<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1998
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 July 31, 1998, there were 10,503,210 shares of Common Stock, $.001
par value per share, outstanding.
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC.
INDEX
-----
Part 1. Financial Information Page Number
--------------------- -----------
Item 1. Financial Statements. 1
Consolidated Balance Sheets at December 31, 1997
and June 30, 1998 1
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1998 and 1997 2
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. 17
Part II. Other Information 18
-----------------
Item 2. Changes in Securities and Use of Proceeds. 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Part I -- Financial Information
- -------------------------------
Item 1. Financial Statements
--------------------
(UNAUDITED)
<TABLE>
<CAPTION>
AT AT
JUNE 30, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,130,222 $ 5,561,445
Marketable securities 7,177,259 20,822,405
Accounts receivable, net of allowances for doubtful accounts
of $205,000 and $125,000 as of June 30, 1998 and
December 31, 1997, respectively 3,299,381 2,317,408
Inventories 1,316,173 1,071,265
Prepaid expenses and other current assets 787,559 1,110,271
-------------- --------------
Total current assets 30,710,594 30,882,794
-------------- --------------
Property and equipment, at cost:
Laboratory and computer equipment 1,168,190 1,091,380
Leasehold improvements 1,127,082 1,135,583
Equipment under capital lease 965,723 948,155
Office furniture and equipment 159,201 143,640
-------------- --------------
3,420,196 3,318,758
Less--Accumulated depreciation and amortization 1,105,667 845,512
-------------- --------------
2,314,529 2,473,246
-------------- --------------
Investments in long-term marketable securities 1,914,827 1,478,058
Investment in affiliate 354,463 --
Other assets 651,271 171,415
-------------- --------------
$ 35,945,684 $ 35,005,513
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 780,062 $ 166,248
Accrued expenses 663,845 986,128
Current portion of capital lease obligation 171,688 168,736
Deferred revenue -- 300,000
-------------- --------------
Total current liabilities 1,615,595 1,621,112
-------------- --------------
Capital lease obligation, net of current portion 538,913 612,458
Stockholders' equity
Common stock, $.001 par value--
Authorized--30,000,000 shares
Issued and outstanding--9,828,213 and 9,823,186 shares
at June 30, 1998 and December 31, 1997, respectively 9,829 9,824
Additional paid-in capital 36,655,142 36,610,997
Accumulated deficit (2,873,795) (3,848,878)
-------------- --------------
Total stockholders' equity 33,791,176 32,771,943
-------------- --------------
$ 35,945,684 $ 35,005,513
============== ==============
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
1
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 2,916,637 $ 1,990,672 $ 5,525,522 $ 3,889,715
License fees 457,500 250,000 1,225,799 500,000
Product development -- 19,754 1,453 50,394
--------------------------- ---------------------------
3,374,137 2,260,426 6,752,774 4,440,109
--------------------------- ---------------------------
Expenses:
Cost of product sales 1,094,459 921,091 2,114,138 1,816,684
Research and development 907,930 721,956 1,672,365 1,474,709
General and administrative 702,612 724,570 1,382,813 1,400,796
Selling and marketing 404,462 246,607 725,359 384,348
In-process research and development -- 2,449,072 -- 2,449,072
Restructuring charge -- 193,635 -- 193,635
--------------------------- ---------------------------
3,109,463 5,256,931 5,894,675 7,719,244
--------------------------- ---------------------------
Income (loss) from operations 264,674 (2,996,505) 858,099 (3,279,135)
--------------------------- ---------------------------
Equity in loss of affiliate 93,337 -- 93,337 --
Interest expense (14,828) (10,317) (30,555) (19,747)
Interest income 392,771 394,558 791,376 806,479
--------------------------- ---------------------------
377,943 384,241 760,821 786,732
--------------------------- ---------------------------
Income (loss) before provision for
income taxes 549,280 (2,612,264) 1,525,583 (2,492,403)
Provision (benefit) for income taxes 218,500 (17,500) 550,500 23,000
--------------------------- ---------------------------
Net income (loss) $ 330,780 $ (2,594,764) $ 975,083 $ (2,515,403)
=========================== ===========================
Basic net income (loss) per common share $ 0.03 $ (0.27) $ 0.10 $ (0.26)
=========================== ===========================
Weighted average common shares outstanding 9,828,213 9,551,895 9,825,713 9,495,101
=========================== ===========================
Diluted net income (loss) per common share $ 0.03 $ (0.27) $ 0.09 $ (0.26)
=========================== ===========================
Diluted weighted average common shares outstanding 10,845,316 9,551,895 10,904,221 9,495,101
=========================== ===========================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
2
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
1998 1997
----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income 975,083 (2,515,403)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization 267,806 210,144
Equity in loss of affiliate 93,337 -
Acceleration of stock options - 111,576
Changes in assets and liabilities-
Accounts receivable (981,973) (729,169)
Inventories (244,908) (178,004)
Prepaid expenses and other current assets 322,712 (441,585)
Accounts payable 613,814 65,527
Accrued expenses (322,283) (150,395)
Deferred revenue (300,000) -
------------------------------
Net cash provided by (used in) operating activities 423,588 (3,627,309)
------------------------------
Cash flows from investing activities:
Maturities of marketable securities 13,208,377 5,435,165
Purchases of property and equipment (83,870) (150,597)
Decrease in other assets (487,506) (31,052)
Increase in investment in affiliate (447,800) -
------------------------------
Net cash provided by investing activities 12,189,201 5,253,516
------------------------------
Cash flows from financing activities:
Payments of capital lease obligations (88,162) (49,625)
Exercise of stock options - 333,356
Issuance of common stock pursuant to employee stock purchase plan 44,150 -
------------------------------
Net cash provided by (used in) financing activities (44,012) 283,731
------------------------------
Net increase in cash and cash equivalents 12,568,777 1,909,938
Cash and cash equivalents, beginning of period 5,561,445 4,082,486
------------------------------
Cash and cash equivalents, end of period $ 18,130,222 $ 5,992,424
==============================
Supplemental disclosure of cash flow information:
Cash paid during the period for-
Interest $ 30,555 $ 19,747
==============================
Taxes $ 517,324 $ 14,000
==============================
Supplemental disclosure of non-cash investing and financing transactions:
Write-off of abandonement of leasehold improvements $ - $ 111,472
==============================
Equipment under capital lease obligation $ - $ 24,079
==============================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
3
<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
Septal Occluder is in the clinical trials stage in the United States and is
sold commercially in Europe 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, 1998 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 on Form 10-K for the period ending December
31, 1997 as filed on Form 10-K on March 17, 1998 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, 1998 are not
necessarily indicative of the results expected for the fiscal year ending
December 31, 1998.
4
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
3. Subsequent Events
On July 8, 1998 the Company acquired Elekta Neurosurgical Instruments (ENI)
for $33 million. The acquisition has been accounted for as a purchase in
accordance with the requirements of Accounting Principles Board Opinion No.
16, Business Combinations, and accordingly ENI's results of operations will
be included in those of the Company as of the acquisition date. The
transaction was financed with $13 million of the Company's cash and $20
million of subordinated debt from an affiliate of a significant stockholder
of the Company. The subordinated debt, which is secured by substantially all
of the assets of the Company, is due September 30, 2003 with quarterly
interest payable at 10.101% per annum and contains certain restrictive
covenants. A total of 675,000 shares of the Company's $.001 par value common
stock was issued to the significant stockholder and its affiliate in
connection with this transaction. The shares are accompanied by certain
demand and "piggy-back" registration rights. In addition, the Company paid
the stockholder a debt placement fee of $600,000 in connection with this
transaction.
4. Reclassifications
Certain prior period amounts have been reclassified to conform to current
period's presentation.
5. Cash and Cash Equivalents and Investments in Marketable Securities
In accordance with Statement of Financial Accounting Standards (SFAS) No.
115, Accounting for Certain Investments in Debt and Equity Securities, the
Company has classified its marketable securities as held-to-maturity and
available-for-sale and its long-term investments as held-to-maturity.
Held-to-maturity securities represent those securities 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, 1998 and December 31, 1997. The Company considers all investments with
maturities of 90 days or less from the date of purchase to be cash
equivalents. Investments with maturities greater than one year from the
balance sheet date are considered to be long-term investments.
