ended
June 30, 1997 from $1.1 million for the three months ended June 30, 1996 (an 82%
increase). The increase in product sales was due to increased unit sales of
vena cava filters, a 3% increase in the price of vena cava filters, the
commencement of sales of the CardioSEAL Septal Occluder in connection with
clinical trials which commenced at the end of September 1996, and the
commencement of commercial sales of the CardioSEAL Septal Occluder in June 1997
in certain European and other international markets. The Company recorded
$250,000 in license fees from Boston Scientific Corporation ("Boston
Scientific") related to its stent technology in the three months ended June 30,
1997 representing a quarterly minimum royalty payment. Revenues for the three
months ended June 30, 1996 included $187,500 in such quarterly minimum royalty
payments from Boston Scientific. Product development revenues from Boston
Scientific (which consist of reimbursement of certain costs incurred by the
Company) increased to $20,000 for the three months ended June 30, 1997 from
$14,000 for the three months ended June 30, 1996 due to increased collaboration
with Boston Scientific on stent development projects in 1997.
12
<PAGE>
Cost of Product Sales. Cost of product sales increased to $921,000 for the
three months ended June 30, 1997 from $546,000 for the three months ended June
30, 1996 (a 69% increase). The cost of product sales for the three months ended
June 30, 1997 includes sales of vena cava filters and CardioSEAL Septal
Occluders in connection with clinical trials and foreign commercial sales. The
cost of product sales for the three months ended June 30, 1996 was entirely
related to sales of vena cava filters. Cost of product sales, as a percent of
product sales, decreased to 46% for the three months ended June 30, 1997 from
48% for the three months ended June 30, 1996. This decrease is primarily
attributable to sales of the CardioSEAL Septal Occluder which has a lower cost
of product sales as a percent of sales than the vena cava filter.
Research and Development. Research and development expenses increased to
$722,000 for the three months ended June 30, 1997 from $640,000 for the three
months ended June 30, 1996 (a 13% increase). The increase reflects an increase
in regulatory and clinical trial expenses for the CardioSEAL Septal Occluder
incurred in connection with clinical trials which commenced in September 1996,
as well as increased activity in the Company's development programs for vena
cava filters and other products under development. Increased expenses resulted
primarily from increases in personnel and related costs, engineering expenses
and facilities related costs. The Company received reimbursement from Boston
Scientific for $20,000 and $14,000 of these expenses in the three months ended
June 30, 1997 and 1996, respectively, which amounts are included in revenues.
General and Administrative. General and administrative expenses increased to
$725,000 for the three months ended June 30, 1997 from $488,000 for the three
months ended June 30, 1996 (a 49% increase). The increase consisted primarily
of increases in personnel and related costs, legal and professional fees,
facilities costs, consulting expenses, investor relations costs, and computer
systems costs resulting from the Company's expanded scope of operations in 1997.
Selling and Marketing. Selling and marketing expenses increased to $247,000 for
the three months ended June 30, 1997 from $55,000 for the three months ended
June 30, 1996 (a 349% increase). The increase related primarily to the pre-
marketing activities related to the CardioSEAL Septal Occluder in connection
with clinical trials, and the commencement of commercial sales of the CardioSEAL
Septal Occluder in June 1997 in certain European and other international
markets.
In-Process Research and Development. For the three months ended June 30, 1997,
the Company recorded a charge of $2.4 million for in-process research and
development related to the Company's investment in Image Technologies
Corporation on May 29, 1997. See Note 7 of the accompanying Notes to
Consolidated Financial Statements.
13
<PAGE>
Restructuring Charge. During the three months ended June 30, 1997, the Company
reorganized its vena cava filter operations and brought the assembly of its
straight-line vena cava filters in-house. In connection with this
reorganization, the Company recorded a restructuring charge of $194,000 in the
quarter ended June 30,1997. See Note 8 of the accompanying Notes to
Consolidated Financial Statements.
Interest Income, Net. Interest income, net was $384,000 for the three months
ended June 30, 1997 as compared to $76,000 for the three months ended June 30,
1996. The increase was primarily due to the closing of the Company's initial
public offering of 3,150,000 shares of common stock in October 1996 resulting in
net proceeds to the Company of $31.2 million.
Income Taxes. The Company had a provision for income taxes of $17,500 for the
three months ended June 30, 1997 which reflects the non-deductibility of the in-
process research and development and a portion of the $194,000 restructuring
charge recorded in the period, and income taxes provided in the three months
ended March 31, 1997. There was no provision for income taxes for the three
months ended June 30, 1996 as the Company incurred an operating loss for that
period.
14
<PAGE>
Six months ended June 30, 1997 compared with six months ended June 30, 1996
Revenues. Revenues for the six months ended June 30, 1997 increased to $4.4
million from $2.7 million for the six months ended June 30, 1996 (a 63%
increase). Product sales increased to $3.9 million for the six months ended June
30, 1997 from $2.0 million for the six months ended June 30, 1996 (a 95%
increase). The increase in product sales was primarily due to increased unit
sales of vena cava filters, a 3% increase in the price of vena cava filters, and
the commencement of sales of the CardioSEAL Septal Occluder in connection with
clinical trials which commenced at the end of September 1996, and the
commencement of commercial sales of the CardioSEAL Septal Occluder in June 1997
in certain European and other international markets. The Company recorded
$500,000 in license fees from Boston Scientific Corporation ("Boston
Scientific") related to its stent technology in the six months ended June 30,
1997 representing two quarterly minimum royalty payments of $250,000 each.
Revenues for the six months ended June 30, 1996 included $250,000 in milestone
payments and $375,000 in minimum royalty payments from Boston Scientific.
Product development revenues from Boston Scientific (which consist of
reimbursement of certain costs incurred by the Company) decreased to $50,000 for
the six months ended June 30, 1997 from $79,000 for the six months ended June
30, 1996 due to the completion of the Company's transfer of its stent technology
to Boston Scientific in November 1995 which resulted in a reduction of stent
development costs incurred by the Company on behalf of Boston Scientific in the
six months ended June 30, 1997 compared to the six months ended June 30, 1996.
Cost of Product Sales. Cost of product sales increased to $1.8 million for the
six months ended June 30, 1997 from $924,000 for the six months ended June 30,
1996 (a 95% increase). The cost of product sales for the six months ended June
30, 1997 includes sales of vena cava filters and CardioSEAL Septal Occluders in
connection with clinical trials and commercial sales. The cost of product sales
for the six months ended June 30, 1996 was entirely related to sales of vena
cava filters. Cost of product sales, as a percent of product sales, remained
constant at 46% for the six months ended June 30, 1997 and 1996, respectively.
15
<PAGE>
Research and Development. Research and development expenses increased to $1.5
million for the six months ended June 30, 1997 from $1.2 million for the six
months ended June 30, 1996 (a 25% increase). The increase reflects an increase
in regulatory and clinical trial expenses for the CardioSEAL Septal Occluder
incurred in connection with clinical trials which commenced in September 1996,
as well as increased activity in the Company's development programs for vena
cava filters and other products under development. Increased expenses resulted
primarily from increases in personnel and related costs, engineering expenses
and facilities related costs. The Company received reimbursement from Boston
Scientific for $50,000 and $79,000 of these expenses in the six months ended
June 30, 1997 and 1996, respectively, which amounts are included in revenues.
General and Administrative. General and administrative expenses increased to
$1.4 million for the six months ended June 30, 1997 from $940,000 for the six
months ended June 30, 1996 (a 49% increase). The increase consisted primarily
of increases in personnel and related costs, legal and professional fees,
facilities costs, consulting expenses, investor relations costs, and computer
systems costs resulting from the Company's expanded scope of operations in 1997.
Selling and Marketing. Selling and marketing expenses increased to $384,000 for
the six months ended June 30, 1997 from $103,000 for the six months ended June
30, 1996 (a 273% increase). The increase related primarily to the pre-marketing
activities related to the CardioSEAL Septal Occluder in connection with clinical
trials, and the commencement of commercial sales of the CardioSEAL Septal
Occluder in June 1997 in certain European and other international markets.
In-Process Research and Development. For the six months ended June 30, 1997,
the Company recorded a charge of $2.4 million for in-process research and
development related to the Company's investment in Image Technologies
Corporation on May 29, 1997. See Note 7 of the accompanying Notes to
Consolidated Financial Statements.
Restructuring Charge. During the six months ended June 30, 1997, the Company
reorganized its vena cava filter operations and brought the assembly of its
straight-line vena cava filters in-house. In connection with this
reorganization, the Company recorded a restructuring charge of $194,000 in the
six months ended June 30, 1997. See Note 8 of the accompanying Notes to
Consolidated Financial Statements.
16
<PAGE>
Interest Income, Net. Interest income, net was $787,000 for the six months
ended June 30, 1997 as compared to $101,000 for the six months ended June 30,
1996 (a 679% increase). The increase was primarily due to the receipt of $7.5
million in net proceeds from the sale of Convertible Preferred Stock in February
1996 and the closing of the Company's initial public offering of 3,150,000
shares of common stock in October 1996 resulting in net proceeds to the Company
of $31.2 million.
Income Taxes. The Company had a provision for income taxes of $23,000 for the
six months ended June 30, 1997 which reflects the non-deductibility of the in-
process research and development and a portion of the $194,000 restructuring
charge recorded in the period. There was no provision for income taxes for the
six months ended June 30, 1996 as the Company incurred an operating loss for
that period.
Liquidity and Capital Resources
In the six months ended June 30, 1997, the Company's operations utilized cash of
approximately $3.6 million of which $2.4 million was used to acquire the 23%
interest in Image Technologies Corporation (see Note 7 of in the accompanying
Notes to Consolidated Financial Statements) and $1.2 million was used for
working capital primarily related to sales of the CardioSEAL Septal Occluder in
connection with clinical trials and commercial sales in certain European and
other international markets and for increased vena cava filter sales. In the
six months ended June 30, 1996, the Company's operations utilized cash of $1.1
million which was used primarily to fund an operating loss of $1.4 million and
for working capital.
Purchases and capitalized leases of property and equipment for use in its
research and development and general and administrative activities amounted to
$151,000 for the six months ended June 30, 1997. In June 1996, the Company
entered into a one-year $1.5 million equipment lease line of credit agreement
without covenants. Upon expiration of this agreement in June 1997, the Company
entered into a new agreement with similar terms that provides the Company with
the option to borrow up to $1 million through March 31,1998. As of June 30,
1997, no borrowings were made under the $1 million agreement.
17
<PAGE>
The Company is party to various other substantial contractual arrangements
including salaries and fees for current employees and consultants which are
likely to increase as additional agreements are entered into and additional
personnel are retained. The Company also has committed to purchase certain
minimum quantities of the vena cava filter from a supplier through June 2001.
See Note 8 to the Notes to Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on March 12, 1997. All of these arrangements require cash payments
by the Company over varying periods of time. Certain of these arrangements are
cancelable on short notice and certain require termination or severance payments
as part of any early termination.
The Company believes that its existing resources and cash flow from current
operations will be sufficient to fund its current level of operations and
planned new product development, including increased working capital
requirements and capital expenditures, for the foreseeable future. The Company
expects to expend substantial resources to complete development of the Company's
products, seek regulatory clearances or approvals, build its marketing, sales
and manufacturing organizations and conduct further research and development.
The Company may require additional funds for its research and product
development programs, preclinical and clinical testing, operating expenses,
regulatory processes, manufacturing and marketing programs and potential
licenses and acquisitions. Any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. The Company's capital requirements will depend on numerous factors,
including the sales of its products, the progress of its research and
development programs, the progress of preclinical and clinical testing, the time
and cost involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments, developments
and changes in the Company's existing research, licensing and other
relationships and terms of any collaborative, licensing and other arrangements
that the Company may establish.
18
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities
---------------------
During the quarterly period ended June 30, 1997, the Company granted
options to purchase 17,500 shares of Common Stock at a weighted average exercise
price of $9.74 per share to employees and a director pursuant to the Company's
1996 Stock Option Plan. None of such options has been exercised. The Company
believes that the transactions described in this paragraph are exempt from the
registration requirements of the Securities Act of 1933, as amended, by reason
of Section 4(2) thereof. No underwriters were engaged in connection with these
grants.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
The 1997 Annual Meeting of Stockholders of the Company was held on June 19,
1997 (the "Meeting"). Present at the Meeting in person or through
representation by proxy were a total of 6,636,370 shares of Common Stock out of
a total of 9,553,331 shares entitled to vote, thereby making a quorum. The
following action was taken at the Meeting:
1. Seven Members of the Board of Directors were elected to serve one-year
terms. Those elected are Thomas M. Tully, Morris Simon, M.D., C. Leonard Gordon,
Michael C. Brooks, R. John Fletcher, Jeffrey R. Jay, M.D. and Robert Van Tassel,
M.D. The holders of 6,633,770 shares of Common Stock present or represented and
entitled to vote at the Meeting voted to elect the seven nominees presented for
election. The holders of 2,600 shares of Common Stock withheld their votes on
this matter.
2. The Company's 1997 Employee Stock Purchase Plan and the reservation of
90,000 shares of Common Stock for purchase thereunder was approved. The holders
of 5,978,023 shares of Common Stock present or represented and entitled to vote
at the Meeting voted in favor of this proposal, the holders of 253,987 shares of
Common Stock voted against this proposal and the holders of 388,500 shares of
Common Stock abstained from voting on this proposal.
3. The selection of Arthur Andersen LLP as the Company's independent auditors
for the current year was ratified. The holders of 6,625,680 shares of Common
Stock present or represented and entitled to vote at the Meeting voted for this
proposal, the holders of 7,424 shares of Common Stock voted against this
proposal and the holders of 3,266 shares of Common Stock abstained from voting
on this proposal.
-19-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
10.1 Stockholders' Option Agreement, dated May 29, 1997, by and among
Nitinol Medical Technologies, Inc., Image Technologies Corporation
and the holders of common stock and warrants to purchase shares of
common stock of Image Technologies Corporation listed on Schedule
A thereto.
10.2 Loan and Security Agreement, dated May 29, 1997, by and between
Nitinol Medical Technologies, Inc. and Image Technologies
Corporation.
10.3 Amendment No. 1, dated August 4, 1997, to the Loan and Security
Agreement, dated May 29, 1997, by and between Nitinol Medical
Technologies, Inc. and Image Technologies Corporation.
11.1 Statement re: Company's Earnings Per Share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
--------------------
The Company did not file any Reports on Form 8-K during the quarter
ended June 30, 1997.
-20-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NITINOL MEDICAL TECHNOLOGIES, INC.
Date: August 6, 1997 By: /s/ Thomas M. Tully
-------------------------------------
Thomas M. Tully
President and Chief Executive Officer
Date: August 6, 1997 By: /s/ Theodore I. Pincus
-------------------------------------
Theodore I. Pincus
Executive Vice President and
Chief Financial Officer
-21-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits
--------
<S> <C>
10.1 Stockholders' Option Agreement, dated May 29, 1997, by and
among Nitinol Medical Technologies, Inc., Image
Technologies Corporation and the holders of common stock
and warrants to purchase shares of common stock of Image
Technologies Corporation listed on Schedule A thereto.
10.2 Loan and Security Agreement, dated May 29, 1997, by and
between Nitinol Medical Technologies, Inc. and Image
Technologies Corporation.
10.3 Amendment No. 1, dated August 4, 1997, to the Loan and
Security Agreement, dated May 29, 1997, by and between
Nitinol Medical Technologies, Inc. and Image Technologies
Corporation.
11.1 Statement re: Company's Earnings Per Share.
27.1 Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 10.1
STOCKHOLDERS OPTION AGREEMENT
AGREEMENT, dated as of May 29, 1997 by and among Nitinol Medical
Technologies, Inc., a Delaware corporation (the "Purchaser"), Image Technologies
Corporation, a Delaware corporation (the "Company"), and the holders (the
"Stockholders") of (1) the shares of common stock, $.01 par value per share
("Common Stock") and (2) the warrants to purchase shares of Common Stock
("Warrants"), of the Company listed on Schedule A hereto. All such shares of
----------
Common Stock, together with the Warrants, are collectively referred to as the
"Shares."
In order to induce the Purchaser to enter into a Series A Preferred Stock
Purchase Agreement (the "Series A Purchase Agreement") with the Company of even
date herewith, pursuant to which the Purchaser is purchasing certain shares of
the Company's Series A Convertible Preferred Stock, $.01 par value per share
(the "Series A Preferred"), the Purchaser has requested the Stockholders, and
the Stockholders have agreed, to enter into this Agreement.
The parties hereto agree as follows:
ARTICLE I
STOCK OPTION
Section 1.1 Grant of Stock Option. Each of the Stockholders hereby grants
---------------------
to the Purchaser an irrevocable option (the "Option") to purchase all Shares
currently owned by such Stockholder as set forth on Schedule A hereto and any
----------
additional Shares acquired by such Stockholder (whether by purchase, dividend,
stock split, recapitalization or otherwise) after the date of this Agreement
(all such Shares being referred to as the "Stockholder's Shares" and,
collectively, as the "Stockholder Shares"). The aggregate purchase price
payable by the Purchaser for the Stockholder Shares is $24,500,000, to be paid
pro rata per Stockholder Share, thirty-two percent (32%) of which shall be paid
in cash and the balance of which shall be paid in shares of common stock, $.001
par value per share, of the Purchaser (the "Purchaser Common Stock") (as it may
be adjusted pursuant to Section 1.6, collectively, the "Purchase Price"). For
purposes of the foregoing, the Purchaser Common Stock shall be valued at the
average of the closing prices of Purchaser Common Stock as reported by the
Nasdaq National Market System on each of the last ten trading days ending five
business days prior to the Closing (as defined below).
<PAGE>
Section 1.2 Exercise of Option.
------------------
(a) The Option may be exercised by the Purchaser, in whole but not in
part, at any time after the date hereof and prior to the Option Extension
Deadline (as defined below), subject to extension as provided in this paragraph
(a). No later than April 30, 1999, the Company shall provide the Purchaser with
a certificate (the "Certificate") signed by its President certifying as to the
Company's cumulative pre-tax losses ("Pre-Tax Losses") for the period from April
1, 1997 through March 31, 1999. In the event such Pre-Tax Losses are in excess
of $2,171,000, the Purchaser, in its sole discretion, shall have 30 days
following receipt of the Certificate (the end of such 30-day period being
referred to herein as the "Option Extension Deadline") to elect to extend the
option exercise period for an additional six-month period. For purposes of the
foregoing, any amounts accrued by the Company for the payment of bonuses
pursuant to Section 3 of the employment agreements of even date herewith between
the Company and each of Robert Lee Thompson and James C. Torraco, and any
accrued interest on borrowings of the Company under that certain Loan and
Security Agreement (the "Loan and Security Agreement") of even date herewith
between the Purchaser and the Company, shall not be included in any calculation
of Pre-Tax Losses. In the event the Purchaser elects to extend the option
exercise period it shall provide written notice to such effect to each of the
Stockholders on or before the Option Extension Deadline.
(b) In the event the Purchaser wishes to exercise the Option for the
Stockholder Shares, the Purchaser shall send a written notice (the "Exercise
Notice") to the Stockholders specifying the place, the date (not more than 120
days from the date of the Exercise Notice), and the time for the closing of such
purchase. The closing of the purchase of Stockholder Shares pursuant to this
Section 1.2(b) (the "Closing") shall occur at the place, on the date and at the
time designated by the Purchaser in its Exercise Notice, provided that if, at
the date of the Closing herein provided for, the conditions set forth in
Sections 1.4 and 1.5 shall not have been satisfied (or waived), the Purchaser
may postpone the Closing until a date within five business days after such
conditions are satisfied. Any such postponement shall not relieve the
Stockholders of any liability for failure to meet the conditions specified in
Section 1.5 hereof.
(c) The Purchaser shall not be under any obligation to deliver an Exercise
Notice and may allow the Option to terminate without purchasing any Stockholder
Shares hereunder; provided, however, that once the Purchaser has delivered to
the Stockholders an Exercise Notice, subject to the terms and conditions of this
Agreement and the satisfaction of the provisions of Section 1.5 hereof, the
Purchaser shall be bound to effect the purchase as described in such Exercise
Notice.
Section 1.3 Closing. At the Closing, (a) each Stockholder shall deliver
-------
to the Purchaser (in accordance with the Purchaser's instructions) a certificate
or certificates
-2-
<PAGE>
(the "Certificates") representing the number of such Stockholder's Shares to be
purchased at such Closing, duly endorsed or accompanied by stock powers duly
executed in blank and (b) the Purchaser shall deliver to such Stockholder (i) a
certified or bank cashier's check or checks payable to or upon the order of such
Stockholder in the amount set forth opposite such Stockholder's name on Schedule
--------
A hereto and (ii) a certificate representing shares of Purchaser Common Stock
- -
valued in accordance with Section 1.1.
