<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 September 30, 1999
------------------
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: 000-21001
---------
NMT Medical, 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)
Not Applicable
--------------
(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 November 5, 1999, there were 10,783,278 shares of Common Stock, $.001
par value per share, outstanding.
<PAGE>
NMT Medical, Inc.
INDEX
-----
<TABLE>
<CAPTION>
Page Number
-----------
Part I. Financial Information
---------------------
<S> <C> <C>
Item 1. Financial Statements.
Consolidated Balance Sheets at September 30, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the Three
Months Ended September 30, 1999 and 1998 and for the
Nine Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 17
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. 27
Part II. Other Information
-----------------
Item 2. Changes in Securities and Use of Proceeds. 28
Item 3. Defaults Upon Senior Securities. 28
Item 6. Exhibits and Reports on Form 8-K. 28
Signatures 30
</TABLE>
2
<PAGE>
Part I -- Financial Information
Item 1. Financial Statements
NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At At
September 30, December 31,
1999 1998
-------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,259,924 $ 4,007,014
Marketable securities - 5,113,537
Accounts receivable, net of allowances for doubtful accounts
of $994,000 and $946,000 as of September 30, 1999 and
December 31, 1998, respectively 11,247,350 11,785,861
Inventories 11,158,237 10,848,432
Prepaid expenses and other current assets 3,779,848 3,516,610
-------------------------------
Total current assets 27,445,359 35,271,454
-------------------------------
Property, plant and equipment, at cost:
Land and Buildings 4,650,000 4,650,000
Laboratory and computer equipment 2,848,715 2,621,211
Office furniture and equipment 2,888,146 2,299,589
Leasehold improvements 4,222,856 4,429,235
Equipment under capital lease 1,322,982 1,144,982
-------------------------------
15,932,699 15,145,017
Less- Accumulated depreciation and amortization 3,219,373 1,961,869
-------------------------------
12,713,326 13,183,148
-------------------------------
Long-term investments in marketable securities - 1,009,401
Notes receivable from Image Technologies Corporation - 1,600,898
Goodwill and other intangible assets, net 13,038,833 13,478,010
Other assets 1,188,851 1,640,218
-------------------------------
$ 54,386,369 $ 66,183,129
===============================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 4,820,286 $ 6,619,190
Accrued expenses 5,785,359 5,219,500
Current portion of debt obligations 445,787 386,248
-------------------------------
Total current liabilities 11,051,432 12,224,938
-------------------------------
Long-term debt obligations, net of current portion 13,411,597 17,798,743
Deferred tax liability 1,917,708 1,990,808
Stockholders' equity
Preferred stock, $.001 par value-
Authorized-3,000,000 shares
Issued and outstanding-none - -
Common stock, $.001 par value-
Authorized-30,000,000 shares
Issued and outstanding-10,769,239 and 10,680,117 shares
at September 30, 1999 and December 31,1998, respectively 10,770 10,681
Addditional paid-in capital 41,184,487 40,999,277
Cumulative translation adjustment (139,000) 687,000
Accumulated deficit (13,050,625) (7,528,318)
-------------------------------
Total stockholders' equity 28,005,632 34,168,640
-------------------------------
$ 54,386,369 $ 66,183,129
===============================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE>
NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 11,948,630 $ 11,920,173 $ 34,365,725 $ 17,445,695
License fees 777,000 296,558 1,645,938 1,523,810
----------------------------- ------------------------------
12,725,630 12,216,731 36,011,663 18,969,505
----------------------------- ------------------------------
Expenses:
Cost of product sales 4,899,845 5,024,891 14,253,660 7,139,029
Research and development 1,375,464 1,120,353 3,789,134 2,792,718
General and administrative 3,167,872 2,234,606 9,053,233 3,547,956
Selling and marketing 2,853,700 2,748,310 8,079,768 3,473,668
In-process research and development - 4,710,000 - 4,710,000
Merger and integration - 687,242 - 687,242
Write down of notes receivable from Image
Technologies Corporation 1,364,369 - 1,364,369 -
----------------------------- ------------------------------
13,661,250 16,525,402 36,540,164 22,350,613
----------------------------- ------------------------------
Income (loss) from operations (935,620) (4,308,671) (528,501) (3,381,108)
----------------------------- ------------------------------
Equity in net loss of Image Technologies Corporation (188,979) (154,614) (488,529) (247,951)
Currency transaction gain (loss) (220,902) (18,939) 6,142 (88,403)
Interest expense (687,193) (658,973) (2,257,714) (689,528)
Interest income 108,462 155,109 458,623 946,485
----------------------------- ------------------------------
(988,612) (677,417) (2,281,478) (79,397)
----------------------------- ------------------------------
Loss before provision (benefit)
for income taxes (1,924,232) (4,986,088) (2,809,979) (3,460,505)
Provision (benefit) for income taxes 127,300 (38,313) 93,900 512,187
----------------------------- ------------------------------
Loss before extraordinary loss
on early extinguishment of debt (2,051,532) (4,947,775) (2,903,879) (3,972,692)
Extraordinary loss on early extinguishment of debt (2,618,428) - (2,618,428) -
----------------------------- ------------------------------
Net loss $ (4,669,960) $ (4,947,775) $(5,522,307) $(3,972,692)
============================= ==============================
Basic and diluted loss per common share before
extraordinary loss on early extinguishment of debt $ (0.19) $ (0.47) $ (0.27) $ (0.40)
============================= ==============================
Basic and diluted loss per common share for
extraordinary loss on early extinguishment of debt $ (0.24) $ - $ (0.24) $ -
============================= ==============================
Basic and diluted net loss per common share $ (0.43) $ (0.47) $ (0.52) $ (0.40)
============================= ==============================
Basic and diluted weighted average common shares
outstanding 10,769,239 10,464,675 10,710,234 10,041,041
============================= ==============================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE>
NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1999 1998
-----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,522,307) (3,972,692)
Adjustments to reconcile net loss to net cash
used in operating activities-
In-process research and development - 4,710,000
Acceleration of stock options - 11,679
Equity in net loss of Image Technologies Corporation 488,259 247,951
Write down of notes receivable from
Image Technologies Corporation 1,364,369 -
Depreciation and amortization 1,777,615 780,872
Deferred tax benefit (390,000) -
Noncash tax provision 330,000 -
Noncash interest expense 504,722 178,785
Noncash interest expense related to early extinguishment of debt 2,358,940
Increase (decrease) in accounts receivables reserves (489,109) -
Changes in assets and liabilities- -
Accounts receivable 1,808,866 (8,663,892)
Inventories (408,567) 416,260
Prepaid expenses and other current assets (52,386) (1,193,929)
Accounts payable (2,626,422) 6,078,947
Accrued expenses 652,857 274,004
Deferred revenue - (300,000)
-----------------------------------
Net cash used in operating activities (202,893) (1,432,015)
-----------------------------------
Cash flows from investing activities:
Maturities of marketable securities 6,135,921 14,920,848
Purchases of property, plant and equipment (1,204,157) (551,004)
Increase in investment in Image Technologies Corporation, net (62,000) (1,247,800)
Increase in other assets (540,032) (971,871)
Acquisition of Elekta Neurosurgical Instruments, net of cash acquired - (33,193,714)
-----------------------------------
Net cash provided by (used in) investing activities 4,329,732 (21,043,541)
-----------------------------------
Cash flows from financing activities:
Payments of capital lease obligations (162,435) (135,454)
Proceeds from issuance of common stock 135,299 4,178,492
Payments of senior debt (132,000) (17,592)
(Payments of) borrowings under subordinated debt, net (14,000,000) 16,744,999
Borrowings under senior secured debt, net 7,504,881 -
-----------------------------------
Net cash provided by (used in) financing activities (6,654,255) 20,770,445
-----------------------------------
Effect of exchange rate changes on cash (219,674) 267,032
-----------------------------------
Net decrease in cash and cash equivalents (2,747,090) (1,438,079)
Cash and cash equivalents, beginning of period 4,007,014 5,561,445
-----------------------------------
Cash and cash equivalents, end of period $ 1,259,924 $ 4,123,366
===================================
Supplemental disclosure of cash flow information:
Cash paid during the period for-
Interest $ 1,705,955 $ 689,528
===================================
Taxes $ 121,148 $ 528,324
===================================
Noncash investing and financing activities:
Issuance of warrants in connection with debt waiver $ 50,000 $ -
===================================
Equipment under capital lease obligation $ 22,988 $ 58,538
===================================
Acquisition of Elekta Neurosurgical Instruments:
Fair value of assets acquired - 32,691,000
Goodwill and intangible assets - 10,081,714
In-process research and development - 4,710,000
Liabilities assumed - (12,096,000)
Cash acquired - (2,193,000)
-----------------------------------
- 33,193,714
===================================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE>
NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations
NMT Medical, Inc. (formerly 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 (the
CardioSeal Septal Occluder). 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 U.S. and abroad and the CardioSEAL
Septal Occluder is in the clinical trials stage in the U.S. and is sold
commercially in the U.S. for certain humanitarian uses only, and in Europe
and other international markets. As a result of the Company's acquisition
on July 8, 1998 of Elekta Neurosurgical Instruments (ENI), the
neurosurgical instruments business of Elekta AB (PUBL), a Swedish
corporation (Elekta AB), which the Company operates through its NMT
Neurosciences division, the Company develops, manufactures, markets, and
sells specialty implants and instruments for neurosurgery including
cerebral spinal fluid shunts, the Selector Ultrasonic Aspirator, Ruggles
Surgical Instruments, the Spetzler Titanium Aneurysm Clip and endoscopes
and instrumentation for minimally invasive surgery.
As of September 30, 1999, the Company was not in compliance with certain of
the debt covenants contained in both the subordinated note agreement and
the senior secured debt agreement discussed in Note 4. The Company
negotiated a waiver of default with each of these debtholders.
2. Interim Financial Statements
The accompanying Consolidated Financial Statements as of September 30, 1999
and for the three and nine 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
year ended December 31, 1998, as filed with the Securities and Exchange
Commission on April 15, 1999, and include all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation of the
results for such interim periods.
6
<PAGE>
NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. Interim Financial Statements--(continued)
The results of operations for the three and nine month periods ended
September 30, 1999 are not necessarily indicative of the results expected
for the fiscal year ending December 31, 1999.
3. Acquisition of Elekta Neurosurgical Instruments
On July 8, 1998, the Company acquired ENI and financed this transaction
with $13 million of the Company's cash, plus acquisition costs of $3.1
million, and $20 million of subordinated debt borrowed from an affiliate of
a significant stockholder of the Company (see Note 4).
The following table presents selected unaudited financial information of
the Company and the neurosurgical division of Elekta AB, assuming the
companies combined on January 1, 1998. The unaudited pro forma results are
not necessarily indicative of either the actual results that would have
occurred had the acquisition been consummated on January 1, 1998, or of
future results:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
--------------------- --------------------
(Actual) (Pro forma)
<S> <C> <C>
Net revenues $36,011,663 $35,789,000
=========== ===========
Net loss $(5,522,307) $(6,843,000)
=========== ===========
Basic and diluted weighted
average shares outstanding 10,710,234 10,716,041
=========== ===========
Basic and diluted net loss per share $ (.52) $ (.64)
=========== ===========
</TABLE>
4. Debt
(a) Subordinated Note Payable
The Company financed a significant portion of the acquisition of ENI (see
Note 3) with $20 million of subordinated debt borrowed from an affiliate of
a significant stockholder of the Company. The subordinated debt is due
September 30, 2003 with quarterly interest payable at 10.101% per annum and
is subject to certain covenants, as amended.
7
<PAGE>
NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. Debt
(a) Subordinated Note Payable--(continued)
On September 13, 1999, the Company entered into a $10 million senior
secured debt facility with a bank (See Note 4(b)), $8 million of the
proceeds of which was used to reduce the principal amount of the
subordinated note. The Company also used $6 million of its own cash to
further reduce the principal amount of this note. As of September 30, 1999,
the Company was not in compliance with certain of the debt covenants of the
subordinated note and has obtained a waiver of default from the holder of
the note. In conjunction with this transaction, the Company recorded a $2.6
million extraordinary loss on the early extinguishment of debt in the
accompanying statement of operations which primarily relates to the
accelerated pro-rata write-off of the original issue discount and deferred
financing costs of the subordinated note payable.
(b) Senior Secured Debt
On September 13, 1999, the Company entered into a $10 million senior
secured debt facility with a bank, $8 million of the proceeds of which was
used to reduce the principal amount of the Company's subordinated note
payable (See Note 4(a)). The remaining $2 million of the senior secured
debt facility is available to be drawn down by the Company for working
capital purposes, as needed. The facility has a term of three years with
interest payable monthly at the bank's prime lending rate on U.S.
borrowings and an equivalent market rate on foreign currency borrowings. As
of September 30, 1999, the Company had outstanding borrowings of $7.5
million under this facility. As of September 30, 1999, the Company was not
in compliance with certain of the debt covenants of the secured debt
facility and has obtained a waiver of default from the bank.
5. Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period's presentation.
8
<PAGE>
NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. Cash and Cash Equivalents, Marketable Securities, and Long-Term Investments
in Marketable Securities
The Company considers all investments with maturities of 90 days or less
from the date of purchase to be cash equivalents and all investments with
original maturity dates greater than 90 days to be marketable securities.
Marketable securities are classified as current or long term based on their
remaining maturity as of the balance sheet date. The Company considers all
investments with maturities of 90 days or less from the date of purchase to
be cash equivalents and all investments with original maturity dates
greater than 90 days to be marketable securities. Marketable securities are
classified as current or long term based on their remaining maturity as of
the balance sheet date.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
115, Accounting for Certain Investments in Debt and Equity Securities, the
Company has classified certain of its marketable securities as held-to-
maturity and available-for-sale and its long-term investments in marketable
securities as held-to-maturity. Held-to-maturity securities represent those
securities for which the Company has the intent and ability to hold to
maturity and are reported at amortized cost. Available-for-sale securities
represent those securities that do not meet the classification of held-to-
maturity, are not actively traded and are reported at fair market value
with unrealized gains and losses included in stockholders' equity. There
were no unrealized gains or losses for the three and nine month periods
ended September 30, 1999 and 1998.
Cash and cash equivalents, which are carried at cost and approximate market
value, consist of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ------------
<S> <C> <C>
Cash $1,259,924 $3,995,112
Cash equivalents--
Money market -- 11,902
---------- ----------
$1,259,924 $4,007,014
========== ==========
</TABLE>
9
<PAGE>
NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. Cash and Cash Equivalents, Marketable Securities, and Long-Term Investments
in Marketable Securities--(continued)
Marketable securities, with a weighted average maturity of approximately 7
1/2 months at December 31, 1998 are carried at cost which approximates
market value and consist of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Held-to-maturity--
Eurodollar bonds $ -- $3,310,627
Medium-term notes -- 500,847
Corporate debt securities -- 502,063
----------- ----------
-- 4,313,537
Available-for-sale--
Taxable auction securities -- 800,000
----------- ----------
$ -- $5,113,537
=========== ==========
</TABLE>
There were no realized gains or losses on the sale of available-for-sale
securities during the three and nine month periods ended September 30, 1999
and 1998.
Long-term investments, with a weighted average maturity of approximately 15
months at December 31, 1998, are carried at cost which approximates market
value. As of December 31, 1998, the amount of long-term investments was
$1,009,401 and consisted of medium-term notes. The Company held no long-
term investments as of September 30, 1999.
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>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Short-term interest receivable $ -- $117,687
Long-term interest receivable -- 12,985
----- --------
$ -- $130,672
===== ========
</TABLE>
10
<PAGE>
NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Components $ 3,550,697 $ 3,117,848
Finished Goods 7,607,540 7,730,584
----------- -----------
$11,158,237 $10,848,432
=========== ===========
</TABLE>
8. Net Loss per Common and Common Equivalent Share
The Company applies SFAS No. 128, Earnings per Share. SFAS No. 128
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common
stock.