5
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
5. Cash and Cash Equivalents and Investments in Marketable Securities--
(continued)
Cash and cash equivalents, which are carried at cost and approximate market
value, consist of the following at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------------------- ------------------
<S> <C> <C>
Cash $18,118,320 $1,626,074
Cash equivalents--
Money market 11,902 971,176
Commercial paper -- 2,964,195
----------- ----------
$18,130,222 $5,561,445
=========== ==========
</TABLE>
Marketable securities, with a weighted average maturity of approximately four
months and three months at June 30, 1998 and December 31, 1997, respectively,
are carried at cost and approximate market value and consist of the following
at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------------- ----------------
<S> <C> <C>
Held-to-maturity--
Eurodollar bonds $4,468,917 $10,619,598
Zero coupon bonds 1,197,837 1,162,233
Corporate debt securities 510,505 2,388,681
Commercial paper -- 5,985,895
Medium-term notes -- 665,998
---------- -----------
$6,177,259 $20,822,405
---------- -----------
Available for sale--
Taxable auction securities 1,000,000 --
---------- -----------
$7,177,259 $20,822,405
========== ===========
</TABLE>
Long-term investments, with a weighted average maturity of approximately 13
months and 15 1/2 months at June 30, 1998 and December 31, 1997,
respectively, are carried at cost and approximate market value and consist of
the following at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------------- --------------------
<S> <C> <C>
Held-to-maturity--
Eurodollar bonds $ 911,477 $ --
Medium-term notes 501,658 502,468
Corporate debt securities -- 975,590
---------- ----------
$1,914,827 $1,478,058
========== ==========
</TABLE>
6
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
5. Cash and Cash Equivalents and Investments in Marketable Securities--
(continued)
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,
1998 1997
----------------- --------------
<S> <C> <C>
Short-term interest receivable $212,762 $476,559
Long-term interest receivable 36,403 5,676
-------- --------
$249,165 $482,235
======== ========
</TABLE>
6. 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,
1998 1997
----------- ------------
<S> <C> <C>
Components $ 642,823 $ 625,381
Finished Goods 673,350 445,884
---------- ----------
$1,316,173 $1,071,265
========== ==========
</TABLE>
Finished goods consist of materials, labor and manufacturing overhead.
7. Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations using the straight-line method, which allocates the cost of
property and equipment over the following estimated useful lives:
Asset Classification Estimated Useful Life
-------------------- ---------------------
Laboratory and computer equipment 3-7 Years
Leasehold improvements Life of Lease
Equipment under capital leases Life of Lease
Office furniture and equipment 5-10 Years
7
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
8. Net Income (Loss) per Common and Common Equivalent Share
In 1997, the Company adopted SFAS No. 128, Earnings per Share, effective
December 15, 1997. SFAS No. 128 establishes standards for computing and
presenting earnings (loss) per share and applies to entities with publicly
held common stock or potential common stock. Calculations of basic and
diluted net income (loss) per share are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
------------ -------------- ----------- ---------------
<C> <C> <C> <C>
<S> Net income (loss) available to
common stockholders $ 330,780 $(2,594,764) $ 975,083 $(2,515,403)
=========== =========== =========== ===========
Weighted average common shares
outstanding 9,828,213 9,551,895 9,825,713 9,495,101
Potential common stock pursuant to
stock options 1,017,103 -- 1,078,508 --
----------- ----------- ----------- -----------
Diluted weighted average shares
outstanding 10,845,316 9,551,895 10,904,221 9,495,101
=========== =========== =========== ===========
Basic income (loss) per share $ .03 $ (.27) $ .10 $ (.26)
=========== =========== =========== ===========
Diluted income (loss) per share $ .03 $ (.27) $ .09 $ (.26)
=========== =========== =========== ===========
</TABLE>
9. Investment in Affiliate
In connection with the Company's acquisition of a 23% ownership interest in
Image Technologies Corporation (ITC), the Company extended to ITC a credit
line of up to $2.0 million of senior debt that bears interest at 10% per
annum. During the second quarter of 1998, ITC began to make borrowings
against this line in order to fund its operations and, as of June 30, 1998,
owed the Company $447,800 plus accrued interest. The Company has not recorded
interest income on the note receivable from ITC because interest is not due
until May 29, 1999 and payment will be waived if the Company exercises its
option to convert its senior debt into additional equity, which converts at
the rate of one percent of ownership per $100,000 borrowed. This option
expires on May 29, 1999. The Company believes that if it does not exercise
this option the amount due from ITC will be collectible from ITC's future
cash flows or from independent financing. In the quarter ended June 30, 1998,
the Company recorded $93,337 as its equity in the loss of ITC. The carrying
value of the note receivable from ITC has been reduced by the amount of the
loss recorded by the Company.
8
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
10. Lease Finance Facility Agreement
The Company has outstanding borrowings of $379,000 under an expired 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. Upon expiration of this agreement in June 1997, the Company
entered into a $1.0 million lease finance facility agreement with the same
bank under similar terms. Borrowings of $376,000 and $250,000 have been made
under this agreement by the Company and its affiliate, ITC, respectively, of
which $315,000 and $204,000 was outstanding as of June 30, 1998,
respectively. On April 1, 1998, the Company entered into a new agreement
with this bank that provides the Company and ITC with similar terms and the
option to borrow up to $750,000 through March 31, 2003. Borrowings of
$18,000 and $20,000 have been made under this new agreement by the Company
and ITC, respectively, of which $17,000 and $19,000 was outstanding as of
June 30, 1998, respectively. Leases under these agreements are payable in
equal monthly installments over a period of 36-60 months and expire through
May 2003. The Company guarantees the outstanding leases of ITC under these
agreements.
11. Accrued Expenses
Accrued expenses consist of the following at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------------- --------------
<S> <C> <C>
Income taxes payable $ 25,176 $ (8,000)
Royalties 164,287 116,012
Payroll and payroll related 57,759 252,425
Leasehold improvements -- 48,553
Other accrued expenses 416,623 577,138
-------- --------
$663,845 $986,128
======== ========
</TABLE>
12. New Accounting Standard
The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998. SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in the financial
statements. The adoption of this did not have a material effect on the
financial statements, as the only elements of comprehensive income related
to the Company are foreign currency gains and losses, which are not
material.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
This Quarterly Report on Form 10-Q, other than the historical financial
information, contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements involve known and unknown risks, uncertainties or other factors which
may cause actual results, performance or achievement by 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 of
the Company's products, government regulation and uncertainty of product
approvals, uncertainties associated with 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, 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 Factors That May Affect Future Results" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, as
filed with the Securities and Exchange Commission on March 17, 1998 and in the
Company's other filings made from time to time with the SEC. In addition,
achieving the anticipated benefits of the Company's acquisition of Elekta
Neurosurgical Instruments will depend in part upon whether the integration of
the two companies' businesses, which will require, among other things,
integration of the companies' respective product offerings and coordination of
their sales and marketing organizations and their research and development
efforts, is accomplished in an efficient manner. There can be no assurance that
the integration will be accomplished smoothly or successfully, and the
difficulties of such integration may be increased by the necessity of
coordinating geographically-separated organizations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
Revenues. Revenues for the three months ended June 30, 1998 increased to $3.4
million from $2.3 million for the three months ended June 30, 1997 (a 48%
increase). Product sales increased to $2.9 million for the three months ended
June 30, 1998 from $2.0 million for the three months ended June 30, 1997 (a 45%
increase). The increase in product sales was due to increased unit sales of
vena cava filters and the commencement of commercial sales of the CardioSEAL
Septal Occluder in June 1997 in certain European and other international
markets. License fees for the three months ended June 30, 1998 increased to
$457,500 from $250,000 for the three months ended June 30, 1997. Specifically,
the Company recorded $375,000 in minimum quarterly license fees and $82,500 in
cost reduction incentives from Boston Scientific Corporation ("Boston
Scientific") related to its stent technology in the three months ended June 30,
1998. Revenues for the three months ended June 30, 1997 included $250,000 in
such quarterly minimum license fee payments. Product development revenues from
Boston Scientific (which consist of reimbursement of certain costs incurred by
the Company) were $20,000 for the three months ended June 30, 1997. No such
costs were incurred by the Company during the three months ended June 30, 1998.
10
<PAGE>
Cost of Product Sales. Cost of product sales increased to $1.1 million for the
three months ended June 30, 1998 from $921,000 for the three months ended June
30, 1997 (a 19% increase) primarily due to the increases in unit sales of the
vena cava filter and the CardioSEAL Septal Occluder. Cost of product sales, as a
percent of product sales, decreased to 38% for the three months ended June 30,
1998 from 46% for the three months ended June 30, 1997. This decrease is due
primarily to the Company's reorganization of its vena cava filter operations
during the second quarter of 1997, which has resulted in lower per unit
manufacturing costs for the vena cava filter, as well as to increased sales of
the CardioSEAL Septal Occluder, which has a lower cost of product sales as a
percent of sales than does the vena cava filter.
Research and Development. Research and development expenses increased to
$908,000 for the three months ended June 30, 1998 from $722,000 for the three
months ended June 30, 1997 (a 26% increase). The increase reflects increased
regulatory and clinical trial expenses relating to clinical trials of the
CardioSEAL Septal Occluder that commenced in September 1996 and the closure of
patent foramen ovales (PFO) that commenced in the second quarter of 1998, 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 and engineering
expenses. The Company received reimbursement from Boston Scientific for $20,000
of these expenses during the three months ended June 30, 1997, which is included
in revenues for the period then ended.
General and Administrative. General and administrative expenses for the three
months ended June 30, 1998 were $703,000 and remained relatively consistent with
the $725,000 of expenses recorded during the three months ended June 30, 1997 (a
3% decrease).