Section 1.4 Stockholder Conditions. The obligation of each Stockholder to
----------------------
sell Stockholder Shares at the Closing is subject to the following conditions:
(i) The representations and warranties of the Purchaser contained
in Article IV shall be true and correct in all material respects on the
date thereof as if made on such date.
(ii) All waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act") applicable to the exercise of the
Option shall have expired or been terminated.
(iii) There shall be no preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, nor any
statute, rule, regulation or order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining the purchase
of the Stockholder Shares pursuant to the exercise of the Option.
(iv) All Stockholder Shares are purchased at the Closing.
Section 1.5 Purchaser's Conditions. The obligation of the Purchaser to
----------------------
purchase the Stockholder Shares at the Closing is subject to the following
conditions:
(i) The representations and warranties of the Stockholders and the
Company contained in Article II and Article III, respectively, shall be true and
correct in all material respects on the date thereof as if made on such date.
(ii) All waiting periods under the HSR Act applicable to the
exercise of the Option shall have expired or been terminated.
(iii) There shall be no preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, nor any
statute, rule, regulation or order promulgated or enacted by any governmental
authority,
-3-
<PAGE>
prohibiting or otherwise restraining the purchase of the Stockholder Shares
pursuant to the exercise of the Option.
(iv) The Company shall have complied with its covenants in
Article VI of this Agreement.
Section 1.6 Adjustment Upon Changes in Capitalization or Merger.
---------------------------------------------------
In the event of any change in the Company's capital stock by reason of
stock dividends, stock splits, mergers, consolidations, recapitalizations,
combinations, conversions, exchanges of shares, extraordinary or liquidating
dividends, or other changes in the corporate or capital structure of the Company
which would have the effect of diluting or changing the Purchaser's rights
hereunder, the number and kind of shares or securities subject to the Option and
the Purchase Price per Stockholder Share (but not the total Purchase Price)
shall be appropriately and equitably adjusted so that the Purchaser shall
receive upon exercise of the Option the number and class of shares or other
securities or property that the Purchaser would have received in respect of the
Stockholder Shares purchasable upon exercise of the Option if the Option had
been exercised immediately prior to such event. Each Stockholder shall take
such steps in connection with such consolidation, merger, liquidation or other
such action as may be necessary to assure that the provisions hereof shall
thereafter apply as nearly as possible to any securities or property thereafter
deliverable upon exercise of the Option.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders severally represents and warrants to the Purchaser
as follows:
Section 2.1 Title to Shares. Such Stockholder has good and marketable
---------------
title to the Stockholder's Shares free and clear of any and all covenants,
conditions, restrictions, voting trust arrangements, liens, charges,
encumbrances, options and adverse claims or rights whatsoever. Schedule A
----------
attached hereto sets forth a true and correct description of all shares of (and
rights to acquire) capital stock of the Company owned by such Stockholder.
Schedule B attached hereto is a true and complete list of the stockholders,
- ----------
optionholders, warrantholders and other security holders of the Company showing
(i) the number of shares of Common Stock, Preferred Stock or other securities or
rights of the Company held by each Stockholder as of the date of this Agreement
and the consideration paid to the Company, if any, therefore, and (ii) the fully
diluted percentage interest in the Company held by each Stockholder, after
giving effect to the transactions contemplated hereby and the exercise of all
options, warrants or other rights or securities convertible into or exchangeable
or exercisable for Common Stock or other securities of the Company
-4-
<PAGE>
(including shares issued or issuable under the Company's 1997 Stock Option Plan
and shares issuable upon exercise of any warrants issued or issuable to Junewicz
& Company ("Junewicz," and any such warrants referred to collectively as the
"Junewicz Warrants") pursuant to that certain engagement letter dated May 23,
1997 between the Company and Junewicz (the "Junewicz Agreement") and (iii) the
number of shares of Common Stock or other securities of the Company issuable
upon the exercise of options, warrants or other rights held by each
optionholder, warrantholder or rights holder as of the date of this Agreement,
together with the grant date, exercise price, vesting schedule and expiration
date of each outstanding option, warrant or other right. Except as set forth on
Schedule B, there are no shares of Common Stock, preferred stock or other
- ----------
securities or capital stock of the Company issued or outstanding. Except as set
forth on Schedule B attached hereto (i) no subscription, warrant, option,
----------
convertible security or other right (contingent or otherwise) to purchase or
acquire any shares of capital stock of the Company is authorized or outstanding,
(ii) the Company has no obligation (contingent or otherwise) to issue any
subscription, warrant, option, convertible security or other such right or to
issue or distribute to holders of any shares of its capital stock any evidences
of indebtedness or assets of the Company and (iii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
Section 2.2 Authority. Such Stockholder has the full right, power and
---------
authority to enter into this Agreement and to transfer, convey and sell to the
Purchaser at the Closing the Stockholder's Shares to be sold by such Stockholder
hereunder and, upon consummation of the purchase contemplated hereby, the
Purchaser will acquire from such Stockholder good and marketable title to such
Stockholder's Shares, free and clear of all covenants, conditions, restrictions,
voting trust arrangements, liens, charges, encumbrances, options and adverse
claims or rights whatsoever. Such Stockholder has duly executed and delivered
this Agreement and this Agreement constitutes the valid and binding obligation
of such Stockholder enforceable against such Stockholder in accordance with its
terms. The execution of and performance of the transactions contemplated by
this Agreement and compliance with its provisions by such Stockholder will not
violate any provision of law and will not conflict with or result in any breach
of any of the terms, conditions or provisions of, or constitute a default under,
or require a consent or waiver under, the Certificate of Incorporation or By-
Laws of the Company (each as amended to date) or any agreement or instrument to
which such Stockholder is a party or by which he or any of his properties is
bound, or any decree, judgment, order, statute, rule or regulation applicable to
such Stockholder.
Section 2.3 Government Consents. No consent, approval, order or
-------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of such
Stockholder or the Company in connection with the execution and delivery of this
Agreement or the
-5-
<PAGE>
transactions to be consummated at the Closing, as contemplated by this Agreement
(except that the pre-merger notification provisions of the HSR Act may apply).
Section 2.4 Litigation. Such Stockholder is not a party to, subject to or
----------
bound by any agreement or any judgment, order, writ, prohibition, injunction or
degree of any court or other government body, and there is no action, suit or
proceeding or governmental inquiry or investigation pending which would prevent
the execution or delivery of this Agreement by such Stockholder or the transfer,
conveyance and sale of the Stockholder's Shares to be sold by such Stockholder
to the Purchaser pursuant to the terms hereof.
Section 2.5 Brokers. No broker or finder has acted for such Stockholder
-------
in connection with this agreement or the transactions contemplated hereby,
except that, pursuant to the Junewicz Agreement, a true and correct copy of
which is attached hereto as Exhibit C, the Company has retained Junewicz in
---------
connection with the transactions contemplated by this Agreement and, except for
compensation due to Junewicz, no broker or finder is entitled to any brokerage
or finder's fee or other commissions in respect of such transactions based upon
agreements, arrangements or understandings made by or on behalf of such
Stockholder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
Section 3.1 Authority. The execution, delivery and performance by the
---------
Company of this Agreement, and the consummation by the Company of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms. The execution of and performance of
the transactions contemplated by this Agreement and compliance with its
provisions by the Company will not violate any provision of law and will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or waiver
under, its Certificate of Incorporation or By-Laws (each as amended to date) or
any indenture, lease, agreement or other instrument to which the Company is a
party or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.
Section 3.2 Capitalization. The authorized capital stock of the Company
--------------
(immediately prior to the Closing) consists of 5,000,000 shares of common stock,
$0.01 par value per share (the "Common Stock"), of which 1,139,680 shares are
issued and
-6-
<PAGE>
outstanding, and 1,000,000 shares of Preferred Stock, $0.01 par value per share,
all of which 1,000,000 shares have been designated as Series A Preferred, none
of which shares is issued or outstanding. All of the issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable. The total number of shares of Common Stock that
may be issued under the 1997 Stock Option Plan is 200,000, of which no shares
are issuable pursuant to outstanding stock options. No options to be issued
pursuant to the 1997 Stock Option Plan will vest or become exercisable prior to
the expiration of the Option. Except as set forth in Exhibit B hereto, (i) no
---------
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of capital stock of the Company
is authorized or outstanding, (ii) the Company has no obligation (contingent or
otherwise) to issue any subscription, warrant, option, convertible security or
other such right or to issue or distribute to holders of any shares of its
capital stock any evidences of indebtedness or assets of the Company, and (iii)
the Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof.
Section 3.3 Government Consents. No consent, approval, order or
-------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, or the
transactions to be consummated at the Closing, as contemplated by this
Agreement, except such filings as shall have been made prior to and shall be
effective on and as of the Closing (except that the pre-merger notification
provisions of the HSR Act may apply).
Section 3.4 Litigation. There is no action, suit or proceeding, or
----------
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company, which
questions the validity of this Agreement or the right of the Company to enter
into it.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to each of the Stockholders that the
Purchaser has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution, delivery and
performance by the Purchaser of this Agreement and the consummation by the
Purchaser of the transactions contemplated hereby (i) have been duly authorized
by the Board of Directors of the Purchaser and no other corporate action on the
part of the Purchaser is necessary to authorize the execution, delivery or
performance by the Purchaser of this Agreement and the consummation by the
Purchaser of the transactions contemplated hereby and (ii) will not result in a
violation of any order, writ, injunction, decree, statute, rule or regulation
applicable to the Purchaser (except
-7-
<PAGE>
that the pre-merger notification requirements of the HSR Act may apply). This
Agreement has been duly executed and delivered by the Purchaser and is a valid
and binding agreement of the Purchaser, enforceable against the Purchaser in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights
generally.
ARTICLE V
COVENANTS OF THE STOCKHOLDERS
Each of the Stockholders hereby covenants and agrees that:
Section 5.1 No Proxies for or Encumbrances on Stockholder Shares. Except
----------------------------------------------------
as provided in this Agreement, such Stockholder shall not during the term of
this Agreement, without the prior written consent of the Purchaser, directly or
indirectly, (i) grant any proxies or enter into any voting trust or other
agreement or arrangement with respect to the voting of any Stockholder Shares or
(ii) sell, assign, transfer, encumber or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the
direct or indirect sale, assignment, transfer, encumbrance or other disposition
of, any Shares. Such Stockholder shall not seek or solicit any such sale,
assignment, transfer, encumbrance or other disposition or any such contract,
option or other arrangement or assignment or understanding and agrees to notify
the Purchaser promptly and to provide all details requested by the Purchaser if
such Stockholder shall be approached or solicited, directly or indirectly, by
any person with respect to any of the foregoing.
Section 5.2 No Shop. Such Stockholder shall not directly or indirectly
-------
(i) solicit, initiate or encourage (or authorize any person to solicit, initiate
or encourage) any inquiry, proposal or offer from any person to acquire the
business, property or capital stock of the Company or any direct or indirect
subsidiary thereof, or any acquisition of a substantial equity interest in, or a
substantial amount of the assets of, the Company or any direct or indirect
subsidiary thereof, whether by merger, purchase of assets, tender offer or other
transaction or (ii) participate in any discussion or negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or encourage any effort
or attempt by any other person to do or seek any of the foregoing. Such
Stockholder shall promptly advise the Purchaser of the terms of any
communications it may receive relating to any of the foregoing.
Section 5.3 Conduct of Stockholders. Such Stockholder will not (i) take,
-----------------------
agree or commit to take any action that would make any representation and
warranty of such Stockholder hereunder inaccurate in any respect as of any time
prior to the termination of this Agreement or (ii) omit, or agree or commit to
omit, to take any action necessary to prevent any such representation or
warranty from being inaccurate in any respect at any such time.
-8-
<PAGE>
ARTICLE VI
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees that during the term of this
Agreement, the Company shall not, without the prior written consent of the
Purchaser:
(a) authorize or issue, or enter into any agreement for the issuance of,
any shares of any class or series of stock of the Company or any rights, options
or warrants to subscribe for, purchase or otherwise acquire Common Stock or any
capital stock or other capital stock or securities of the Company or any
evidence of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable or exercisable for Common Stock of the Company
other than (i) up to an aggregate of 200,000 shares of Common Stock issued
pursuant to the Company's 1997 Stock Option Plan as in effect on the date
hereof, (ii) shares of Series A Preferred (and shares of Common Stock of the
Company issuable upon conversion thereof) issuable pursuant to the Series A
Purchase Agreement, (iii) shares of Series A Preferred (and shares of Common
Stock of the Company issuable upon conversion thereof) issued pursuant to the
Loan and Security Agreement and (iv) the Junewicz Warrants and shares of Common
Stock issuable upon exercise of the Junewicz Warrants;
(b) grant or award any option pursuant to the 1997 Stock Option Plan that
vests or becomes exercisable prior to the expiration of the Option or accelerate
the vesting of any such option prior to the expiration of the Option;
(c) grant or award any option pursuant to the 1997 Stock Option Plan to
either of Robert Lee Thompson or James C. Torraco;
(d) create, incur, assume, guarantee or become liable, contingently or
otherwise with respect to any indebtedness or obligation, other than pursuant to
the Loan and Security Agreement or in the ordinary course of business consistent
with past practice;
(e) create, incur or allow to be created or exist any lien, encumbrance,
mortgage, pledge or other security interest of any kind upon any of its assets
except (i) liens securing the obligations of the Company under the Loan and
Security Agreement, (ii) liens securing taxes or governmental charges not yet
due, or (iii) liens described on Schedule D hereto; or
----------
(f) enter into any agreement or arrangement relating to the patents,
patent applications, trademarks, service marks, trademark and service mark
applications, trade names, copyright registrations and licenses or other product
rights necessary for the conduct of the Company's business as conducted and as
proposed to be
-9-
<PAGE>
conducted which could adversely affect the Company's ownership interest or
rights therein.
ARTICLE VII
PURCHASER RIGHT OF FIRST REFUSAL
(a) In the event the Purchaser does not exercise the Option, then, in such
event, during the 12-month period commencing on the date of expiration of the
Option, the Company shall not enter into any agreement for the (i) sale of all
or substantially all of the capital stock of the Company, (ii) merger of the
Company with or into, or the consolidation of the Company with, any other
corporation, or any similar combination with any other corporation or (iii)
sale, lease or disposition of all or substantially all of the Company's
properties or assets (any such transaction referred to as a "Purchase
Transaction"), unless in each such case the Company shall have first complied
with this Agreement. The Company shall deliver to the Purchaser a written
notice of any proposed or intended Purchase Transaction (the "Offer"), which
Offer shall (i) identify and describe in reasonable detail the terms of the
proposed Purchase Transaction, (ii) describe in reasonable detail the price and
other terms of the proposed Purchase Transaction, (iii) identify by name the
persons or entities that will be parties to the proposed Purchase Transaction,
and (iv) offer to enter into an agreement with the Purchaser on the same terms
and conditions as the proposed Purchase Transaction. The Purchaser shall have
the right, for a period of sixty (60) days following receipt of such Offer, to
exercise its right to enter into an agreement with the Company on the same terms
and conditions specified in the Offer. The Offer by its term shall remain open
and irrevocable for such 60-day period.
(b) To accept the Offer, the Purchaser must deliver a written notice to
the Company, prior to the end of the 60-day period, setting forth its desire to
enter into an agreement with the Company at the price and upon the other terms
specified in the Offer.
(c) The obligation of the Purchaser to enter into an agreement with the
Company pursuant to the provisions of this Article VII is subject in all cases
to the preparation, execution and delivery by the Company and the Purchaser of
definitive agreements relating to such transaction reasonably satisfactory in
form and substance to the Purchaser and its counsel. Each party agrees to
negotiate diligently and in good faith to enter into such definitive agreements.
(d) The rights of the Purchaser under this Article VII shall only apply in
the event that the proposed Purchase Transaction is related to, results from or
follows any change, modification or amendment of, or waiver of rights under, the
License Agreement of even date herewith by and between the Company and Robert
Lee Thompson.
-10-
<PAGE>
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Expenses. All costs and expenses incurred in connection with
--------
this Agreement shall be paid by the party incurring such cost or expense.
Section 8.2 Further Assurances. The Purchaser and the Stockholders will
------------------
each execute and deliver or cause to be executed and delivered all further
documents and instruments and use their respective best efforts to secure such
consents and take all such further action as may be reasonably necessary in
order to consummate the transactions contemplated hereby or to enable the
Purchaser and any assignee to exercise and enjoy all benefits and rights of the
Stockholders with respect to the Option and the Stockholder Shares.
Section 8.3 Additional Agreements. Subject to the terms and conditions of
---------------------
this Agreement, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations and
which may be required under any agreements, contracts, commitments, instruments,
understandings, arrangements or restrictions of any kind to which such party is
a party or by which such party is governed or bound, to consummate and make
effective the transactions contemplated by this Agreement.
Section 8.4 Specific Performance. The parties hereto agree that the
--------------------
Purchaser may be irreparably damaged if for any reason any Stockholder fails to
sell such Stockholder's Shares (or other securities deliverable pursuant to
Section 1.6) upon exercise of the Option or to perform any of its other
obligations under this Agreement, or if the Company fails to perform any of its
obligations under Article VII of this Agreement, and that the Purchaser would
not have any adequate remedy at law for money damages in such event.
Accordingly, the Purchaser shall be entitled to specific performance and
injunctive and other equitable relief to enforce the performance of this
Agreement by each Stockholder and to enforce the performance of Article VII of
this Agreement by the Company. This provision is without prejudice to any other
rights that the Purchaser may have against any Stockholder for any failure to
perform its obligations under this Agreement.
Section 8.5 Notices. All notices, requests, consents and other
-------
communications under this Agreement shall be in writing and shall be delivered
by hand, sent by fax or nationally recognized overnight courier or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid:
If to the Company, at 27 Wormwood Street, Boston, Massachusetts 02210,
Attention: President, or at such other address or addresses as may have been
-11-
<PAGE>
furnished in writing by the Company to the Purchaser with a copy to Peter B.
Finn, Esq., Rubin and Rudman LLP, 50 Rowes Wharf, Boston, Massachusetts 02110;
If to a Stockholder, at his address set forth on Schedule A to this
----------
Agreement or at such other address or addresses as may have been furnished in
writing by such Stockholder to the Purchaser, with a copy to Peter B. Finn,
Esq., Rubin and Rudman LLP, 50 Rowes Wharf, Boston, Massachusetts 02110; or
If to the Purchaser, at Nitinol Medical Technologies, Inc., 27 Wormwood
Street, Boston, Massachusetts 02210, or at such other address as may have been
furnished to the Company and the Stockholders in writing by the Purchaser, with
a copy to Steven D. Singer, Esq., Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109.
Notices provided in accordance with this Section 8.5 shall be deemed given
(1) when received, if sent by hand, (2) when received, if sent by fax prior to
5:00 p.m. local time at the place received (otherwise on the next following
business day), (3) one business day after delivery to a nationally recognized
overnight courier service, and (4) three business days after deposit in the U.S.
mail, first class certified or registered, postage prepaid.
Section 8.6 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained in this Agreement shall survive
delivery of and payment for the Stockholder Shares.
Section 8.7 Amendments; Termination. Any term of this Agreement,
-----------------------
including the allocation of the Purchase Price between cash and Purchaser Common
Stock set forth in Section 1.1, may be amended or modified and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactivity or prospectively), with the written consent of
the Purchaser, the Company and Stockholders holding at least a majority of the
Shares. Any amendment, modification or waiver effected in accordance with this
Section 8.7 shall be binding upon each Stockholder, the Company and the
Purchaser. This Agreement may be terminated upon written consent of the parties
hereto.
Section 8.8 Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that the Purchaser may assign its
rights and obligations to any affiliate of the Purchaser and provided, further,
that no Stockholder may assign, delegate or otherwise transfer any of its rights
or obligations under this Agreement without the consent of the Purchaser.
-12-
<PAGE>
Section 8.9 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of the Commonwealth of Massachusetts
without giving effect to the principles of conflicts of laws thereof.
Section 8.10 Counterparts; Effectiveness. This Agreement may be signed in
---------------------------
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instruments.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
Section 8.11 Obligations Separate. The obligations of the Stockholders
--------------------
hereunder are several and not joint.
* * * Remainder of page intentionally left blank * * *
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PURCHASER:
NITINOL MEDICAL TECHNOLOGIES, INC.