Diluted loss per share is the same as basic loss per share for the three
and nine month periods ended September 30, 1999 as the effects of the
Company's potential common stock (294,154 shares and 449,385 shares for the
three and nine month periods ended September 30, 1999, respectively) are
antidilutive.
9. Foreign Currency
The accounts of the Company's subsidiaries are translated in accordance
with SFAS No. 52, Foreign Currency Translation. Accordingly, the accounts
of the Company's foreign subsidiaries are translated from their local
currency, which is the functional currency, into U.S. dollars, the
reporting currency, using the exchange rate at the balance sheet date.
Income and expense accounts are translated using an average rate of
exchange during the period. Cumulative foreign currency translation gains
or losses are reflected as a component of consolidated stockholders' equity
and amounted to a gain of $728,000 and a loss of $139,000 for the three and
nine month periods ended September 30, 1999, respectively. For the three
and nine month periods ended September 30, 1998, the Company had a
cumulative foreign currency translation gain of $669,000. Additionally, the
Company had a foreign currency exchange transaction loss of approximately
$221,000 and $19,000 for the three month periods ended September 30, 1999
and 1998, respectively.
11
<PAGE>
NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. Foreign Currency--(continued)
For the nine months ended September 30, 1999, the Company had a foreign
currency transaction gain of approximately $6,000 and a foreign currency
transaction loss of $88,000 for the nine months ended September 30, 1998.
Foreign currency transaction gains and losses result from differences in
exchange rates between the functional currency and the currency in which a
transaction is denominated and are included in the consolidated statement
of operations in the period in which the exchange rate changes.
10. Comprehensive Income
The Company applies the provisions of SFAS No. 130, Reporting Comprehensive
Income which establishes standards for reporting and displaying
comprehensive income and its components in the consolidated financial
statements. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. The adoption of this standard did not
have a material effect on the Company's financial statements, as the only
element of comprehensive income related to the Company is the foreign
currency translation adjustment which is presented separately on the
balance sheet as required. If presented on the statement of operations,
comprehensive net gain would have decreased the reported net loss by
$728,000 and $669,000 for the three months ended September 30, 1999 and
1998, respectively. For the nine month periods ended September 30, 1999,
the comprehensive net loss would have increased the reported net loss by
$826,000 and decreased the reported net loss by $669,000 for the nine
months ended September 30, 1998.
11. Investment in Image Technologies Corporation
In May 1997, the Company invested $2.3 million in Image Technologies
Corporation (ITC) in exchange for 345,722 shares of ITC's redeemable
convertible Series A preferred stock, $.01 par value per share, which
represented a 23% ownership interest in ITC. During the three and nine
months ended September 30, 1999, the Company recorded $189,000 and $489,000
as its equity in the net loss of ITC. Under the terms of this agreement,
the Company also extended to ITC a $2 million senior credit line that bears
interest at 10% per annum, payable quarterly beginning March 31, 2001. This
$2 million senior note is secured by substantially all of the assets of
ITC. The principal amount of the note is convertible at the option of the
Company into additional shares of ITC Series A preferred stock at a price
per share of $2.54 at any time before January 1, 2001, and, if converted,
any interest accrued as of such date shall be forgiven. If not converted,
the note is payable on December 31, 2002, but may be prepaid in whole or in
part by ITC without penalty after December 31, 2000.
12
<PAGE>
NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. Investment in Image Technologies Corporation--(continued)
On December 30, 1998 and February 3, 1999, the Company amended its
revolving credit note agreement with ITC to provide for additional
borrowings of $50,000 and $100,000, respectively, under which ITC borrowed
$38,043 and $100,000. Borrowings under the $50,000 note were repaid in
April 1999. The $100,000 note accrues interest at 10% per annum and is
generally subject to the same terms as the $2 million credit line
agreement, except that it is convertible into additional shares of ITC
Series A preferred stock at a price per share of $9.97. As of September 30,
1999, ITC has borrowed $2.1 million under these agreements and owes the
Company accrued interest of $226,000. In connection with the issuance of
the $100,000 note, ITC granted a warrant to the Company to purchase 10,030
shares of ITC Series A preferred stock at $9.97 per share.
On March 30, 1999, ITC entered into a finance agreement with a third party
whereby the third party purchased 120,361 shares of ITC's common stock at
$9.97 per share. In connection with this financing, ITC issued to the
Company an additional 39,159 shares of ITC Series A preferred stock. A
portion of the proceeds from this financing was used to repay certain
bridge financing, including approximately $38,000 borrowed from the Company
in December 1998. The agreement provides for the issuance of additional
shares of common stock to the third party and the Company if ITC does not
achieve certain milestones as set forth in the agreement. As a result, on
June 30, 1999, ITC issued to the third party 471,414 shares of ITC common
stock and to the Company 267,072 shares of ITC Series A preferred stock.
On August 27, 1999, ITC entered into two senior secured convertible note
agreements with this same third party for $1.5 million and $500,000
respectively (the "Series A Note" and the "Series B Note," respectively).
The Series A Note and Series B Note are secured by substantially all of the
assets of ITC and accrue interest at 10% per annum which is payable
quarterly beginning March 31, 2001. These notes mature on December 31, 2002
but may be prepaid without penalty on or after December 31, 2000. Prior to
December 31, 2000, the Series A Note is convertible, at the option of the
lender into shares of ITC common stock at a rate of $1.25 per share. The
Series B Note also has a similar conversion feature at a rate to be
determined in accordance with the note agreement but not less than $1.00
per share. As of September 30, 1999, ITC has borrowed $1.5 million under
the Series A Note agreement. In connection with this financing, ITC issued
to the Company an additional 753,540 shares of ITC Series A preferred
stock.
13
<PAGE>
NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. Investment in Image Technologies Corporation--(continued)
As of September 30, 1999, the Company performed a detailed review of the
ITC operations. Based upon this review and discussion with ITC's
management and investors, the Company determined that there was a
significant risk that its notes receivable would be repaid by ITC. The
review and discussions indicated that at September 30, 1999, ITC had
insufficient cash resources to fund its operations, that product revenue
had declined in the third quarter of 1999 and was far below planned levels
and that future financing would possibly by dilutive to the Company's
equity position and may contain a security interest senior to the Company's
notes receivable. Accordingly, the Company charged the $1.4 million
carrying value of the notes receivable and related costs of $190,000 to
operations in the third quarter of 1999.
12. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Refundable and deferred income $1,343,297 $ 753,749
taxes
Other prepaid expenses 2,436,551 2,762,861
---------- ----------
$3,779,848 $3,516,610
========== ==========
</TABLE>
13. Accrued Expenses
Accrued expenses consist of the following at:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Payroll and payroll related $1,431,122 $1,803,859
Income taxes 1,268,294 275,600
Inventory 726,659 493,059
Other accrued expenses 2,359,284 2,646,982
---------- ----------
$5,785,359 $5,219,500
========== ==========
</TABLE>
14
<PAGE>
NMT Medical, Inc. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. Segment Reporting
The Company applies the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 established
standards for reporting information about operating segments in annual
financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services
and geographic areas. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision, or decision making
group, in deciding how to allocate resources and in assessing performance.
The Company's chief operating decision making group is the Chief Executive
Officer, members of Senior Management and the Board of Directors. The
operating segments are managed separately because each represents specific
types of medical devices for specific markets (i.e., the core technologies
segment includes minimally-invasive medical devices that were the Company's
primary products prior to its acquisition of ENI, while the neurosurgical
segment includes primarily neurosurgical medical devices that were the
primary products of ENI). The Company's operating segments include the core
technologies product line and the neurosurgical product line. Revenues for
the core technologies product line are derived from sales of the Simon
Nitinol Filter (SNF) and the CardioSEAL Septal Occluder, as well as from
licensing revenues from the Company's self-expanding stents. Revenues for
the neurosurgical product line are derived from sales of cerebral spinal
fluid shunts, the Selector Ultrasonic Aspirator, Ruggles Surgical
Instruments, the Spetzler Titanium Aneurysm Clip and endoscopes and
instrumentation for minimally invasive surgery.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on stand-alone operating segment net income. Revenues are
attributed to geographic areas based on where the customer is located.
Segment information is presented as follows:
15
<PAGE>
NMT Medical, Inc. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Segment Revenues:
Core technologies products $ 4,035,630 $ 3,238,731 $10,754,335 $ 9,991,505
Neurosurgical products 8,690,000 8,978,000 25,257,328 8,978,000
----------- ----------- ----------- -----------
Total revenues $12,725,630 $12,216,731 $36,011,663 $18,969,505
=========== =========== =========== ===========
Segment Interest Income:
Core technologies products $ 108,462 $ 155,109 $ 441,623 $ 946,485
Neurosurgical products -- -- 17,000 --
----------- ----------- ----------- -----------
Total $ 108,462 $ 155,109 $ 458,623 $ 946,485
=========== =========== =========== ===========
Segment Interest Expense:
Core technologies products $ (171,855) $ (193,205) $ (565,276) $ (223,760)
Neurosurgical products (515,338) (465,768) (1,692,438) (465,768)
----------- ----------- ----------- -----------
Total $ (687,193) $ (658,973) $(2,257,714) $ (689,528)
=========== =========== =========== ===========
Segment Income Tax Provision (Benefit):
Core technologies products $ 147,735 $ (459,370) $ 491,775 $ 91,130
Neurosurgical products (20,435) 421,057 (397,875) 421,057
----------- ----------- ----------- -----------
Total $ 127,300 $ (38,313) $ 93,900 $ 512,187
=========== =========== =========== ===========
Segment Depreciation and Amortization:
Core technologies products $ 341,383 $ 260,573 $ 990,451 $ 528,379
Neurosurgical products 257,407 252,493 787,164 252,493
----------- ----------- ----------- -----------
Total $ 598,790 $ 513,066 $ 1,777,615 $ 780,872
=========== =========== =========== ===========
Segment Equity in Net Loss of Investee:
Core technologies products $(1,553,348) $ (154,614) $(1,852,898) $ (247,951)
Neurosurgical products -- -- -- --
----------- ----------- ----------- -----------
Total $(1,553,348) $ (154,614) $(1,852,898) $ (247,951)
=========== =========== =========== ===========
Segment Income (Loss):
Core technologies products $(4,722,357) $(5,396,314) $(5,970,846) $(4,421,232)
Neurosurgical products 52,397 448,539 448,539 448,540
----------- ----------- ----------- -----------
Total $(4,669,960) $(4,947,775) $(5,522,307) $(3,972,692)
=========== =========== =========== ===========
Segment Expenditures for Long-Lived
Assets:
Core technologies products $ 63,433 $ 54,243 $ 101,682 $ 83,870
Neurosurgical products 467,870 467,134 1,102,475 467,134
----------- ----------- ----------- -----------
Total $ 531,303 $ 521,377 $ 1,204,157 $ 551,004
=========== =========== =========== ===========
</TABLE>
16
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
---------------------
This Quarterly Report on Form 10-Q for the quarterly period ended September 30,
1999, other than the historical financial information, contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. All such forward-looking statements involve known and unknown risks,
uncertainties or other factors which may cause actual results, performance or
achievement of the Company to be materially different from any future results,
performance, or achievement expressed or implied by such forward-looking
statements. Factors that might cause such a difference include uncertainties in
market demand and acceptance, government regulation and approvals, and
intellectual property rights and litigation; the impact of healthcare reform
programs and competitive products and pricing; risks associated with technology
and product development and commercialization, potential product liability,
management of growth, and dependence on significant corporate relationships, and
other risks detailed in the Company's Annual Report on Form 10-K as of December
31, 1998 filed with the Securities and Exchange Commission on April 15, 1999.
RESULTS OF OPERATIONS
Three months ended September 30, 1999 compared with three months ended September
30, 1998
Revenues. Revenues for the three months ended September 30, 1999 increased to
$12.7 million from $12.2 million for the three months ended September 30, 1998.
Product sales remained constant at $11.9 million for the three months ended
September 30, 1999 and 1998. The Company had increased unit sales of the
CardioSEAL Septal Occluder and the vena cava filter which partially offset a
decrease in the Company's neurosurgical products revenue during the three months
ended September 30, 1999 as compared with the three months ended September 30,
1998. License fees for the three months ended September 30, 1999 amounted to
$777,000 and consist of minimum quarterly royalty payments of $375,000 and cost-
sharing payments from Boston Scientific of $50,000 and a patent license payment
from Johnson & Johnson for $352,000. License fees for the three months ended
September 30, 1998 amounted to $297,000 consisting of minimum quarterly royalty
payments of $199,000 and cost-sharing payments from Boston Scientific of
approximately $98,000.
Cost of Product Sales. Cost of product sales decreased to $4.9 million for the
three months ended September 30, 1999 from $5.0 million for the three months
ended September 30, 1998. The decrease was primarily due to the Company's
increased sales of the CardioSEAL Septal Occluder and the vena cava filter which
have a lower cost of product sales as a percent of sales than do the Company's
neurosurgical products, and as a result, cost of product sales, as a percent of
product sales, decreased to 41% for the three months ended September 30, 1999
from 42% for the three months ended September 30, 1998.
17
<PAGE>
Research and Development. Research and development expense increased to $1.4
million for the three months ended September 30, 1999 from $1.1 million for the
three months ended September 30, 1998. The increase is primarily attributable to
increased regulatory and clinical trial expenses relating to clinical trials of
the CardioSEAL Septal Occluder that commenced in September 1996, as well as for
more recent clinical trials related to fenestrated Fontan procedures (FEF's),
and ventricular septal defects (VSD's) for which the Company received Food and
Drug Administration (FDA) approval during the three months ended September 30,
1999. In addition, the Company has had increased activity in the Company's
development programs for vena cava filters, including CE Mark approval for its
removable vena cava filter in September 1999, and for other products under
development.
General and Administrative. General and administrative expenses increased to
$3.2 million for the three months ended September 30, 1999 from $2.2 million for
the three months ended September 30, 1998. The increase is primarily
attributable to increased professional fees and travel expenses related to
supporting the operations of the Company's neurosurgical division, which was
acquired on July 8, 1998.
Selling and Marketing. Selling and marketing expenses increased to $2.9 million
for the three months ended September 30, 1999 from $2.7 million for the three
months ended September 30, 1998. The increase is primarily attributable to an
increase in the allowance for doubtful accounts as the Company continues to
focus its efforts on better collections of its accounts receivable and providing
reserves for those accounts that may become uncollectible.
In-Process Research and Development. For the three months ended September 30,
1998, the Company recorded $4.7 million of in-process research and development
expenses related to the Company's acquisition of ENI on July 8, 1998. See Note
3 of the Notes to Consolidated Financial Statements in the accompanying
financial statements as of September 30, 1999. On the date of acquisition,
ENI's in-process research and development value was comprised of five primary
research and development programs that were expected to reach completion between
late 1998 and 2000. At the acquisition date, continuing research and
development commitments to complete the projects were expected to be
approximately $2.0 million through 2000 ($680,000, $888,000, and $383,000 in
1998, 1999, and 2000, respectively). These estimates are subject to change,
given the uncertainties of the development process, and no assurance can be
given that deviations from these estimates will not occur.
Merger and Integration Expense. As a result of the acquisition of ENI on July 8,
1998, the Company reorganized certain of its operations. In connection with
this reorganization, the Company recorded merger and integration expenses of
$687,000 in the quarter ended September 30, 1998.
Write Down of Notes Receivable from Image Technologies Corporation. As of
September 30, 1999, the Company performed a detailed review of the ITC
operations. Based upon this review and discussion with ITC's management and
investors, the Company determined that there was a significant risk that its
notes receivable would be repaid by ITC. The review and discussions indicated
that at September 30, 1999, ITC had insufficient cash resources to fund its
operations, that product revenue had declined in the third quarter of 1999 and
was far below planned levels and that future financing would possibly be
dilutive to the Company's equity position and may contain a security interest
senior to the Company's notes receivable. Accordingly, the Company charged the
$1.4 million carrying value of the notes receivable and related costs of
$190,000 to operations in the third quarter of 1999.