Selling and Marketing. Selling and marketing expenses increased to $404,000 for
the three months ended June 30, 1998 from $247,000 for the three months ended
June 30, 1997 (a 64% increase). The increase resulted primarily from marketing
activities related to the CardioSEAL Septal Occluder in connection with clinical
trials and from the commencement of commercial sales of the CardioSEAL Septal
Occluder in June 1997 in 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 expenses related to the Company's investment in Image Technologies
Corporation (ITC) in May 1997. See Note 3(b) of the Notes to Consolidated
Financial Statements in the Company's Form 10-K for the year ended December 31,
1997 as filed with the Securities and Exchange Commission on March 17, 1998, and
in Note 9 of the accompanying Notes to Consolidated Financial Statements for the
quarter ended June 30, 1998.
11
<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 4 of the Notes to Consolidated Financial
Statements in the Company's Form 10-K for the year ended December 31, 1997, as
filed with the Securities and Exchange Commission on March 17, 1998.
Equity in Loss of Operations. During the three months ended June 30, 1998, the
Company recorded $93,000 as its equity in the loss of ITC. The carrying value of
the note receivable from ITC has been reduced by the amount of the loss recorded
by the Company. See Note 9 of Notes to Consolidated Financial Statements in the
accompanying financial statements for the quarter ended June 30, 1998.
Interest Income, Net. Interest income, net was $378,000 for the three months
ended June 30, 1998 as compared to $384,000 for the three months ended June 30,
1997 (a 2% decrease). The decrease was primarily a result of the Company's
investments earning slightly lower interest rates and lower average cash and
investment balances for the three months ended June 30, 1998 as compared to the
three months ended June 30, 1997.
Income Taxes. The Company had a provision for income taxes of $218,500 for the
three months ended June 30, 1998 based on an operating income before equity in
the loss of affiliate of $643,000 and an estimated effective tax rate of 34%.
For the three months ended June 30, 1997, the Company had a benefit for income
taxes of $17,500 which reflects the non-deductibility of the in-process research
and development expenses and a portion of the $194,000 restructuring charge
recorded in the period. See Notes 3(b) and 4 of the Notes to Consolidated
Financial Statements in the Company's Form 10-K for the year ended December 31,
1997, as filed with the Securities and Exchange Commission on March 17, 1998.
12
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Revenues. Revenues for the six months ended June 30, 1998 increased to $6.8
million from $4.4 million for the six months ended June 30, 1997 (a 55%
increase). Product sales increased to $5.5 million for the six months ended June
30, 1998 from $3.9 million for the six months ended June 30, 1997 (a 41%
increase). The increase in product sales was primarily due to increased unit
sales of vena cava filters and the commencement of commercial sales of the
CardioSEAL Septal Occluder in June 1997 in certain European and other
international markets. License fees for the six months ended June 30, 1998
increased to $1,226,000 from $500,000 during the six months ended June 30, 1997.
Specifically, the Company recorded $750,000 in minimum quarterly license fees,
$300,000 in milestone payments and $176,000 in cost reduction incentives from
Boston Scientific. Revenues for the six months ended June 30, 1997 included two
quarterly minimum royalty payments of $250,000 each. Product development
revenues from Boston Scientific decreased to $1,500 for the six months ended
June 30, 1998 from $50,000 for the six months ended June 30, 1997 due to the
completion of the Company's transfer of its stent technology to Boston
Scientific.
Cost of Product Sales. Cost of product sales increased to $2.1 million for the
six months ended June 30, 1998 from $1.8 million for the six months ended June
30, 1997 (a 17% increase) primarily due to the increase in unit sales of the
vena cava filter and the CardioSEAL Septal Occluder. Cost of product sales, as a
percent of product sales, decreased to 38% for the six months ended June 30,
1998 from 46% for the six months ended June 30, 1997. This decrease is due
primarily to the Company's reorganization of its vena cava filter operations
during the second quarter of 1997, which has resulted in lower per unit
manufacturing costs for the vena cava filter, as well as to increased sales of
the CardioSEAL Septal Occluder, which has a lower cost of product sales as a
percent of sales than does the vena cava filter.
Research and Development. Research and development expenses increased to $1.7
million for the six months ended June 30, 1998 from $1.5 million for the six
months ended June 30, 1997 (a 13% increase). The increase reflects increased
regulatory and clinical trial expenses relating to clinical trials of the
CardioSEAL Septal Occluder that commenced in September 1996 and the closure of
patent foramen ovales (PFO) that commenced in the second quarter of 1998, 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 and engineering
expenses. The Company received reimbursement from Boston Scientific for $50,000
of these expenses in the six months ended June 30, 1997, which is included in
revenues for the period then ended.
13
<PAGE>
General and Administrative. General and administrative expenses remained
constant at $1.4 million for the six months ended June 30, 1998 and 1997,
respectively.
Selling and Marketing. Selling and marketing expenses increased to $725,000 for
the six months ended June 30, 1998 from $384,000 for the six months ended June
30, 1997 (an 89% increase). The increase resulted primarily from marketing
activities related to the CardioSEAL Septal Occluder in connection with clinical
trials and from the commencement of commercial sales of the CardioSEAL Septal
Occluder in June 1997 in 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 expenses related to the Company's investment in ITC in May 1997. See
Note 3(b) of the Notes to Consolidated Financial Statements in the Company's
Form 10-K for the year ended December 31, 1997, as filed with the Securities and
Exchange Commission on March 17, 1998 and in Note 9 of the accompanying Notes
to Consolidated Financial Statements for the quarter ended June 30, 1998.
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 4 of the Notes to Consolidated
Financial Statements in the Company's Form 10-K for the year ended as of
December 31, 1997, as filed with the Securities and Exchange Commission on March
17, 1998.
Equity in Loss of Operations. During the six months ended June 30, 1998, the
Company recorded $93,000 as its equity in the loss of ITC. The carrying value of
the note receivable from ITC has been reduced by the amount of the loss recorded
by the Company. See Note 9 of Notes to Consolidated Financial Statements in the
accompanying financial statements for the quarter ended June 30, 1998.
Interest Income, Net. Interest income, net was $761,000 for the six months
ended June 30, 1998 as compared to $787,000 for the six months ended June 30,
1997 (a 3% decrease). The decrease was primarily a result of the Company's
investments earning slightly lower interest rates and lower average cash and
investment balances for the three months ended June 30, 1998 as compared to the
three months ended June 30, 1997.
14
<PAGE>
Income Taxes. The Company had a provision for income taxes of $550,500 for the
six months ended June 30, 1998 based on an operating income of $1.6 million
before the equity in loss of affiliate and an estimated effective tax rate of
$34%. For the six months ended June 30, 1997 the Company had a provision for
income taxes of $23,000 which reflects the non-deductibility of the in-process
research and development expenses and a portion of the $194,000 restructuring
charge recorded in the period then ended. See Notes 3(b) and 4 of the Notes to
Consolidated Financial Statements in the Company's Form 10-K for the year ended
December 31, 1997, as filed with the Securities and Exchange Commission on
March 17, 1998.
LIQUIDITY AND CAPITAL RESOURCES
In the six months ended June 30, 1998, the Company's operations provided cash of
approximately $424,000 which was primarily the result of the net income for the
period then ended net of changes in working capital items. During 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 3(b) of the Notes to Consolidated
Financial Statements in the Company's Form 10-K for the year ended December 31,
1997, as filed with the Securities and Exchange Commission on March 17, 1998. An
additional $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 European and other international markets and for increased
vena cava filter sales.
Purchases and capitalized leases of property and equipment for use in its
research and development and general and administrative activities amounted to
$84,000 for the six months ended June 30, 1998. In June 1997, the Company
entered into a $1.0 million equipment lease line of credit agreement without
covenants. Borrowings of $376,000 and $250,000 have been made under this
agreement by the Company and its affiliate, ITC, respectively, of which $315,000
and $204,000 was outstanding as of June 30, 1998. On April 1, 1998, the Company
entered into a new agreement with the bank that provides the Company and ITC
with similar terms and the option to borrow up to $750,000 through March 31,
2003. Borrowings of $18,000 and $20,000 have been made under this agreement by
the Company and ITC, respectively, of which $17,000 and $19,000 was outstanding
as of June 30, 1998, respectively. The Company also has outstanding borrowings
of $379,000 under an expired lease finance facility agreement with the same
bank.
15
<PAGE>
In connection with the Company's acquisition of a 23% ownership interest in ITC,
the Company extended to ITC a credit line of up to $2.0 million of senior debt
that bears interest at 10% per annum. During the second quarter of 1998, ITC
began to make borrowings against this line in order to fund its operations and
as of June 30, 1998, owed the Company $447,800. The Company has not recorded
interest income on the note receivable from ITC because interest is not due
until May 29, 1999 and payment will be waived if the Company exercises its
option to convert its senior debt into additional equity, which converts at the
rate of one percent of ownership per $100,000 borrowed. This option expires on
May 29, 1999. The Company believes that if it does not exercise this option the
amount due from ITC will be collectible from ITC's future cash flows or from
independent financing. In the quarter ended June 30, 1998, the Company recorded
$93,000 as its equity in the loss of ITC. The carrying value of the note
receivable from ITC has been reduced by the amount of the loss recorded by the
Company.