By: /s/Thomas M. Tully
----------------------------------
Name: Thomas M. Tully
Title: President
COMPANY:
IMAGE TECHNOLOGIES CORPORATION
By: /s/Robert Lee Thompson
----------------------------------
Name: Robert Lee Thompson
Title: President
STOCKHOLDERS:
/s/Robert Lee Thompson
------------------------------------
Robert Lee Thompson
/s/James C. Torraco
------------------------------------
James C. Torraco
/s/William C. Clayborn
------------------------------------
Dean Witter f/b/o William C. Clayborn
/s/William L. Clayborn
------------------------------------
William L. Clayborn
/s/Lisa L. Williams
------------------------------------
Lisa L. Williams
-14-
<PAGE>
/s/ Ryan G. Williams
-------------------------------------
Ryan G. Williams
/s/ Joseph A. Staley
-------------------------------------
Joseph A. Staley
/s/ Ken A. Cornelius
-------------------------------------
Ken A. Cornelius
/s/ William R. Ross
-------------------------------------
William R. Ross
/s/ Ronald G. Williams
-------------------------------------
Ronald G. Williams
/s/ Laura Ann and /s/ James Robertson
-------------------------------------
Laura Ann and James Robertson
/s/ Bjorn R. Koritz
-------------------------------------
Bjorn R. Koritz
/s/ Robert Lee Thompson, Jr.
-------------------------------------
Robert Lee Thompson, Jr.
/s/ Michael Meyers
-------------------------------------
Michael Meyers
/s/ Evan Ratner
-------------------------------------
Evan Ratner
/s/ Herb Feldman
-------------------------------------
Herb Feldman
-15-
<PAGE>
/s/ Steven Kantor
------------------------------------
Steven Kantor
/s/ Mark Von Kreuter
------------------------------------
Mark Von Kreuter
DELAWARE GUARANTY & TRUST, F.B.O.
JOHN P. CURRAN IRA
By: /s/ John P. Curran
---------------------------------
Name: John P. Curran
CURRAN PARTNERS L.P.
By: /s/ John P. Curran
---------------------------------
Name: John P. Curran
Title: General Partner
/s/ J. Mark Junewicz
------------------------------------
J. Mark Junewicz
JUNEWICZ & CO., INC.
By: /s/ J. Mark Junewicz
---------------------------------
Name: J. Mark Junewicz
Title: President
-16-
<PAGE>
Schedule A
----------
<TABLE>
<CAPTION>
Number of
Name and Address Stockholder
of Stockholder Shares/1/
- ---------------- -----------
<S> <C>
Robert Lee Thompson 412,385
8334 Dogwood Lane
Rogers, AK 72756
James C. Torraco 201,646
3 Sewell Court
Medfield, MA 02052
Dean Witter f/b/o William L. Clayborn 200,000
Nations Security Bank
901 Main Street
22nd Floor
Dallas, TX 75202
William L. Clayborn 36,375
P.O. Box 610167
Dallas, TX 75261
Lisa L. Williams 16,666
123 Seminole Drive
Trophy Club, TX 76262
Ryan G. Williams 16,666
123 Seminole Drive
Trophy Club, TX 76262
Joseph A. Staley 50,000
104 Forest Hill Drive
Trophy Club, TX 76262
Ken A. Cornelius 5,556
2501 Kensington Place
Collegeville, TX 76034
</TABLE>
- ----------------------
/1/ Represents shares of Common Stock of the Company unless otherwise
indicated.
A-1
<PAGE>
<TABLE>
<S> <C>
William R. Ross 5,556
1008 Trophy Club Drive
Trophy Club, TX 76262
Ronald G. Williams, President 16,668
Instramed Surgical Associates, Inc.
602 Front Street
Roanoke, TX 76261
Laura Ann and James Robertson 25,000
11710 Pleasant Ridge Terrace
Apt. 1411
Little Rock, AK 72212
Bjorn R. Koritz 40,000
48 Old Mill Road
Greenwich, CT 06831
Robert Lee Thompson, Jr. 25,000
8334 Dogwood Lane
Rogers, AR 72756
Michael Meyers 10,571
215 East 68th Street
Apt. 11K
New York, NY 10021
Evan Ratner 3,571
105 Giordano Drive
West Orange, NJ 07052
Herb Feldman 7,142
215 East 68th Street
Apt. 29C
New York, NY 10021
Steven Kantor 7,142
175 East 74th Street, Apt. 11C
New York, NY 10021
Mark von Kreuter 3,571
124 Goodwives River Road
Darien, CT 06820
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
Delaware Guaranty & Trust, 15,031
F.B.O. John P. Curran IRA
237 Park Avenue
Suite 900
New York, NY 10017
Curran Partners L.P. 30,063
237 Park Avenue
Suite 900
New York, NY 10017
Mark Junewicz 11,071
288 Park Avenue, Apt. 6C
New York, NY 10128
Junewicz & Company Warrant to
Suite 2000 purchase
45 Rockefeller Plaza 17,737
New York, NY 10111 shares of
Common
Stock/2/
=========
Total: 1,157,417
</TABLE>
- ----------------------
/2/ In the event the Purchaser converts the principal amount borrowed by the
Company under the Loan and Security Agreement into additional shares of
Series A Preferred, Junewicz & Company shall be entitled to receive a
warrant to purchase a number of shares of Common Stock equal to 5% of the
number of additional shares of Series A Preferred issued to the Purchaser.
If the principal amount of the loan equals $2,000,000 and such principal
amount is converted into additional shares of Series A Preferred, Junewicz
shall be entitled to receive a warrant to purchase 27,405 shares of Common
Stock of the Company.
A-3
<PAGE>
Schedule B
----------
IMAGE TECHNOLOGIES CORPORATION
SCHEDULE OF STOCKHOLDERS AND OPTIONHOLDERS
MAY 29, 1997
<TABLE>
<CAPTION>
=====================================================================================================================
NAME CERT. NUMBER OF CONSIDER- DATE NUMBER OF DATE NUMBER OF PERCENTAGE
NO. SHARES OF ATION ISSUED SHARES OF ISSUED SHARES OWNERSHIP
COMMON PAID PER SERIES A UNDERLYING ON A FULLY
STOCK SHARE PREFERRED THE DILUTED
OUTSTANDING STOCK WARRANT BASIS/2/
OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert Lee C-1 412,385/1/ Cash and 5/29/97 27.54
Thompson Services
Rendered
- ---------------------------------------------------------------------------------------------------------------------
James C. C-2 201,646/1/ Cash and 5/29/97 14.22
Torraco Services
Rendered
- ---------------------------------------------------------------------------------------------------------------------
Dean Whitter C-3 200,000 $1.00 5/29/97 14.21
F/B/O William
L. Clayborn
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
/1/ Represents the number of shares remaining after the redemption of an
aggregate of 45,094 shares of Common Stock represented by Stock Certificates
No. C-22 and C-23, pursuant to a certain Redemption Agreement of even date
entered into with Nitinol Medical Technologies, Inc.
/2/ Represents the individual percentage ownership after taking into account to
conversion of the outstanding preferred stock and the exercise of the warrant
issued to Junewicz & Co., Inc. to purchase 17,737 shares of Common Stock.
<PAGE>
Page 2
<TABLE>
<CAPTION>
=====================================================================================================================
NAME CERT. NUMBER OF CONSIDER- DATE NUMBER OF DATE NUMBER OF PERCENTAGE
NO. SHARES OF ATION ISSUED SHARES OF ISSUED SHARES OWNERSHIP
COMMON PAID PER SERIES A UNDERLYING ON A FULLY
STOCK SHARE PREFERRED THE DILUTED
OUTSTANDING STOCK WARRANT BASIS/2/
OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William L. C-4 36,375 $1.00 5/29/97 2.53
Clayborn
- ---------------------------------------------------------------------------------------------------------------------
Lisa L. C-5 16,666 $3.19 5/29/97 1.22
Williams
- ---------------------------------------------------------------------------------------------------------------------
Ryan G. C-6 16,666 $3.19 5/29/97 1.22
Williams
- ---------------------------------------------------------------------------------------------------------------------
Joseph A. C-7 50,000 $3.19 5/29/97 3.43
Staley
- ---------------------------------------------------------------------------------------------------------------------
Ken A. C-8 5,556 $3.19 5/29/97 0.40
Cornelius
- ---------------------------------------------------------------------------------------------------------------------
William R. C-9 5,556 $3.19 5/29/97 0.40
Ross, Jr.
- ---------------------------------------------------------------------------------------------------------------------
Ronald G. C-10 16,668 $3.19 5/29/97 1.12
Williams
- ---------------------------------------------------------------------------------------------------------------------
Laura Ann C-11 25,000 $3.19 5/29/97 1.77
and James
Robertson
- ---------------------------------------------------------------------------------------------------------------------
Bjorn R. C-12 40,000 Services 5/29/97 2.77
Koritz Rendered
- ---------------------------------------------------------------------------------------------------------------------
Robert Lee C-13 25,000 $3.19 5/29/97 1.77
Thompson, Jr.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 3
<TABLE>
<CAPTION>
====================================================================================================================================
NAME CERT. NUMBER OF CONSIDERATION DATE NUMBER OF DATE NUMBER OF PERCENTAGE
NO. SHARES PAID PER ISSUED SHARES OF ISSUED SHARES OWNERSHIP
COMMON SHARE SERIES A UNDERLYING ON A FULLY
STOCK PREFERRED THE DILUTED
OUTSTANDING STOCK WARRANT BASIS/2/
OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael C-14 10,571 $7.00 5/29/97 0.80
Myers
- ------------------------------------------------------------------------------------------------------------------------------------
Evan Ratner C-15 3,571 $7.00 5/29/97 0.20
- ------------------------------------------------------------------------------------------------------------------------------------
Steven Kantor C-16 7,142 $7.00 5/29/97 0.40
- ------------------------------------------------------------------------------------------------------------------------------------
Herb Feldman C-17 7,142 $7.00 5/29/97 0.40
- ------------------------------------------------------------------------------------------------------------------------------------
Mark Von C-18 3,571 $7.00 5/29/97 0.20
Kreuter
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware C-19 15,031 $6.65 5/29/97 0.10
Guaranty &
Trust, F/B/O
John P.
Curran IRA
- ------------------------------------------------------------------------------------------------------------------------------------
Curran C-20 30,063 $6.65 5/29/97 0.30
Partners,
L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
J. Mark C-21 11,071 Services 5/29/97 0.81
Junewicz Rendered
- ------------------------------------------------------------------------------------------------------------------------------------
Nitinol P-1 -0- $6.65 5/29/97 345,722 5/29/97 23.00
Medical
Technologies,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 4
<TABLE>
<CAPTION>
=================================================================================================================================
NAME CERT. NUMBER OF CONSIDER DATE NUMBER OF DATE NUMBER OF PERCENTAGE
NO. SHARES OF -ATION ISSUED SHARES OF ISSUED SHARES OWNERSHIP
COMMON PAID PER SERIES A UNDERLYING ON A FULLY
STOCK SHARE PREFERRED THE DILUTED
OUTSTANDING STOCK WARRANT BASIS/2/
OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Warrant J-1 -0- $6.65 -- -- 5/29/97 17,737 1.19
Issued to
Junewicz &
Co., Inc.
=================================================================================================================================
TOTAL 1,139,680 345,722 17,737 100.00%
===== ========= ======= ====== =======
</TABLE>
<PAGE>
Page 5
OPTIONHOLDERS
-------------
1) Warrant granted to Junewicz & Co., Inc. to purchase 17,737 shares of Common
Stock at $6.65 per share prior to May 28, 2002. In addition, a warrant to
purchase up to 27,405 shares of Common Stock will be issued in the event
that any monies borrowed pursuant to the Loan and Security Agreement and
footnote Number 2 set forth on Page A-3 of the Stockholders Option
Agreement dated as of May 28, 1997.
2) The Company has established the 1997 Stock Option Plan and reserved a total
of 200,000 shares for the issuance of grants in accordance with the terms
of the Stock Option Plan. To date, no options has been granted.
<PAGE>
[LETTERHEAD OF JUNEWICZ & CO., INC. APPEARS HERE]
May 23, 1997
Image Technologies Corporation
1909 Central Drive, Suite 302
Bedford, TX 76021
Attention: Mr. R. Lee Thompson
President and CEO
Gentlemen:
This letter agreement (the "Agreement") will confirm the arrangement under
which Junewicz & Co., Inc. ("Junewicz") has been engaged by Image Technologies
Corporation (the "Company") to act as its exclusive financial advisor in
connection with the transactions being contemplated with Nitinol Medical
Technologies, Inc. ("Nitinol").
As the Company's financial advisor, Junewicz has introduced the Company and
other investors to Nitinol and has assisted the Company in structuring and
negotiating the transactions being contemplated with Nitinol.
The Company and Junewicz further agree as follows:
1. Transactions Contemplated with Nitinol
--------------------------------------
The transactions being contemplated between the Company, R. Lee Thompson
("Thompson"), James C. Torraco ("Torraco") and Nitinol, Curran Capital
Management and John P. Curran (collectively "Curran") are as follows:
At the first closing, the following transactions will occur:
a) Nitinol will purchase $2.3 million of Series A Preferred Stock
("Preferred Stock") from the Company ("Transaction 1a");
b) Curran will purchase $300,000 of Common Stock ("Common Stock") from the
Company ("Transaction 1b"); and
c) The Company will purchase $300,000 of Common Stock from Thompson and
Torraco ("Transaction 1c").
Subsequent to the first closing, the following transactions may occur:
d) Nitinol will provide a credit line to the Company of up to $2.0 million
of senior debt (the "Revolving Credit Loan"). Nitinol will have the right to
convert all or any portion of the amount drawn down under the Revolving Credit
Line into additional shares of Preferred Stock of the Company. Nitinol may
also, at any time during the Option Period (defined as the period during Nitinol
may exercise its option to purchase all of the outstanding capital stock of the
Company pursuant to the Stockholders Option Agreement (the "Purchase Option")),
convert all or any
<PAGE>
Image Technologies Corporation
May 23, 1997
Page 2
portion of any undrawn amounts under the Revolving Credit Loan into
additional shares of Preferred Stock of the Company ("Transaction
1d").
e) Nitinol will have the option to purchase all remaining shares of the
Company for an additional $24.5 million at any time during the Option
Period ("Transaction 1e").
2. Fees and Expenses
-----------------
In consideration for its services hereunder, Junewicz shall receive 7,500
shares of the Company's Common Stock as a retainer payment. Such shares shall
be issued on or before the closing of Transactions 1a, 1b and 1c. In addition,
Junewicz shall be entitled to receive the following indicated compensation from
the indicated obligors at the closing of the respective transactions:
a) The Company shall pay to Junewicz a cash fee equal to 5% of the gross
proceeds of any sale of Preferred Stock by the Company to Nitinol. In
addition, the Company shall issue to Junewicz an amount of warrants
equal to 5% of the number of shares of Preferred Stock sold by the
Company to Nitinol, less the number of shares of Common Stock
redeemed by the Company from Thompson and Torraco in Transaction 1c.
(Transactions 1a and 1d)
b) The Company shall pay to Junewicz a cash fee equal to 6% of the gross
proceeds of any sale of Common Stock by the Company to Curran or
other investors originated by Junewicz. In addition, the Company
shall issue to Junewicz an amount of warrants equal to 6% of the
number of shares of Common Stock sold by the Company to Curran or
other investors originated by Junewicz. (Transaction 1b)
c) If Nitinol purchases the remaining shares of the Company, the Company
agrees to pay Junewicz an additional cash transaction fee equal to
2.0% of the Aggregate Consideration paid to the Company's
shareholders up to $25 million, and 1.5% of the Aggregate
Consideration on the portion greater than $25 million. (Transaction
1e)
The warrants (to purchase Common Stock) issued to Junewicz under
Transactions 1a, 1b and 1d shall have an exercise price equal to the price paid
for the Preferred Stock or Common Stock by Nitinol, Curran or other investors
originated by Junewicz and shall be exerciseable at any time for a period of
five years from the date of the respective transactions. In the event of (i) an
initial public offering by the Company, or (ii) a reorganization, merger or sale
of the Company, the Company shall permit the "cashless exercise" of any warrants
granted to Junewicz in this Paragraph (i.e., the exercise of the warrants
without payment of the exercise price in cash with the result that Junewicz
receives upon exercise cash representing the difference between the exercise
price of the warrants and the initial public offering or sale price of the
Common Stock without requiring Junewicz to pay the exercise price in cash).
For purposes of this agreement, the term "Aggregate Consideration" shall
mean the total fair market value (on the date of payment) of all consideration
(including cash, securities, property, all remaining debt on the Company's
financial statements and other indebtedness and obligations assumed by Nitinol
and any other form of consideration) paid or payable, or otherwise distributed,
directly or indirectly, to the Company or its security holders in connection
with Transaction 1e. In addition to the foregoing compensation, the Company
shall reimburse Junewicz promptly
<PAGE>
Image Technologies Corporation
May 23, 1997
Page 3
upon request, for its reasonable out-of-pocket expenses, which may include fees
and disbursements of its legal counsel.
3. Indemnification
---------------
The Company jointly and severally agree to indemnify Junewicz in accordance
with the indemnification provisions (the "Indemnification Provisions") as set
forth in Annex A to this Agreement, which is incorporated by reference into this
Agreement.
4. Prior Representation of Nitinol by Junewicz
-------------------------------------------
The Company has been advised that Junewicz has performed investment banking
services for Nitinol within the past two years and has a continuing personal and
business relationship with Nitinol, its executive officers and with J.H. Whitney
& Co., a major shareholder of Nitinol. In addition, the Company was advised
after the engagement of Junewicz but before the execution of any definitive
agreements relating to the transactions discussed herein that Junewicz holds
99,660 warrants in Nitinol. The Company hereby expressly consents to Junewicz,
representation of the Company notwithstanding the information set forth in this
Paragraph. In particular, the information that is set forth in this Paragraph
shall not constitute gross negligence or willful misconduct by Junewicz within
the meaning set forth in Annex A.
5. Governing Law and Other Matters
-------------------------------
This agreement shall be governed by and construed in accordance with the
Laws of the State of New York without regard to the conflict of laws principles
thereof.
Neither this Agreement nor any written advice (written or oral) rendered by
Junewicz in connection with this Agreement may be disclosed to any third party
or circulated or referred to publicly without the prior written consent of
Junewicz.
Please confirm that the foregoing is in accordance with your understanding
by signing and returning the enclosed duplicate copy of this Agreement, which
shall thereupon constitute a binding agreement as of the date set forth above.
Very truly yours,
JUNEWICZ & CO., INC.
By: /s/ J. Mark Junewicz
-------------------------------
J. Mark Junewicz
Confirmed and Agreed to this 23 day of May, 1997:
IMAGE TECHNOLOGIES CORPORATION
By: /s/ Robert Lee Thompson
------------------------------------
R. Lee Thompson
President & Chief Executive Officer
<PAGE>
Image Technologies Corporation
May 23, 1997
Annex A
In the event that Junewicz becomes involved in any capacity in any action,
proceeding or investigation brought by or against any person including
stockholders of the Company, in connection with any matter referred to in this
Agreement, the Company periodically will reimburse Junewicz for its legal and
other expenses (including the cost of any investigation and preparation)
incurred in connection therewith. The Company also will indemnify and hold
harmless against any losses, claims, damages, expenses or liabilities to any
such person in connection with any matter referred to in this Agreement, except
to the extent that any loss, claim, damage or liability is judicially determined
to have resulted primarily from the gross negligence or willful misconduct of
Junewicz in performing the services that are the subject of this Agreement. If
for any reason the foregoing indemnification is unavailable to Junewicz or
insufficient to hold it harmless, then the Company shall contribute to the
amount paid or payable by Junewicz as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative benefits
of the Company and the other stockholders on one hand and Junewicz on the other
hand in the matters contemplated by this Agreement, as well as the relative
fault of the Company on the one hand and Junewicz on the other hand with respect
to such loss, claim, damage or liability and any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, including, without limitation, any liability which
the Company may have to Junewicz pursuant to the Agreement and shall extend upon
the same terms and conditions to the controlling person of Junewicz, and shall
be binding upon and inure to the benefit of any successors, assigns, heirs, and
personal representatives of the Company, Junewicz, any such affiliate and any
such person. The Company also agrees that neither Junewicz nor its control
person shall have any liability to the Company or the stockholders of the
Company for or in connection with any matter referred to in this Agreement
except to the extent that any losses, claims, damages, liabilities or expenses
incurred by the Company are judicially determined to have resulted primarily
from the gross negligence or willful misconduct of Junewicz in performing the
services that are subject to this Agreement. The foregoing provisions shall
survive any termination or completion of the engagement provided by this
Agreement and this Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflict of laws
principles thereof. The Company agrees that they will not settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder unless such settlement, compromise or consent includes an
unconditional release of Junewicz and the controlling person of Junewicz from
all liability arising out of such claim, action, suit or proceeding.
<PAGE>
Schedule D
----------
Permitted Liens
NONE, except for $102,808.00 due at the closing to individual lenders,
including $15,000.00 due to Robert Lee Thompson.