Equity in Net Loss of Image Technologies Corporation. During the three months
ended September 30, 1999 and 1998, the Company recorded $189,000 and $155,000,
respectively as its equity in the net loss of ITC. The carrying value of the
note receivable from ITC has been reduced by these amounts.
18
<PAGE>
Interest Expense. Interest expense was $687,000 for the three months ended
September 30, 1999 as compared to $659,000 for the three months ended September
30, 1998. The slight increase was primarily the result of the Company
refinancing its subordinated debt with an affiliate of a significant stockholder
of the Company on September 13, 1999. See Note 4 of the Notes to Consolidated
Financial Statements in the accompanying financial statements as of September
30, 1999.
Interest Income. Interest income was $108,000 for the three months ended
September 30, 1999 as compared to $155,000 for the three months ended September
30, 1998. The decrease was due to the Company's liquidation of its marketable
securities and long term investments in marketable securities in order to partly
reduce its subordinated debt with an affiliate of a significant stockholder of
the Company. See Note 4 of the Notes to Consolidated Financial Statements in
the accompanying financial statements as of September 30, 1999.
Extraordinary Loss on Early Extinguishment of Debt. In connection with the $14
million reduction in September 1999 of its $20 million subordinated note payable
to an affiliate of a significant stockholder of the Company (see Note 4 of the
Notes to Consolidated Financial Statements in the accompanying financial
statements as of September 30, 1999), the Company recorded a $2.6 million
extraordinary loss on the early extinguishment of debt in the statement of
operations for the three months ended September 30, 1999 which primarily relates
to the accelerated pro-rata write-off of the original issue discount and
deferred financing costs of the subordinated note payable.
Provision (Benefit) for Income Taxes. The Company had a provision for income
taxes of $127,000 for the three months ended September 30, 1999 based on an
operating income in Europe before nondeductible items and an estimated effective
tax rate of approximately 40%. The Company did not record a benefit for the net
operating loss generated in the United States for the three months ended
September 30, 1999. For the three months ended September 30, 1998 the Company
had a benefit for income taxes of $38,000 based on an operating loss before
nondeductible items and an estimated effective tax rate of approximately 40%.
19
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1998
Revenues. Revenues for the nine months ended September 30, 1999 increased to
$36.0 million from $19.0 million for the nine months ended September 30, 1998.
Product sales increased to $34.4 million for the nine months ended September 30,
1999 from $17.4 million for the nine months ended September 30, 1998. The
increase is primarily attributable to the Company's acquisition of ENI on July
8, 1998 and accordingly ENI's product revenues of $25.3 million for the nine
months ended September 30, 1999 represent nine months of activity as compared
with $9.0 million which represents less than three months of activity during the
nine month period ended September 30, 1998. Additionally, the Company had
increased unit sales of the CardioSEAL Septal Occluder and vena cava filter
during the nine months ended September 30, 1999 as compared with the nine months
ended September 30, 1998. License fees for the nine months ended September 30,
1999 amounted to approximately $1.6 million and consist of minimum quarterly
royalty payments of $1.1 million and cost-sharing payments from Boston
Scientific of approximately $169,000 and a patent license payment from Johnson &
Johnson of $352,000. License fees for the nine months ended September 30, 1998
amounted to approximately $1.5 million and consist of minimum quarterly royalty
payments of $1.1 million, milestone payments of $300,000 and cost-sharing
payments from Boston Scientific of approximately $99,000.
Cost of Product Sales. Cost of product sales increased to $14.3 million for the
nine months ended September 30, 1999 from $7.1 million for the nine months ended
September 30, 1998. The increase is primarily attributable to the Company's
acquisition of ENI on July 8, 1998 and accordingly ENI's cost of sales of $10.6
million for the nine months ended September 30, 1999 represents nine months of
activity as compared with $3.9 million which represents less than three months
of activity during the nine month period ended September 30, 1998. Additionally,
the Company had increased unit sales of the CardioSEAL Septal Occluder and vena
cava filter during the nine months ended September 30, 1999 as compared with the
nine months ended September 30, 1998. Cost of product sales, as a percent of
product sales, increased slightly from 41% to 42% for the nine months ended
September 30, 1999 and 1998 as a result of increased sales of the CardioSEAL
Septal Occluder and the vena cava filter which have a lower cost of product
sales as a percent of sales than do the Company's neurosurgical products offset
by the inclusion of sales of the neurosurgical products during the nine month
periods ended September 30, 1999 and 1998.
Research and Development. Research and development expenses increased to $3.8
million for the nine months ended September 30, 1999 from $2.8 million for the
nine months ended September 30, 1998. The increase is primarily attributable to
the Company's acquisition of ENI on July 8, 1998 and accordingly ENI's research
and development expenses of $859,000 for the nine months ended September 30,
1999 represents nine months of activity as compared with $231,000 which
represents less than three months of activity during the nine month period ended
September 30, 1998.
20
<PAGE>
Additionally, the Company had increased regulatory and clinical trial expenses
relating to clinical trials of the CardioSEAL Septal Occluder that commenced in
September 1996, as well as for more recent clinical trials related to FEF's, and
VSD's for which the Company received FDA approval during the three months ended
September 30, 1999. In addition, the Company has had increased activity in the
Company's development programs for vena cava filters, including CE Mark approval
for its removable vena cava filter in September 1999, and for other products
under development.
General and Administrative. General and administrative expenses increased to
$9.1 million for the nine months ended September 30, 1999 from $3.5 million for
the nine months ended September 30, 1998. The increase is primarily
attributable to the Company's acquisition of ENI on July 8, 1998 and accordingly
ENI's general and administrative expenses of $5.7 million for the nine months
ended September 30, 1999 represents nine months of activity as compared with
$1.5 million which represents less than three months of activity during the nine
month period ended September 30, 1998. In connection with this acquisition,
general and administrative expenses include goodwill amortization of $485,000
and $110,000 for the nine months ended September 30, 1999 and 1998,
respectively. Additionally, the Company had increased professional fees and
travel expenses related to supporting the operations of the Company's
neurosurgical division.
Selling and Marketing. Selling and marketing expenses increased to $8.1 million
for the nine months ended September 30, 1999 from $3.5 million for the nine
months ended September 30, 1998. The increase is primarily attributable to the
Company's acquisition of ENI on July 8, 1998 and accordingly ENI's selling and
marketing expenses of $6.6 million for the nine months ended September 30, 1999
represents nine months of activity as compared with $2.1 million which
represents less than three months of activity during the nine month period ended
September 30, 1998.
In-Process Research and Development. For the nine months ended September 30,
1998, the Company recorded $4.7 million of in-process research and development
expenses related to the Company's acquisition of ENI on July 8, 1998. See Note
3 of the Notes to Consolidated Financial Statements in the accompanying
financial statements as of September 30, 1999. On the date of acquisition,
ENI's in-process research and development value was comprised of five primary
research and development programs that were expected to reach completion between
late 1998 and 2000. At the acquisition date, continuing research and
development commitments to complete the projects were expected to be
approximately $2.0 million through 2000 ($680,000, $888,000, and $383,000 in
1998, 1999, and 2000, respectively). These estimates are subject to change,
given the uncertainties of the development process, and no assurance can be
given that deviations from these estimates will not occur.
Merger and Integration Expense. As a result of the acquisition of ENI on July 8,
1998, the Company reorganized certain of its operations. In connection with
this reorganization, the Company recorded merger and integration expenses of
$687,000 in the quarter ended September 30, 1998.
21
<PAGE>
Write Down of Notes Receivable from Image Technologies Corporation. As of
September 30, 1999, the Company performed a detailed review of the ITC
operations. Based upon this review and discussion with ITC's management and
investors, the Company determined that there was a significant risk that its
notes receivable would be repaid by ITC. The review and discussions indicated
that at September 30, 1999, ITC had insufficient cash resources to fund its
operations, that product revenue had declined in the third quarter of 1999 and
was far below planned levels and that future financing would possibly be
dilutive to the Company's equity position and may contain a security interest
senior to the Company's notes receivable. Accordingly, the Company charged the
$1.4 million carrying value of the notes receivable and related costs of
$190,000 to operations in the third quarter of 1999.
Equity in Net Loss of Image Technologies Corporation. During the nine months
ended September 30, 1999 and 1998, the Company recorded $489,000 and $248,000,
respectively, as its equity in the net loss of ITC.
Interest Expense. Interest expense was $2.3 million for the nine months ended
September 30, 1999 as compared to $690,000 for the nine months ended September
30, 1998. The increase was primarily the result of the Company's acquisition of
ENI on July 8, 1998 for which the Company borrowed $20 million of subordinated
debt which accrues interest at 10.101% per annum. In addition, the amortization
of original issue discount related to the subordinated note of $338,000 and
$179,000 for the nine months ended September 30, 1999 and 1998, respectively,
included interest expense in the statements of operations. See Note 4 of the
Notes to Consolidated Financial Statements in the accompanying financial
statements as of September 30, 1999.
Interest Income. Interest income was $459,000 for the nine months ended
September 30, 1999 as compared to $946,000 for the nine months ended September
30, 1998. The decrease was due to the Company's lower cash balances as a result
of its financing the acquisition of ENI on July 8, 1998 with cash of $16.1
million.
Extraordinary Loss on Early Extinguishment of Debt. In connection with the $14
million reduction in September 1999 of its $20 million subordinated note payable
to an affiliate of a significant stockholder of the Company (see Note 4 of the
Notes to Consolidated Financial Statements in the accompanying financial
statements as of September 30, 1999), the Company recorded a $2.6 million
extraordinary loss on the early extinguishment of debt in the statement of
operations for the nine months ended September 30, 1999 which primarily relates
to the accelerated pro-rata write-off of the original issue discount and
deferred financing costs of the subordinated note payable.
Provision for Income Taxes. The Company had a provision for income taxes of
$94,000 and $512,000 for the nine months ended September 30, 1999 and 1998,
respectively, based on an operating income in Europe before nondeductible items
and an estimated effective tax rate of 40%. The Company recorded a benefit for
income taxes of $390,000 for the net operating loss generated in the United
States for the nine months ended September 30, 1999.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents and marketable securities equal to
$1.3 million at September 30, 1999 as compared to $9.1 million at December 31,
1998. The decrease is primarily due to the refinancing of its subordinated note
payable (See Note 4 of the Notes to Consolidated Financial Statements in the
accompanying financial statements as of September 30, 1999) whereby the Company
used $6 million of cash to reduce the subordinated note payable. During the
nine months ended September 30, 1999, the Company's operations used cash of
approximately $203,000 which consists of approximately $233,000 of cash
generated by operations prior to approximately $5.8 million of noncash charges
and before changes in working capital items.
In July 1998, the Company financed a portion of the acquisition of ENI with
$16.1 million of the Company's cash and a $20 million subordinated note issued
to an affiliate of a significant stockholder of the Company. The subordinated
note is due September 30, 2003 with quarterly interest payable at 10.101% per
annum, The subordinated debt includes certain covenants relating to maintenance
of certain ratios and cash levels. On September 13, 1999, the Company entered
into a $10 million senior secured debt facility with a bank, $8 million of the
proceeds of which was used to reduce the principal amount of the $20 million
subordinated note. The Company also used $6 million of its own cash to further
reduce the principal amount of the $20 million subordinated note. The remaining
$2 million of the senior secured debt facility is available to be drawn down by
the Company for working capital purposes, as needed. The facility has a term of
three years with interest payable monthly at the bank's prime lending rate on
U.S. borrowings and an equivalent market rate on foreign currency borrowings. As
of September 30, 1999, the Company was not in compliance with certain of the
debt covenants contained in both the subordinated note agreement and the senior
secured debt agreement. As a result, the Company negotiated a waiver of default
with each of these debtholders. See Note 4 of the Notes to Consolidated
Financial Statements in the accompanying financial statements as of September
30, 1999 for additional disclosure.
Purchases and capitalized leases of property and equipment for use in the
Company's research and development and general and administrative activities
amounted to $531,000 and $1.2 million for the three and nine month periods ended
September 30, 1999, respectively. The Company anticipates that it will spend
approximately $1.5 million on purchases of property and equipment in 1999
primarily in connection with the Company's implementation of new management
information systems. See "Year 2000 Readiness."
In May 1997, the Company acquired a 23 percent ownership interest in ITC for
$2.3 million and incurred approximately $149,000 of expenses associated with the
investment. ITC was a development stage Company in May 1997 and was focusing
its efforts on developing certain early stage technologies. Due to the
uncertainty regarding the realization of its investment, the Company charged the
amount of the purchase price and related acquisition costs to operations during
the year ended December 31, 1997 as in-process research and development.
23
<PAGE>
In connection with the Company's equity investment in ITC, the Company has
extended to ITC a credit line of up to $2.0 million and an additional $100,000
of senior debt under a loan agreement that bears interest at 10% per annum. The
carrying value of these notes receivable from ITC has been reduced by the equity
in the net loss of ITC through September 30, 1999. As of September 30, 1999 the
Company determined that there was a significant risk that its notes receivable
from ITC would be repaid due to ITC having insufficient cash resources to fund
its operations and product revenue that was far below planned levels as of
September 30, 1999. Accordingly, the Company charged the carrying value of the
notes receivable from ITC of approximately $1.4 million and related costs of
$190,000 to operations in the third quarter of 1999. There can be no assurance
that ITC will be able to pay the principal and accrued interest on these notes,
in whole or in part, when due. Any failure of ITC to pay such principal or
interest could have a material adverse effect on the Company's financial
condition or results of operations. See Note 11 of the Notes to Consolidated
Financial Statements in the accompanying financial statements as of September
30, 1999.
As an international concern, the Company faces exposure to adverse movements in
foreign currency exchange rates. These exposures may change over time and could
have a material adverse impact on the Company's financial condition and results
of operations. The Company's most significant foreign currency exposures relate
to the United Kingdom and France, as a result of its manufacturing activities
and assets in those countries. The accounts of the Company's foreign
subsidiaries are translated in accordance with SFAS No. 52, Foreign Currency
Translation. In translating the accounts of the foreign subsidiaries into U.S.
dollars, assets and liabilities are translated at the rate of exchange in effect
at the end of each reporting period, while stockholders' equity is translated at
historical rates. Revenue and expense accounts are translated using the
weighted average exchange rate in effect during the year. The Company's foreign
currency transaction gains and losses are included in the accompanying
statements of operations and amounted to a foreign currency transaction gain of
$6,000 for the nine months ended September 30, 1999 as compared with a foreign
currency transaction loss of $88,000 for the nine months ended September 30,
1998. The Company records the effects of changes in balance sheet items (i.e.,
cumulative foreign currency translation gain and losses) as a component of
consolidated stockholders' equity. The Company had a cumulative foreign
currency translation gain of $728,000 for the three months ended September 30,
1999 and a cumulative foreign currency translation loss of $139,000 for the nine
months then ended.
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 10 of Notes to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on April 15, 1999. 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.
24
<PAGE>
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 the terms of any collaborative, licensing and other similar
arrangements that the Company may establish.
YEAR 2000 READINESS
Prior to the Company's acquisition of ENI, the Company had reviewed its internal
computer systems and their capabilities of recognizing the year 2000 and years
thereafter. At that time, the Company believed that it was year 2000 compliant
in all material respects and currently believes that it is year 2000 compliant.
In addition, prior to the acquisition of ENI by the Company, management of ENI
had determined that its financial and operational systems needed modification or
replacement not only to be year 2000 compliant but to (a) improve functionality,
(b) assure continued euro currency compliance, (c) provide more meaningful
information and (d) integrate the various companies within ENI onto a world-
class Enterprise Reporting System ("ERP"). ENI management had developed a
comprehensive plan for implementing the new system, including selecting the
system and related providers of implementation assistance, but the decision to
proceed was postponed until the closing of the acquisition.