On July 8, 1998 the Company acquired Elekta Neurosurgical Instruments (ENI) for
$33 million. The acquisition has been accounted for as a purchase in accordance
with the requirements of Accounting Principles Board Opinion No. 16, Business
Combinations, and accordingly ENI's results of operations will be included in
those of the Company as of the acquisition date. The transaction was financed
with $13 million of the Company's cash and $20 million of subordinated debt from
an affiliate of a significant stockholder of the Company. The subordinated debt,
which is secured by substantially all of the assets of the Company, is due
September 30, 2003 with quarterly interest payable at 10.101% per annum and
contains restrictive covenants. The Company anticipates repaying the
subordinated debt from its cash flows, including the operations of ENI or from
debt or equity financing. A total of 675,000 shares of the Company's $.001 par
value common stock was issued to the significant stockholder and its affiliate
in connection with this transaction. The shares are accompanied by certain
demand and "piggy-back" registration rights. In addition, the Company paid the
stockholders a debt placement fee of $600,000 in connection with this
transaction.
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 9 to the Notes to Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, as
filed with the Securities and Exchange Commission on March 17, 1998. 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 has reviewed its internal computer systems and their capability of
recognizing the year 2000 and years thereafter. The Company expects that any
costs related to ensuring that such systems will be year 2000 compliant will not
be material to the financial condition or results of operations of the Company.
16
<PAGE>
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 additional debt financing, if available, may involve
restrictive covenants. The Company's capital requirements will depend on
numerous factors, including the sales of its products, the progress of its
research and development programs, the progress of clinical testing, the time
and cost involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments, developments
and changes in the Company's existing research, licensing and other
relationships and terms of any collaborative, licensing and other arrangements
that the Company may establish.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
-----------------------------------------------------------
Not applicable.
17
<PAGE>
Part II -- Other Information
- ----------------------------
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
(c) Recent Sales of Unregistered Securities. During the quarterly period
---------------------------------------
ended June 30, 1998, the Company granted incentive stock options under its 1996
Stock Option Plan to employees and directors to purchase an aggregate of 4,250
shares of common stock at a weighted average exercise price of $6.93.
(d) Uses of Proceeds from Registered Securities. There has been no change
-------------------------------------------
to the information previously provided by the Company on its Quarterly Report on
Form 10-Q for the period ended September 30, 1997, as amended, relating to
securities sold by the Company pursuant to its Registration Statement on Form
S-1 (Registration No. 333-06463), which was declared effective on September 27,
1996.
Item 4. Submission of Matters to a Vote of Security Holders. The 1998 Annual
---------------------------------------------------
Meeting of Stockholders of the Company was held on June 3, 1998 (the "Meeting").
Present at the Meeting in person or through representation by proxy were a total
of 9,188,061 shares of Common Stock out of a total of 9,828,214 shares entitled
to vote, thereby making a quorum. The following actions were taken at the
Meeting.
1. Seven Members of the Board of Directors were elected to serve one-year terms.
Those elected were 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 9,107,037 shares of Common Stock present or represented and
entitled to vote at the Meeting voted to elect the nominees presented for
election other than Mr. Fletcher. The holders of 81,024 shares of Common Stock
voted against the election of the nominees presented for election other than Mr.
Fletcher. The holders of 9,105,458 shares of Common Stock present or represented
and entitled to vote at the meeting voted to elect Mr. Fletcher, and the holders
of 82,603 shares of Common Stock voted against the election of Mr. Fletcher.
2. The Company's Second Amended and Restated Certificate of Incorporation, which
eliminates all references to the Company's convertible preferred stock and
redeemable preferred stock as described in the Company's proxy statement, was
approved. The holders of 9,089,151 shares of Common Stock present or represented
and entitled to vote at the Meeting voted for this proposal, and the holders of
78,700 shares of Common Stock voted against the proposal. The holders of 7,184
shares of Common Stock abstained from voting on this matter, and 13,026 shares
of Common Stock were unvoted.
3. The Company's amendment to the 1996 Stock Option Plan as described in the
Company's proxy statement and the continuation of such plan, as amended, was
approved. The holders of 8,635,324 shares of Common Stock present or represented
and entitled to vote at the Meeting voted for this proposal, and the holders of
539,253 shares of Common Stock voted against the proposal. The holders of 13,484
shares of Common Stock abstained from voting on this matter.
4. The Company's 1998 Stock Incentive Plan and the reservation of 800,000 shares
of Common Stock for issuance thereunder was approved. The holders of 5,704,922
shares of Common Stock present or represented and entitled to vote at the
Meeting voted for this proposal, and the holders of 1,224,326 shares of Common
Stock voted against the proposal. The holders of 8,284 shares of Common Stock
abstained from voting on this matter, and 2,250,529 shares of Common Stock were
unvoted.
5. The selection of Arthur Andersen LLP as the Company's independent auditors
for the current year was ratified. The holders of 9,179,662 shares of Common
Stock present or represented and entitled to vote at the Meeting voted for this
proposal, and the holders of 4,400 shares of Common Stock voted against the
proposal. The holders of 3,999 shares of Common Stock abstained from voting on
this matter.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
--------
3.1 Second Amended and Restated Certificate of Incorporation
10.1 1996 Stock Option Plan, as amended
10.2 1998 Stock Incentive Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K. On May 13, 1998, the Company filed a Current
-------------------
Report on Form 8-K, announcing the execution of a definite agreement to acquire
the neurosurgical instruments business of Elekta AB (PUBL), a Swedish
Corporation. No financial statements were filed with the report.
18
<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 5, 1998 By: /s/ Thomas M. Tully
-------------------------------
Thomas M. Tully
President and Chief Executive
Officer
Date: August 5, 1998 By: /s/ Theodore I. Pincus
-------------------------------
Theodore I. Pincus
Executive Vice President and
Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
Exhibits
- --------
3.1 Second Amended and Restated Certificate of Incorporation
10.1 1996 Stock Option Plan, as amended
10.2 1998 Stock Incentive Plan
27.1 Financial Data Schedule
<PAGE>
Exhibit 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NITINOL MEDICAL TECHNOLOGIES, INC.
Pursuant to Section 242 of the General Corporation Law of the State of
Delaware, Nitinol Medical Technologies, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of State of the State of Delaware on July 28, 1986. The
Certificate of Incorporation was amended and restated by an Amended and Restated
Certificate of Incorporation filed with the Secretary of State of the State of
Delaware on July 9, 1996 and further amended by a Certificate of Amendment of
the Amended and Restated Certificate of Incorporation filed with the Secretary
of State of the State of Delaware on September 24, 1996.
2. By vote of the Board of Directors of the Corporation, a resolution was
duly adopted, pursuant to Section 245 of the General Corporation Law of the
State of Delaware, setting forth a Second Amended and Restated Certificate of
Incorporation of the Corporation and declaring said Second Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation
duly approved said proposed Second Amended and Restated Certificate of
Incorporation in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware. The resolution setting forth the Second Amended
and Restated Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, as
- -------- amended, be and hereby is amended and restated in its entirety so
that the same shall read as follows:
FIRST. The name of the corporation is Nitinol Medical Technologies, Inc.
SECOND. The address, including street, number, city and county of the
Corporation's registered office in the State of Delaware is 9 East Loockerman
Street,
<PAGE>
in the City of Dover, County of Kent. The name of its registered agent at such
address is National Corporate Research, Ltd.
THIRD. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
FOURTH. Authorized Shares.
-----------------
A. The aggregate number of shares which the Corporation shall have
authority to issue is 33,000,000, consisting of thirty million (30,000,000)
shares of Common Stock, par value $.001 per share (the "Common Stock"), and
3,000,000 shares of undesignated Preferred Stock, par value $.001 per share (the
"Preferred Shares").
B. Authority is hereby expressly granted to the Board of Directors of the
Corporation (or a committee thereof designated by the Board of Directors
pursuant to the by-laws of the Corporation, as from time to time amended (the
"By-Laws")) to issue the Preferred Shares from time to time as Preferred Shares
of any series and to declare and pay dividends thereon in accordance with the
terms thereof and, in connection with the creation of each such series, to fix
by the resolution or resolutions providing for the issue of shares thereof, the
number of shares of such series, and the designations, powers, preferences, and
rights (including voting rights), and the qualifications, limitations, and
restrictions, of such series, to the full extent now or hereafter permitted by
the laws of the State of Delaware.
FIFTH. Election of directors need not be by written ballot.
SIXTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
SEVENTH. The Board of Directors is authorized to adopt, amend, or repeal
By-Laws of the Corporation except as and to the extent provided in the By-Laws.
EIGHTH.