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 10.2
LOAN AND SECURITY AGREEMENT
Dated as of May 29, 1997
between
Nitinol Medical Technologies, Inc. (the "Lender")
and
Image Technologies Corporation (the "Borrower")
- --------------------------------------------------------------------------------
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement, dated as of May 29, 1997, is between
Nitinol Medical Technologies, Inc., a Delaware corporation having a principal
place of business at 27 Wormwood Street, Boston, Massachusetts 02210-1625 (the
"Lender") and Image Technologies Corporation, a Delaware corporation having a
principal place of business at 27 Wormwood Street, Boston, Massachusetts 02210-
1625 (the "Borrower").
RECITALS
--------
WHEREAS, the Lender and the Borrower are entering into a Series A Preferred
Stock Purchase Agreement of even date herewith (the "Series A Purchase
Agreement"), pursuant to which the Borrower will issue and sell to the Lender,
and the Lender will purchase from the Borrower, 345,722 shares of the Borrower's
Series A Convertible Preferred Stock, $0.01 par value per share;
WHEREAS, the Borrower requires a working capital line of credit for the
operation of its business following the closing of the transactions contemplated
by the Series A Purchase Agreement; and
WHEREAS, Lender is willing to provide Borrower with such financing
arrangements on the terms and conditions hereafter provided.
NOW, THEREFORE, in consideration of the undertakings set forth herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement:
"Agreement" means this Loan and Security Agreement, as it may be amended or
modified and in effect from time to time.
<PAGE>
"Authorized Officer" means either the President, Vice President, Treasurer
or Secretary of the Borrower, acting singly.
"Business Day" means, with respect to any borrowing or payment, a day other
than Saturday or Sunday on which banks are open for business in Boston,
Massachusetts.
"Business Plan" means the business plan of the Borrower, together with the
letter from Lee Thompson to Tom Tully dated February 17, 1997 with attachments
and the spreadsheet labelled "IMAGE F03", all attached hereto as Exhibit F.
---------
"Code" means the Uniform Commercial Code of the jurisdiction with respect
to which such term is used, as in effect from time to time.
"Collateral" shall have the meaning assigned to such term in Article IV
hereof.
"Default" means an event described in Article VII.
"Effective Date" means the date of this Agreement.
"GAAP" means generally accepted accounting principles consistent with those
from time to time adopted by the Financial Accounting Standards Board, or its
predecessor.
"Guarantee" means the guarantee in substantially the form attached hereto
as Exhibit C(2), executed by Robert Lee Thompson in favor of the Lender.
------------
"Indebtedness" means all liabilities, obligations and indebtedness of any
and every kind and nature, including, without limitation, all liabilities and
all obligations to general creditors (other than trade payables), whether now or
hereafter owing, arising, due or payable, from Borrower to any Person and
howsoever evidenced, created, incurred, acquired or owing, whether primary,
secondary, direct, contingent, fixed or otherwise.
"Intellectual Property Assignments" means those Grants of Security Interest
in substantially the form attached hereto as Exhibits E(1) and E(2), executed
------------- ----
and delivered by the Borrower in favor of the Lender.
"Lender Guarantees" shall have the meaning assigned to such term in Article
II hereof.
"Loan Documents" means this Agreement, the Guarantee, the Security
Agreement, the Revolving Credit Note, the Intellectual Property Assignments and
all
2
<PAGE>
other documents, agreements or instruments executed or delivered in connection
with any of the foregoing.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, operations or financial or other condition of Borrower, (ii)
the Borrower's ability to pay the Obligations in accordance with the terms
thereof or (iii) the Collateral or the Lender's liens on the Collateral or the
priority of such liens.
"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Revolving Credit Note, all amounts due under the Lender Guarantees and
all other obligations, interest, fees, charges and expenses of the Borrower to
the Lender arising under or in connection with the Loan Documents or the Lender
Guarantees.
"Option Period" means the period during which the Lender may exercise its
option to purchase all of the outstanding capital stock of the Borrower pursuant
to the Stockholders Option Agreement.
"Other Agreements" means all Supplemental Documentation, the Guarantee, the
Lender Guarantees and all agreements, instruments and documents, including,
without limitation, notes, mortgages, deeds of trust, chattel mortgages,
pledges, powers of attorney, consents, assignments, contracts, notices, security
agreements, leases, financing statements, subordination agreements, trust
account agreements and all other written matter whether heretofore, now, or
hereafter executed by or on behalf of Borrower and delivered to the Lender with
respect to this Agreement.
"Permitted Indebtedness" means the indebtedness or obligations described in
Section 6.5(a) of this Agreement.
"Permitted Liens" means the liens, mortgages, encumbrances, pledges and
other security interests described in clauses (i), (ii) and (iii) of Section
6.5(b) of this Agreement.
"Person" means any corporation, natural person, firm, joint venture,
partnership, trust, unincorporated organization, enterprise, government or any
department or agency of any government.
"Revolving Credit Commitment" means the obligation of Lender to make
Revolving Loans to Borrower in an aggregate amount not to exceed $2,000,000,
less the principle amount of any Loan that has been converted into shares of
Series A Preferred pursuant to Article IX of this Agreement.
"Revolving Credit Loan" means any amount(s) borrowed by Borrower from
Lender pursuant to this Agreement.
3
<PAGE>
"Revolving Credit Loan Request" means a revolving credit loan request in
substantially the form attached hereto as Exhibit B.
---------
"Revolving Credit Maturity Date" means May 29, 1999.
"Revolving Credit Payment Date" means the earliest to occur of (i) the
closing of any debt or equity financing by the Borrower resulting in at least
$4,000,000 in gross proceeds to the Borrower, (ii) the merger or consolidation,
or other combination, of the Borrower into or with another corporation or the
sale of all or substantially all of the assets of the Borrower or (iii) thirty
months following the expiration of the Option Period.
"Security Agreement" means the Security Agreement in substantially the form
attached hereto as Exhibit C(1), executed by Robert Lee Thompson in favor of the
------------
Lender.
"Series A Preferred" means the Series A Convertible Preferred Stock, $0.01
par value per share, of the Borrower.
"Stockholders Option Agreement" means the Stockholders Option Agreement of
even date herewith, by and among the Borrower, each of the stockholders named
therein and the Lender.
"Supplemental Documentation" means agreements, instruments, documents,
financing statements, warehouse receipts, bills of lading, notices of assignment
of accounts, schedules of accounts assigned, mortgages and other written matter
necessary or requested by the Lender to perfect and maintain perfected the
Lender's security interest in the Collateral.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Working Capital Purposes" means working capital purposes of the Borrower
consistent with the Business Plan. For purposes of this Agreement, expenditures
which do not exceed the expenditures forecast in the Business Plan by more than
five percent (5%) in any quarter shall be considered working capital purposes of
the Borrower consistent with the Business Plan.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing. All other undefined
4
<PAGE>
terms contained in this Agreement shall, unless the context indicates otherwise,
have the meanings provided for by the Code as in effect in the Commonwealth of
Massachusetts to the extent the same are used or defined therein. The words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole, including the Exhibits and Schedules hereto, as the
same may from time to time be amended, modified or supplemented and not to any
particular section, subsection or clause contained in this Agreement.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter.
ARTICLE II
THE LOAN FACILITY
-----------------
2.1. Revolving Credit Loan Facility.
------------------------------
(a) Revolving Credit Loans. The Lender shall, on the terms and
----------------------
conditions set forth in this Agreement, make Revolving Credit Loans to the
Borrower at the Borrower's request for the Borrower's Working Capital Purposes
from the date hereof until the Revolving Credit Maturity Date, which Revolving
Credit Loans in an aggregate amount shall not exceed the Revolving Credit
Commitment. The Borrower shall repay the aggregate outstanding principal amount
of each such Revolving Credit Loan on the Revolving Credit Payment Date and all
outstanding interest due on each Revolving Credit Loan and all other amounts
owing under this Agreement or the Loan Documents no later than the Revolving
Credit Payment Date. If the aggregate of all outstanding Revolving Credit Loans
shall at any time exceed the Revolving Credit Commitment, the Lender shall
demand that the Borrower immediately pay such excess to the Lender. The
obligation of the Borrower to repay the principal amount of each Revolving
Credit Loan and any and all interest which accrues thereon shall be evidenced by
a promissory note in the original principal amount of up to the Revolving Credit
Commitment executed and delivered by the Borrower in substantially the form of
Exhibit A hereto (the "Revolving Credit Note").
- ---------
(b) Making Revolving Credit Loans. Each Revolving Credit Loan shall
-----------------------------
be made on notice of the principal amount of each Revolving Credit Loan given by
the Borrower to the Lender not later than 12:00 noon on the second day prior to
the date of the proposed Revolving Credit Loan. Such notice shall be made by
submitting to the Lender a duly executed Revolving Credit Loan Request (which
specifies the amount of such Revolving Credit Loan). Each Revolving Credit Loan
shall comply with all of the provisions of this Agreement. If the Lender is
required to make the requested loan or advance pursuant to Section 2.1(a) of
this Agreement, the Lender
5
<PAGE>
shall advance the requested amount to the Borrower in immediately available
funds to an account designated by the Borrower in the Revolving Credit Loan
Request.
2.2. Interest.
--------
(a) Interest Rates. Each Revolving Credit Loan, and the amount due
--------------
under any Lender Guarantee, shall accrue interest at a rate per annum equal to
ten percent (10%) (the "Interest Rate"); provided, however, that while a Default
-------- -------
exists, amounts payable under the Loan Documents shall bear interest (compounded
monthly and payable on demand with respect to overdue amounts) at a rate per
annum equal to thirteen percent (13%) until such amounts are paid in full.
Subject to Section 9.5 of this Agreement, the Borrower shall pay all accrued but
unpaid interest on each Revolving Credit Loan on the Revolving Credit Payment
Date.
(b) Interest Basis. Interest shall be calculated for actual days
--------------
elapsed on the basis of a 360-day year. Interest shall be payable for the day
any Revolving Credit Loan is made but not for the day of any payment on the
amount paid if payment is received prior to noon (local time) at the place of
payment. If any payment of principal of or interest on any Revolving Credit Loan
shall become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and, in the case of a principal
payment, such extension of time shall be included in computing interest in
connection with such payment.
2.3. Method of Payment. All payments of principal, interest and fees
-----------------
hereunder shall be made in immediately available funds in United States Dollars
to the Lender at the Lender's address specified pursuant to Section 10.14 of
this Agreement, by noon (local time) on the date when due. Any of the Revolving
Credit Loans outstanding at any time under this Agreement may be prepaid in
whole or in part without penalty.
2.4. Guarantees. The Lender may, in its sole discretion, agree, on the
----------
terms and conditions set forth in this Agreement, to guarantee obligations of
the Borrower under (i) that certain Lease by and between the Borrower and
Wormwood Realty Trust for the lease of premises located at 27 Wormwood Street,
Boston, Massachusetts and (ii) that certain Equipment Lease by and between the
Borrower and BancBoston Leasing, which guarantees in an aggregate amount shall
not exceed $1.2 million and shall be on terms and conditions acceptable to the
Lender, in its sole discretion (the "Lender Guarantees"). The Borrower shall
repay to the Lender any amounts paid under the Lender Guarantees, together with
all accrued interest thereon, no later than the Revolving Credit Payment Date.
Unless otherwise agreed by the parties, all Lender Guarantees issued by the
Lender hereunder shall terminate on the Revolving Credit Payment Date. The
Borrower acknowledges and agrees that in the event the Lender is required to
make any payments under Lender's guarantee of the Lease described above, the
Borrower shall, at the request of the Lender, assign all of its rights,
including occupancy, under the Lease to the Lender and promptly vacate the
leased
6
<PAGE>
premises, as provided in that certain agreement of even date herewith by and
between the Lender and the Borrower.
ARTICLE III
CONDITIONS PRECEDENT
--------------------
3.1. Conditions to Closing. The agreement of the Lender to make any
---------------------
Revolving Credit Loan hereunder is subject to the Borrower having furnished to
the Lender, or caused to be furnished to the Lender (unless otherwise waived by
the Lender), the following, in a form and substance reasonably satisfactory to
the Lender and its counsel: (a) the Revolving Credit Note; (b) the Security
Agreement and the Guarantee, together with written documentation satisfactory to
Lender evidencing that Lender holds a perfected security interest in the
collateral securing such Guarantee; (c) each of the other Loan Documents; (d) a
certificate of the Secretary of the Borrower: (1) certifying that attached
thereto are true and correct copies of documents evidencing all corporate action
taken to authorize this transaction and (2) giving the name, position and
signature specimen of all authorized officers; (e) the written opinion of
counsel to the Borrower, addressed to the Lender in the form attached hereto as
Exhibit D; (f) written documentation satisfactory to Lender evidencing that
- ---------
Lender holds a perfected security interest in the Collateral junior only to the
Permitted Liens; and (g) such other documents as Lender or its counsel may
reasonably request.
3.2. Conditions To All Borrowings. Any agreement of the Lender to make
----------------------------
any Revolving Credit Loan, whether or not after the Effective Date, shall also
be subject to the following conditions precedent:
(a) Borrower shall deliver to the Lender a Revolving Credit Loan
Request, executed by the President of the Borrower, certifying
(i) that each of the representations and warranties of the
Borrower contained in this Agreement and the Loan Documents, or
in any other document or instrument delivered pursuant to this
Agreement, shall be true and correct as of the date as of which
they were made and shall also be true and correct as of the date
the Revolving Credit Loan is made and no Default shall have
occurred and be continuing and (ii) as to the Working Capital
Purpose for which the Revolving Credit Loan shall be used and
that the Borrower is operating in accordance with the Business
Plan;
(b) The Borrower shall have complied with all other requirements
under this Agreement; and
7
<PAGE>
(c) No third party patent or other intellectual or industrial
property right that includes a claim which covers or allegedly
covers a Licensed Product (as defined in the License Agreement of
even date herewith by and between the Borrower and Robert Lee
Thompson) and which prevents the Borrower from entering the
market or, once entered, continuing in the market for such
Licensed Products, shall have issued.
ARTICLE IV
GRANT OF SECURITY INTEREST
--------------------------
4.1 To secure payment and performance of all Obligations, the Borrower
hereby grants to the Lender a security interest in Borrower's now owned or
hereafter acquired:
(a) Inventory, including but not limited to all inventory, supplies, raw
materials, work in process, goods, merchandise, finished inventory and
other tangible personal property held by the Borrower for sale or for
lease, furnished or to be furnished under contracts of service, or
used or consumed in the Borrower's business, goods in transit, any and
all returned or repossessed inventory or merchandise and all documents
of title (whether negotiable or negotiable) representing any of the
foregoing, and all proceeds thereof; and
(b) Accounts, including, but not limited, to all accounts, all rights of
the Borrower to payment for goods sold or leased or for services
rendered, and all accounts receivable of the Borrower; all obligations
owing to the Borrower evidenced by an instrument or chattel paper; all
rights of the Borrower to payment under a contract not yet earned by
performance; all obligations owing to the Borrower of any kind or
nature, including all writings, if any, evidencing the same, including
all instruments, drafts, acceptances and chattel paper; and any and
all proceeds of any of the foregoing. Further included within the term
"Accounts" are all right, title and interest of Borrower in and to the
inventory which gave rise to any Account (including the right of
stoppage in transit), all guaranties of, and security and liens with
respect to, any Account, and all Accounts, Documents and Contract
Rights of Borrower as defined in the Uniform Commercial Code; and
(c) Instruments and Chattel Paper, including all instruments and chattel
paper as defined in the Uniform Commercial Code and all proceeds
thereof; and
8
<PAGE>
(d) General Intangibles, including, but not limited to, all general
intangibles as defined in the Uniform Commercial Code and all proceeds
thereof, including without limitation, any and all rights of Borrower
to any refund of any tax assessed against Borrower or paid by
Borrower, loss carry-back tax refunds, insurance premium rebates,
unearned premiums, insurance proceeds, choses in action, names, trade
names, goodwill, trade secrets, computer programs, computer records,
data, computer software, customer lists, patents, patent rights,
patent applications, patents pending, patent licenses or assignments,
development ideas and concepts, licenses, permits, franchises,
telephone numbers, literary rights, rights to performance, trademarks,
trademark applications, trademark rights, logos, intellectual
property, copyrights, proprietary or other processes, blueprints,
drawings, designs, diagrams, plans, reports, charts, catalogs,
manuals, research, literature, proposals, cost estimates, routes, and
other reproductions on paper or otherwise, of any and all concepts or
ideas, whether or not related to the business or operations of
Borrower, and including the patents and trademarks listed on
Schedule A hereto; and
----------
(e) Equipment, including but not limited to all equipment, vehicles,
machinery, tools, furniture, fixtures, trade fixtures and parts.
Further included within the term "Equipment" is all tangible personal
property utilized in the conduct of the Borrower's business (but
excluding any property hereinbefore defined as "Inventory") and all
additions, accessions, substitutions, components, and replacements
thereto, therefor and thereof and all proceeds thereof; and
(f) Other tangible and intangible property, including, without limitation,
all investment property; and
all products and proceeds of all of the above subclauses (a) through
(f), including insurance proceeds (collectively, the "Collateral").
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants to the Lender that on the date hereof,
and on the date of each and every Revolving Credit Loan made after the date
hereof:
5.1. Organization; Good Standing. The Borrower is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified and in good standing in
every other jurisdiction where it is doing business.
9
<PAGE>
5.2. Executive Offices. The location of the Borrower's chief executive
-----------------
office, principal place of business, other offices and places of business and of
the Borrower's Accounts and Inventory are set forth on Schedule 5.2 hereto, and
------------
are the sole offices and places of business of Borrower.
5.3. Corporate Power; Authorization; Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by Borrower of the Loan Documents and Other
Agreements, to the extent it is a party thereto, and the creation of all liens
provided for herein and therein: (i) are within Borrower's corporate power;
(ii) have been, and will be, duly authorized by all necessary or proper action;
(iii) are not in contravention of any provision of Borrower's by-laws or
charter; (iv) will not violate any law or regulation, or any order or decree of
any court or governmental instrumentality; (v) will not conflict with or result
in the breach or termination of, constitute a default under, or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which Borrower is a party or by which Borrower
or any of its property is bound (except for such conflict, breach, termination,
default or acceleration as could not reasonably be expected to have a Material
Adverse Effect or which has been waived or consented to); (vi) will not result
in the creation or imposition of any lien upon any of the property of Borrower
other than those in favor of the Lender, all pursuant to the Loan Documents; and
(vii) do not require the consent or approval of any governmental body, agency,
authority or any other Person except such consents as have been obtained and are
in effect. At or prior to the initial Revolving Credit Loan, each of the Loan
Documents to be delivered at such time shall have been duly executed and
delivered for the benefit of or on behalf of Borrower and each shall then
constitute a legal, valid and binding obligation of Borrower, enforceable
against it in accordance with its terms.
5.4. Liabilities of the Company. The outstanding liabilities of the
--------------------------
Borrower as of the date of this Agreement are as set forth on Schedule 5.4
------------
hereto.
5.5. Other Representations and Warranties in Series A Purchase Agreement.
-------------------------------------------------------------------
All of the representations and warranties set forth in Section 3 of the Series A
Purchase Agreement are true and correct as if made on the date hereof.
ARTICLE VI
COVENANTS
---------
Unless the Lender shall otherwise consent in writing, while any Revolving
Credit Loans or Obligations remain outstanding to the Borrower under this
Agreement or any other agreement, note, document or instrument with the Lender:
10
<PAGE>
6.1. Reports and Notices. Borrower shall deliver, or cause to be
-------------------
delivered, to the Lender:
(a) As soon as practicable, but in any event within two (2)
Business Days after Borrower becomes aware of the existence of any Default or
Unmatured Default, or any development or other information which could
reasonably be expected to have a Material Adverse Effect, telephonic or telecopy
notice specifying the nature of such Default or Unmatured Default or development
or information, including the anticipated effect thereof, which notice shall be
promptly confirmed in writing within three (3) days.
(b) Thirty (30) days prior written notice of any change in the
location of the Borrower's chief executive office, principal place of business,
other offices and places of business and of the Borrower's Accounts and
Inventory.
(c) Such other information respecting the Borrower's business,
financial condition or prospects as the Lender may, from time to time,
reasonably request.
Borrower hereby authorizes the Lender to communicate directly with its
independent certified public accountants and authorizes those accountants to
disclose to the Lender any and all financial statements and other supporting
financial documents and schedules.