After the closing of the acquisition, the Company authorized the plan described
above in August 1998, and committed to the implementation of a new ERP system
for its NMT Neurosciences Division. The new systems are expected to be fully
operational by the beginning of December 1999 at a total project cost of $2.0
million, of which approximately $1.3 million will be for computer hardware and
other capital expenditures. The Company has financed a portion of the capital
component and has funded the remainder from operating cash flows.
Currently, two of the three major divisions of the Neurosciences Division have
implemented and have been using their systems successfully with the third
division to follow by early December 1999. Because the Company is completely
replacing the systems at its Neurosciences Division with a commercially
available and tested ERP product, it believes that the project is proceeding
more efficiently than had the Company chosen to modify its existing systems. As
a result, the Company currently does not have a contingency plan in the event a
particular system is not year 2000 compliant, but such a plan will be developed
if it becomes clear that the Company is not going to achieve its scheduled
compliance objectives.
25
<PAGE>
Since the Company interfaces with its major customers and suppliers via
telephone and fax, the Company does not expect to incur significant losses in
the event that either the Company or its customers and suppliers are not year
2000 compliant. The Company has obtained notices from major customers and
suppliers that they are year 2000 compliant. In addition, the Company's
products are year 2000 compliant.
The costs of the project and the date on which the Company believes it will
complete the implementation of its ERP system are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
adopted the "euro" as their national currency unit and irrevocable established
fixed conversion rates between their existing sovereign currencies and the euro.
During the three year transition period between January 1, 1999 and January 1,
2002, the euro will be a "cashless" currency, existing only as a unit of
account. Payments made to accounts in these member states may be made either in
the denominated member state currency unit of the account or in euros.
Beginning on January 1, 2002, euro banknotes and coins will be introduced, and
member state currency banknotes and coins will be withdrawn from circulation.
No later than July 1, 2002, the euro will be the sole national currency unit in
these member states, and the member state currency banknotes and coins will no
longer be accepted as legal tender.
The Company, including its Neurosciences Division, conducts a substantial
portion of its business within the member countries of the European Union, and
accordingly, its existing systems are generally capable of accommodating
multiple currencies, including the euro. The new ERP system described above is
designed to facilitate continued euro currency compliance.
The Company is assessing the potential impact from the euro conversion in a
number of areas, including the following: (1) the competitive impact of cross-
border price transparency, which may make it more difficult for businesses to
charge different prices for the same products on a country-by-country basis; (2)
the impact on currency exchange costs and currency exchange rate risk and (3)
the impact on existing contracts.
As of September 30, 1999 the euro conversion has not had a material impact on
the operations of the Company.
26
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
----------------------------------------------------------
The Company is subject to market risk in the form of interest rate risk and
foreign currency risk. Interest rate risk is immaterial to the Company. As an
international concern, the Company faces exposure to adverse movements in
foreign currency exchange rates. These exposures may change over time and could
have a material adverse impact on the Company's financial condition and results
of operations. The Company's most significant foreign currency exposures relate
to the United Kingdom and France as a result of its manufacturing activities and
assets in those countries. The accounts of the Company's foreign subsidiaries
are translated in accordance with SFAS No. 52, Foreign Currency Translation. In
translating the accounts of the foreign subsidiaries into U.S. dollars, assets
and liabilities are translated at the rate of exchange in effect at the end of
each reporting period, while stockholders' equity is translated at historical
rates. Revenue and expense accounts are translated using the weighted average
exchange rate in effect during the year. The Company's foreign currency
transaction gains or losses are included in the accompanying consolidated
statements of operations and amounted to a foreign currency transaction gain of
$6,000 for the nine months ended September 30, 1999 as compared with a foreign
currency transaction loss of $88,000 for the nine months ended September 30,
1998. The Company records the effects of changes in balance sheet items (i.e.,
cumulative foreign currency translation gains and losses) as a component of
consolidated stockholders' equity. The Company recorded a cumulative foreign
currency translation gain of $728,000 for the three months ended September 30,
1999 and a cumulative foreign currency translation loss of $139,000 for the nine
months then ended.
27
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
-----------------------------------------
(d) Uses of Proceeds from Registered Securities. During the third quarter
-------------------------------------------
of 1999, the Company used the balance of its offering proceeds, approximately
$6 million, from the sale of securities by the Company pursuant to its
Registration Statement on Form S-1 (Registration No. 333-06463), which was
declared effective on September 27, 1996, to repay a portion of the subordinated
note payable to a significant stockholder of the Company.
The Company financed a significant portion of the acquisition of ENI with
$20 million of subordinated debt borrowed from an affiliate of a significant
stockholder of the Company. During the third quarter of 1999, the Company
entered into a $10 million senior secured debt facility with a
bank, $8 million of the proceeds of which was used to reduce the principal
amount of the $20 million subordinated note. The subordinated note agreement
dated July 8, 1998 and the credit agreement dated September 13, 1999 contain
working capital restrictions and limitations upon the payment of dividends. The
subordinated note agreement, as amended to date, is filed as an exhibit to the
Company's Current Report on Form 8-K dated July 8, 1998, the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999 and this Quarterly Report on Form
10-Q for the quarter ended September 30, 1999, and the credit agreement is filed
as an exhibit to this Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-------------------------------
(a) Material Default with Respect to Indebtedness. As of September 30,
---------------------------------------------
1999, the Company was not in compliance with certain of the debt covenants
contained in both its subordinated note agreement and its credit agreement. The
Company obtained a waiver of default from each of the debtholders. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources, and Note 4 of the Notes to
Consolidated Financial Statements in the accompanying financial statements as of
September 30, 1999. Each of the waivers of default are filed an exhibit to this
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits.
--------
10.1 Credit Agreement, dated as of September 13, 1999, among NMT
Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT
NeuroSciences (International), Inc., NMT NeuroSciences (US),
Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences
Innovasive Systems, Inc., as Borrowers, and Brown Brothers
Harriman & Co., as Lender
10.2 $5 Million Promissory Note, dated as of September 13, 1999,
issued by NMT Medical, Inc., NMT Heart, Inc., NMT Investments
Corp., NMT NeuroSciences (International), Inc., NMT
NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT
Neurosciences Innovasive Systems, Inc. in favor of Brown
Brothers Harriman & Co.
10.3 Guarantee, dated as of September 13, 1999, made by NMT Medical,
Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences
(International), Inc., NMT NeuroSciences (US), Inc., NMT
NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive
Systems, Inc. in favor of Brown Brothers Harriman & Co.
10.4 Security Agreement, dated as of September 13, 1999, between NMT
Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT
NeuroSciences (International), Inc., NMT NeuroSciences (US),
Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences
Innovasive Systems, Inc., as Debtors, and Brown Brothers
Harriman & Co., as Lender
10.5 Collateral Patent Assignment, dated as of September 13, 1999,
made by NMT Medical, Inc. in favor of Brown Brothers Harriman
& Co.
10.6 Pledge Agreement, dated as of September 13, 1999, between NMT
Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT
NeuroSciences (International), Inc., NMT NeuroSciences (US),
Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences
Innovasive Systems, Inc., as Pledgors, and Brown Brothers
Harriman & Co., as Lender
10.7 Amendment No. 2 to Subordinated Note and Common Stock Purchase
Agreement, dated as of September 13, 1999, by and among NMT
Medical, Inc., Whitney Subordinated Debt Fund, L.P. and, for
certain purposes, J.H. Whitney & Co.
10.8 $6 Million Subordinated Promissory Note, dated as of July 8,
1998, issued by NMT Medical, Inc. in favor of Whitney
Subordinated Debt Fund, L.P.
10.9 Amended and Restated Loan and Security Agreement, dated as of
August 27, 1999, between NMT Medical, Inc. and Image
Technologies Corporation
28
<PAGE>
10.10 Second Amended and Restated Stockholders' Option Agreement,
dated as of August 27, 1999, by and among NMT Medical, Inc.,
Image Technologies Corporation and the Stockholders of Image
Technologies Corporation listed on Schedule A thereto
10.11 Letter Agreement of Waiver of Compliance with Certain
Covenents under Credit Agreements, dated as of November 15,
1999, by and among NMT Medical, Inc., NMT Heart, Inc., NMT
Investments Corp., NMT NeuroSciences (International), Inc., NMT
NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT
Neurosciences Innovasive Systems, Inc., as Borrowers, and Brown
Brothers Harriman & Co., as Lender
10.12 Waiver No. 2, made as of November 12, 1999, by and between NMT
Medical, Inc. and Whitney Subordinated Debt Fund, L.P.
27.1 Financial Data Schedule
(b) Reports on Form 8-K. On September 15, 1999, the Company filed a
-------------------
Current Report on Form 8-K with the Securities and Exchange Commission
disclosing that on September 13, 1999, the Company closed a $10 million senior
secured debt facility with Brown Brothers Harriman & Co. A copy of the Company's
September 13, 1999 press release announcing the closing of the senior secured
debt facility was included as Exhibit 99.1 to the Form 8-K.
29
<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.
NMT MEDICAL, INC.
Date: November 15, 1999 By:/s/ Thomas M. Tully
-------------------------------------
Thomas M. Tully
President and Chief Executive Officer
Date: November 15, 1999 By:/s/ William J. Knight
-------------------------------------
William J. Knight
Vice President of Finance and
Administration and Chief Financial
Officer
30
<PAGE>
EXHIBIT INDEX
Exhibits.
- --------
10.1 Credit Agreement, dated as of September 13, 1999, among NMT Medical,
Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences
(International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences
(IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as
Borrowers, and Brown Brothers Harriman & Co., as Lender
10.2 $5 Million Promissory Note, dated as of September 13, 1999, issued by
NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT
NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT
NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems,
Inc. in favor of Brown Brothers Harriman & Co.
10.3 Guarantee, dated as of September 13, 1999, made by NMT Medical, Inc.,
NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences
(International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences
(IP), Inc. and NMT Neurosciences Innovasive Systems, Inc. in favor of
Brown Brothers Harriman & Co.
10.4 Security Agreement, dated as of September 13, 1999, between NMT
Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT
NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT
NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems,
Inc., as Debtors, and Brown Brothers Harriman & Co., as Lender
10.5 Collateral Patent Assignment, dated as of September 13, 1999, made by
NMT Medical, Inc. in favor of Brown Brothers Harriman & Co.
10.6 Pledge Agreement, dated as of September 13, 1999, between NMT Medical,
Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences
(International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences
(IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as
Pledgors, and Brown Brothers Harriman & Co., as Lender
10.7 Amendment No. 2 to Subordinated Note and Common Stock Purchase
Agreement, dated as of September 13, 1999, by and among NMT Medical,
Inc., Whitney Subordinated Debt Fund, L.P. and, for certain purposes,
J.H. Whitney & Co.
10.8 $6 Million Subordinated Promissory Note, dated as of July 8, 1998,
issued by NMT Medical, Inc. in favor of Whitney Subordinated Debt
Fund, L.P.
10.9 Amended and Restated Loan and Security Agreement, dated as of August
27, 1999, between NMT Medical, Inc. and Image Technologies Corporation
31
<PAGE>
10.10 Second Amended and Restated Stockholders' Option Agreement, dated as
of August 27, 1999, by and among NMT Medical, Inc., Image Technologies
Corporation and the Stockholders of Image Technologies Corporation
listed on Schedule A thereto
10.11 Letter Agreement of Waiver of Compliance with Certain Covenants under
Credit Agreements, dated as of November 15, 1999, by and among NMT
Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT
NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT
NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems,
Inc., as Borrowers, and Brown Brothers Harriman & Co., as Lender
10.12 Waiver No. 2, made as of November 12, 1999, by and between NMT
Medical, Inc. and Whitney Subordinated Debt Fund, L.P.
27.1 Financial Data Schedule
32
<PAGE>
EXHIBIT 10.1
================================================================================
CREDIT AGREEMENT
dated as of
September 13, 1999
among
NMT MEDICAL, INC.,
NMT HEART, INC.,
NMT INVESTMENTS CORP.,
NMT NEUROSCIENCES (INTERNATIONAL), INC.,
NMT NEUROSCIENCES (US), INC.,
NMT NEUROSCIENCES (IP), INC.,
NMT NEUROSCIENCES INNOVASIVE SYSTEMS, INC.,
as Borrowers
and
BROWN BROTHERS HARRIMAN & CO.,
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions..................................................................................... 1
SECTION 1.01. Defined Terms.............................................................................. 1
SECTION 1.02. Terms Generally............................................................................ 9
SECTION 1.03. Accounting Terms; GAAP..................................................................... 10
ARTICLE II The Credit...................................................................................... 10
SECTION 2.01. Commitment................................................................................. 10
SECTION 2.02. Note....................................................................................... 10
SECTION 2.03. Requests for Revolving Borrowings.......................................................... 10
SECTION 2.04. Letters of Credit.......................................................................... 11
SECTION 2.05. Funding of Borrowings...................................................................... 13
SECTION 2.06. Termination and Reduction of Commitment.................................................... 13
SECTION 2.07. Repayment of Loans; Evidence of Debt....................................................... 14
SECTION 2.08. Prepayment of Loans........................................................................ 14
SECTION 2.09. Fees....................................................................................... 14
SECTION 2.10. Interest................................................................................... 15
SECTION 2.11. Increased Costs............................................................................ 15
SECTION 2.12. Taxes...................................................................................... 16
SECTION 2.13. Payments Generally......................................................................... 17
SECTION 2.14. Senior Status of Obligations............................................................... 17
ARTICLE III Representations and Warranties.................................................................. 17
SECTION 3.01. Organization; Powers....................................................................... 17
SECTION 3.02. Authorization; Enforceability.............................................................. 17
SECTION 3.03. Governmental Approvals; No Conflicts....................................................... 18
SECTION 3.04. Financial Condition; No Material Adverse Change............................................ 18
SECTION 3.05. Properties................................................................................. 18
SECTION 3.06. Litigation and Environmental Matters....................................................... 19
SECTION 3.07. Compliance with Laws and Agreements........................................................ 19
SECTION 3.08. Investment and Holding Company Status...................................................... 19
SECTION 3.09. Taxes...................................................................................... 19
SECTION 3.10. ERISA...................................................................................... 20
SECTION 3.11. Disclosure................................................................................. 20
SECTION 3.12. Year 2000.................................................................................. 20
ARTICLE IV Conditions...................................................................................... 21
SECTION 4.01. Effective Date............................................................................. 21
SECTION 4.02. Each Credit Event.......................................................................... 22
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V Affirmative Covenants........................................................................... 22
SECTION 5.01. Financial Statements and Other Information................................................. 22
SECTION 5.02. Notices of Material Events................................................................. 24
SECTION 5.03. Existence; Conduct of Business............................................................. 24
SECTION 5.04. Payment of Obligations..................................................................... 24
SECTION 5.05. Maintenance of Properties; Insurance....................................................... 25
SECTION 5.06. Books and Records; Inspection Rights....................................................... 25
SECTION 5.07. Compliance with Laws....................................................................... 25
SECTION 5.08. Use of Proceeds and Letters of Credit...................................................... 25
SECTION 5.09. Receipt of Proceeds from French Credit Agreement........................................... 25
SECTION 5.10. Grant of Mortgage on Real Property......................................................... 25
SECTION 5.11. Subsidiary Guarantees...................................................................... 25
ARTICLE VI Negative Covenants.............................................................................. 26
SECTION 6.01. Indebtedness............................................................................... 26
SECTION 6.02. Liens...................................................................................... 27
SECTION 6.03. Fundamental Changes........................................................................ 28
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions.................................. 28
SECTION 6.05. Hedging Agreements......................................................................... 29
SECTION 6.06. Restricted Payments........................................................................ 29
SECTION 6.07. Transactions with Affiliates............................................................... 30
SECTION 6.08. Restrictive Agreements..................................................................... 30
SECTION 6.09. Financial Covenants........................................................................ 30
ARTICLE VII Events of Default............................................................................... 32
ARTICLE VIII Miscellaneous................................................................................... 34
SECTION 8.01. Notices.................................................................................... 34
SECTION 8.02. Waivers; Amendments........................................................................ 35
SECTION 8.03. Expenses; Indemnity; Damage Waiver......................................................... 35
SECTION 8.04. Successors and Assigns..................................................................... 36
SECTION 8.05. Survival; Nature of Obligations............................................................ 36
SECTION 8.06. Counterparts; Integration; Effectiveness................................................... 37
SECTION 8.07. Severability............................................................................... 37
SECTION 8.08. Right of Setoff............................................................................ 37
SECTION 8.09. Governing Law; Jurisdiction; Consent to Service of Process................................. 38
SECTION 8.10. WAIVER OF JURY TRIAL....................................................................... 38
SECTION 8.11. Headings................................................................................... 39
SECTION 8.12. Confidentiality............................................................................ 39
</TABLE>
(ii)
<PAGE>
SCHEDULES:
- ---------
Schedule 3.05 -- Patents and Patent Applications
Schedule 3.06 -- Disclosed Matters
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.04 -- Existing Investments
Schedule 6.08 -- Existing Investments
Schedule 6.09(a) -- Net Funded Indebtedness and Adjusted Operating Cash Flow
Definitions
Schedule 6.09(b) -- Fixed Charge Coverage Definition
EXHIBITS:
- --------
Exhibit A -- Form of Note
Exhibit B -- Form of Opinion of Borrowers' Counsel
(iii)
<PAGE>
CREDIT AGREEMENT dated as of September 13, 1999, among NMT Medical, Inc., a
Delaware corporation, NMT Heart, Inc., a Delaware corporation, NMT Investments
Corp., a Massachusetts corporation, NMT NeuroSciences (International), Inc., a
Delaware corporation, NMT NeuroSciences (US), Inc., a Delaware corporation, NMT
NeuroSciences (IP), Inc., a Delaware corporation, and NMT Neurosciences
Innovasive Systems, Inc., a Florida corporation, as Borrowers, and Brown
Brothers Harriman & Co., as Lender.