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the Corporation or any of its direct or indirect
subsidiaries or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of any other corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to
-2-
<PAGE>
an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee, or agent or in any other capacity while serving as
a director, officer, employee, or agent, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability, and loss (including attorneys' fees,
judgments, fines, excise or other taxes assessed with respect to an employee
benefit plan, penalties, and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith, and such indemnification
shall continue as to an indemnitee who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the indemnitee's heirs,
executors, and administrators; provided, however, that, except as provided in
Paragraph C of this Article EIGHTH with respect to proceedings to enforce rights
to indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Paragraph A of this Article
EIGHTH shall include the right to be paid by the Corporation the expenses
incurred in defending any proceeding for which such right to indemnification is
applicable in advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that, if the Delaware General Corporation Law
-------- -------
requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under this Article EIGHTH or otherwise.
C. The rights to indemnification and to the advancement of expenses
conferred in Paragraphs A and B of this Article EIGHTH shall be contract rights.
If a claim under Paragraph A or B of this Article EIGHTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of
-3-
<PAGE>
prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by an indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law, and (ii) any
suit by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the Corporation shall be entitled to recover such
expenses upon a final adjudication that the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article EIGHTH or otherwise, shall be on the
Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article EIGHTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, this certificate of
incorporation, by-law, agreement, vote of stockholders or disinterested
directors, or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, or agent of the Corporation or
another corporation, partnership, joint venture, trust, or other enterprise
against any expense, liability, or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability, or loss
under the Delaware General Corporation Law.
F. The Corporation's obligation, if any, to indemnify any person who was
or is serving as a director, officer, employee, or agent of any direct or
indirect subsidiary of the Corporation or, at the request of the Corporation, of
any other corporation or of a partnership, joint venture, trust, or other
enterprise shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
or other enterprise.
-4-
<PAGE>
G. Any repeal or modification of the foregoing provisions of this Article
EIGHTH shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
NINTH. No director of the Corporation shall be liable to the Corporation
or any of its stockholders for monetary damages for breach of fiduciary duty as
a director, provided that this provision does not eliminate the liability of the
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of Title 8 of the Delaware Code, or (iv) for any transaction from
which the director derived an improper personal benefit. For purposes of the
prior sentence, the term "damages" shall, to the extent permitted by law,
include without limitation, any judgment, fine, amount paid in settlement,
penalty, punitive damages, excise or other tax assessed with respect to an
employee benefit plan, or expense of any nature (including, without limitation,
counsel fees and disbursements). Each person who serves as a director of the
Corporation while this Article NINTH is in effect shall be deemed to be doing so
in reliance on the provisions of this Article NINTH, and neither the amendment
or repeal of this Article NINTH, nor the adoption of any provision of this
Certificate of Incorporation inconsistent with this Article NINTH, shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for, arising out of, based upon, or in connection with any acts
or omissions of such director occurring prior to such amendment, repeal, or
adoption of an inconsistent provision. The provisions of this Article NINTH are
cumulative and shall be in addition to and independent of any and all other
limitations on or eliminations of the liabilities of directors of the
Corporation, as such, whether such limitations or eliminations arise under or
are created by any law, rule, regulation, by-law, agreement, vote of
shareholders or disinterested directors, or otherwise.
TENTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization
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<PAGE>
of the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Second Amended and Restated Certificate of Incorporation
to be signed by its Executive Vice President and Chief Financial Officer this
9th day of June, 1998.
Nitinol Medical Technologies, Inc.
By: /s/ Theodore I. Pincus
_________________________________
Theodore I. Pincus
Executive Vice President and Chief
Financial Officer
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<PAGE>
Exhibit 10.1
NITINOL MEDICAL TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
Adopted June 17, 1996
1. PURPOSE.
-------
The purpose of the Nitinol Medical Technologies, Inc. 1996 Stock Option
Plan (the "Plan") is to provide a means whereby selected employees, officers,
directors, agents, consultants, and independent contractors of Nitinol Medical
Technologies, Inc., a Delaware corporation (the "Company"), or of any parent or
subsidiary (as defined in subsection 5.7 hereof and referred to hereinafter as
"Affiliates") thereof, may be granted incentive stock options and/or
nonqualified stock options to purchase shares of common stock, $.001 par value
("Common Stock") in order to attract and retain the services or advice of such
directors, employees, officers, agents, consultants, and independent contractors
and to provide additional incentive for such persons to exert maximum efforts
for the success of the Company and its Affiliates by encouraging stock ownership
in the Company.
2. ADMINISTRATION.
--------------
Subject to Section 2.3 hereof, the Plan shall be administered by the Board
of Directors of the Company (the "Board") or, in the event the Board shall
appoint and/or authorize a committee of two or more members of the Board to
administer the Plan, by such committee. The administrator of the Plan shall
hereinafter be referred to as the "Plan Administrator".
The foregoing notwithstanding, in the event the Company shall register any
of its equity securities pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and any directors are
eligible to receive options under the Plan, then with respect to grants to be
made to directors: (a) the Plan Administrator shall be constituted so as to
meet the requirements of Section 16(b) of the Exchange Act and Rule 16b-3
thereunder, each as amended from time to time, or (b) if the Plan Administrator
cannot be so constituted, no options shall be granted under the Plan to any
directors.
2.1 PROCEDURES.
----------
The Board shall designate one of the members of the Plan Administrator
as chairman. The Plan Administrator may hold meetings at such times and
places as it shall determine. The acts of a majority of the members of the
Plan Administrator present at meetings at which a quorum exists, or acts
approved in writing by all Plan Administrator members, shall be valid acts
of the Plan Administrator.
<PAGE>
2.2 RESPONSIBILITIES.
----------------
Except for the terms and conditions explicitly set forth herein, the
Plan Administrator shall have the authority, in its discretion, to
determine all matters relating to the options to be granted under the Plan,
including, without limitation, selection of whether an option will be an
incentive stock option or a nonqualified stock option, selection of the
individuals to be granted options, the number of shares to be subject to
each option, the exercise price per share, the timing of grants and all
other terms and conditions of the options. Grants under the Plan need not
be identical in any respect, even when made simultaneously. The Plan
Administrator may also establish, amend, and revoke rules and regulations
for the administration of the Plan. The interpretation and construction by
the Plan Administrator of any terms or provisions of the Plan or any option
issued hereunder, or of any rule or regulation promulgated in connection
herewith, shall be conclusive and binding on all interested parties, so
long as such interpretation and construction with respect to incentive
stock options corresponds to the requirements of Internal Revenue Code of
1986, as amended (the "Code") Section 422, the regulations thereunder, and
any amendments thereto. The Plan Administrator shall not be personally
liable for any action made in good faith with respect to the Plan or any
option granted thereunder.
2.3 RULE 16b-3 AND SECTION 16(b) COMPLIANCE; BIFURCATION OF PLAN.
------------------------------------------------------------
It is the intention of the Company that the Plan comply in all
respects with Rule 16b-3 under the Exchange Act, to the extent applicable,
and in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3. If any Plan provision is later found not to be
in compliance with such Rule, such provision shall be deemed null and void.
The Board of Directors may act under the Plan only if all members thereof
are "disinterested persons" as defined in Rule 16b-3 and further described
in Section 4 hereof; and from and after the date that the Company first
registers a class of equity securities under Section 12 of the Exchange
Act, no director or officer or other Company "insider" subject to Section
16 of the Exchange Act may sell shares received upon the exercise of an
option during the six month period immediately following the grant of the
option. Notwithstanding anything in the Plan to the contrary, the Board,
in its absolute discretion, may bifurcate the Plan so as to restrict,
limit, or condition the use of any provision of the Plan to participants
who are officers and directors or other persons subject to Section 16(b) of
the Exchange Act without so restricting, limiting, or conditioning the Plan
with respect to other participants.
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<PAGE>
3. STOCK SUBJECT TO THE PLAN.
-------------------------
The stock subject to this Plan shall be the Common Stock, presently
authorized but unissued or subsequently acquired by the Company. Subject to
adjustment as provided in Section 7 hereof, the aggregate amount of Common Stock
to be delivered upon the exercise of all options granted under the Plan shall
not exceed in the aggregate 600,000 shares as such Common Stock was constituted
on the effective date of the Plan. If any option granted under the Plan shall
expire, be surrendered, exchanged for another option, cancelled, or terminated
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall thereupon again be available for purposes of the Plan,
including for replacement options which may be granted in exchange for such
surrendered, cancelled, or terminated options.
4. ELIGIBILITY.
-----------
An incentive stock option may be granted only to any individual who, at the
time the option is granted, is an employee of the Company or any Affiliate
thereof. A nonqualified stock option may be granted to any director, employee,
officer, agent, consultant, or independent contractor of the Company or any
Affiliate thereof, whether an individual or an entity. Any party to whom an
option is granted under the Plan shall be referred to hereinafter as an
"Optionee".
A director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of a director as a
person to whom options may be granted, or in the determination of the number of
shares which may be covered by options granted to the director, the Plan
complies with the requirements of Rule 16b-3 under the Exchange Act.
5. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Options granted under the Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations, and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with the
Plan. Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE.