6.2. Transactions with Affiliates. Borrower shall not make any payments
----------------------------
or distributions of any kind to any shareholder of the Borrower or any
affiliates of such shareholder on account of stock ownership. Borrower shall
not enter into any transaction for the purchase, sale or exchange of property or
the rendering of any service to or for any shareholder or director of the
Borrower, or any affiliate of such person or entity, unless such transactions
are in the ordinary course of Borrower's business and are upon fair and
reasonable terms no less favorable to Borrower than Borrower would obtain in a
comparable arm's length transaction with an unaffiliated person.
6.3. Corporate Existence, etc. Borrower shall maintain its corporate
-------------------------
existence, business and assets, keep its business and assets adequately insured,
maintain its chief executive office at the address set forth on the signature
pages hereto, continue to engage in the same lines of business, and comply in
all material respects with all requirements of law, including ERISA, Federal
Food and Drug Administration laws and regulations and environmental laws.
Borrower will maintain all of its assets and property in good repair and working
order.
6.4. Cooperation with Lender. Borrower shall cooperate with the Lender,
-----------------------
take such action, execute such documents, and provide such information as the
Lender may
11
<PAGE>
from time to time reasonably request in order further to effect the transactions
contemplated by and the purposes of the Loan Documents.
6.5. Indebtedness and Liens.
----------------------
(a) The Borrower will not create, incur, assume, guarantee or
become liable, contingently or otherwise, with respect to any indebtedness or
obligation, except (i) Indebtedness which is subordinated to the Obligations,
provided the terms of such Indebtedness, including the terms of subordination
- --------
thereof, are satisfactory to the Lender, in its sole discretion, in all
respects; (ii) current liabilities of the Borrower incurred in the ordinary
course of business consistent with past practice and not incurred through the
borrowing of money or the obtaining of credit (except credit on an open account
customarily extended); (iii) Indebtedness in respect of taxes or other
governmental charges being contested in good faith by the appropriate
proceedings; (iv) operating leases entered into by the Borrower in the ordinary
course, provided such operating leases shall not cause a Default herein; and
--------
(vi) such other Indebtedness described on Schedule 6.5 hereto.
------------
(b) The Borrower will not create, incur or allow to be created or
exist any lien, encumbrance, mortgage, pledge or other security interest of any
kind upon any of its assets, except (i) liens securing the Obligations; (ii)
liens securing taxes or governmental charges not yet due; or (iii) liens
described on Schedule 6.5 hereto.
------------
6.6. Issuance of Securities. Borrower will not authorize or issue, or
----------------------
enter into any agreement for the authorization or issuance of, any shares of any
class or series of stock of the Borrower or any rights, options or warrants to
subscribe for, purchase or otherwise acquire common stock or other capital stock
of the Borrower or any evidences of indebtedness, shares or other securities
directly or indirectly convertible into or exchangeable or exercisable for
common stock or other capital stock of the Borrower, other than (i) up to an
aggregate of 200,000 shares of common stock issued pursuant to the Borrower's
1997 Stock Option Plan as in effect on the date hereof, (ii) shares of Series A
Preferred (and shares of common stock issuable upon conversion thereof) issued
pursuant to this Agreement and (iii) any warrants issuable to Junewicz & Company
("Junewicz", and all such warrants referred to collectively as the "Junewicz
Warrants") pursuant to that certain engagement letter dated May 23, 1997 between
the Company and Junewicz (and shares of Common Stock issuable upon exercise
thereof).
6.7 Insurance. Borrower agrees to keep all of the Collateral insured
---------
with coverages in amounts not less than usually carried by one engaged in a like
business (and in any event not less than that required by Lender), naming the
Lender as a loss payee, and payable to the Lender and Borrower, as their
interests may appear. Borrower hereby appoints Lender as attorney-in-fact for
Borrower in obtaining, adjusting, settling and cancelling such insurance and
endorsing any drafts. As further assurance for the payment and performance of
the Obligations, Borrower hereby
12
<PAGE>
assigns to Lender all sums, including returned or unearned premiums, that may
become payable under any policy of insurance on the Collateral, and Borrower
hereby directs each insurance company issuing any such policy to make payment of
such sums directly to Lender.
6.8. Inspection. Borrower will keep accurate and complete records of the
----------
Collateral, and Lender or any of its agents shall have the right, upon
reasonable notice, to inspect the Collateral wherever located and to visit
Borrower's place or places of business, at intervals to be determined by Lender
and without Borrower's hindrance or delay, to inspect, audit, check and make
extracts from any copies of books, records, journals, orders, receipts and
correspondence that relate to the Collateral or to the general financial
condition of Borrower. Lender may temporarily remove any of the Borrower's
records for the purpose of having copies made thereof.
6.9. Taxes. Borrower will pay all real and personal property taxes,
-----
assessments and charges as well as all franchise, income, unemployment, old age
benefit, withholding, sales and other taxes assessed against it, or payable by
it at such times and in such manner as to prevent any penalty from accruing or
any lien or charge from attaching to its property, and will furnish the Lender
upon request, receipts, or other evidence that deposits or payments have been
made.
6.10. Sales. Borrower will not sell or dispose of any of its assets,
-----
including the Collateral, except in the ordinary and usual course of its
business.
6.11. Reimbursement. Borrower will reimburse Lender on demand for any
-------------
sums paid or advanced by Lender to satisfy any tax, lien or security interest or
other encumbrance on the Collateral, to provide insurance on the Collateral or
to pay for the maintenance and preservation of the Collateral; provided however,
-------- -------
that Lender shall not be obligated to make any such payments or deposits. Any
such sums paid or advanced by Lender shall be deemed secured by the Collateral
and constitute part of the Obligations.
ARTICLE VII
DEFAULTS
--------
The occurrence of any one or more of the following events shall constitute
a Default, without further notice or demand:
7.1. Any representation or warranty made in this Agreement, the Other
Agreements, any Loan Document, the Series A Purchase Agreement, the Stockholders
Option Agreement, or in any written statement, certificate or information
delivered in connection with this Agreement, the Other Agreements, any other
Loan Document, the
13
<PAGE>
Series A Purchase Agreement or the Stockholders Option Agreement by or on behalf
of the Borrower, or by any other party thereto (other than the Lender), to the
Lender shall be materially false on the date as of which made.
7.2. Nonpayment of principal or interest under the Revolving Credit Note
when due.
7.3. The breach by the Borrower, or by any other party (other than the
Lender), of any of the covenants contained in this Agreement, the Series A
Purchase Agreement or the Stockholders Option Agreement.
7.4. The occurrence of a default or an event of default under any of the
Loan Documents or under any other agreement, instrument or document with respect
to borrowed money to which the Borrower is a party.
7.5. The Borrower shall (i) have an order for relief entered with respect
to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make
an assignment for the benefit of creditors, (iii) apply for, seek, consent to,
acquiesce in, or have appointed for it or any substantial portion of its
property a receiver, custodian, trustee, examiner, liquidator or similar
official for it or any substantial part of its property, (iv) institute any
proceeding seeking an order for relief under the Federal bankruptcy laws as now
or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or
seeking dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail to file an
answer or other pleading denying the material allegations of any such proceeding
filed against it, (v) take any corporate action to authorize or effect any of
the foregoing actions set forth in this Section 7.5.
7.6. This Agreement shall for any reason fail to create a valid and
perfected security interest in any collateral purported to be covered hereby,
except as permitted by the terms of this Agreement, or this Agreement shall fail
to remain in full force or effect or any action shall be taken to discontinue or
to assert the invalidity or unenforceability of this Agreement.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
----------------------------------------------
8.1. Acceleration. If any Default described in Sections 7.4 or 7.5
------------
occurs with respect to the Borrower, the Obligations shall immediately become
due and payable without any election, notice or action on the part of the
Lender. If any other Default occurs, the Lender may declare the Obligations to
be due and payable, whereupon the
14
<PAGE>
Obligations shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which the Borrower hereby
expressly waives.
8.2. Amendments. The Lender and the Borrower may enter into written
----------
agreements supplemental hereto for the purpose of adding or modifying any
provisions to the Loan Documents or changing in any manner the rights of the
Lender or the Borrower hereunder or waiving any Default hereunder. To be
effective, any such amendment or waiver must be in writing and signed by the
Lender and the Borrower.
8.3. Preservation of Rights; No Adverse Impact. No delay or omission of
-----------------------------------------
the Lender to exercise any right under this Agreement or any of the Loan
Documents, shall impair such right or be construed to be a waiver of any Default
or an acquiescence therein. Any single or partial exercise of any such right
shall not preclude other or further exercise thereof or the exercise of any
other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents, whatsoever shall be valid unless
in writing signed by the Lender, and then only to the extent in such writing
specifically set forth. All remedies contained in the Loan Documents, or by law
afforded shall be cumulative and all shall be available to the Lender until the
Obligations have been paid in full.
8.4. Remedies.
--------
(a) Upon the occurrence of a Default, the Lender may proceed to
protect and enforce the Lender's rights by suit in equity, action of law and/or
other appropriate proceeding either for specific performance of any covenant or
condition contained in this Agreement, any Loan Document or in any instrument or
document delivered to the Lender pursuant hereto, or in the exercise of any
rights, remedies or powers granted in this Agreement, any Loan Document and/or
any such instrument or document.
(b) The Lender may enter and take possession of all Collateral
and the premises on which they are located, and in the Lender's sole discretion
operate and use Borrower's equipment, whether or not Collateral hereunder,
complete work in process, without being liable to Borrower on account of any
losses, damage or depreciation that may occur as a result thereof so long as
Lender shall act reasonably and in good faith; and at the Lender's option and
without notice to Borrower (except as specifically herein provided) Lender may
sell, lease, assign and deliver the whole or any part of the Collateral, or any
substitute therefor or any addition thereto, at public or private sale, for
cash, upon credit, or for future delivery, at such prices and upon such terms as
Lender deems advisable, including without limitation, the right to sell or lease
in conjunction with other property, real or personal, and allocate the sale or
lease proceeds among the items of property sold without the necessity of the
Collateral being present at any such sale or lease, or in view of prospective
purchasers thereof.
15
<PAGE>
Lender shall give Borrower at least ten (10) days' notice by hand delivery or by
United States first-class mail, postage prepaid (in which event notice shall be
deemed to have been given when so deposited in the mail), to the address
specified herein, of the time and place of any public or private sale or other
disposition unless the Collateral is perishable, threatens to decline speedily
in value, or is the type customarily sold in a recognized market. Upon such
sale, Lender may become the purchaser of the whole or any part of the
Collateral, discharged from all claims and free from any right of redemption.
In case of any such sale by Lender of all or any of said Collateral on credit or
for future delivery, property so sold may be retained by Lender until the
selling price is paid by the purchaser. Lender shall incur no liability in case
of the failure of the purchaser to take up and pay for the property so sold. In
case of any such failure, the said property may again be sold.
(c) The Lender, for a term to commence on the date of the
occurrence of a Default and continuing thereafter until all debts and
Obligations of any kind or character owing from Borrower to Lender are fully
paid and discharged, may enter and use all premises or places of business which
Borrower presently has or may hereafter have and where any of said Collateral
may be located, and the Lender may use all machinery and equipment owned or
leased by Borrower and all goodwill, patent rights, trade names, or logos,
whether or not Collateral hereunder.
(d) Borrower will assemble the Collateral in a single location at
a place to be designated by Lender and make the Collateral at all times secure
and available to Lender.
(e) Following the occurrence of a Default, at Borrower's expense,
the Lender in its own name or in the name of others may communicate with account
debtors in order to verify with them to Lender's satisfaction the existence,
amount and terms of any accounts or contract rights and also notify account
debtors that Collateral has been assigned to Lender and that payments shall be
made directly to Lender. Upon request of Lender, Borrower will so notify such
account debtors and will indicate on all billings to such account debtors that
their accounts must be paid to Lender. Borrower does hereby appoint Lender and
its agents as Borrower's attorney-in-fact: to collect, compromise, endorse, sell
or otherwise deal with the Collateral or proceeds thereof in its own name or in
the name of the Borrower; to endorse the name of Borrower upon any notes,
checks, drafts, money orders, or other instruments, documents, receipts or
Collateral that may come into its possession and to apply the same in full or
part payment of any amounts owing to Lender; to sign and endorse the name of
Borrower upon any documents, instruments, drafts against account debtors,
assignments, verifications and notices in connection with Accounts, and any
instrument or document relating thereto or to Borrower's rights therein; and to
give written notice to any office and officials of the United States Post Office
to effect such change or changes of address that all mail addressed to Borrower
may be delivered directly to Lender. Borrower hereby grants to its said
attorney-in-fact full power to do any and
16
<PAGE>
all things necessary to be done in and about the premises as fully and
effectually as Borrower might or could do, and hereby ratifies all that its
attorney-in-fact shall lawfully do or cause to be done by virtue hereof. This
power of attorney is coupled with an interest and is irrevocable for the term of
this Agreement for all transactions hereunder and thereafter as long as Borrower
may be indebted to Lender.
8.5. Application of Proceeds. Any and all proceeds of any Collateral
------------------------
realized or obtained by the Lender upon exercise of its rights and remedies
hereunder, shall be applied to the amounts outstanding under this Agreement or
any other Loan Document, after payment of any and all costs and expenses, fees
and commissions and taxes of such sale, collection or other realization, in
accordance with the following:
(a) Any and all proceeds of any Collateral shall first be applied to the
payment of any and all expenses, charges or other amounts which may
be due and owing under this Agreement or the Loan Documents; and
(b) Any and all proceeds of any Collateral remaining after application
as provided in paragraph (a) above shall first be applied to the
payment of principal, interest or charges outstanding under the
Revolving Credit Loans or under the Loan Documents; and
(c) Any surplus remaining after application as provided in paragraphs
(a) and (b) above shall be paid to the Borrower, or its successors
or assigns, or to whomsoever may be lawfully entitled to receive the
same.
8.6 Remedies Cumulative. All remedies available under this Agreement
-------------------
are cumulative and the exercise of any one remedy shall not preclude the
exercise of any other remedy hereunder.
ARTICLE IX
CONVERSION
----------
9. Optional Conversion. Any Revolving Credit Loan and any amount
-------------------
available under the Revolving Credit Commitment shall be subject to optional
conversion, at the Lender's option, as set forth below (the "Conversion
Rights"):
9.1 Right to Convert. The outstanding principal amount of any Revolving
----------------
Credit Loan shall be convertible, at the option of the Lender, at any time and
from time to time prior to the expiration of the Option Period, into fully paid
and nonassessable shares of Series A Preferred in accordance with the provisions
set forth below. In addition, the Lender may, at its option and at any time and
from time to time prior to the expiration of the Option Period, make additional
Revolving Credit Loans to the Borrower, up to the amount of the Revolving Credit
Commitment, and
17
<PAGE>
convert the principal amount of any such additional Revolving Credit Loan into
fully paid and nonassessable shares of Series A Preferred. In the event the
principal amount of the Revolving Credit Loans to be converted equals $2,000,000
(i.e., the initial Revolving Credit Commitment), such Revolving Credit Loans
shall be convertible into 548,090 shares of Series A Preferred (such that after
giving effect to the issuance of such shares of Series A Preferred, the Lender
shall hold, in the aggregate, shares of Common Stock (including all shares of
Series A Preferred held by the Lender (whenever acquired) on an as-converted
basis) representing 43% of the outstanding capital stock of the Borrower). For
the purposes hereof, "outstanding capital stock" shall include the shares of
Common Stock issuable upon exercise of the Junewicz Warrants, but exclude (i)
any shares of Common Stock issuable upon exercise of outstanding stock options
and (ii) any shares reserved for the grant of stock options in the future. In
the event the principal amount of the Revolving Credit Loans to be converted is
less than $2,000,000, the number of shares of Series A Preferred into which such
Revolving Credit Loans shall be convertible shall be equal to one percent of the
outstanding capital stock of the Borrower (after giving effect to any conversion
hereunder) for each $100,000 in principal amount of Revolving Credit Loans so
converted.
9.2 Fractional Shares. No fractional shares of Series A Preferred shall
-----------------
be issued upon conversion of any Revolving Credit Loan, but the Revolving Credit
Note will be marked to reflect a credit for the amount of the Revolving Credit
Loan converted in respect of which any fraction of a share would otherwise be
issuable upon conversion of such Revolving Credit Loan. Such credit shall be
based on the fair market value of the Series A Preferred at the time of
conversion of any Revolving Credit Loan, as determined in good faith by the
Board of Directors.
9.3 Mechanics of Conversion.
-----------------------
(a) In order for the Lender to convert any Revolving Credit Loan
or other amount available under the Revolving Credit Commitment into shares of
Series A Preferred, the Lender shall deliver to the Borrower, during usual
business hours at the Borrower's principal executive offices, written notice of
its election to convert the principal amount of any Revolving Credit Loans, or
the portion thereof specified in such notice, into shares of Series A Preferred.
Such notice shall also state the name or names (and addresses) in which the
Lender wishes the certificate or certificates for shares of Series A Preferred
which shall be issuable on such conversion to be issued. Such conversion shall
be deemed to have been made at the time the notice specified above shall have
been received by the Borrower at its principal executive office (the "Conversion
Date"), and the holder in whose name any certificate or certificates for shares
of Series A Preferred shall be issuable upon such conversion shall be deemed to
have become on the Conversion Date the holder of record of the shares
represented thereby. The Borrower shall, as soon as practicable after the
Conversion Date (and, in any event, within five Business Days), issue and
deliver to the Lender, or to its
18
<PAGE>
nominees, a certificate or certificates for the number of shares of Series A
Preferred to which the Lender shall be entitled. If less than the entire
outstanding principal amount of the Revolving Credit Loans is being converted,
the Revolving Credit Note shall promptly be marked to reflect a credit for the
amount of the Revolving Credit Loans so converted.
(b) The Lender shall, at all times prior to the expiration of the
Option Period, reserve and keep available out of its authorized but unissued
stock, for the purpose of effecting the conversion of any Revolving Credit Loan
or amount available under the Revolving Credit Commitment, such number of its
duly authorized shares of Series A Preferred as shall from time to time be
sufficient to effect the conversion of any Revolving Credit Loan or any amount
available under the Revolving Credit Commitment.
(c) The Borrower shall pay any and all issue and other taxes that
may be payable in respect of any issuance or delivery of shares of Series A
Preferred pursuant to this Article IX.
9.4 Mergers and Consolidations. If, prior to the expiration of the
--------------------------
Option Period, the Borrower shall at any time consolidate or merge with, or
otherwise combine with, another corporation (other than a merger or
consolidation in which the Borrower is the surviving corporation), the Lender
will thereafter be entitled to receive, upon the conversion hereof, the
securities or property to which a holder of the number of shares of Series A
Preferred then deliverable upon the conversion of the Revolving Credit Loans
would have been entitled upon such consolidation, merger or combination, and the
Borrower shall take such steps in connection with such consolidation, merger or
combination as may be necessary to ensure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
securities or property thereafter deliverable upon the conversion of any
Revolving Credit Loan or amount available under the Revolving Credit Commitment.
9.5 Accrued Interest. Upon the conversion of any Revolving Credit Loan,
----------------
the Borrower shall not be required to pay any accrued but unpaid interest on the
amount so converted up to the Conversion Date.
9.6 Securities Act of 1933. Upon conversion of any Revolving Credit
----------------------
Loan, the Lender may be required to execute and deliver to the Borrower an
instrument, in form satisfactory to the Borrower, representing that the shares
issuable upon conversion of the Revolving Credit Loan are being acquired for
investment and not with a view to distribution within the meaning of the
Securities Act of 1933, as amended.
19
<PAGE>
ARTICLE X
GENERAL PROVISIONS
------------------
10.1. Survival of Representations. All representations and warranties of
---------------------------
the Borrower contained in this Agreement shall survive delivery of the Revolving
Credit Note and the making of the Revolving Credit Loans herein contemplated.
10.2. Headings. Section headings in the Loan Documents are for
--------
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
10.3. Entire Agreement. The Loan Documents embody the entire agreement
----------------
and understanding between the Borrower and the Lender and supersede all prior
agreements and understandings between the Borrower and the Lender relating to
the subject matter thereof.
10.4. No Third-Party Beneficiary. This Agreement shall not be construed
--------------------------
so as to confer any right or benefit upon any Person other than the parties to
this Agreement and their respective successors and assigns.
10.5. Expenses. All expenses incurred in connection with preparing,
--------
executing and delivering this Agreement and the Loan Documents and all related
instruments and documents executed and delivered in connection herewith, and in
connection with any and all amendments and/or modifications of the Loan
Documents shall be borne by the party incurring such expense. Upon the
occurrence of a Default, and so long as a Default is continuing, Borrower shall
pay to Lender on demand all expenses incurred in connection with the collection
and enforcement of all Obligations under the Loan Documents, including, without
limitation, all reasonable attorneys' fees and expenses, and all costs incurred
by Lender in connection with the collection and enforcement of the Obligations
and in connection with any proceeding commenced by or against the Borrower under
Title 11 of the U.S. Code.