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement, the following
-------------
terms have the meanings specified below:
"Affiliate" means, with respect to a specified Person, another Person
---------
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to
-------------------
the greater of (a) the Base Rate in effect on such day, or (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Base Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Base Rate or the Federal Funds Effective Rate, respectively.
"Availability Period" means the period from and including the
-------------------
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitment.
"Barclays Debt" means the outstanding Indebtedness of Spembly Medical
-------------
Ltd. to Barclays Bank plc in the principal amount as of the date hereof of
approximately (Pounds)180,000 pursuant to that certain Barclays Treasury Loan
Facility, dated as of April 15, 1996, by and between Spembly Medical Ltd. and
Barclays Bank plc.
"Base Rate" means the rate of interest per annum publicly announced
---------
from time to time by Brown Brothers Harriman & Co. as its prime rate in effect
at its principal office in Boston, Massachusetts; each change in the Prime Rate
shall be effective from and including the date such change is publicly announced
as being effective.
"Board" means the Board of Governors of the Federal Reserve System of
-----
the United States of America.
<PAGE>
"Borrowers" means NMT Medical, Inc., a Delaware corporation, NMT
---------
Heart, Inc., a Delaware corporation, NMT Investments Corp., a Massachusetts
corporation, NMT NeuroSciences (International), Inc., a Delaware corporation,
NMT NeuroSciences (US), Inc., a Delaware corporation, NMT NeuroSciences (IP),
Inc., a Delaware corporation, and NMT Neurosciences Innovasive Systems, Inc., a
Florida corporation.
"Borrowing" means each Revolving Loan hereunder.
---------
"Borrowing Request" means a request by any Borrower for a Revolving
-----------------
Loan in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other
------------
day on which commercial banks in New York, New York or Boston, Massachusetts are
authorized or required by law to remain closed.
"Capital Lease Obligations" of any Person means the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Change in Control" means (a) the acquisition of ownership, directly
-----------------
or indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), of shares
representing more than 25% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of NMT Medical, Inc.; (b) occupation of
a majority of the seats (other than vacant seats) on the board of directors of
NMT Medical, Inc. by Persons who were neither (i) nominated by the board of
directors of NMT Medical, Inc. nor (ii) appointed by directors so nominated; or
(c) the acquisition of direct or indirect Control of NMT Medical, Inc. by any
Person or group.
"Change in Law" means (a) the adoption of any law, rule or regulation
-------------
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by the Lender (or, for
purposes of Section 2.11(b), by any lending office of the Lender) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Commitment" means the commitment of the Lender to make Revolving
----------
Loans and to issue Letters of Credit hereunder. The initial amount of the
Lender's Commitment is $5,000,000.
2
<PAGE>
"Control" means the possession, directly or indirectly, of the power
-------
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
----------- ----------
"Default" means any event or condition which constitutes an Event of
-------
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and the
-----------------
environmental matters disclosed in Schedule 3.06.
"dollars" or "$" refers to lawful money of the United States of
------- -
America.
"Domestic Subsidiary" means each Subsidiary that is incorporated or
-------------------
organized in the United States or any state or territory thereof.
"Effective Date" means the date on which the conditions specified in
--------------
Section 4.01 are satisfied (or waived in accordance with Section 8.02).
"Environmental Laws" means all laws, rules, regulations, codes,
------------------
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material.
"Environmental Liability" means any liability, contingent or otherwise
-----------------------
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of any Borrower or Subsidiary directly or indirectly
resulting from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of any
Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any
contract, agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) that, together with any Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
-----------
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as
3
<PAGE>
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by any Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by any Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by any Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by any Borrower or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from any Borrower or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.
"Event of Default" has the meaning assigned to such term in Article
----------------
VII.
"Excluded Taxes" means, with respect to the Lender or any other
--------------
recipient of any payment to be made by or on account of any obligation of any
Borrower hereunder, (a) income or franchise taxes imposed on (or measured by)
its net income by the United States of America, or by the jurisdiction under the
laws of which such recipient is organized or in which its principal office is
located or applicable lending office is located, and (b) any branch profits
taxes imposed by the United States of America or any similar tax imposed by any
other jurisdiction in which any Borrower is located.
"Federal Funds Effective Rate" means, for any day, the weighted
----------------------------
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Lender from three Federal funds brokers of
recognized standing selected by it.
"Financial Officer" of any Borrower means the chief financial officer,
-----------------
principal accounting officer, treasurer or controller of such Borrower.
"French Credit Agreement" means that certain credit agreement, dated
-----------------------
as of the date hereof, by and among NMT NeuroSciences Implants (France) SA, a
French limited liability company, and NMT NeuroSciences Instruments (France)
SARL, a French limited liability company, as Borrowers, and Brown Brothers
Harriman & Co., as Lender.
"GAAP" means generally accepted accounting principles in the United
----
States of America.
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority,
4
<PAGE>
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
--------- ---------
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
---------------
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided that the term Guarantee shall not include
--------
endorsements for collection or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive substances
-------------------
or wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement,
-----------------
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
5
<PAGE>
"Indemnified Taxes" means Taxes other than Excluded Taxes.
-----------------
"Interest Payment Date" means the last day of each month, and the day
---------------------
that the Loans are required to be repaid.
"LC Disbursement" means a payment made by the Lender pursuant to a
---------------
Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
-----------
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrowers at such time.
"Lender" means Brown Brothers Harriman & Co., and any successors and
------
assigns thereof.
"Letter of Credit" means any letter of credit issued pursuant to this
----------------
Agreement.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
----
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loans" means all loans made by the Lender to any Borrower pursuant to
-----
this Agreement.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, assets, operations, prospects or condition, financial or otherwise, of
the Borrowers and the Subsidiaries taken as a whole, (b) the ability of the
respective borrowers to perform any of their respective obligations under this
Agreement or the French Credit Agreement or (c) a material portion of the rights
of or benefits available to the Lender under this Agreement or the French Credit
Agreement (other than as a result of any action taken or failed to be taken by
the Lender).
"Material Indebtedness" means Indebtedness (other than the Loans and
---------------------
Letters of Credit), or obligations in respect of one or more Hedging Agreements,
of any one or more of the Borrowers or the Subsidiaries in an aggregate
principal amount exceeding $100,000. For purposes of determining Material
Indebtedness, the "principal amount" of the obligations of any Borrower or
Subsidiary in respect of any Hedging Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that such Borrower or
Subsidiary would be required to pay if such Hedging Agreement were terminated at
such time.
"Maturity Date" means September 13, 2002.
-------------
6
<PAGE>
"Multiemployer Plan" means a multiemployer plan as defined in Section
------------------
4001(a)(3) of ERISA.
"Other Taxes" means any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement (but expressly excluding
Excluded Taxes).
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
----------------------
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 30 days
or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary course
of business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII; and
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not materially detract from the value of the
affected property or interfere with the ordinary conduct of business of any
Borrower or Subsidiary;
provided that the term "Permitted Encumbrances" shall not include any Lien
- --------
securing Indebtedness.
"Permitted Investments" means:
---------------------
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent
7
<PAGE>
such obligations are backed by the full faith and credit of the United
States of America), in each case maturing within one year from the date of
acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, the
highest credit rating obtainable from Standard & Poor's or from Moody's
Investors Services, Inc.;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any office of Brown Brothers Harriman & Co. or any
domestic office of any commercial bank organized under the laws of the
United States of America or any State thereof which has a combined capital
and surplus and undivided profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into
with a financial institution satisfying the criteria described in clause
(c) above; and
(e) short term investment funds or instruments sponsored or managed by
the Lender or selected as a short term investment by the Lender in its
capacity as money manager for any Borrower or Subsidiary.
"Person" means any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
----
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which any Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Restricted Payment" means any dividend or other distribution (whether
------------------
in cash, securities or other property) with respect to any shares of any class
of capital stock of NMT Medical, Inc. or any Subsidiary, or any payment (whether
in cash, securities or other property), including any sinking fund or similar
deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such shares of capital stock of NMT Medical,
Inc. or any option, warrant or other right to acquire any such shares of capital
stock of NMT Medical, Inc.
"Revolving Loan" means a Loan made pursuant to Section 2.03.
--------------
8
<PAGE>
"subsidiary" means, with respect to any Person (the "parent") at any
---------- ------
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of NMT Medical, Inc.
----------
"Taxes" means any and all present or future taxes, levies, imposts,
-----
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Transactions" means the execution, delivery and performance by the
------------
Borrowers of this Agreement, and the security documents and pledge agreements
referred to in Article IV hereof, the borrowing of Loans, the use of the
proceeds thereof and the issuance of Letters of Credit hereunder.
"U.K. Lease" means the lease of Spembly Medical Ltd. for the premises
----------
located at Newbury Road, Andover, Hampshire SP104DR, United Kingdom.
"Whitney Agreement" means the Subordinated Note and Common Stock
-----------------
Purchase Agreement dated as of July 8, 1998, as amended, by and among NMT
Medical, Inc. (f/k/a Nitinol Medical Technologies, Inc.), Whitney Subordinated
Debt Fund, L.P. and J.H. Whitney & Co.
"Whitney Notes" means the 10.101% Subordinated Promissory Notes due
-------------
September 30, 2003 issued by NMT Medical, Inc. in the original principal amount
of $20,000,000.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
--------------------
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions of terms herein shall
---------------
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors
9
<PAGE>
and assigns, (c) the words "herein", "hereof" and "hereunder", and words of
similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (d) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e)
the words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.
SECTION 1.03. Accounting Terms; GAAP. Except as otherwise expressly
----------------------
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
--------
that, if the Borrowers notify the Lender that the Borrowers request an amendment
to any provision hereof to eliminate the effect of any change occurring after
the date hereof in GAAP or in the application thereof on the operation of such
provision (or the Lender notifies the Borrowers that it requests an amendment to
any provision hereof for such purpose), regardless of whether any such notice is
given before or after such change in GAAP or in the application thereof, then
such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such
notice shall have been withdrawn or such provision amended in accordance
herewith.
ARTICLE II
The Credit
----------
SECTION 2.01. Commitment. Subject to the terms and conditions set forth
----------
herein, the Lender agrees to make Revolving Loans to the Borrowers from time to
time during the Availability Period in an aggregate principal amount that will
not result in the aggregate amount of all outstanding Revolving Loans plus the
LC Exposure exceeding the Commitment. Within the foregoing limit and subject to
the terms and conditions set forth herein, the Borrowers may borrow, prepay and
reborrow Revolving Loans.
SECTION 2.02. Note. The obligations of the Borrowers hereunder with
----
respect to all Revolving Loans shall be evidenced by a Note in the form of
Exhibit A hereto made by each of the Borrowers.
SECTION 2.03. Requests for Revolving Borrowings. To request a Revolving
---------------------------------
Borrowing, the Borrowers shall notify the Lender of such request by telephone
not later than 11:00 a.m., Boston time, one Business Day before the date of the
proposed Borrowing; provided that any such notice of a Borrowing to finance the
--------
reimbursement of an LC Disbursement as contemplated by Section 2.04(d) may be
given not later than 10:00 a.m., Boston time, on the date of the proposed
Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall
be confirmed promptly by hand delivery or telecopy to the Lender of a written
Borrowing Request in a form approved by the Lender and signed by the Borrowers.
10
<PAGE>
SECTION 2.04. Letters of Credit.
-----------------
(a) General. Subject to the terms and conditions set forth herein,
-------
the Borrowers may request the issuance of Letters of Credit for their own
account, in a form reasonably acceptable to the Lender, at any time and from
time to time during the Availability Period. In the event of any inconsistency
between the terms and conditions of this Agreement and the terms and conditions
of any form of letter of credit application or other agreement submitted by the
Borrowers to, or entered into by the Borrowers with, the Lender relating to any
Letter of Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
----------------------------------------------------------
Conditions. To request the issuance of a Letter of Credit (or the amendment,
- ----------
renewal or extension of an outstanding Letter of Credit), the Borrowers shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Lender) to the Lender
(reasonably in advance of the requested date of issuance, amendment, renewal or
extension) a notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, and
specifying the date of issuance, amendment, renewal or extension (which shall be
a Business Day), the date on which such Letter of Credit is to expire (which
shall comply with paragraph (c) of this Section), the amount of such Letter of
Credit, the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare, amend, renew or extend such Letter
of Credit. If requested by the Lender, the Borrowers also shall submit a letter
of credit application on the Lender's standard form in connection with any
request for a Letter of Credit. A Letter of Credit shall be issued, amended,
renewed or extended only if (and upon issuance, amendment, renewal or extension
of each Letter of Credit the Borrowers shall be deemed to represent and warrant
that), after giving effect to such issuance, amendment, renewal or extension (i)
the LC Exposure shall not exceed $500,000 and (ii) the sum of the total
Revolving Loans and LC Exposure shall not exceed the total Commitment.
(c) Expiration Date. Each Letter of Credit shall expire at or prior
---------------
to the close of business on the earlier of (i) the date one year after the date
of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date; provided, however, that
-------- -------
if requested by the Borrowers a Letter of Credit shall automatically be renewed
and extended for an additional year (but not beyond the date specified in clause
(ii) above) unless the Lender notifies the Borrowers of its refusal to so renew
and extend such Letter of Credit within 30 days prior to the date such Letter of
Credit would otherwise expire.
(d) Reimbursement. If the Lender shall make any LC Disbursement in
-------------
respect of a Letter of Credit, the Borrowers shall reimburse such LC
Disbursement by paying to the Lender an amount equal to such LC Disbursement not
later than 12:00 noon, Boston time, on the date that such LC Disbursement is
made, if any Borrower shall have received notice of such LC Disbursement prior
to 10:00 a.m., Boston time, on such date, or, if such notice has not been
received by the Borrowers prior to such time on such date, then not later than
12:00 noon, Boston time, on the Business Day immediately following the day that
any Borrower receives such notice; provided that the Borrowers may, subject to
--------
the conditions to borrowing set forth herein, request in accordance with Section
2.03 that such payment be financed with
11
<PAGE>
a Revolving Loan in an equivalent amount and, to the extent so financed, the
Borrowers' obligation to make such payment shall be discharged and replaced by
the resulting Borrowing.