--------------------------
The maximum number of shares that may be purchased pursuant to the
exercise of each option, and the price per share at which such option is
exercisable (the "exercise price"), shall be as established by the Plan
Administrator; provided, that the Plan Administrator shall act in good
faith to establish the exercise price which shall be not less than 100% of
the fair market value per share of the Common Stock at the time of grant of
the option with
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<PAGE>
respect to incentive stock options and not less than 85% of the fair value
per share of the Common Stock at the time the option is granted with
respect to non-qualified stock options; and provided, further, that, with
respect to incentive stock options granted to greater than ten percent
stockholders, the exercise price shall be as required by Section 6 hereof.
5.2 TERM AND MATURITY.
-----------------
Subject to the restrictions contained in Section 6 hereof with respect
to granting stock options to greater than ten percent stockholders, the
term of each stock option shall be as established by the Plan Administrator
and, if not so established, shall be ten years from the date of its grant,
but in no event shall the term of any incentive stock option exceed a ten
year period. The vesting period and time for exercising an option shall be
prescribed by the Plan Administrator in each particular case.
5.3 EXERCISE.
--------
Subject to any vesting schedule established by the Plan Administrator
pursuant to Subsection 5.2 hereof, each option may be exercised in whole or
in part; provided, that only whole shares may be issued pursuant to the
exercise of any option. Subject to any other terms and conditions herein,
the Plan Administrator may provide that an option may not be exercised in
whole or in part for a stated period or periods of time during which such
option is outstanding; provided, that the Plan Administrator may rescind,
modify, or waive any such limitation at any time and from time to time
after the grant date thereof. During an Optionee's lifetime, any incentive
stock options granted under the Plan are personal to such Optionee and are
exercisable solely by such Optionee. Options shall be exercised by
delivery to the Company of notice of the number of shares with respect to
which the option is exercised, together with payment of the exercise price
in accordance with Section 5.4 hereof.
5.4 PAYMENT OF EXERCISE PRICE.
-------------------------
Payment of the option exercise price shall be made in full at the time
the notice of exercise of the option is delivered to the Company and shall
be in cash, bank certified or cashier's check, or personal check (unless at
the time of exercise the Plan Administrator in a particular case determines
not to accept a personal check) for shares of Common Stock being purchased.
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<PAGE>
The Plan Administrator can determine at the time the option is granted
in the case of incentive stock options, or at any time before exercise in
the case of nonqualified stock options, that additional forms of payment
will be permitted.
To the extent permitted by the Plan Administrator and applicable laws
and regulations (including, without limitation, federal tax and securities
laws and regulations and state corporate law), an option may be exercised
by delivery of a properly executed Notice of Exercise, together with
irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise price and
any federal, state, or local withholding tax obligations that may arise in
connection with the exercise; provided, that the Plan Administrator, in its
sole discretion, may at any time determine that this sentence, to the
extent the instructions to the broker call for an immediate sale of the
shares, shall not be applicable to any Optionee who is subject to Section
16(b) of the Exchange Act, or is not an employee at the time of exercise.
5.5 WITHHOLDING TAX REQUIREMENT.
---------------------------
The Company or any Affiliate thereof shall have the right to retain
and withhold from any payment of cash or Common Stock under the Plan the
amount of taxes required by any government to be withheld or otherwise
deducted and paid with respect to such payment. No option may be exercised
unless and until arrangements satisfactory to the Company, in its sole
discretion, to pay such withholding taxes are made. At its discretion, the
Company may require an Optionee to reimburse the Company for any such taxes
required to be withheld by the Company and withhold any distribution in
whole or in part until the Company is so reimbursed. In lieu thereof, the
Company shall have the right to withhold from any other cash amounts due or
to become due from the Company to the Optionee an amount equal to such
taxes or retain and withhold a number of shares having a market value not
less than the amount of such taxes required to be withheld by the Company
to reimburse the Company for any such taxes and cancel (in whole or in
part) any such shares of Common Stock so withheld. If required by Section
16(b) of the Exchange Act, the election to pay withholding taxes by
delivery of shares of Common Stock held by any person who at the time of
exercise is subject to Section 16(b) of the Exchange Act shall be made
either six months prior to the date the option exercise becomes taxable or
at such other times as the Company may determine as necessary to comply
with Section 16(b) of the Exchange Act. Although the Company may, in its
discretion, accept Common Stock as payment of withholding taxes, the
Company shall not be obligated to do so.
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<PAGE>
5.6 NONTRANSFERABILITY.
------------------
5.6.1 OPTION.
------
Options granted under the Plan and the rights and privileges
conferred hereby may not be transferred, assigned, pledged, or
hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the applicable laws of descent and
distribution or pursuant to a qualified domestic relations order as
defined in Section 414(p) of the Code, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and shall not be subject to execution, attachment, or
similar process. Any attempt to transfer, assign, pledge, hypothecate,
or otherwise dispose of any option under the Plan or of any right or
privilege conferred hereby, contrary to the Code or to the provisions
of the Plan, or the sale or levy or any attachment or similar process
upon the rights and privileges conferred hereby shall be null and void
ab initio. The designation by an Optionee of a beneficiary does not,
in and of itself, constitute an impermissible transfer under this
subsection 5.6.1.
5.6.2 STOCK.
-----
The Plan Administrator may provide in the agreement granting the
option that (a) the Optionee may not transfer or otherwise dispose of
shares acquired upon exercise of an option without first offering such
shares to the Company for purchase on the same terms and conditions as
those offered to the proposed transferee or (b) upon termination of
employment of an Optionee the Company shall have a six month right of
repurchase as to the shares acquired upon exercise, which right of
repurchase shall allow for a maximum purchase price equal to the fair
market value of the shares on the termination date. The foregoing
rights of the Company shall be assignable by the Company upon
reasonable written notice to the Optionee.
5.7 TERMINATION OF RELATIONSHIP.
---------------------------
If the Optionee's relationship with the Company or any Affiliate
thereof ceases for any reason other than termination for cause, death, or
total disability, and unless by its terms the option sooner terminates or
expires, then the Optionee may exercise, for a three month period, that
portion of the Optionee's option which is exercisable at the time of such
cessation, but the Optionee's option shall terminate at the end of the
three month period following such cessation as to all shares for which it
has not theretofore been exercised, unless, in the case of a nonqualified
stock option, such provision is
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<PAGE>
waived in the agreement evidencing the option or by resolution adopted by
the Plan Administrator within 90 days of such cessation. If, in the case of
an incentive stock option, an Optionee's relationship with the Company or
Affiliate thereof changes from employee to nonemployee (i.e., from employee
to a position such as a consultant), such change shall constitute a
termination of an Optionee's employment with the Company or Affiliate and
the Optionee's incentive stock option shall terminate in accordance with
this subsection 5.7.
If an Optionee is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of
any reason for termination for cause, and such Optionee shall thereupon
have no right to purchase any shares pursuant to such option. "Termination
for cause" shall mean dismissal for dishonesty, conviction or confession of
a crime punishable by law (except minor violations), fraud, misconduct, or
disclosure of confidential information. If an Optionee's relationship with
the Company or any Affiliate thereof is suspended pending an investigation
of whether or not the Optionee shall be terminated for cause, all
Optionee's rights under any option granted hereunder likewise shall be
suspended during the period of investigation.
If an Optionee's relationship with the Company or any Affiliate
thereof ceases because of a total disability, the Optionee's option shall
not terminate or, in the case of an incentive stock option, cease to be
treated as an incentive stock option until the end of the 12 month period
following such cessation (unless by its terms it sooner terminates and
expires). As used in the Plan, the term "total disability" refers to a
mental or physical impairment of the Optionee which is expected to result
in death or which has lasted or is, in the opinion of the Company and two
independent physicians, expected to last for a continuous period of 12
months or more and which causes or is, in such opinion, expected to cause
the Optionee to be unable to perform his or her duties for the Company and
to be engaged in any substantial gainful activity. Total disability shall
be deemed to have occurred on the first day after the Company and the two
independent physicians have furnished their opinion of total disability to
the Plan Administrator.
For purposes of this subsection 5.7, a transfer of relationship
between or among the Company and/or any Affiliate thereof shall not be
deemed to constitute a cessation of relationship with the Company or any of
its Affiliates. For purposes of this subsection 5.7, with respect to
incentive stock options, employment shall be deemed to continue while the
Optionee is on military leave, sick leave, or other bona fide leave of
absence (as determined by the Plan Administrator). The foregoing
notwithstanding, employment shall not be
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<PAGE>
deemed to continue beyond the first 90 days of such leave, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
As used herein, the term "Affiliate" shall be defined as follows: (a)
when referring to a subsidiary corporation, "Affiliate" shall mean any
corporation (other than the Company) in, at the time of the granting of the
option, an unbroken chain of corporations ending with the Company, if stock
possessing 50% or more of the total combined voting power of all classes of
stock of each of the corporations other than the Company is owned by one of
the other corporations in such chain; and (b) when referring to a parent
corporation, "Affiliate" shall mean any corporation in an unbroken chain of
corporations ending with the Company if, at the time of the granting of the
option, each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
5.8 DEATH OF OPTIONEE.
-----------------
If an Optionee dies while he or she has a relationship with the
Company or any Affiliate thereof or within the three month period (or 12
month period in the case of totally disabled Optionees) following cessation
of such relationship, any option held by such Optionee, to the extent that
the Optionee would have been entitled to exercise such option, may be
exercised within one year after his or her death by the personal
representative of his or her estate or by the person or persons to whom the
Optionee's rights under the option shall pass by will or by the applicable
laws of descent and distribution.