10.6. Indemnity. Borrower hereby indemnifies the Lender and its
---------
respective directors, officers, employees, affiliates and agents (collectively,
"Indemnified Persons") against, and agrees to hold each such Indemnified Person
harmless from, any and all losses, claims, costs, fees, expenses, damages and
liabilities, including claims brought by any officer, director or shareholder or
former officer, director or shareholder of the Borrower, and related expenses
(including reasonable counsel fees and expenses), incurred by such Indemnified
Person arising out of any claim, litigation, investigation or proceeding
(whether or not such Indemnified Person is a party thereto) relating to any
transactions, services or matters that are the subject of, or related to, the
Loan Documents; provided, however, that such indemnity shall not apply to any
-------- -------
such losses, claims, costs, fees, expenses, damages or liabilities determined by
a court of competent
20
<PAGE>
jurisdiction to have arisen from the gross negligence or willful misconduct of
such Indemnified Person. All amounts due hereunder shall be payable on demand
and shall constitute Obligations hereunder.
10.7. Severability of Provisions. Any provision in any Loan Document that
--------------------------
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
10.8. CHOICE OF LAW. THIS AGREEMENT AND THE LOAN DOCUMENTS (OTHER THAN
-------------
THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS (AND NOT THE LAW OF
CONFLICTS) OF THE COMMONWEALTH OF MASSACHUSETTS.
10.9. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO
-----------------------
THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS AND THE
UNITED STATES DISTRICT COURT OF MASSACHUSETTS FOR THE PURPOSE OF ANY SUIT,
ACTION OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF
THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE LENDER OR ANY
AFFILIATE OF THE LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY LOAN
DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN THE COMMONWEALTH OF MASSACHUSETTS.
10.10. WAIVER OF JURY TRIAL. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN
--------------------
ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO,
OR CONNECTED WITH THIS AGREEMENT OR ANY LOAN DOCUMENT OR THE RELATIONSHIP
ESTABLISHED THEREUNDER.
21
<PAGE>
10.11. Further Assurances. The Borrower, at its own expense, shall do,
------------------
make, execute and deliver all such additional and further acts, deeds,
assurances, documents, instruments and certificates as the Lender may reasonably
require, including, without limitation, (a) executing, delivering and filing
financial statements and continuation statements under the Uniform Commercial
Code and grants of security interests in patents, patent applications,
trademarks, trademark applications and other intellectual property of the
Borrower, (b) obtaining governmental and other third party consents and
approvals, and (c) obtaining waivers from mortgagees and landlords.
10.12. Setoff. In addition to, and without limitation of, any rights of
------
the Lender under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default occurs, any indebtedness from the Lender to the
Borrower may be offset and applied toward the payment of the Obligations owing
to the Lender, whether or not the Obligations, or any part hereof, shall then be
due.
10.13. Successors and Assigns. The terms and provisions of this Agreement
----------------------
and the Loan Documents shall be binding upon and inure to the benefit of the
Borrower and the Lender and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights or obligations under
the Loan Documents.
10.14. Giving Notice. All notices and other communications provided to
-------------
any party hereto under this Agreement or any other Loan Document shall be in
writing and shall be delivered by hand, sent by fax or overnight courier or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid, in each case addressed or delivered to such party at their
addresses set forth in the first paragraph of this Agreement, unless otherwise
designated in writing to the other parties hereto.
Notices provided in accordance with this Section 10.14 shall be deemed given (1)
when received, if sent by hand, (2) when received, if sent by fax prior to 5:00
p.m. local time at the place received (otherwise on the next following Business
Day), (3) one Business Day after delivery to a nationally reorganized overnight
courier service and (4) three Business Days after deposit in the U.S. mail,
first class certified or registered, postage prepaid.
10.15. Change of Address. The Borrower and the Lender may each change the
-----------------
address for service of notice upon it by a notice in writing to the other
parties hereto.
10.16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart. This Agreement shall be effective when it has been executed by the
Borrower and the Lender.
22
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement as of the date first above written.
Borrower: IMAGE TECHNOLOGIES
CORPORATION
27 Wormwood Street
Boston, MA 02210
By: /s/ Robert Lee Thompson
---------------------------------------
Name: Robert Lee Thompson
Title: President
Lender: NITINOL MEDICAL
TECHNOLOGIES, INC.
27 Wormwood Street
Boston, MA 02210
By: /s/ Thomas M. Tully
---------------------------------------
Name: Thomas M. Tully
Title: President
23
<PAGE>
Schedules
---------
Schedule A - Patents, Trademarks and Copyrights
Schedule 5.2 - Executive Offices
Schedule 5.4 - Outstanding Liabilities
Schedule 6.5 - Permitted Liens and Indebtedness
Exhibits
--------
Exhibit A - Revolving Credit Note
Exhibit B - Revolving Credit Loan Request
Exhibit C(1) - Security Agreement
Exhibit C(2) - Guarantee
Exhibit D - Form of Opinion
Exhibit E(1) - Grant of Security Interest (Trademarks)
Exhibit E(2) - Grant of Security Interest (Patents)
Exhibit F - Business Plan of Borrower
24
<PAGE>
SCHEDULE A
----------
(A) Trademark Applications:
-----------------------
(i) TroCam: 75237888 - February 7, 1997
(ii) GynaCam: 75238114 - February 7, 1997
(iii) TroView: 75238108 - February 7, 1997
(B) Patent Applications:
-------------------
(i) Surgical/Diagnostic Imaging Device. The application claims the
benefit of Provisional Application No. 60/003,802 filed September
15, 1995.
(ii) Video Gynecological Examination Apparatus. This application claims
the benefit of prior filed copending U.S. Provisional Application
No. 60/011,255 filed February 7, 1996.
(iii) System For Single-Puncture Endoscopic Surgery with Serial No.
60/011, 269 filed February 5, 1996.
(iv) Lens Application, Serial No. (not yet assigned) and mailed May 24,
1996.
(v) Device for Coupling a CCD Camera To An Endoscope, Serial No. (not
yet assigned) and mailed May 7, 1997.
There are no service marks or copyright registrations.
SCHEDULE 5.2
------------
27 Wormwood Street, Boston, Massachusetts 02210-1625
SCHEDULE 5.4
------------
The outstanding liabilities of the Borrower are set forth on the attached
Financial Statements of the Borrower previously delivered to the Borrower;
together with a total of $102, 808.00 due at the closing to individual lenders,
including $15,000.00 due to Robert Lee Thompson.
SCHEDULE 6.5
------------
NONE, except for $102,808.00 due at the closing to individual lenders,
including $15,000.00 due to Robert Lee Thompson.
<PAGE>
REVOLVING CREDIT NOTE
$2,000,000.00 May 29, 1997
Boston, Massachusetts
FOR VALUE RECEIVED, on the Revolving Credit Payment Date (as defined in the
Loan and Security Agreement referred to below), Image Technologies Corporation,
a Delaware corporation (the "Borrower"), promises to pay to Nitinol Medical
Technologies, Inc., a Delaware corporation (the "Lender"), or order, at 27
Wormwood Street, Boston, Massachusetts, or such other place as Lender or any
holder hereof may from time to time designate, the principal sum of Two Million
Dollars ($2,000,000.00), or, if less, the aggregate unpaid principal amount of
all Revolving Credit Loans (as defined in the Loan and Security Agreement
referred to below), in United States Dollars and in immediately available funds
as provided in the Loan and Security Agreement of even date herewith between the
Borrower and Lender (the "Loan and Security Agreement"), together with interest
on the unpaid principal amount hereof from time to time outstanding at the rate
set forth in the Loan and Security Agreement and any other Obligations under the
Loan and Security Agreement. Interest shall be calculated on the basis of a
three hundred sixty (360) day year and actual days elapsed.
This Note is issued pursuant to, and is entitled to the benefits of, the
Loan and Security Agreement, as it may be amended from time to time. Reference
is hereby made thereto for a statement of the terms and conditions under which
this Note may be prepaid or its maturity date accelerated. This Note is secured
pursuant to the Loan and Security Agreement and a Guarantee, each of even date
herewith, as more specifically described in the Loan and Security Agreement, and
reference is made thereto for a statement of the terms and provisions thereof.
Capitalized terms used herein and not otherwise defined herein are used with the
meanings attributed to them in the Loan and Security Agreement.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of the Revolving Credit Loan, the date and amount of each
principal payment hereunder and the date of conversion of any principal amount
of any Revolving Credit Loan into shares of Series A Preferred.
The outstanding principal amount of any Revolving Credit Loan shall be
convertible, at the option of the Lender, at any time and from time to time
prior to the expiration of the Option Period, into fully paid and nonassessable
shares of Series A Preferred in accordance with the provisions set forth in the
Loan and Security Agreement. In addition, the Lender may, at its option and at
any time and from time to time prior to the expiration of the Option Period,
make additional Revolving Credit Loans to the Lender, up to the amount of the
Revolving Credit Commitment, and convert the principal amount of any such
additional Revolving Credit Loan into fully paid and nonassessable shares of
Series A Preferred.
If any payment of principal or interest is not made when due hereunder, or
if any other event of Default shall occur for any reason, or if the Loan and
Security Agreement shall be terminated or not renewed for any reason whatsoever,
then and in any such event, in addition to all rights and remedies of Lender
under the Loan and Security Agreement or any Loan Document, applicable law or
otherwise, all such rights and remedies being cumulative and enforceable
alternatively, successively and concurrently, Lender may, at its option, declare
any and all of the Borrower's Obligations to be due and payable, whereupon the
then unpaid balance thereof, together with all interest accrued thereon or
expenses incurred in connection therewith shall forthwith become due and
payable, together with all interest accruing thereafter at the rate of interest
upon Default until the indebtedness evidenced by this Note is
<PAGE>
paid in full, plus all costs and expenses of collection hereof, including,
without limitation, reasonable attorneys' fees and expenses.
Borrower shall pay all Lender's costs and expenses (including, without
limitation, all reasonable attorneys' fees and expenses) incurred in connection
with the enforcement of or preservation of rights under this Revolving Credit
Note on the terms provided in the Loan and Security Agreement.
No delay or omission on the part of the Lender in exercising any right
hereunder shall operate as a waiver of such right or of any other right of
Lender, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Borrower and every indorser or guarantor of this Revolving Credit Note
regardless of the time, order or place of signing waives presentment, demand,
protest and notices of every kind and assents to any extension or postponement
of the time of payment or any other indulgence, to any substitution, exchange or
release of collateral, and to the addition or release of any other party or
person primarily or secondarily liable.
None of the terms or provisions of this Revolving Credit Note may be
excluded, modified, or amended except by a written instrument duly executed on
behalf of the holder expressly referring hereto and setting forth the provision
so excluded, modified or amended. This Revolving Credit Note shall be binding
upon the successors and assigns of the Borrower and inure to the benefit of
Lender and its successors, endorsees and assigns. If any term or provision of
this Revolving Credit Note shall be held to be invalid or unenforceable, in
whole or in part in any jurisdiction, then such invalidity or unenforceability
shall only effect such term or provision, and shall not effect such term or
provision in any other jurisdiction or any other term or provision of this
Revolving Credit Note.
BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE OR ANY OF
THE OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURTS AND SERVICE OF PROCESS IN ANY SUCH SUIT
BEING MADE UPON THE BORROWER AT THE ADDRESS PROVIDED BELOW THE BORROWER'S
EXECUTION HEREOF. BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT
IS BROUGHT IN AN INCONVENIENT COURT.
Borrower hereby waives its right to a jury trial in any judicial proceeding
involving, directly or indirectly, any matter (whether sounding in tort,
contract or otherwise) in any way arising out of, related to, or connected with
this Revolving Credit Note, the Loan and Security Agreement or any Loan Document
or the relationship established thereunder.
-2-
<PAGE>
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts (without giving effect to principles of conflicts
or choice of laws) and this Revolving Credit Note shall be deemed to be made
under seal.
ATTEST: IMAGE TECHNOLOGIES CORPORATION
By:
- ------------------------------ ------------------------------
Assistant Secretary Name: Robert Lee Thompson
Title: President
Address: 27 Wormwood Street
Boston, MA 02210-1625
-3-
<PAGE>
SCHEDULE OF LOAN AND PAYMENTS OF
PRINCIPAL TO REVOLVING CREDIT NOTE OF IMAGE TECHNOLOGIES CORPORATION
DATED: May 28, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Principal
Amount
Converted into
Principal Maturity Principal Series A
Amount of of Interest Amount Preferred Unpaid
Date Loan Period Paid Stock Balance
---- ---- ------ ---- ----- -------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
Exhibit B
---------
IMAGE TECHNOLOGIES CORPORATION
[Letterhead]
_____________________, 1997
Nitinol Medical Technologies, Inc.
27 Wormwood Street
Boston, MA 02210-1625
Attn: Theodore I. Pincus, Executive Vice President and Chief Financial Officer
Re: Revolving Credit Loan Request
-----------------------------
Ladies and Gentlemen:
The undersigned, Image Technologies Corporation, a Delaware corporation
(the "Borrower") hereby requests that you make a Revolving Credit Loan pursuant
to the terms and conditions set forth in the Loan and Security Agreement dated
as of May 28, 1997 (the "Loan and Security Agreement"), by and between the
Borrower and Nitinol Medical Technologies, Inc., a Delaware corporation (the
"Lender"), as the same may be amended and in effect from time to time, as set
forth below. Capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Loan and Security Agreement.
The Borrower hereby represents, warrants and certifies to you that (a)
the representations and warranties of the Borrower contained in the Loan and
Security Agreement and the other Loan Documents (as defined therein) or
otherwise made by the Borrower in connection with the transactions contemplated
thereby were true and correct in all respects when made and are true and correct
in all respects on and as of the date hereof with the same effect as if made
herein (except to the extent of changes resulting from transactions contemplated
or permitted by the Loan and Security Agreement and the other Loan Documents and
changes occurring in the ordinary course of business and except to the extent
that such representations and warranties relate expressly to an earlier date),
(b) the Borrower has performed and complied in all respects with all of the
terms and conditions contained in the Loan and Security Agreement required to be
performed or complied with by the Borrower prior to or at the time of the
borrowing requested herein, (c) at and as of the date hereof, no Default or
event of Default or condition which would, with the lapse of time or the
<PAGE>
Nitinol Medical Technologies, Inc.
Page 2
giving of notice, or both, result in an Default or event of Default exists
and/or shall result from the consummation of the borrowing requested herein, (d)
the aggregate amount of Revolving Credit Loans (including the proposed Revolving
Credit Loan), does not exceed the Revolving Credit Commitment, (e) the Working
Capital Purpose for which the Revolving Credit Loan shall be used is __________
_______________________________________________________________________________
and the Borrower is operating in accordance with the Business Plan and (f) no
third party patent or other intellectual or industrial property right that
includes a claim which covers or allegedly covers a Licensed Product and which
prevents the Borrower from entering the market or, once entered, continuing in
the market for such Licensed Products has issued.
The Borrower requests, pursuant to (S) 2.1 of the Loan and Security
Agreement, that the Lender make a Revolving Credit Loan in the principal amount
of $___________ on _________________, 1997.
You are hereby directed to transfer the proceeds of the requested
Revolving Credit Loan to Borrower in accordance with the following instructions:
[Insert Instructions]
Very truly yours,
IMAGE TECHNOLOGIES CORPORATION
By:
----------------------------
Title: President
<PAGE>
SECURITY AGREEMENT
------------------
DATED as of May 29, 1997
between
ROBERT LEE THOMPSON
and
NITINOL MEDICAL TECHNOLOGIES, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
1. Definitions....................................................... 1
2. Grant of Security Interest........................................ 1
2.1. Collateral Granted.......................................... 1
3. Title to Collateral, etc.......................................... 2
4. Continuous Perfection............................................. 2
5. No Liens.......................................................... 2
6. No Transfers...................................................... 2
7. Maintenance of Collateral; Compliance with Law.................... 2
8. Collateral Protection Expenses; Preservation of Collateral........ 3
8.1. Expenses Incurred by NMT.................................... 3
8.2. NMT's Obligations and Duties................................ 3
9. Further Assurances................................................ 3
10. Power of Attorney................................................. 4
10.1. Appointment and Powers of NMT.............................. 4
10.2. Ratification by Guarantor.................................. 5
10.3. No Duty on NMT............................................. 5
11. Remedies.......................................................... 5
12. No Waiver, etc.................................................... 5
13. Marshalling....................................................... 6
14. Proceeds of Dispositions; Expenses................................ 6
15. Governing Law; Consent to Jurisdiction............................ 7
16. Waiver of Jury Trial.............................................. 7
17. Miscellaneous..................................................... 7
</TABLE>
<PAGE>
Exhibit C-1
-----------
SECURITY AGREEMENT
------------------
SECURITY AGREEMENT, dated as of May 29, 1997, between ROBERT LEE THOMPSON,
an individual residing at 8334 Dogwood Lane, Rogers, Arkansas 72756 (the
"Guarantor"), and NITINOL MEDICAL TECHNOLOGIES, INC., a Delaware corporation
having a principal place of business at 27 Wormwood Street, Boston,
Massachusetts 02210 (hereinafter "NMT").
WHEREAS, Image Technologies Corporation, a Delaware corporation having a
principal place of business at 27 Wormwood Street, Boston, Massachusetts 02210
(hereinafter "ITC") has entered into a Loan and Security Agreement dated as of
May 29, 1997 (as amended and in effect from time to time, the "Loan and Security
Agreement"), with NMT, pursuant to which NMT, subject to the terms and
conditions contained therein, is to provide a line of credit on behalf of ITC;
and
WHEREAS, it is a condition precedent to NMT's issuing such line of credit
under the Loan and Security Agreement that the Guarantor execute and deliver to
NMT a security agreement in substantially the form hereof; and
WHEREAS, the Guarantor wishes to grant security interests in favor of NMT
as herein provided;
NOW, THEREFORE, in consideration of the promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. All capitalized terms used herein without definitions
-----------
shall have the respective meanings provided therefor in the Loan and Security
Agreement.
2. Grant of Security Interest.
--------------------------
2.1. Collateral Granted. The Guarantor hereby grants to NMT, to
------------------
secure the payment and performance in full of all of the Obligations, a
security interest in and so pledges and assigns to NMT the following
properties, assets and rights of the Guarantor, wherever located, whether
now owned or hereafter acquired or arising, and all proceeds and products
thereof (all of the same being hereinafter called the "Collateral"):
All patents, patent applications, trademarks, trademark
applications (including, without limitation, those listed in Exhibit
-------
A, hereto and made part hereof), license fees, income, royalties,
-
trade names, copyrights, copyright applications, rights to sue and
recover for
<PAGE>
past infringement of patents, present and future trademarks and
copyrights, license fees, computer programs, computer software,
engineering drawings, service marks, customer lists, goodwill, and
all licenses, permits, agreements of any kind or nature pursuant to
which the Guarantor possesses, uses or has authority to possess or
use property (whether tangible or intangible) of others or others
possess, use or have authority to possess or use property (whether
tangible or intangible) of the Guarantor, and all recorded data of
any kind or nature, regardless of the medium of recording including,
without limitation, all software, writings, plans, specifications and
schematics, and all of Guarantor's rights to any of the foregoing
throughout the world.
3. Title to Collateral, etc. The Guarantor is the owner of the
------------------------
Collateral free from any adverse lien, security interest or other encumbrance,
except for the security interest created by this Agreement and other liens
permitted by the Loan and Security Agreement.
4. Continuous Perfection. The Guarantor's place of residence or, if more
---------------------
than one, primary residence is indicated in this Agreement. The Guarantor will
not change the same in any manner, without providing at least 30 days prior
written notice to NMT.
5. No Liens. Except for the security interest herein granted and liens
--------
permitted by the Loan and Security Agreement, the Guarantor shall be the owner
of the Collateral free from any lien, security interest or other encumbrance,
and the Guarantor shall defend the same against all claims and demands of all
persons at any time claiming the same or any interests therein adverse to NMT.
The Guarantor shall not pledge, mortgage or create, or suffer to exist a
security interest in the Collateral in favor of any person other than NMT except
for liens permitted by the Loan and Security Agreement.
6. No Transfers. The Guarantor will not sell or offer to sell or
------------
otherwise transfer the Collateral or any interest therein.
7. Maintenance of Collateral; Compliance with Law. The Guarantor will
----------------------------------------------
keep the Collateral in good order and will not use the same in violation of law
or any policy of insurance thereon. NMT, or its designee, may inspect the
Collateral at any reasonable time, wherever located. The Guarantor will pay
promptly when due all taxes, assessments, governmental charges and levies upon
the Collateral or incurred in connection with the use or operation or
maintenance of such Collateral or incurred in connection with this Agreement,
unless otherwise specified in the Loan and Security Agreement.