(e) Obligations Absolute. The Borrowers' obligation to reimburse LC
--------------------
Disbursements as provided in paragraph (d) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Lender under a Letter of Credit
against presentation of a draft or other document that does not comply with the
terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrowers' obligations hereunder.
Neither the Lender nor any of its Related Parties shall have any liability or
responsibility by reason of or in connection with the issuance or transfer of
any Letter of Credit or any payment or failure to make any payment thereunder
(irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in transmission
or delivery of any draft, notice or other communication under or relating to any
Letter of Credit (including any document required to make a drawing thereunder),
any error in interpretation of technical terms or any consequence arising from
causes beyond the control of the Lender; provided that the foregoing shall not
--------
be construed to excuse the Lender from liability to the Borrowers to the extent
of any direct damages (as opposed to consequential damages, claims in respect of
which are hereby waived by the Borrowers to the fullest extent permitted by
applicable law) suffered by the Borrowers that are caused by the Lender's
failure to exercise care when determining whether drafts and other documents
presented under a Letter of Credit comply with the terms thereof. The parties
hereto expressly agree that, in the absence of gross negligence or willful
misconduct on the part of the Lender, the Lender shall be deemed to have
exercised care in each such determination. In furtherance of the foregoing and
without limiting the generality thereof, the parties agree that, with respect to
documents presented which appear on their face to be in substantial compliance
with the terms of a Letter of Credit, the Lender may, in its sole discretion,
either accept and make payment upon such documents without responsibility for
further investigation, regardless of any notice or information to the contrary,
or refuse to accept and make payment upon such documents if such documents are
not in strict compliance with the terms of such Letter of Credit.
(f) Disbursement Procedures. The Lender shall, promptly following its
-----------------------
receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Lender shall promptly notify the
Borrowers by telephone (confirmed by telecopy) of such demand for payment and
whether the Lender has made or will make an LC Disbursement thereunder; provided
--------
that any failure to give or delay in giving such notice shall not relieve the
Borrowers of their obligation to reimburse the Lender with respect to any such
LC Disbursement.
(g) Interim Interest. If the Lender shall make any LC Disbursement,
----------------
then, unless the Borrowers shall reimburse such LC Disbursement in full on the
date such LC Disbursement is made, the
12
<PAGE>
unpaid amount thereof shall bear interest, for each day from and including the
date such LC Disbursement is made to but excluding the date that the Borrowers
reimburse such LC Disbursement, at the rate provided for in Section 2.10(b).
Interest accrued pursuant to this paragraph shall be for the account of the
Lender.
(h) Cash Collateralization. If any Event of Default shall occur and
----------------------
be continuing, on the Business Day that the Borrowers receive notice from the
Lender demanding the deposit of cash collateral pursuant to this paragraph, the
Borrowers shall deposit in an account with the Lender, an amount in cash equal
to the LC Exposure as of such date plus any accrued and unpaid interest and fees
thereon; provided that the obligation to deposit such cash collateral shall
--------
become effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to any Borrower described in clause (h) or (i) of
Article VII. Such deposit shall be held by the Lender as collateral for the
payment and performance of the obligations of the Borrowers under this
Agreement. The Lender shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account. All such deposits shall be
invested, at the option of the Borrowers, in certificates of deposit issued by
the Lender or in a Lender sponsored money market fund. Interest or profits, if
any, on such investments shall accumulate in such account. Moneys in such
account shall be applied by and paid to the Lender as reimbursement for LC
Disbursements for which it has not been reimbursed and, to the extent not so
applied, shall be held for the satisfaction of the reimbursement obligations of
the Borrowers for the LC Exposure at such time or, if the maturity of the Loans
has been accelerated, be applied to satisfy any other obligations of the
Borrowers under this Agreement. If the Borrowers are required to provide an
amount of cash collateral hereunder as a result of the occurrence of an Event of
Default, such amount (to the extent not applied as aforesaid) shall be returned
to the Borrowers within three Business Days after all Events of Default have
been cured or waived.
SECTION 2.05. Funding of Borrowings. The Lender will make Loans
---------------------
available to the Borrowers by promptly crediting the amounts so received, in
like funds, to an account of any Borrower maintained with the Lender in Boston
and designated by the Borrowers in the applicable Borrowing Request; provided
--------
that Revolving Loans made to finance the reimbursement of an LC Disbursement as
provided in Section 2.04(d) shall be remitted to the Lender.
SECTION 2.06. Termination and Reduction of Commitment.
---------------------------------------
(a) Unless previously terminated, the Commitment shall terminate on
the Maturity Date.
(b) The Borrowers may at any time terminate, or from time to time
reduce, the Commitment; provided that (i) each reduction of the Commitment shall
--------
be in an amount that is an integral multiple of $100,000 and not less than
$1,000,000 and (ii) the Borrowers shall not terminate or reduce the Commitment
if, after giving effect to any concurrent prepayment of the Loans in accordance
with Section 2.08, the sum of the outstanding amount of all Loans plus the LC
Exposure would exceed the Commitment.
13
<PAGE>
(c) The Borrowers shall notify the Lender of any election to terminate
or reduce the Commitment under paragraph (b) of this Section at least three
Business Days prior to the effective date of such termination or reduction,
specifying such election and the effective date thereof. Each notice delivered
by the Borrowers pursuant to this Section shall be irrevocable.
SECTION 2.07. Repayment of Loans; Evidence of Debt.
------------------------------------
(a) The Borrowers hereby unconditionally promise to pay to the Lender
the then unpaid principal amount of each Revolving Loan on the Maturity Date.
(b) The Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrowers to the Lender
resulting from each Loan made by the Lender, including the amounts of principal
and interest payable and paid to the Lender from time to time hereunder.
(c) The entries made in the accounts maintained pursuant to paragraph
(b) of this Section shall be prima facie evidence of the existence and amounts
----- -----
of the obligations recorded therein; provided that the failure of the Lender to
--------
maintain such accounts or any error therein shall not in any manner affect the
obligation of the Borrowers to repay the Loans in accordance with the terms of
this Agreement.
SECTION 2.08. Prepayment of Loans. The Borrowers shall have the right at
-------------------
any time and from time to time to prepay without penalty any Borrowing in whole
or in part.
SECTION 2.09. Fees.
----
(a) The Borrowers agree to pay to the Lender a nonusage fee, which
shall accrue at the rate of 0.375% per annum on the average daily amount of any
unused portion of the Commitment during the period from and including the date
hereof to but excluding the date on which such Commitment terminates. Accrued
nonusage fees shall be payable in arrears on the last day of March, June,
September and December of each year and on the date on which the Commitment
terminates, commencing on the first such date to occur after the date hereof.
As used herein, usage of the Lender's Commitment includes Revolving Loans and LC
Exposure. All nonusage fees shall be computed on the basis of a year of 360
days and shall be payable for the actual number of days elapsed.
(b) The Borrowers agree to pay to the Lender a fee with respect to all
outstanding Letters of Credit, which shall accrue at the rate of 1.5% per annum
on the average daily amount of the Lender's LC Exposure (excluding any portion
thereof attributable to unreimbursed LC Disbursements), as well as the Lender's
standard fees with respect to the issuance, amendment, renewal or extension of
any Letter of Credit or processing of drawings thereunder. Such fees shall be
payable in advance upon the issuance of any Letter of Credit. All such fees
shall be computed on the basis of a year of 360 days and shall be payable for
the actual number of days elapsed.
14
<PAGE>
(c) The Borrowers agree to pay to the Lender a closing fee as set
forth in the letter from it to NMT Medical, Inc. dated June 18, 1999.
SECTION 2.10. Interest.
--------
(a) All Loans shall bear interest at the Alternate Base Rate.
(b) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrowers hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to the Alternate Base Rate plus 4%.
(c) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and upon termination of the Commitment;
provided that interest accrued pursuant to paragraph (b) of this Section shall
- --------
be payable on demand.
(d) All interest hereunder shall be computed on the basis of a year of
360 days, and shall be payable for the actual number of days elapsed. The
applicable Alternate Base Rate shall be determined by the Lender, and such
determination shall be conclusive absent manifest error.
SECTION 2.11. Increased Costs.
---------------
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by, the Lender; or
(ii) impose on the Lender any other condition affecting this
Agreement or any Loans made by the Lender or any Letter of Credit issued
hereunder;
and the result of any of the foregoing shall be to increase the cost to the
Lender of making or maintaining any Loan (or of maintaining its obligation to
make any such Loan) or to increase the cost to the Lender of issuing or
maintaining any Letter of Credit or to reduce the amount of any sum received or
receivable by the Lender hereunder (whether of principal, interest or
otherwise), then the Borrowers will pay to the Lender such additional amount or
amounts as will compensate the Lender for such additional costs incurred or
reduction suffered.
(b) If the Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on the
Lender's capital as a consequence of this Agreement or the Loans made by the
Lender, or the Letters of Credit issued by the Lender, to a level below that
which the Lender could have achieved but for such Change in Law (taking into
consideration
15
<PAGE>
the Lender's policies with respect to capital adequacy), then from time to time
the Borrowers will pay to the Lender such additional amount or amounts as will
compensate the Lender for any such reduction suffered.
(c) A certificate of the Lender setting forth in reasonable detail the
basis for any such additional payment and the amount or amounts necessary to
compensate the Lender as specified in paragraph (a) or (b) of this Section shall
be delivered to the Borrowers and shall be conclusive absent manifest error.
The Borrowers shall pay the Lender the amount shown as due on any such
certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of the Lender to demand compensation
pursuant to this Section shall not constitute a waiver of the Lender's right to
demand such compensation; provided that any such demand shall be made within 90
--------
days of the event or condition giving rise to the demand on which it is based.
SECTION 2.12. Taxes.
-----
(a) Any and all payments by or on account of any obligation of the
Borrowers hereunder shall be made free and clear of and without deduction for
any Indemnified Taxes or Other Taxes; provided that if the Borrowers shall be
--------
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section), the Lender receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrowers shall make
such deductions and (iii) the Borrowers shall pay the full amount deducted to
the relevant Governmental Authority in accordance with applicable law. In
addition, the Borrowers shall pay all Other Taxes to the relevant Governmental
Authority in accordance with applicable law.
(b) The Borrowers shall indemnify the Lender within 10 days after
written demand therefor, for the full amount of any Indemnified Taxes or Other
Taxes paid by the Lender on or with respect to any payment by or on account of
any obligation of the Borrowers hereunder (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability
delivered to the Borrowers by the Lender shall be conclusive absent manifest
error.
(c) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrowers to a Governmental Authority, the Borrowers shall
deliver to the Lender the original or a certified copy of a receipt issued by
such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory
to the Lender.
16
<PAGE>
SECTION 2.13. Payments Generally.
------------------
(a) The Borrowers shall make each payment required to be made by it
hereunder (whether of principal, interest, fees or reimbursement of LC
Disbursements, or of amounts payable under Section 2.11 or 2.12, or otherwise)
prior to 2:00 p.m., Boston time, on the date when due, in immediately available
funds, without set-off or counterclaim. Any amounts received after such time on
any date shall be deemed to have been received on the next succeeding Business
Day for purposes of calculating interest thereon. All such payments shall be
made to the Lender at its offices in Boston, Massachusetts, except that payments
pursuant to Sections 2.11, 2.12 and 8.03 shall be made directly to the Persons
entitled thereto. If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available to
the Lender to pay fully all amounts of principal, unreimbursed LC Disbursements,
and interest and fees then due hereunder, such funds shall be applied (i) first,
towards payment of interest and fees then due hereunder, and (ii) second,
towards payment of principal and unreimbursed LC Disbursements then due
hereunder.
SECTION 2.14. Senior Status of Obligations. All rights of the Lender
----------------------------
with respect to the payment and performance of all obligations of the Borrowers
hereunder of every kind and description, whether now existing or hereafter
arising, shall be senior to all rights of the holders of the Whitney Notes, and
such rights of the Lender shall not be subordinated in right of payment to any
other Indebtedness of any Borrower or Subsidiary.
ARTICLE III
Representations and Warranties
------------------------------
The Borrowers represent and warrant to the Lender that (provided that, for
--------
purposes of the Borrowers making the following representations and warranties as
of the date hereof only, the term "Subsidiary" shall in no event include Image
Technology Corp.):
SECTION 3.01 Organization; Powers. Each of the Borrowers and the
--------------------
Subsidiaries is duly organized, validly existing and in good standing (where
applicable) under the laws of the jurisdiction of its organization, has all
requisite power and authority to carry on its business as now conducted and,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions to be
-----------------------------
entered into by the respective Borrowers are within each of the respective
Borrower's corporate powers and have been duly
17
<PAGE>
authorized by all necessary corporate and, if required, stockholder action. This
Agreement has been duly executed and delivered by each Borrower and constitutes
a legal, valid and binding obligation of each Borrower, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at law.
SECTION 3.03 Governmental Approvals; No Conflicts. The Transactions (a)
------------------------------------
do not require any consent or approval of, registration or filing with, or any
other action by, any Governmental Authority, except such as have been obtained
or made and are in full force and effect, (b) will not violate any applicable
law or regulation or the charter, by-laws or other organizational documents of
any Borrower or Subsidiary or any order of any Governmental Authority, (c) will
not violate or result in a default under any indenture, agreement or other
instrument binding upon any Borrower or Subsidiary or its assets, or give rise
to a right thereunder to require any payment to be made by any Borrower or
Subsidiary, and (d) will not result in the creation or imposition of any Lien on
any asset of any Borrower or Subsidiary.
SECTION 3.04. Financial Condition; No Material Adverse Change.
-----------------------------------------------
(a) The Borrowers have heretofore furnished to the Lender the
consolidated balance sheet and statements of income, stockholders equity and
cash flows of NMT Medical, Inc. and its Subsidiaries (i) as of and for each of
the last three fiscal years ended December 31, 1998, reported on by Arthur
Andersen LLP, independent public accountants, and (ii) as of and for the fiscal
quarter and the portion of the fiscal year ended June 30, 1999, certified by its
chief financial officer. Such financial statements present fairly, in all
material respects, the financial position and results of operations and cash
flows of NMT Medical, Inc. and its Subsidiaries as of such dates and for such
periods in accordance with GAAP, subject to year-end audit adjustments and the
absence of footnotes in the case of the statements referred to in clause (ii)
above.
(b) Since December 31, 1998, there has been no material adverse change
in the business, assets, operations, prospects or condition, financial or
otherwise, of NMT Medical, Inc. and its Subsidiaries taken as a whole.
SECTION 3.05. Properties.
----------
(a) Each of the Borrowers and the Subsidiaries has good title to, or
valid leasehold interests in, all its real and personal property material to its
business, except for minor defects in title that do not interfere with its
ability to conduct its business as currently conducted or to utilize such
properties for their intended purposes.
(b) Each of the Borrowers and the Subsidiaries owns, or is licensed to
use, all trademarks, tradenames, copyrights, patents and other intellectual
property material to its business, and the use thereof by the Borrowers and the
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected
18
<PAGE>
to result in a Material Adverse Effect. Attached hereto as Schedule 3.05 is a
complete and accurate list of all of the patents and patent applications owned
by the Borrowers as of the date hereof.
SECTION 3.06. Litigation and Environmental Matters.
------------------------------------
(a) There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of the
Borrowers, threatened against or affecting any Borrower or Subsidiary (i) as to
which there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve this Agreement or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, no Borrower or Subsidiary (i)
has failed to comply with any Environmental Law or to obtain, maintain or comply
with any permit, license or other approval required under any Environmental Law,
(ii) has become subject to any Environmental Liability, (iii) has received
notice of any claim with respect to any Environmental Liability or (iv) knows of
any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrowers
-----------------------------------
and the Subsidiaries is in compliance with all laws, regulations and orders of
any Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect. No Default has occurred and is
continuing.
SECTION 3.08. Investment and Holding Company Status. No Borrower or
-------------------------------------
Subsidiary is (a) an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940 or (b) a "holding company"
as defined in, or subject to regulation under, the Public Utility Holding
Company Act of 1935.