5.9 STATUS OF STOCKHOLDER.
---------------------
Neither the Optionee nor any party to which the Optionee's rights and
privileges under the option may pass shall be, or have any of the rights or
privileges of, a stockholder of the Company with respect to any of the
shares issuable upon the exercise of any option granted under the Plan
unless and until such option has been exercised.
5.10 CONTINUATION OF EMPLOYMENT.
--------------------------
Nothing in the Plan or in any option granted pursuant to the Plan
shall confer upon any Optionee any right to continue in the employ of the
Company or of an Affiliate thereof, or to interfere in any way with the
right of the Company or of any such Affiliate to terminate his or her
employment or other relationship with the Company at any time.
-8-
<PAGE>
5.11 MODIFICATION AND AMENDMENT OF OPTION.
------------------------------------
Subject to the requirements of Section 422 of the Code with respect to
incentive stock options and to the terms and conditions and within the
limitations of the Plan, including, without limitation, Section 9.1 hereof,
the Plan Administrator may modify or amend outstanding options granted
under the Plan. The modification or amendment of an outstanding option
shall not, without the consent of the Optionee, impair or diminish any of
his or her rights or any of the obligations of the Company under such
option. Except as otherwise provided herein, no outstanding option shall
be terminated without the consent of the Optionee. Unless the Optionee
agrees otherwise, any changes or adjustments made to outstanding incentive
stock options granted under the Plan shall be made in such a manner so as
not to constitute a "modification" as defined in Section 424(h) of the Code
and so as not to cause any incentive stock option issued hereunder to fail
to continue to qualify as an incentive stock option as defined in Section
422(b) of the Code.
5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS.
-----------------------------------------------
As to all incentive stock options granted under the terms of the Plan,
to the extent that the aggregate fair market value (determined at the time
of the grant of the incentive stock option) of the shares of Common Stock
with respect to which incentive stock options are exercisable for the first
time by the Optionee during any calendar year (under the Plan and all other
incentive stock option plans of the Company, an Affiliate thereof or a
predecessor corporation) exceeds $100,000, such options shall be treated as
nonqualified stock options. The foregoing sentence shall not apply, and
the limitation shall be that provided by the Code or the Internal Revenue
Service, as the case may be, if such annual limit is changed or eliminated
by (a) amendment of the Code or (b) issuance by the Internal Revenue
Service of (i) a Revenue ruling, (ii) a Private Letter ruling to any of the
Company, any Optionee, or any legatee, personal representative, or
distributee of any Optionee, or (iii) regulations.
5.13 VALUATION OF COMMON STOCK RECEIVED UPON EXERCISE.
------------------------------------------------
The value of Common Stock received by the Optionee from an exercise
under the third paragraph of Section 5.4 hereof shall equal the sales price
received for such shares.
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<PAGE>
6. GREATER THAN TEN PERCENT STOCKHOLDERS.
-------------------------------------
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS.
--------------------------------------------------
If incentive stock options are granted under the Plan to employees
who, at the time of such grant, own greater than ten percent of the total
combined voting power of all classes of stock of the Company or any
Affiliate thereof, the term of such incentive stock options shall not
exceed five years and the exercise price shall be not less than 110% of the
fair market value of the Common Stock at the time of grant of the incentive
stock option. This provision shall control notwithstanding any contrary
terms contained in an option agreement or any other document. The term and
exercise price limitations of this provision shall be amended to conform to
any change required by a change in the Code or by ruling or pronouncement
of the Internal Revenue Service.
6.2 ATTRIBUTION RULE.
----------------
For purposes of subsection 6.1, in determining stock ownership, an
employee shall be deemed to own the stock owned, directly or indirectly, by
or for his or her brothers, sisters, spouse, ancestors, and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership estate, or trust shall be deemed to be owned proportionately by
or for its stockholders, partners, or beneficiaries. If an employee or a
person related to the employee owns an unexercised option or warrant to
purchase stock of the Company, the stock subject to that portion of the
option or warrant which is unexercised shall not be counted in determining
stock ownership. For purposes of this Section 6, stock owned by an
employee shall include all stock owned by him or her which is actually
issued and outstanding immediately before the grant of the incentive stock
option to the employee.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
------------------------------------------
The aggregate number and class of shares for which options may be granted
under the Plan, the number and class of shares covered by each outstanding
option, and the exercise price per share thereof (but not the total price), and
each such option, shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company resulting
from a split or consolidation of shares or any like capital adjustment, or the
payment of any stock dividend.
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<PAGE>
7.1. EFFECT OF LIQUIDATION, REORGANIZATION, OR CHANGE IN CONTROL.
-----------------------------------------------------------
7.1.1 CASH, STOCK, OR OTHER PROPERTY FOR STOCK.
----------------------------------------
Except as provided in subsection 7.1.2 hereof, upon a merger
(other than a merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same proportionate
ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock,
separation, reorganization (other than mere reincorporation or
creation of a holding company), or liquidation of the Company (each,
an "event"), as a result of which the stockholders of the Company
receive cash, stock, or other property in exchange for, or in
connection with, their shares of Common Stock, any option granted
hereunder shall terminate, but the time during which such options may
be exercised shall be accelerated as follows: the Optionee shall have
the right immediately prior to any such event to exercise such
Optionee's option in whole or in part whether or not the vesting
requirements set forth in the option agreement have been satisfied.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR EXCHANGE STOCK.
-------------------------------------------------
If the stockholders of the Company receive capital stock of
another corporation ("Exchange Stock") in exchange for their shares of
Common Stock in any transaction involving a merger (other than a
merger of the Company in which the holders of Common Stock immediately
prior to the merger have the same proportionate ownership of common
stock in the surviving corporation immediately after the merger),
consolidation, acquisition of property or stock, separation, or
reorganization (other than mere reincorporation or creation of a
holding company), all options granted hereunder shall be converted
into options to purchase shares of Exchange Stock unless the Company
and corporation issuing the Exchange Stock, in their sole discretion,
determine that any or all such options granted hereunder shall not be
converted into options to purchase shares of Exchange Stock but
instead shall terminate in accordance with the provisions of
subsection 7.1.1 hereof. The amount and price of converted options
shall be determined by adjusting the amount and price of the options
granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock
receive in such merger, consolidation, acquisition, separation, or
reorganization. Unless the Board determines otherwise, the converted
options shall be fully
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<PAGE>
vested whether or not the vesting requirements set forth in the option
agreement have been satisfied.
7.2 FRACTIONAL SHARES.
-----------------
In the event of any adjustment in the number of shares covered by an
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL.
----------------------------------
Except as otherwise required for the Plan to qualify for the exemption
afforded by Rule 16b-3 under the Exchange Act, all adjustments under this
Section 7 shall be made by the Board, and its determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding,
and conclusive. Unless an Optionee agrees otherwise, any change or
adjustment to an incentive stock option shall be made in such a manner so
as not to constitute a "modification" as defined in Section 425(h) of the
Code and so as not to cause the incentive stock option issued hereunder to
fail to continue to qualify as an incentive stock option as defined in
Section 422(b) of the Code.
8. SECURITIES LAW COMPLIANCE.
-------------------------
Shares shall not be issued with respect to an option granted under the Plan
unless the exercise of such option and the issuance and delivery of such shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the Securities Act of
1933, as amended (the "Act"), the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance, including, without
limitation, the availability of an exemption from registration for the issuance
and sale of any shares hereunder. Inability of the Company to obtain from any
regulatory body having jurisdiction, the authority deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares hereunder
or the unavailability of an exemption from registration for the issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.
As a condition to the exercise of an option, if, in the opinion of counsel
for the Company, assurances are required by any relevant provision of the
aforementioned laws, the Company may require the Optionee to give written
assurances satisfactory to the Company at the time of any such exercise (a) as
to the Optionee's knowledge
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<PAGE>
and experience in financial and business matters (and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters) and that such Optionee is capable
of evaluating, either alone or with the purchaser representative, the merits and
risks of exercising the option or (b) that the shares are being purchased only
for investment and without any present intention to sell or distribute such
shares. The foregoing requirements shall be inoperative if the issuance of the
shares upon the exercise of the option has been registered under a then
currently effective registration statement under the Act.