-2-
<PAGE>
8. Collateral Protection Expenses; Preservation of Collateral.
----------------------------------------------------------
8.1. Expenses Incurred by NMT. In its discretion, NMT may discharge
------------------------
taxes and other encumbrances at any time levied or placed on any of the
Collateral and pay any necessary filing fees. NMT may (i) pay all renewal
fees and other fees and costs associated with maintaining the patents and
marks and with the processing of the patents and marks, (ii) at Guarantor's
sole cost, expense, and risk, pursue the prompt, diligent, processing of
each Application for Registration which is the subject of the foregoing
assignment and not abandon or delay any such efforts, and (iii) at
Guarantor's sole cost, expense, and risk, take any and all action which may
be necessary or desirable to protect the patents and marks, including,
without limitation, the prosecution and defense of infringement actions.
The Guarantor agrees to reimburse NMT on demand for any and all
expenditures so made. NMT shall have no obligation to the Guarantor to make
any such expenditures, nor shall the making thereof relieve the Guarantor
of any default, unless otherwise specified in the Loan and Security
Agreement.
8.2. NMT's Obligations and Duties. Anything herein to the contrary
----------------------------
notwithstanding, the Guarantor shall remain liable under each contract or
agreement comprised in the Collateral to be observed or performed by the
Guarantor thereunder. NMT shall not have any obligation or liability under
any such contract or agreement by reason of or arising out of this
Agreement or the receipt by NMT of any payment relating to any of the
Collateral, nor shall NMT be obligated in any manner to perform any of the
obligations of the Guarantor under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any payment
received by NMT in respect of the Collateral or as to the sufficiency of
any performance by any party under any such contract or agreement, to
present or file any claim, to take any action to enforce any performance or
to collect the payment of any amounts which may have been assigned to NMT
or to which NMT may be entitled at any time or times.
9. Further Assurances. The Guarantor, at its own expense, shall do,
------------------
make, execute and deliver all such additional and further acts, things, deeds,
assurances and instruments as NMT may require more completely to vest in and
assure to NMT its rights hereunder or in any of the Collateral, including,
without limitation, (i) executing, delivering and, where appropriate, filing
financing statements and continuation statements under the Uniform Commercial
Code, (ii) executing, delivering and, where appropriate filing security
interests with the Patent and Trademark Office or the Copyright Office (iii)
obtaining governmental and other third party consents and approvals, (iv)
obtaining waivers from mortgagees and landlords and (v) taking all actions
required by Sections 8-313 and 8-321 of the Uniform
-3-
<PAGE>
Commercial Code, as applicable in each relevant jurisdiction, with respect to
certificated and uncertificated securities.
10. Power of Attorney.
-----------------
10.1. Appointment and Powers of NMT. The Guarantor hereby irrevocably
-----------------------------
constitutes and appoints NMT and any officer or agent thereof, with full
power of substitution, as its true and lawful attorneys-in-fact with full
irrevocable power and authority in the place and stead of the Guarantor or
in NMT's own name, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and
all documents and instruments that may be necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, hereby gives said attorneys the power and
right, on behalf of the Guarantor, without notice to or assent by the
Guarantor, to do the following:
(a) upon the occurrence and during the continuance of an
event of Default, generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the
Collateral in such manner as is consistent with the Massachusetts
Uniform Commercial Code and as fully and completely as though NMT
were the absolute owner thereof for all purposes, and to do at the
Guarantor's expense, at any time, or from time to time, all acts and
things which NMT deems necessary to protect, preserve or realize upon
the Collateral and NMT's security interest therein, in order to
effect the intent of this Agreement, all as fully and effectively as
the Guarantor might do, including, without limitation, (i) the filing
and prosecuting of registration and transfer applications with the
appropriate federal or local agencies or authorities with respect to
trademarks, copyrights and patentable inventions and processes, (ii)
upon written notice to the Guarantor, the exercise of voting rights
with respect to voting securities, which rights may be exercised, if
NMT so elects, with a view to causing the liquidation in a
commercially reasonable manner of assets of the issuer of any such
securities and (iii) the execution, delivery and recording, in
connection with any sale or other disposition of any Collateral, of
the endorsements, assignments or other instruments of conveyance or
transfer with respect to such Collateral; and
(b) to file such financing statements with respect hereto,
with or without the Guarantor's signature, or a photocopy of this
Agreement in substitution for a financing statement, as NMT may deem
appropriate and to execute in the Guarantor's name such financing
statements and amendments thereto and continuation statements which
may require the Guarantor's signature.
-4-
<PAGE>
10.2. Ratification by Guarantor. To the extent permitted by law, the
-------------------------
Guarantor hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power
coupled with an interest and shall be irrevocable.
10.3 No Duty on NMT. The powers conferred on NMT hereunder are
--------------
solely to protect its interests in the Collateral and shall not impose any
duty upon it to exercise any such powers. NMT shall be accountable only for
the amounts that it actually receives as a result of the exercise of such
powers and neither it nor any of its officers, directors, employees or
agents shall be responsible to the Guarantor for any act or failure to act,
except for NMT's own gross negligence or willful misconduct.
11. Remedies. If an event of Default shall have occurred and be
--------
continuing, NMT may, without notice to or demand upon the Guarantor, declare
this Agreement to be in default, and NMT shall thereafter have in any
jurisdiction in which enforcement hereof is sought, in addition to all other
rights and remedies, the rights and remedies of a secured party under the
Uniform Commercial Code, including, without limitation, the right to take
possession of the Collateral, and for that purpose NMT may, so far as the
Guarantor can give authority therefor, enter upon any premises on which the
Collateral may be situated and remove the same therefrom. NMT may in its
discretion require the Guarantor to assemble all or any part of the Collateral
at such location or locations within the state(s) of the Guarantor's principal
office(s) or at such other locations as NMT may designate. Unless the Collateral
is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, NMT shall give to the Guarantor at
least five Business Days prior written notice of the time and place of any
public sale of Collateral or of the time after which any private sale or any
other intended disposition is to be made. The Guarantor hereby acknowledges
that five Business Days prior written notice of such sale or sales shall be
reasonable notice. In addition, the Guarantor waives any and all rights that it
may have to a judicial hearing in advance of the enforcement of any of NMT's
rights hereunder, including, without limitation, its right following an event of
Default to take immediate possession of the Collateral and to exercise its
rights with respect thereto.
12. No Waiver, etc. The Guarantor waives demand, notice, protest, notice
--------------
of acceptance of this Agreement, notice of loans made, credit extended,
Collateral received or delivered or other action taken in reliance hereon and
all other demands and notices of any description. With respect to both the
Obligations and the Collateral, the Guarantor assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of or failure to perfect any security interest
in any Collateral, to the addition or release of any party or person primarily
or secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromising or adjusting of any thereof, all in
-5-
<PAGE>
such manner and at such time or times as NMT may deem advisable. NMT shall have
no duty as to the collection or protection of the Collateral or any income
thereon, nor as to the preservation of rights against prior parties, nor as to
the preservation of any rights pertaining thereto. NMT shall not be deemed to
have waived any of its rights upon or under the Obligations or the Collateral
unless such waiver shall be in writing and signed by NMT. No delay or omission
on the part of NMT in exercising any right shall operate as a waiver of such
right or any other right. A waiver on any one occasion shall not be construed
as a bar to or waiver of any right on any future occasion. All rights and
remedies of NMT with respect to the Obligations or the Collateral, whether
evidenced hereby or by any other instrument or papers, shall be cumulative and
may be exercised singularly, alternatively, successively or concurrently at such
time or at such times as NMT deems expedient.
13. Marshalling. NMT shall not be required to marshal any present or
-----------
future collateral security (including but not limited to this Agreement and the
Collateral) for, or other assurances of payment of, the Obligations or any of
them or to resort to such collateral security or other assurances of payment in
any particular order, and all of its rights hereunder and in respect of such
collateral security and other assurances of payment shall be cumulative and in
addition to all other rights, however existing or arising. To the extent that
it lawfully may, the Guarantor hereby agrees that it will not invoke any law
relating to the marshalling of collateral which might cause delay in or impede
the enforcement of NMT's rights under this Agreement or under any other
instrument creating or evidencing any of the Obligations or under which any of
the Obligations is outstanding or by which any of the Obligations is secured or
payment thereof is otherwise assured, and, to the extent that it lawfully may,
the Guarantor hereby irrevocably waives the benefits of all such laws.
14. Proceeds of Dispositions; Expenses. The Guarantor shall pay to NMT on
----------------------------------
demand any and all expenses, including reasonable attorneys' fees and
disbursements, incurred or paid by NMT in protecting, preserving or enforcing
NMT's rights under or in respect of any of the Obligations or any of the
Collateral. After deducting all of said expenses, the residue of any proceeds of
collection or sale of the Obligations or Collateral shall, to the extent
actually received in cash, be applied to the payment of the Obligations in such
order or preference as NMT may determine, proper allowance and provision being
made for any Obligations not then due. Upon the final payment and satisfaction
in full of all of the Obligations and after making any payments required by
Section 9-504(l)(c) of the Massachusetts Uniform Commercial Code, any excess
shall be returned to the Guarantor, and the Guarantor shall remain liable for
any deficiency in the payment of the Obligations.
-6-
<PAGE>
15. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS INTENDED
--------------------------------------
TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. The Guarantor
agrees that any suit for the enforcement of this Agreement may be brought in the
courts of The Commonwealth of Massachusetts or any federal court sitting therein
and consents to the non-exclusive jurisdiction of such court and to service of
process in any such suit being made upon the Guarantor by mail at the address
specified in of the Loan and Security Agreement. The Guarantor hereby waives any
objection that it may now or hereafter have to the venue of any such suit or any
such court or that such suit is brought in an inconvenient court.
16. Waiver of Jury Trial. THE GUARANTOR WAIVES ITS RIGHT TO A JURY TRIAL
--------------------
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF
ANY SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law, the Guarantor
waives any right which it may have to claim or recover in any litigation
referred to in the preceding sentence any special, exemplary, punitive or
consequential damages or any damages other than, or in addition to, actual
damages. The Guarantor (i) certifies that neither NMT nor any representative,
agent or attorney of NMT has represented, expressly or otherwise, that NMT would
not, in the event of litigation, seek to enforce the foregoing waivers and (ii)
acknowledges that, in entering into the Loan and Security Agreement, NMT is
relying upon, among other things, the waivers and certifications contained in
this (S)19.
17. Miscellaneous. The headings of each section of this Agreement are for
-------------
convenience only and shall not define or limit the provisions thereof. This
Agreement and all rights and obligations hereunder shall be binding upon the
Guarantor and its respective successors and assigns, and shall inure to the
benefit of NMT and its successors and assigns. If any term of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity of all other
terms hereof shall in no way be affected thereby, and this Agreement shall be
construed and be enforceable as if such invalid, illegal or unenforceable term
had not been included herein. The Guarantor acknowledges receipt of a copy of
this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound, the Guarantor has caused
this Agreement to be duly executed as of the date first above written.
ROBERT LEE THOMPSON
By:
-------------------------------
Name: Robert Lee Thompson
NITINOL MEDICAL TECHNOLOGIES, INC.
By:
-------------------------------
Name: Thomas M. Tully
Title: President
-8-
<PAGE>
CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OF MASSACHUSETTS
) ss.
COUNTY OF _____________________________)
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this 28th day of May, 1997, personally appeared ________________
to me known personally, and who, being by me duly sworn, deposes and says that
he is Robert Lee Thompson, and that said instrument was signed and sealed on
behalf of said, and said acknowledged said instrument to be the free act and
deed of said trust.
----------------------------------
Notary Public
My commission
-9-
<PAGE>
Exhibit C-2
-----------
GUARANTEE
This GUARANTEE is made as of May 29, 1997, by Robert Lee Thompson, an
individual residing at 8334 Dogwood Lane, Rogers, Arkansas 72756 (the
"Guarantor"), in favor of Nitinol Medical Technologies, Inc., a Delaware
corporation having a principal place of business at 27 Wormwood Street, Boston,
MA 02210 (the "Lender"). Capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in that certain Loan and Security Agreement of
even date herewith by and between the Borrower (as defined below) and the Lender
(the "Loan Agreement"). In consideration of the Lender's entering into the Loan
Agreement with Image Technologies Corporation, a Delaware corporation having a
principal place of business at 27 Wormwood Street, Boston, MA 02210 (the
"Borrower"), and for other good and valuable consideration, the receipt of which
are hereby acknowledged, the Guarantor agrees as follows:
1. GUARANTEE OF PAYMENT AND PERFORMANCE. The Guarantor hereby guarantees
to the Lender the full and punctual payment when due (whether at maturity, by
acceleration or otherwise), and the performance of all liabilities, agreements
and other obligations of the Borrower to the Lender, including, without
limitation, any and all obligations of the Borrower to the Lender arising out of
or related to the Loan Agreement, the Loan Documents or the Lender Guarantees,
whether direct or indirect, absolute or contingent, due or to become due,
secured or unsecured, now existing or hereafter arising or acquired (the
"Obligations"). This Guarantee is an absolute, unconditional and continuing
Guarantee of the full and punctual payment and performance of the Obligations
and not of their collectibility only and is in no way conditioned upon any
requirement that the Lender first attempt to collect any of the Obligations from
the Borrower or resort to any security or other means of obtaining their
payment. Should the Borrower default in the payment or performance of any of
the Obligations, or should the Borrower or the Guarantor become insolvent or
make a composition, trust mortgage or general assignment for the benefit of
creditors, or if a proceeding under any federal or state bankruptcy,
reorganization, receivership, insolvency or other similar law affecting the
rights of creditors generally be filed or commenced by, against or in respect of
the Borrower or the Guarantor, the obligations of the Guarantor hereunder shall
become immediately due and payable to the Lender, without demand or notice of
any nature, all of which are expressly waived by the Guarantor. Payments by the
Guarantor hereunder may be required by the Lender on any number of occasions.
2. GRANT OF SECURITY INTEREST. To secure payment and performance of
Guarantor's Obligations hereunder, the Guarantor hereby grants to the Lender a
continuing lien on and security interest in the following properties, assets and
rights of the Guarantor, wherever located, whether now owned or hereafter
acquired or arising: all patents, patent applications, trademarks, trademark
applications (including, without limitation, those listed in Schedule I, hereto
----------
and made part hereof), license fees, income, royalties, trade names, copyrights,
copyright applications, rights to sue and recover for past infringement of
patents, present and future trademarks and copyrights, license fees, computer
programs, computer software, engineering drawings, service marks, customer
<PAGE>
lists, goodwill, and all licenses, permits, agreements of any kind or nature
pursuant to which the Guarantor possesses, uses or has authority to possess or
use property (whether tangible or intangible) of others or others possess, use
or have authority to possess or use property (whether tangible or intangible) of
the Guarantor, and all recorded data of any kind or nature, regardless of the
medium of recording including, without limitation, all software, writings,
plans, specifications and schematics, and all of Guarantor's rights to any of
the foregoing throughout the world (collectively, the "Pledged Collateral"). In
connection therewith, Guarantor agrees to execute and file in the United States
Patent and Trademark Office the Grant of Security Interest (Patents) in
substantially the form attached hereto as Exhibit A, and any and all additional
---------
documents, instruments and certificates as the Lender may reasonably require in
order to secure the Obligations.
3. GUARANTOR'S AGREEMENT TO PAY. The Guarantor further agrees, as the
principal obligor and not as a guarantor only, to pay to the Lender, on demand,
all costs and expenses (including court costs, expenses and reasonable
attorney's fees) incurred or expended by the Lender in connection with the
Obligations, this Guarantee and the enforcement thereof, together with interest
on amounts recoverable under this Guarantee from the time such amounts become
due until payment, at the rate per annum equal to thirteen (13%) percent;
provided that if such interest exceeds the maximum amount permitted to be paid
under applicable law, then such interest shall be reduced to such maximum
permitted amount.
4. LIMITED GUARANTEE. The Lender's sole recourse against the Guarantor
under this Guarantee shall be to the Pledged Collateral.
5. WAIVERS BY GUARANTOR; LENDER'S FREEDOM TO ACT. The Guarantor agrees
that the Obligations will be paid and performed strictly in accordance with
their respective terms regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Lender with respect thereto. The Guarantor waives presentment,
demand, protest, notice of acceptance, notice of Obligations incurred and all
other notices of any kind, all defenses which may be available by virtue of any
valuation, stay, moratorium law or other similar law now or hereafter in effect,
any right to require the marshalling of assets of the Borrower, and all
suretyship defenses generally. Without limiting the generality of the
foregoing, the Guarantor agrees to the provisions of any instrument evidencing,
securing or otherwise executed in connection with any Obligation and agrees that
the obligations of the Guarantor hereunder shall not be released or discharged,
in whole or in part, or otherwise affected by (i) the failure of the Lender to
assert any claim or demand or to enforce any right or remedy against the
Borrower; (ii) any extensions or renewals of any Obligation; (iii) any
rescissions, waivers, amendments or modifications of any of the terms or
provisions of any agreement evidencing, security or otherwise executed in
connection with any Obligation; (iv) the substitution or release of any entity
primarily or secondarily liable for any Obligation; (v) the adequacy of any
rights the Lender may have against any collateral or other means of obtaining
repayment of the Obligations; (vi) the impairment of any collateral securing the
Obligations, including without limitation the failure to perfect or preserve any
rights the Lender might have in such
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<PAGE>
collateral or the substitution, exchange, surrender, release, loss or
destruction of any such collateral; or (vii) any other act or omission which
might in any manner or to any extent vary the risk of the Guarantor or otherwise
operate as a release or discharge of the Guarantor, all of which may be done
without notice to the Guarantor.
6. APPLICATION OF PROCEEDS. Any and all proceeds realized or obtained by
the Lender under this Guarantee shall be applied to the amounts outstanding
under the Loan Agreement or any other Loan Document, after payment of any and
all expenses, attorney's fees and other costs of collection hereunder in
accordance with the following:
(a) All such proceeds shall first be applied to the payment of any and
all expenses, charges or other amounts which may be due and owing
under the Loan Agreement or the Loan Documents;
(b) Any and all such proceeds remaining after application as provided
in paragraph (a) above shall be applied to the payment of any
principal, interest or charges outstanding under the Loan
Agreement or the Loan Documents in accordance therewith, or if not
provided, in the Lender's sole discretion; and
(c) Any surplus remaining after application as provided in paragraphs
(a) and (b) above, shall be paid or returned to Guarantor, or its
successors or assigns or to whomsoever may be lawfully entitled to
receive the same.
7. UNENFORCEABILITY OF OBLIGATIONS AGAINST BORROWER. If for any reason
the Borrower has no legal existence or is under no legal obligation to discharge
any of the Obligations, or if any of the Obligations have become irrecoverable
from the Borrower by operation of law or for any other reason, including,
without limitation, any release or discharge under any federal or state
bankruptcy, reorganization, receivership, insolvency or other similar law
affecting the rights of creditors generally, this Guarantee shall nevertheless
be binding on the Guarantor to the same extent as if the Guarantor at all times
had been the principal obligor on all such Obligations. In the event that
acceleration of the time for payment of the Obligations is stayed upon the
insolvency, bankruptcy or reorganization of the Borrower, or for any other
reason, all such amounts otherwise subject to acceleration under the terms of
any agreement evidencing, securing or otherwise executed in connection with any
Obligation shall be immediately due and payable by the Guarantor.
8. SUBROGATION; SUBORDINATION. The Guarantor shall not exercise any
rights and hereby waives any and all claims against the Borrower arising as a
result of payment by the Guarantor hereunder, by way of subrogation or
otherwise, and will not prove any claim in competition with the Lender or its
affiliates in respect of any payment hereunder in bankruptcy or insolvency
proceedings of any nature; the
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<PAGE>
Guarantor will not claim any set-off or counterclaim against the Borrower in
respect of any liability of the Guarantor to the Borrower; and the Guarantor
waives any benefit of and any right to participate in any collateral which may
be held by the Lender or any such affiliate. The payment of any amounts due
with respect to any indebtedness of the Borrower now or hereafter held by the
Guarantor is hereby waived and postponed and subordinated to the prior payment
in full of the Obligations. The Guarantor agrees that after the occurrence of
any default in the payment or performance of the Obligations by the Borrower,
the Guarantor will not demand, sue for or otherwise attempt to collect any such
indebtedness of the Borrower to the Guarantor until the Obligations shall have
been paid in full. If, notwithstanding the foregoing sentence, the Guarantor
shall collect, enforce or receive any amounts in respect of such indebtedness,
such amounts shall be collected, enforced and received by the Guarantor as
trustee for the Lender and be paid over to the Lender on account of the
Obligations without affecting in any manner the liability of the Guarantor under
the other provisions of this Guarantee.