SECTION 3.09. Taxes. Each of the Borrowers and the Subsidiaries has
-----
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which such Borrower or Subsidiary, as the case
may be, has set aside on its books adequate reserves or (b) to the extent that
the failure to do so could not reasonably be expected to result in a Material
Adverse Effect.
19
<PAGE>
SECTION 3.10 ERISA. No ERISA Event has occurred or is reasonably
-----
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $10,000 the fair market value of the assets of such Plan, and the present
value of all accumulated benefit obligations of all underfunded Plans (based on
the assumptions used for purposes of Statement of Financial Accounting Standards
No. 87) did not, as of the date of the most recent financial statements
reflecting such amounts, exceed by more than $25,000 the fair market value of
the assets of all such underfunded Plans.
SECTION 3.11 Disclosure. The Borrowers have disclosed to the Lender all
----------
agreements, instruments and corporate or other restrictions to which any of them
or any Subsidiary is subject, and all other matters known to them, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. None of the reports, financial statements,
certificates or other information (other than any such information provided in
draft or preliminary form) furnished by or on behalf of the Borrowers to the
Lender in connection with the negotiation of this Agreement or delivered
hereunder (as modified or supplemented by other information so furnished)
contains any material misstatement of fact or, when taken together, omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
--------
with respect to projected financial information or other information provided in
estimated form, the Borrowers represent only that such information was prepared
in good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.12. Year 2000. Any reprogramming required to permit the proper
---------
functioning, in and following the year 2000, of (i) the Borrowers' and the
Subsidiaries' computer systems and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which any of the
Borrower's or Subsidiary's systems interface) and the testing of all such
systems and equipment, as so reprogrammed, will be completed by December 1999.
The cost to the Borrowers and the Subsidiaries of such reprogramming and testing
and of the reasonably foreseeable consequences of year 2000 to the Borrowers and
the Subsidiaries (including, without limitation, reprogramming errors and the
failure of others' systems or equipment) will not result in a Default or a
Material Adverse Effect. Except for such of the reprogramming referred to in
the preceding sentence as may be necessary, the computer and management
information systems of the Borrowers and the Subsidiaries are and, with ordinary
course upgrading and maintenance, will continue for the term of this Agreement
to be, sufficient to permit the Borrowers and the Subsidiaries to conduct their
respective businesses without Material Adverse Effect.
20
<PAGE>
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the Lender to make
--------------
Loans and issue Letters of Credit hereunder shall not become effective until the
date on which (x) each of the following conditions is satisfied (or waived in
accordance with Section 8.02) and (y) each of the conditions set forth in
Section 4.01 of the French Credit Agreement is satisfied (or waived in
accordance with the terms thereof):
(a) The Lender (or its counsel) shall have received from each party
hereto either (i) a counterpart of this Agreement signed on behalf of such
party or (ii) written evidence satisfactory to the Lender (which may
include telecopy transmission of a signed signature page of this Agreement)
that such party has signed a counterpart of this Agreement.
(b) The Lender shall have received a favorable written opinion
(addressed to the Lender and dated the Effective Date) of Hale and Dorr
LLP, counsel for the Borrowers, substantially in the form of Exhibit B, and
covering such other matters relating to the Borrowers, this Agreement or
the Transactions as the Lender shall reasonably request. The Borrowers
hereby request such counsel to deliver such opinion.
(c) The Lender shall have received such documents and certificates as
it or its counsel may reasonably request relating to the organization,
existence and good standing of the Borrowers, the authorization of the
Transactions and any other legal matters relating to the Borrowers and the
Subsidiaries, this Agreement or the Transactions, all in form and substance
satisfactory to the Lender and its counsel.
(d) The Lender shall have received a certificate, dated the Effective
Date and signed by the President, a Vice President or a Financial Officer
of each of the Borrowers, confirming compliance with the conditions set
forth in paragraphs (a) and (b) of Section 4.02.
(e) The Lender shall have received security documents in form and
substance satisfactory to it from each of the Borrowers granting to the
Lender a first priority Lien on all of their assets (subject to Liens
permitted hereunder), other than any owned real property.
(f) The Lender shall have received pledge agreements (together with
the pledged stock certificates and related stock powers executed in blank)
in form and substance satisfactory to it pursuant to which the Lender shall
receive a first priority Lien on all outstanding shares or interests of the
Subsidiaries held by the Borrowers; provided that the pledge by any
--------
Borrower of any voting stock or interests in any Subsidiary that is not a
Domestic Subsidiary shall be limited to sixty-five percent (65%) of such
voting stock or interests.
21
<PAGE>
(g) The Lender shall have received all fees and other amounts due and
payable on or prior to the Effective Date, including, to the extent
invoiced, reimbursement or payment of all out-of-pocket expenses required
to be reimbursed or paid by the Borrowers hereunder.
(h) The Whitney Agreement and the Whitney Notes shall have been
amended in form and substance satisfactory to the Lender and all collateral
securing the Whitney Notes shall have been released and terminated;
provided that, pursuant to a collateral agency agreement in form and
--------
substance satisfactory to the Lender, the security interests in certain
foreign patents as in effect on the date hereof shall be maintained solely
on behalf of the Lender.
(i) All of the collateral securing the Barclays Debt shall have been
released and terminated, other than the U.K. Lease.
SECTION 4.02. Each Credit Event. The obligation of the Lender to make a
-----------------
Loan on the occasion of any Borrowing or to issue, amend, renew or extend any
Letter of Credit is subject to the satisfaction of the following conditions:
(a) The representations and warranties of the Borrowers set forth in
this Agreement shall be true and correct on and as of the date of such
Borrowing or the date of issuance, amendment, renewal or extension of such
Letter of Credit, as applicable.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable, no Default shall have occurred and be continuing.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by the
Borrowers on the date thereof as to the matters specified in paragraphs (a) and
(b) of this Section.
ARTICLE V
Affirmative Covenants
---------------------
Until the Commitment has expired or been terminated and the principal of
and interest on each Loan and all fees payable hereunder shall have been paid in
full and all Letters of Credit shall have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrowers covenant and agree with
the Lender that:
SECTION 5.01. Financial Statements and Other Information. The Borrowers
------------------------------------------
will furnish to the Lender:
22
<PAGE>
(a) within 90 days after the end of each fiscal year of NMT Medical,
Inc., its audited consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such year, setting forth in each case in comparative form the figures for
the previous fiscal year, all reported on by Arthur Andersen LLP or other
independent public accountants of recognized national standing (without a
"going concern" or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the effect
that such consolidated financial statements present fairly in all material
respects the financial condition and results of operations of NMT Medical,
Inc. and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of NMT Medical, Inc., its consolidated balance
sheet and related statements of operations, stockholders' equity and cash
flows as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative form
the figures for the corresponding period or periods of (or, in the case of
the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all
material respects the financial condition and results of operations of NMT
Medical, Inc. and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the
Borrowers (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken
or proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Section 6.09 and (iii)
stating whether any change in GAAP or in the application thereof has
occurred since the date of the audited financial statements referred to in
Section 3.04 and, if any such change has occurred, specifying the effect of
such change on the financial statements accompanying such certificate;
(d) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any Default
(which certificate may be limited to the extent required by accounting
rules or guidelines);
(e) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
NMT Medical, Inc. with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, or distributed by NMT
Medical, Inc. to its shareholders generally, as the case may be; and
23
<PAGE>
(f) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrowers and the Subsidiaries, or compliance with the terms of this
Agreement, as the Lender may reasonably request.
SECTION 5.02. Notices of Material Events. The Borrowers will furnish to
--------------------------
the Lender prompt written notice of the following:
(a) the occurrence of any Default hereunder, including, without
limitation, as a result of any Default under the French Credit Agreement;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting any
Borrower or Subsidiary or any Affiliate thereof that, if adversely
determined, could reasonably be expected to result in a Material Adverse
Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to
result in liability of any Borrower or Subsidiary in an aggregate amount
exceeding $25,000; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrowers setting forth
the details of the event or development requiring such notice and any action
taken or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. Each of the Borrowers
------------------------------
will, and will cause each of the Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; provided that the foregoing shall not prohibit
--------
any merger, consolidation, liquidation or dissolution permitted under Section
6.03.
SECTION 5.04. Payment of Obligations. Each of the Borrowers will, and
----------------------
will cause each of the Subsidiaries to, pay its obligations, including Tax
liabilities, that, if not paid, could result in a Material Adverse Effect before
the same shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropriate proceedings, (b)
such Borrower or Subsidiary, as the case may be, has set aside on its books
adequate reserves with respect thereto in accordance with GAAP and any other
applicable standards for any Subsidiary that is not a Domestic Subsidiary and
(c) the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.
24
<PAGE>
SECTION 5.05. Maintenance of Properties; Insurance. Each of the
------------------------------------
Borrowers will (a) keep and maintain all property material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and (b) maintain, with financially sound and reputable insurance companies,
insurance in such amounts and against such risks as are customarily maintained
by companies engaged in the same or similar businesses operating in the same or
similar locations.
SECTION 5.06. Books and Records; Inspection Rights. Each of the
------------------------------------
Borrowers will, and will cause each of the Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. Each of
the Borrowers will, and will cause each of the Subsidiaries to, permit any
representatives designated by the Lender, upon reasonable prior notice, to visit
and inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times and as often as
reasonably requested.
SECTION 5.07 Compliance with Laws. Each of the Borrowers will, and will
--------------------
cause each of the Subsidiaries to, comply with all laws, rules, regulations and
orders of any Governmental Authority applicable to it or its property, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.08. Use of Proceeds and Letters of Credit. The proceeds of the
-------------------------------------
Loans will be used only for the prepayment and retirement of $3,000,000 of the
Whitney Notes and the balance for general corporate purposes. No part of the
proceeds of any Loan will be used, whether directly or indirectly, for any
purpose that entails a violation of any of the Regulations of the Board,
including Regulations U and X. Letters of Credit will be issued only for the
payment of suppliers and for other purposes satisfactory to the Lender.
SECTION 5.09. Receipt of Proceeds from French Credit Agreement. The
------------------------------------------------
proceeds of the loans made by the Lender under the French Credit Agreement to
the Subsidiaries parties thereto, which are received by any Borrower, directly
or indirectly, as dividends, payment of existing indebtedness or otherwise, will
be used only toward the prepayment and retirement of the Whitney Notes.
SECTION 5.10. Grant of Mortgage on Real Property. At any time upon the
----------------------------------
request of the Lender, the Borrowers will (within 10 days following such
request) grant to the Lender a first priority mortgage (subject to such
customary zoning, easement, tax and other interests and encumbrances which do
not in the aggregate materially decrease the value of or restrict the
marketability of such property) on any and all real property now owned or
hereafter acquired by any Borrower. In connection therewith, the Borrowers will
also provide (within 60 days following such request) to the Lender customary
title insurance, surveys, zoning documents and other closing documents.
SECTION 5.11. Subsidiary Guarantees. At any time upon the request of the
---------------------
Lender, the Borrowers will, within a reasonable period after such request, cause
any Subsidiary that is not a Domestic Subsidiary to execute a guarantee, in form
and substance satisfactory to the Lender, pursuant to which such
25
<PAGE>
Subsidiary shall guarantee the payment and performance by the Borrowers of their
obligations hereunder; provided that such guarantee shall be limited in amount
--------
and otherwise in a form which does not create any adverse U.S. tax consequences
to the Borrowers in the reasonable judgment of the Borrowers' tax advisors.
ARTICLE VI
Negative Covenants
------------------
Until the Commitment has expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder have been paid in full and
all Letters of Credit have expired or terminated and all LC Disbursements shall
have been reimbursed, the Borrowers covenant and agree with the Lender that:
SECTION 6.01 Indebtedness. The Borrowers will not, and will not permit
------------
any Subsidiary to, create, incur, assume or permit to exist any Indebtedness,
except:
(a) Indebtedness created hereunder;
(b) Indebtedness existing on the date hereof and set forth in Schedule
6.01 and, except as set forth in clauses (f) and (g) of this Section 6.01,
extensions, renewals and replacements of any such Indebtedness that do not
increase the outstanding principal amount thereof;
(c) Indebtedness of any Borrower to any Borrower or Subsidiary;
(d) Guarantees existing on the date hereof and set forth in Schedule
6.01, and extensions, renewals and replacements of such Guarantees that do
not increase the outstanding amount so guaranteed, and any Guarantee of the
Whitney Notes by any Subsidiary executed after the date hereof; provided
--------
that (i) such Guarantee shall be in form and substance satisfactory to the
Lender, (ii) such Guarantee shall be subordinate and junior to the
Indebtedness created hereunder and under the French Credit Agreement (and
any Guarantee thereof by any Borrower or Subsidiary) and (ii) such
Subsidiary shall have guaranteed the Indebtedness created hereunder and, to
the extent permitted by applicable law, under the French Credit Agreement;
(e) Indebtedness incurred to finance the acquisition, construction or
improvement of any fixed or capital assets, including Capital Lease
Obligations and any Indebtedness assumed in connection with the acquisition
of any such assets or secured by a Lien on any such assets prior to the
acquisition thereof, and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount thereof;
provided that (i) such Indebtedness is incurred prior to or within 90 days
--------
after such acquisition or the completion of such construction or
improvement and (ii) the aggregate principal amount of Indebtedness
permitted by this clause (e) shall not exceed $300,000 at any time
outstanding;
26
<PAGE>
(f) the Barclays Debt, but no extensions, renewals or replacements
thereof;
(g) the Whitney Notes, but no extensions, renewals or replacements
thereof; and provided that the Borrowers may not prepay the Whitney Notes
--------
in whole or in part (other than on the Effective Date in the principal
amount of up to $14,000,000 and in accordance with the terms hereof and of
that certain Guarantee, dated as of the date hereof, made by the Borrowers
with respect to the indebtedness of certain Subsidiaries under the French
Credit Agreement) without the prior written consent of the Lender;
(h) Indebtedness in an aggregate principal amount of up to $1,200,000
to be extended after the date hereof to NMT NeuroSciences Implants (France)
SA by CIC Lyonnaise De Banque upon such terms and conditions as shall be
approved by the Lender, which approval shall not be unreasonably withheld,
and solely for the lease of computer equipment, but no extensions, renewals
or replacements thereof; and
(i) Indebtedness created under the French Credit Agreement and any
Guarantee of such Indebtedness by any Borrower or Subsidiary, and
extensions, renewals and replacements of such Indebtedness and Guarantees.
SECTION 6.02. Liens. The Borrowers will not, and will not permit any
-----
Subsidiary to, create, incur, assume or permit to exist any Lien on any property
or asset now owned or hereafter acquired by it, or assign or sell any income or
revenues (including accounts receivable) or rights in respect of any thereof,
except:
(a) Permitted Encumbrances;
(b) any Lien on any property or asset of any Borrower or Subsidiary
existing on the date hereof and set forth in Schedule 6.02; provided that
--------
(i) such Lien shall not apply to any other property or asset of any
Borrower or Subsidiary and (ii) such Lien shall secure only those
obligations which it secures on the date hereof and, except as otherwise
set forth herein, extensions, renewals and replacements thereof that do not
increase the outstanding principal amount thereof;
(c) Liens on fixed or capital assets acquired, constructed or improved
by any Borrower or Subsidiary; provided that (i) such security interests
--------
secure Indebtedness permitted by clause (e) of Section 6.01, (ii) such
security interests and the Indebtedness secured thereby are incurred prior
to or within 90 days after such acquisition or the completion of such
construction or improvement, (iii) the Indebtedness secured thereby does
not exceed 90% of the cost of acquiring, constructing or improving such
fixed or capital assets and (iv) such security interests shall not apply to
any other property or assets of any Borrower or Subsidiary;
(d) Liens on any fixed assets (other than real property) owned or
acquired after the date hereof by NMT NeuroSciences Implants (France) SA;
provided that (i) such security interests
--------
27
<PAGE>
secure only the Indebtedness permitted by clause (h) of Section 6.01 and
(ii) such security interests shall not apply to any other property or
assets of any Borrower or Subsidiary; and
(e) Liens in favor of the Lender securing the Indebtedness hereunder
and the Indebtedness permitted by clause (i) of Section 6.01.