At the option of the Company, a stop-transfer order against any shares may
be placed on the official stock books and records of the Company, and a legend
indicating that the stock may not be pledged, sold, or otherwise transferred
unless an opinion of counsel is provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on stock certificates in order to assure exemption
from registration. The Plan Administrator may also require such other action or
agreement by the Optionees as may from time to time be necessary to comply with
the federal and state securities laws. NONE OF THE ABOVE SHALL BE CONSTRUED TO
IMPLY AN OBLIGATION ON THE PART OF THE COMPANY TO UNDERTAKE REGISTRATION OF THE
OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities exchange
or on the NASDAQ National Market, all stock issued hereunder if not previously
listed on such exchange or market shall, if required by the rules of such
exchange or market, be authorized by that exchange or market for listing thereon
prior to the issuance thereof.
9. USE OF PROCEEDS.
---------------
The proceeds received by the Company from the sale of shares pursuant to
the exercise of options granted hereunder shall constitute general funds of the
Company.
10. AMENDMENT AND TERMINATION.
-------------------------
10.1 BOARD ACTION.
------------
The Board may at any time suspend, amend, or terminate the Plan,
provided, that no amendment shall be made without stockholder approval
within 12 months before or after adoption of the Plan if such approval is
necessary to comply with any applicable tax or regulatory requirement,
including any such approval as may be necessary to satisfy the requirements
for exemptive relief under Rule 16b-3 of the Exchange Act or any successor
-13-
<PAGE>
provision. Rights and obligations under any option granted before
amendment of the Plan shall not be altered or impaired by any amendment of
the Plan unless the Company requests the consent of the person to whom the
option was granted and such person consents in writing thereto.
10.2 AUTOMATIC TERMINATION.
---------------------
Unless sooner terminated by the Board, the Plan shall terminate ten
years from the earlier of (a) the date on which the Plan is adopted by the
Board or (b) the date on which the Plan is approved by the stockholders of
the Company. No option may be granted after such termination or during any
suspension of the Plan. The amendment or termination of the Plan shall
not, without the consent of the option holder, alter or impair any rights
or obligations under any option theretofore granted under the Plan.
11. EFFECTIVENESS OF THE PLAN.
-------------------------
The Plan shall become effective upon adoption by the Board so long as it is
approved by the holders of a majority of the Company's outstanding shares of
voting capital stock at any time within 12 months before or after the adoption
of the Plan by the Board.
-14-
<PAGE>
AMENDMENT NO. 1
TO
NITINOL MEDICAL TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
Section 3 of the 1996 Stock Option Plan be and hereby is amended by adding
the following subparagraph (b):
b. Per-Participant Limit. Subject to adjustment under Section 7, the
----------------------
maximum number of shares of Common Stock with respect to which options may be
granted to any participant under the Plan shall be 150,000 shares over the life
of the Plan. The per-Participant limit described in this Section 3(b) shall be
construed and applied consistently with Section 162(m) of the Code.
Adopted by the Board of Directors on
March 10, 1998
Adopted by the Stockholders
at the June 3, 1998 Annual Meeting
<PAGE>
EXHIBIT 10.2
NITINOL MEDICAL TECHNOLOGIES, INC.
1998 STOCK INCENTIVE PLAN
-------------------------
1. Purpose
-------
The purpose of this 1998 Stock Incentive Plan (the "Plan") of Nitinol
Medical Technologies, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company's
stockholders. Except where the context otherwise requires, the term "Company"
shall include any present or future subsidiary corporations of Nitinol Medical
Technologies, Inc. as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder (the "Code").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant."
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be administered by
------------------------------------
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
--------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board
<PAGE>
may determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
-------------------------
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 8, Awards may be
----------------
made under the Plan for up to 800,000 shares of common stock, $0.001 par value
per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 8, the
---------------------
maximum number of shares of Common Stock with respect to which Awards may be
granted to any Participant under the Plan shall be 200,000 shares over the ten-
year life of the Plan. The per-Participant limit described in this Section 4(b)
shall be construed and applied consistently with Section 162(m) of the Code.
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each,
-------
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option."
2
<PAGE>
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
--------------
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
-------------------
and subject to such terms and conditions as the Board may specify in the
applicable option agreement; provided, however, that no Option will be granted
for a term in excess of 10 years.
(e) Exercise of Option. Options may be exercised by delivery to the
------------------
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise provide
in an option agreement, (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price, (ii) delivery by the Participant to
the Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price, or (iii) delivery of shares of Common
Stock owned by the Participant valued at their fair market value as determined
by (or in a manner approved by) the Board in good faith ("Fair Market Value"),
which Common Stock was owned by the Participant at least six months prior to
such delivery;
(3) to the extent permitted by the Board, in its sole discretion (i)
by delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) by payment of such other lawful consideration
as the Board may determine; or
(4) any combination of the above permitted forms of payment.
3
<PAGE>
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to acquire
------
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
--------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. Adjustments for Changes in Common Stock and Certain Other Events
----------------------------------------------------------------
(a) Changes in Capitalization. In the event of any stock split, reverse
-------------------------
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
4
<PAGE>
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
--------------------------
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation
or dissolution on any Restricted Stock Award or other Award granted under the
Plan at the time of the grant of such Award.
(c) Acquisition Events
------------------
(1) Definition. An "Acquisition Event" shall mean: (a) any merger or
----------
consolidation of the Company with or into another entity as a result of which
the Common Stock is converted into or exchanged for the right to receive cash,
securities or other property or (b) any exchange of shares of the Company for
cash, securities or other property pursuant to a statutory share exchange
transaction.
(2) Consequences of an Acquisition Event on Options. Upon the
------------------------------------------------
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide that all
outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of Section
424(a) of the Code. Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not agree to assume, or
substitute for, such Options, then the Board shall, upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time (the "Acceleration Time") prior to the
Acquisition Event and will terminate immediately prior to the consummation of
such Acquisition Event, except to the extent exercised by the Participants
before the consummation of such Acquisition Event; provided, however, that in
the event of an Acquisition Event under the terms of which holders of Common
Stock will receive upon consummation thereof a cash payment for each share of
Common Stock surrendered pursuant to such Acquisition Event (the "Acquisition
Price"), then the Board may instead provide that all outstanding Options shall
terminate upon consummation of such Acquisition Event and that each Participant
shall receive, in exchange therefor, a cash payment equal to the amount (if any)
by which (A) the Acquisition Price multiplied by the number of shares of Common
Stock subject to such outstanding Options (whether or not then exercisable),
exceeds (B) the aggregate exercise price of such Options.
5
<PAGE>
(3) Consequences of an Acquisition Event on Restricted Stock Awards.
---------------------------------------------------------------
Upon the occurrence of an Acquisition Event, the repurchase and other rights of
the Company under each outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the cash, securities or
other property which the Common Stock was converted into or exchanged for
pursuant to such Acquisition Event in the same manner and to the same extent as
they applied to the Common Stock subject to such Restricted Stock Award.
(4) Consequences of an Acquisition Event on Other Awards. The Board
----------------------------------------------------
shall specify the effect of an Acquisition Event on any other Award granted
under the Plan at the time of the grant of such Award.
9. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise determine
-------------------------
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced by a written instrument
-------------
in such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each Award
----------------
may be made alone or in addition or in relation to any other Award. The terms
of each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) Termination of Status. The Board shall determine the effect on an
---------------------
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, Participants may satisfy such tax obligations in whole or
in part by delivery of shares of Common Stock, including shares retained from
the Award creating the
6
<PAGE>
tax obligation, valued at their Fair Market Value. The Company may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to a Participant.
(f) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) Acceleration. The Board may at any time provide that any Options shall
------------
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of restrictions in full or in part or that any other Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
10. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
--------------------------------------
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
7
<PAGE>
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on
-------------------------------
the date on which it is adopted by the Company's stockholders. No Awards shall
be granted under the Plan after the completion of ten years from the date the
Plan is approved by the Company's stockholders, but Awards previously granted
may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant designated as subject to
Section 162(m) by the Board after the date of such amendment shall become
exercisable, realizable or vested, as applicable to such Award (to the extent
that such amendment to the Plan was required to grant such Award to a particular
Participant), unless and until such amendment shall have been approved by the
Company's stockholders as required by Section 162(m) (including the vote
required under Section 162(m)).
(e) Governing Law. The provisions of the Plan and all Awards made
-------------
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 18,130,222
<SECURITIES> 7,177,259
<RECEIVABLES> 3,299,381
<ALLOWANCES> 0
<INVENTORY> 1,316,173
<CURRENT-ASSETS> 30,710,594
<PP&E> 3,420,196
<DEPRECIATION> 1,105,667
<TOTAL-ASSETS> 35,945,684
<CURRENT-LIABILITIES> 1,615,595
<BONDS> 0
<COMMON> 9,829
0
0
<OTHER-SE> 33,781,347
<TOTAL-LIABILITY-AND-EQUITY> 35,945,684
<SALES> 5,525,522
<TOTAL-REVENUES> 6,752,774
<CGS> 2,114,138
<TOTAL-COSTS> 3,780,537
<OTHER-EXPENSES> 93,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (760,821)
<INCOME-PRETAX> 1,525,583
<INCOME-TAX> 550,500
<INCOME-CONTINUING> 975,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 975,083
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
</TABLE>