9. ENFORCEABILITY. This Guarantee constitutes the legal, valid and
binding obligation of the Guarantor, enforceable against the Guarantor in
accordance with its terms, and will not contravene any existing law, rule or
regulation, or any agreement, order, judgment or decree to which Guarantor is a
party or by which Guarantor is bound.
10. FURTHER ASSURANCES. The Guarantor agrees that it will promptly
provide to the Lender, copies of such information relating to the affairs of the
Guarantor as the Lender may reasonably request. The Guarantor also agrees to do
all such things and execute all such documents, including financing statements,
as the Lender may consider necessary or desirable to give full effect to this
Guarantee and to perfect and preserve the rights and powers of the Lender
hereunder.
11. TERMINATION; REINSTATEMENT. This Guarantee shall remain in full force
and effect until the payment is received in full of the Obligations. This
Guarantee shall continue to be effective or be reinstated, if at any time any
payment made or value received with respect to an Obligation is rescinded or
must otherwise be returned by the Lender upon the insolvency, bankruptcy or
reorganization of the Borrower, or otherwise, all as though such payment had not
been made or value received.
12. SUCCESSORS AND ASSIGNS. This Guarantee shall be binding upon the
Guarantor, its successors and assigns, and shall inure to the benefit of and be
enforceable by the Lender and its successors, transferees and assigns. Without
limiting the generality of the foregoing sentence, the Lender may assign or
otherwise transfer any agreement or any note held by it evidencing, securing or
otherwise executed in connection with the Obligations, to any other person or
entity, and such other person or entity shall thereupon become vested, to the
extent set forth in the agreement evidencing such assignment or transfer, with
all the rights in respect thereof granted to the Lender herein.
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<PAGE>
13. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Guarantee nor consent to any departure by the Guarantor therefrom shall be
effective unless the same shall be in writing and signed by the Lender. No
failure on the part of the Lender to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right.
14. NOTICES. All notices and other communications called for hereunder
shall be made in writing and, unless otherwise specifically provided herein,
shall be deemed to have been duly made or given when delivered by hand or mailed
first class mail postage prepaid or, in the case of facsimile, when transmitted,
addressed as follows: if to the Guarantor, at the address set forth above, and
if to the Lender, at the address set forth above, with a copy to Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts 02109, Attn: Steven D. Singer,
Esq., or at such address as either party may designate in writing.
15. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS (AND NOT THE LAW OF CONFLICTS) OF THE
COMMONWEALTH OF MASSACHUSETTS.
16. CONSENT TO JURISDICTION. THE GUARANTOR HEREBY IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS AND THE
UNITED STATES DISTRICT COURT OF MASSACHUSETTS FOR THE PURPOSE OF ANY SUIT,
ACTION OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTEE AND THE
GUARANTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING
PROCEEDINGS AGAINST THE GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. ANY
JUDICIAL PROCEEDING BY THE GUARANTOR AGAINST THE LENDER OR ANY AFFILIATE OF THE
LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS GUARANTEE SHALL BE BROUGHT ONLY IN A COURT IN
THE COMMONWEALTH OF MASSACHUSETTS.
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<PAGE>
17. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY WAIVES TRIAL BY JURY IN
ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO,
OR CONNECTED WITH THIS GUARANTEE OR THE RELATIONSHIP ESTABLISHED HEREUNDER.
18. MISCELLANEOUS. The Guarantee constitutes the entire agreement of the
Guarantor with respect to the matters set forth herein. The rights and remedies
herein provided are cumulative and not exclusive to any remedies provided by law
or any other agreement. The invalidity or unenforceability of any one or more
sections of this Guarantee shall not affect the validity or enforceability of
its remaining provisions. Captions are for the ease of reference only and shall
not affect the meaning of the relevant provisions. The meanings of all defined
terms used in this Guarantee shall be equally applicable to the singular and
plural forms of the terms defined.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be executed
and delivered as of the date appearing on page one.
Witness:
- ----------------------------
-------------------------------------
Robert Lee Thompson
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<PAGE>
Exhibit D
---------
[Date]
Nitinol Medical Technologies, Inc.
27 Wormwood Street
Boston, MA 02210-1625
Attn: Theodore I. Pincus, Executive Vice President
and Chief Financial Officer
Re: Loan and Security Agreement, dated as of May 29, 1997,
between Image Technologies Corporation (the "Company")
and Nitinol Medical Technologies, Inc. (the "Lender")
------------------------------------------------------
We have acted as counsel to the Company, a Delaware corporation and Robert
Lee Thompson (the "Guarantor") in connection with the Loan and Security
Agreement by and between the Company and the Lender dated as of May 29, 1997 (as
the same may be amended from time to time, the "Loan and Security Agreement")
and the other Loan Documents (defined hereinafter). Capitalized terms used
herein and not otherwise defined herein shall have the meaning ascribed to them
in the Loan and Security Agreement.
For purposes of the opinions expressed below, we have examined:
a. the Loan and Security Agreement;
b. the Revolving Credit Note;
c. the Guarantee;
d. the Security Agreement;
e. the Grant of Security Interest (Patents) of the Guarantor;
f. the Grant of Security Interest (Trademarks) of the Company;
<PAGE>
g. such other documents, instruments and certificates delivered by the
Company in connection with the transaction contemplated by the Loan
and Security Agreement;
h. UCC-1 financing statements to be filed in the filing offices listed on
Schedule I (the "Financing Statements");
--------------------
i. the By-laws of the Company, as in effect on the date hereof, provided
to us by the Company;
j. the corporate minute books of the Company, as provided to us by the
Company;
k. certificates of legal existence and corporate good standing for the
Company as identified on Schedule II;
l. certified copies of resolutions of the board of directors of the
Company approving the transactions contemplated by the Loan Documents
(defined hereinafter) and authorizing, among other things, the
execution, delivery and performance by the Company of each of the Loan
Documents (defined hereinafter) to which it is a party;
m. incumbency and signature certificates as to the officers of the
Company; and
n. such other documents, instruments and certificates (including, but not
limited to, certificates of public officials and officers of the
Company) considered necessary for purposes of this opinion.
The documents referred to in items (a) through (n) above are herein
referred to as the "Loan Documents." In examining the documents described
above, we have assumed the genuineness of all signatures other than those of the
Company, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals and the conformity to the originals of
all documents submitted to us as copies.
For purposes of this opinion, we have assumed that the Lender has the power
to execute, deliver and perform all agreements, documents and certificates
executed by the Lender; that the Lender has duly and validly executed and
delivered such agreements, documents and certificates; and that such agreements,
documents and certificates are legally valid and binding on and enforceable
against the Lender.
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<PAGE>
On the basis of and subject to the foregoing, we are of the opinion that:
1. The Company is duly organized, validly existing and in good standing
under the laws of the State of Delaware and is in good standing and
authorized to do business in each other jurisdiction where such
authorization is necessary to conduct the Company's business as
contemplated by the Loan Documents to which it is a party.
2. The Company has full corporate power and authority to (i) own its
real and personal property and to carry on its business as now
conducted, (ii) enter into, execute and deliver each of the Loan
Documents to which it is a party and (iii) carry out the terms of the
Loan Documents to which it is a party all of which have been duly
authorized by all proper and necessary corporate action. In addition,
the Company has full corporate power and authority to make the
borrowings contemplated by the Loan Documents, to execute, deliver and
carry out the terms of the Revolving Credit Note and to incur the
obligations provided for therein, all of which have been duly
authorized by all proper and necessary corporate action.
3. The execution and delivery by the Company and the Guarantor of the
Loan Documents to which they are a party, do not, and the performance
thereunder will not result in any violation of, be in conflict with,
constitute a default under, give rise to any obligation to redeem
securities under, or except for the security interests securing the
Loan and Security Agreement and the other Loan Documents, result in
the creation of a lien or encumbrance under, any term or provision of:
(a) the charter or by-laws of the Company (b) any presently existing
federal or state law, statute or governmental regulation, (c) any
judgment, decree or order known to us in which the Company or the
Guarantor, as the case may be, is named as a party, or (e) any
material agreement to which the Company or the Guarantor, as the case
may be, is a party.
4. Upon the Lender making the Revolving Credit Loan pursuant to the Loan
and Security Agreement, the provisions of the Loan and Security
Agreement, the Security Agreement, the Grant of Security Interest
(Trademarks) executed by the Company and the Grant of Security
Interest (Patents) executed by the Guarantor are sufficient to create
in favor of the Lender a security interest in the Collateral and the
Pledged Collateral (as defined in the Guaranty Agreement), of each of
the respective parties thereto. Upon the filing of the Financing
Statements in the filing offices listed on Schedule I hereto, the
----------
Lender will hold a first priority perfected security interest in the
Collateral and the Pledged Collateral, as the case
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<PAGE>
may be, in which a security interest may be perfected by the filing of
financing statements under Article 9 of the Uniform Commercial Code as
in effect in the jurisdictions in which the filing offices are
located. Upon the filing of the Grant of Security Interest (Patents)
in the United States Patent and Trademark Office and the filing of the
Grant of Security Interest (Trademarks) in the United States Patent
and Trademark Office, the Lender will hold a first priority perfected
security interest in the Pledged Collateral and the Collateral, as the
case may be, in which a security interest may be perfected by such
filings.
5. No consent, authorization or approval of, filing with, notice to, or
exemption by, stockholders, any governmental body or any other person
(except for those which have been obtained, made or given) (i) is
required to authorize, or is required in connection with, the
execution, delivery and performance of the Loan Documents or (ii) is
required as a condition to the validity or enforceability of the Loan
Documents.
6. There are no actions, suits or proceedings at law or in equity or by
or before any governmental body (whether or not purportedly on behalf
of the Company) pending or threatened against the Company, or any of
its property or rights, which (i) if adversely determined, could
reasonably be expected to have a material adverse effect on the
Company, or (ii) call into question the validity of or the
enforceability of any of the Loan Documents.
7. To our knowledge, neither the Company nor the Guarantor is in default
under any mortgage, indenture, contract, agreement, judgment, decree
or order to which it is a party or by which it is bound. The
execution or delivery of the Loan Documents and the carrying out of
the terms of the Loan Documents will not constitute a default under,
conflict with, require any consent under (other than consents which
have been obtained) or result in the creation or imposition of, or
obligation to create, any lien upon the property of the Company or the
Guarantor pursuant to the terms of any such mortgage, indenture,
contract, agreement, judgment, decree or order.
This opinion is based upon currently existing statutes, rules, regulations
and judicial decisions, and we disclaim any obligation to advise you of any
change in any of these sources of law or other subsequent development which
might affect any matters or opinions set forth herein.
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<PAGE>
This opinion is being delivered to the Lender in connection with the Loan
Documents and may not be relied upon by any other person or entity (other than
by Hale and Dorr LLP, as counsel to the Lender, and any assigns of the Lender),
or for any other purpose without our prior written consent.
Very truly yours,
[____________________]
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<PAGE>
Schedule I to
Opinion of [_____________________]
Filing Offices
- --------------
<PAGE>
Schedule II to
Opinion of [___________________]
Certificates of Good Standing,
------------------------------
Legal Existence and Foreign Qualifications
------------------------------------------
A. Good Standing and Legal Existence
---------------------------------
1. A Certificate of the Secretary of State of the State of Delaware dated
___________________, attesting to the continued legal existence and
good standing of the Company.
B. Foreign Qualifications
----------------------
1. A Certificate of good standing as a foreign corporation for the
Company dated ______________________, issued by the Secretary of State
of the Commonwealth of Massachusetts.
<PAGE>
EXHIBIT E(1)
To
Loan and Security Agreement
Dated as of May __, 1997
GRANT OF SECURITY INTEREST (TRADEMARKS)
---------------------------------------
Image Technologies Corporation, a Texas corporation (the "Borrower"), is
obligated to Nitinol Medical Technologies, Inc., as Lender (the "Secured
Party"), and has entered into a Loan and Security Agreement dated the date
hereof (the "Loan and Security Agreement") in favor of the Secured Party.
Pursuant to the Loan and Security Agreement, the Borrower granted to the
Secured Party a security interest in all of the right, title and interest of the
Borrower in and to the trademarks listed on Schedule A attached hereto, which
----------
trademarks are registered in the United States Patent and Trademark Office (the
"Trademarks"), together with the goodwill of the business symbolized by the
Trademarks and the applications and registrations thereof, and all proceeds
thereof, including, without limitation, any and all causes of action which may
exist by reason of infringement thereof (the "Collateral"), to secure the prompt
payment, performance and observance of the Obligations (as defined in the Loan
and Security Agreement).
For good and valuable consideration, the receipt of which is hereby
acknowledged, and for the purpose of recording the grant of the security
interest as aforesaid, the Borrower does hereby further assign to the Secured
Party, and grant to the Secured Party, subject to the provisions of the Loan and
Security Agreement, a security interest in, the Collateral to secure the prompt
payment, performance and observance of the Obligations.
The Borrower does hereby further acknowledge and affirm that the rights and
remedies of the Secured Party with respect to the assignment of and security
interest in the Collateral made and granted hereby are set forth in the Loan and
Security Agreement, the terms and provisions of which are hereby incorporated
herein by reference as if fully set forth herein.
Until an Event of Default has occurred and is continuing, Secured Party
hereby grants to the Borrower, a license to use the Collateral in connection
with the operations and management of its business. Borrower agrees that all
goods and services provided under any of the Trademarks shall be of the same
quality as the goods and services provided presently by the Borrower.
Upon the indefeasible cash payment in full of all Obligations (as such term
is defined in the Loan and Security Agreement), the Secured Party will take
whatever actions are necessary at the Borrower's expense to release or reconvey
to Borrower all right, title and interest of the Borrower in and to the
Collateral.
<PAGE>
The Secured Party's address is: 27 Wormwood Street, Boston, Massachusetts
02210-1625.
IN WITNESS WHEREOF, the Borrower has caused this Grant of Security Interest
(Trademarks) to be duly executed by its duly authorized officer as of the ____
day of May, 1997
WITNESS: IMAGE TECHNOLOGIES CORPORATION
By:
---------------------------------
Name:
Title:
STATE OF __________ )
)
COUNTY OF __________ )
On this ____ day of May, 1997, before me personally came __________, to me
known, who, being by me duly sworn, did depose and say that he is a __________
of Image Technologies Corporation, the corporation described in and which
executed the above instrument, and that he signed his name thereto by order of
the board of directors thereof.
------------------------------------
Notary Public
My Commission Expires:
-2-
<PAGE>
EXHIBIT E(2)
TO
Loan and Security Agreement
Dated as of May __, 1997
GRANT OF SECURITY INTEREST (PATENTS)
------------------------------------
Image Technologies Corporation, a Texas corporation (the "Borrower"), is
obligated to Nitinol Medical Technologies, Inc., as Lender (the "Secured
Party"), and has entered into a Loan and Security Agreement dated the date
hereof (the "Loan and Security Agreement") in favor of the Secured Party.
Pursuant to the Loan and Security Agreement, the Borrower granted to the
Secured Party a security interest in all of the right, title and interest of the
Borrower in and to the patents and patent applications listed on Schedule A
----------
attached hereto, which patents and patent applications are registered in the
United States Patent and Trademark Office (the "Patents"), and all proceeds
thereof, including, without limitation, any and all causes of action which may
exist by reason of infringement thereof (the "Collateral"), to secure the prompt
payment, performance and observance of the Obligations (as defined in the Loan
and Security Agreement).
For good and valuable consideration, the receipt of which is hereby
acknowledged, and for the purpose of recording the grant of the security
interest as aforesaid, the Borrower does hereby further assign to the Secured
Party, and grant to the Secured Party, subject to the provisions of the Loan and
Security Agreement, a security interest in, the Collateral to secure the prompt
payment, performance and observance of the Obligations.
The Borrower does hereby further acknowledge and affirm that the rights and
remedies of the Secured Party with respect to the assignment of and security
interest in the Collateral made and granted hereby are set forth in the Loan and
Security Agreement, the terms and provisions of which are hereby incorporated
herein by reference as if fully set forth herein.
Until an Event of Default has occurred and is continuing, Secured Party
grants to Borrower a license to use the Collateral in connection with the
operation and management of its business.
Upon the indefeasible cash payment in full of all Obligations (as such term
is defined in the Loan and Security Agreement), the Secured Party will take
whatever actions are necessary at the Borrower's expense to release or reconvey
to Borrower all right, title and interest of the Borrower in and to the
Collateral.
-1-
<PAGE>
The Secured Party's address is: 27 Wormwood Street, Boston, Massachusetts
02210-1625.
IN WITNESS WHEREOF, the Borrower has caused this Grant of Security Interest
(Patents) to be duly executed by its duly authorized officer as of the ____ day
of May, 1997.
WITNESS: IMAGE TECHNOLOGIES CORPORATION
By:
---------------------------------
Name:
Title:
STATE OF __________ )
)
COUNTY OF _________ )
On this ____ day of May, 1997, before me personally came __________, to me
known, who, being by me duly sworn, did depose and say that he is a __________
of Image Technologies Corporation, the corporation described in and which
executed the above instrument, and that he signed his name thereto by order of
the board of directors thereof.
------------------------------------
Notary Public
My Commission Expires:
-2-
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 1
dated as of August 4, 1997 to the
LOAN AND SECURITY AGREEMENT
This Amendment No. 1 (the "Amendment") to that certain Loan and Security
Agreement (the "Loan Agreement") dated as of May 29, 1997 by and between Nitinol
Medical Technologies, Inc., a Delaware corporation, and Image Technologies
Corporation, a Delaware corporation, is made as of August 4, 1997. All
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to such terms in the Loan Agreement.
WHEREAS, the parties hereto wish to amend the definition of Business Plan
set forth in the Loan Agreement as set forth herein.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
agree as follows:
1. Amendment to Article I. The definition of Business Plan set forth in
----------------------
Article I of the Loan Agreement is hereby amended in its entirety to read as
follows:
"Business Plan" means the business plan of the Borrower previously
delivered to the Lender, together with the letter from Lee Thompson to
Tom Tully dated February 17, 1997 with attachments and the spreadsheet
labelled "IMAGE F03".
2. Removal of Exhibit F. Exhibit F under the Loan Agreement is hereby
--------------------
deleted in its entirety and any and all references thereto in the Loan Agreement
are hereby deleted.
3. Miscellaneous.
-------------
3.1 Governing Law. This Amendment shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the Commonwealth of
Massachusetts.
3.2 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
3.3 Remaining Agreement. Except as amended hereby, the Loan
-------------------
Agreement shall remain in full force and effect in all respects.
-1-
<PAGE>
3.4 Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 to
the Loan Agreement, as of the 4th day of August, 1997.
NITINOL MEDICAL TECHNOLOGIES, INC.
By: /s/ Theodore I. Pincus
------------------------------------
Theodore I. Pincus
Executive Vice President and
Chief Financial Officer
IMAGE TECHNOLOGIES CORPORATION
By: /s/ James C. Torraco
------------------------------------
James C. Torraco
President
-2-
<PAGE>
EXHIBIT 11.1
NITINOL MEDICAL TECHNOLOGIES, INC.
STATEMENT RE: EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Net Loss $ (2,594,764) $ (311,854) $(2,515,403) $ (1,437,283)
============================== ==============================
Weighted average common
shares outstanding 9,551,895 3,774,198 9,495,101 4,161,591
Stock issued within twelve
months of initial public
offering (1) - 2,805,930 - 2,430,742
------------------------------ ------------------------------
Weighted average number of
common and common equiv-
alent shares outstanding 9,551,895 6,580,128 9,495,101 6,592,333
------------------------------ ------------------------------
Net loss per share amount $ (0.27) $ (0.05) $ (0.26) $ (0.22)
============================== ==============================
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, stock, stock options, and stock warrants issued at prices below the
initial public offering price during the 12-month period immediately
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 in 1996. The dilutive effect of the common stock
equivalents was computed in accordance with the treasury stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1997 AND FOR THE THREE- AND
NINE-MONTH PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,992,424
<SECURITIES> 19,055,858
<RECEIVABLES> 1,511,399
<ALLOWANCES> 0
<INVENTORY> 923,981
<CURRENT-ASSETS> 28,535,264
<PP&E> 2,820,963
<DEPRECIATION> 599,298
<TOTAL-ASSETS> 32,748,621
<CURRENT-LIABILITIES> 1,228,527
<BONDS> 0
0
0
<COMMON> 9,554
<OTHER-SE> 31,128,772
<TOTAL-LIABILITY-AND-EQUITY> 32,748,621
<SALES> 3,889,715
<TOTAL-REVENUES> 4,440,109
<CGS> 1,816,684
<TOTAL-COSTS> 5,902,560
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (786,732)
<INCOME-PRETAX> (2,492,403)
<INCOME-TAX> 23,000
<INCOME-CONTINUING> (2,515,403)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,515,403)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