SECTION 6.03. Fundamental Changes.
-------------------
(a) The Borrowers will not, and will not permit any Subsidiary to,
merge into or consolidate with any other Person, or permit any other Person to
merge into or consolidate with it, or sell, transfer, lease or otherwise dispose
of (in one transaction or in a series of transactions) all or substantially all
of its assets, or all or substantially all of the stock of any of its
subsidiaries (in each case, whether now owned or hereafter acquired), or
liquidate or dissolve, except that, if at the time thereof and immediately after
giving effect thereto no Default shall have occurred and be continuing, (i) any
Borrower may merge into any other Borrower, (ii) any Borrower or Subsidiary may
sell, transfer, lease or otherwise dispose of its assets to any Borrower, (iii)
any Borrower (other than NMT Medical, Inc.) may merge with any other Person in
connection with an acquisition permitted by Section 6.04 as long as such
Borrower is the surviving corporation, (iv) any Person in connection with an
acquisition permitted under Section 6.04 or any Subsidiary may merge into any
Borrower as long as such Borrower is the surviving corporation and (v) any
Borrower (other than NMT Medical, Inc.) or any Subsidiary may liquidate or
dissolve if such Borrower or Subsidiary determines in good faith that such
liquidation or dissolution is in the best interests of its stockholders and is
not disadvantageous to the Lender. No Borrower shall, or shall permit any
Subsidiary to, create, form or acquire any subsidiary without the prior written
consent of the Lender; provided that any Borrower may create, form or acquire a
--------
Domestic Subsidiary if such Borrower notifies the Lender in writing at least 30
days in advance thereof and, effective on the date it is created, formed or
acquired, such Domestic Subsidiary becomes a Borrower hereunder, it guarantees
the Indebtedness created under the French Credit Agreement, it grants the Lender
a perfected first priority Lien in all of its assets, and all of its capital
stock is pledged on a perfected first priority basis to the Lender.
(b) The Borrowers will not, and will not permit any Subsidiary to,
engage to any material extent in any business other than businesses of the
general type conducted by the Borrowers and the Subsidiaries on the date of
execution of this Agreement and businesses reasonably related thereto.
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions.
---------------------------------------------------------
The Borrowers will not, and will not permit any Subsidiary to, purchase, hold or
acquire any capital stock, evidences of indebtedness or other securities
(including any option, warrant or other right to acquire any of the foregoing)
of, make or permit to exist any loans or advances to, Guarantee any obligations
of, or make or permit to exist any investment or any other interest in, any
other Person, or purchase or otherwise acquire (in one transaction or a series
of transactions) any assets of any other Person constituting a business unit,
except:
(a) Permitted Investments;
28
<PAGE>
(b) investments by any Borrower or Subsidiary existing on the date
hereof in the capital stock of its subsidiaries;
(c) loans or advances made by any Borrower or Subsidiary to any
Borrower or, with notice as promptly as practicable to the Lender, to any
borrower under the French Credit Agreement;
(d) Guarantees constituting Indebtedness permitted by Section 6.01;
(e) acquisitions by any Borrower as long as (i) the acquired assets
are used for, or the acquired Person is engaged in, businesses of the
type conducted by the Borrowers on the date hereof or businesses reasonably
related thereto, (ii) if such acquisition involves the formation or
acquisition by any Borrower of any Person that becomes a Subsidiary as a
result of or in connection with such acquisition, then such Subsidiary must
be a wholly-owned Domestic Subsidiary and it must, prior to or
simultaneously with such acquisition, execute and deliver to the Lender (A)
documentation causing it to become a Borrower hereunder, (B) a guarantee of
the Indebtedness created under the French Credit Agreement, (C) security
documents giving the Lender a first priority perfected Lien in all of its
assets, and (D) documentation giving to the Lender perfected first priority
pledge of all of its outstanding capital stock, in each case in form and
substance satisfactory to the Lender and its counsel, (iii) immediately
before and immediately after such acquisition, no Default will occur or
exist and (iv) the Borrowers give the Lender written notice thereof at
least 20 days in advance of such acquisition;
(f) investments by any Borrower or Subsidiary existing on the date
hereof and set forth in Schedule 6.04; provided that the amount of any
--------
such investment made by such Borrower or Subsidiary shall not increase
after the date hereof; and
(g) investments by any Borrower in Image Technology Corp. after the
date hereof in a maximum aggregate amount which, when added to the amount
by which trade payables paid by any Borrower on behalf of Image Technology
Corp. exceeds trade receivables of Image Technology Corp. collected by any
Borrower, does not at any time exceed $200,000.
SECTION 6.05. Hedging Agreements. The Borrowers will not, and will not
------------------
permit any Subsidiary to, enter into any Hedging Agreement, other than Hedging
Agreements entered into in the ordinary course of business to hedge or mitigate
risks to which the Borrowers or the Subsidiaries are exposed in the conduct of
their business or the management of their liabilities.
SECTION 6.06. Restricted Payments. The Borrowers will not, and will not
-------------------
permit any Subsidiary to, declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, except (a) any Borrower may declare and pay
dividends with respect to its capital stock payable solely in additional shares
of its common stock, and (b) Subsidiaries may declare and pay dividends ratably
with respect to their capital stock to any Borrower or Subsidiary.
29
<PAGE>
SECTION 6.07. Transactions with Affiliates. The Borrowers will not sell,
----------------------------
lease or otherwise transfer any property or assets to, or purchase, lease or
otherwise acquire any property or assets from, or otherwise engage in any other
transactions with, any of their Affiliates, except (a) in the ordinary course of
business at prices and on terms and conditions not less favorable to the
Borrowers or the Subsidiaries than could be obtained on an arm's-length basis
from unrelated third parties, and (b) any other transaction permitted by this
Agreement.
SECTION 6.08. Restrictive Agreements. The Borrowers will not, and will
----------------------
not permit any Subsidiary to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of any Borrower or Subsidiary to
create, incur or permit to exist any Lien upon any of its property or assets, or
(b) the ability of any Subsidiary to pay dividends or other distributions with
respect to any shares of its capital stock or to make or repay loans or advances
to any Borrower or to Guarantee Indebtedness of any Borrower or any Subsidiary;
provided that (i) the foregoing shall not apply to restrictions and conditions
- --------
imposed by law or by this Agreement, (ii) the foregoing shall not apply to
restrictions and conditions existing on the date hereof identified on Schedule
6.08 (but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or condition), (iii)
the foregoing shall not apply to customary restrictions and conditions contained
in agreements relating to the sale of a Subsidiary pending such sale, provided
such restrictions and conditions apply only to the Subsidiary that is to be sold
and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not
apply to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Indebtedness and (v) clause
(a) of the foregoing shall not apply to customary provisions in leases and other
contracts restricting the assignment thereof.
SECTION 6.09. Financial Covenants.
-------------------
(a) Total Leverage Test. The Borrowers shall not permit the ratio of
-------------------
consolidated Net Funded Indebtedness of NMT Medical, Inc. and its consolidated
Subsidiaries as of the last day of any calendar quarter ending on the date or
during any of the periods set forth below to consolidated Adjusted Operating
Cash Flow of NMT Medical, Inc. and its consolidated Subsidiaries for the twelve
(12) month period ending on the last day of such calendar quarter to be greater
than the ratio set forth below for such period:
<TABLE>
<CAPTION>
Date or Period Ratio
-------------- -----
<S> <C>
September 30, 1999 4.0:1.00
December 31, 1999 3.0:1.00
January 1, 2000 and thereafter 2.5:1.00
</TABLE>
"Net Funded Indebtedness" and "Adjusted Operating Cash Flow" will be
----------------------- ----------------------------
calculated as illustrated on Schedule 6.09(a).
30
<PAGE>
(b) Fixed Charge Coverage. The Borrowers shall not permit
---------------------
consolidated Fixed Charge Coverage of NMT Medical, Inc. and its consolidated
Subsidiaries for any twelve (12) month period ending on the last day of a
calendar quarter to be less than 1.50 to 1.00.
"Fixed Charge Coverage" will be calculated as illustrated on Schedule
---------------------
6.09(b).
(c) Current Ratio. The Borrowers shall not permit the ratio of
-------------
consolidated Current Assets of NMT Medical, Inc. and its consolidated
Subsidiaries to consolidated Current Liabilities of NMT Medical, Inc. and its
consolidated Subsidiaries as of the last day of any calendar quarter to be less
than 1.25 to 1.00.
As used herein, the following terms shall have the following meanings:
"Current Assets" shall mean, at any date, the aggregate of the current
--------------
assets of NMT Medical, Inc. and its consolidated Subsidiaries determined on a
consolidated basis as of such date, as determined in accordance with GAAP.
"Current Liabilities" shall mean, at any date, the aggregate of the current
-------------------
liabilities of NMT Medical, Inc. and its consolidated Subsidiaries determined
on a consolidated basis as of such date, as determined in accordance with GAAP;
provided that at all times all outstanding Loans hereunder and under the French
- --------
Credit Agreement shall be deemed to be Current Liabilities.
(d) Tangible Net Worth. The Borrowers shall not permit Consolidated
------------------
Tangible Net Worth of NMT Medical, Inc. and its consolidated Subsidiaries as of
the last day of any calendar quarter during any of the periods set forth below
to be less than the amount set forth below for such period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
September 30, 1999 to and including December 30, 1999 $16,250,000
December 31, 1999 to and including December 30, 2000 $17,750,000
December 31, 2000 to and including December 30, 2001 $21,000,000
December 31, 2001 and thereafter $25,000,000
</TABLE>
As used herein, the term "Consolidated Tangible Net Worth" means (a) the total
-------------------------------
assets of NMT Medical, Inc. and its consolidated Subsidiaries on a consolidated
basis as determined in accordance with GAAP, minus (b) the total liabilities of
-----
NMT Medical, Inc. and its consolidated Subsidiaries on a consolidated basis as
determined in accordance with GAAP, minus (c) the total book value of all assets
-----
of NMT Medical, Inc. and its consolidated Subsidiaries properly classified as
intangible assets in accordance with GAAP, including such items as good will,
the purchase price of acquired assets in excess of the fair market value
thereof, trademarks, trade names, service marks, brand names, copyrights,
patents and licenses, and rights with respect to the foregoing, minus (d) all
-----
amounts representing any write-up in the book value of any assets of NMT
Medical, Inc. and its consolidated Subsidiaries resulting from a revaluation
thereof
31
<PAGE>
subsequent to the date hereof, minus (e) to the extent otherwise includable in
-----
the computation of Consolidated Tangible Net Worth, any subscriptions
receivable, minus (f) all amounts representing any ownership interest in Image
-----
Technology Corp.; provided, however, that in calculating Consolidated Tangible
-------- -------
Net Worth no effect shall be given to any foreign currency translations.
ARTICLE VII
Events of Default
-----------------
If any of the following events ("Events of Default") shall occur:
-----------------
(a) the Borrowers shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the
same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise;
(b) the Borrowers shall fail to pay any interest on any Loan or any
fee or any other amount (other than an amount referred to in clause (a) of
this Article) payable under this Agreement, when and as the same shall
become due and payable, and such failure shall continue unremedied for a
period of three Business Days;
(c) any representation or warranty made or deemed made by or on behalf
of any Borrower or, if applicable, Subsidiary in or in connection with this
Agreement or any amendment or modification hereof or waiver hereunder, or
in any report, certificate, financial statement or other document furnished
pursuant to or in connection with this Agreement or any amendment or
modification hereof or waiver hereunder, shall prove to have been incorrect
in any material respect when made or deemed made;
(d) any Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.02, 5.03 (with respect to
such Borrower's existence), 5.08, 5.09, 5.10 or 5.11 or in Article VI;
(e) any Borrower shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement (other than those
specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof from
the Lender to the Borrowers;
(f) any Borrower or Subsidiary shall fail to make any payment (whether
of principal or interest and regardless of amount) in respect of any
Material Indebtedness, when and as the same shall become due and payable
(unless such payment is disputed in good faith and with a reasonable basis
and the holder of such Material Indebtedness is not exercising any rights
to enforce such payment);
32
<PAGE>
(g) any event or condition occurs that results in the acceleration of
the maturity of or any default or event of default occurring or being
declared with respect to any Material Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of any Borrower or Subsidiary or its debts, or of a
substantial part of its assets, under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for any Borrower or
Subsidiary or for a substantial part of its assets, and, in any such case,
such proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
(i) any Borrower or Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or
other relief under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (h) of this Article, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for such Borrower or
Subsidiary or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors
or (vi) take any action for the purpose of effecting any of the foregoing;
(j) any Borrower or Subsidiary shall become unable, admit in writing
its inability or fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $100,000 shall be rendered against any Borrower or
Subsidiary and the same shall remain undischarged for a period of 30
consecutive days during which execution shall not be effectively stayed, or
any action shall be legally taken by a judgment creditor to attach or levy
upon any assets of any Borrower or Subsidiary to enforce any such judgment
and such attachment shall not be dissolved within 60 days thereafter;
(l) an ERISA Event shall have occurred that, in the opinion of the
Lender, when taken together with all other ERISA Events that have occurred,
could reasonably be expected to result in liability of any Borrower or
Subsidiary in an aggregate amount exceeding (i) $25,000 in any year or (ii)
$100,000 for all periods;
(m) a Change in Control shall occur;
(n) any security document executed and delivered in connection
herewith shall cease to be in full force and effect, or shall cease to give
the Lender the Liens, rights, powers and
33
<PAGE>
privileges purported to be created thereby, superior and prior to the
rights of all third Persons and subject to no other Liens (except in each
case to the extent expressly permitted herein or in such security
document);
(o) any Borrower shall fail to observe or perform any covenant,
condition or agreement contained in any security document executed and
delivered in connection herewith beyond applicable notice and cure periods;
or
(p) an Event of Default (as defined therein) shall have occurred under
the French Credit Agreement;
then, and in every such event (other than an event with respect to any Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Lender may, by notice to the
Borrowers, take either or both of the following actions, at the same or
different times: (i) terminate the Commitment, and thereupon the Commitment
shall terminate immediately, and (ii) declare the Loans then outstanding to be
due and payable in whole (or in part, in which case any principal not so
declared to be due and payable may thereafter be declared to be due and
payable), and thereupon the principal of the Loans so declared to be due and
payable, together with accrued interest thereon and all fees and other
obligations of the Borrowers accrued hereunder, shall become due and payable
immediately, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers; and in case of any event with
respect to any Borrower described in clause (h) or (i) of this Article, the
Commitment shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrowers accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers.
ARTICLE VIII
Miscellaneous
-------------
SECTION 8.01. Notices. Except in the case of notices and other
-------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to any Borrower, to it at 27 Wormwood Street, Boston,
Massachusetts 02210-1625, Attention of Chief Financial Officer (Telecopy
No. 617-737-0924), with a copy to Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts 02109, Attention of Steven D. Singer, Esq. (Telecopy
No. 617-526-5000); and
34
<PAGE>
(b) if to the Lender, to Brown Brothers Harriman & Co., 40 Water
Street, Boston, Massachusetts 02109-3661, Attention of Victoria W. Evans,
Assistant Manager (Telecopy No. 617-772-1138), with a copy to Goodwin,
Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109-2881,
Attention of Raymond C. Zemlin, P.C. (Telecopy No. 617-523-1231);
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 8.02 Waivers; Amendments.
-------------------
(a) No failure or delay by the Lender in exercising any right or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Lender hereunder are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of this
Agreement or consent to any departure by any Borrower therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) of this
Section, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. Without limiting the generality of
the foregoing, the making of a Loan or issuance of a Letter of Credit shall not
be construed as a waiver of any Default, regardless of whether the Lender may
have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Lender and the Borrowers.
SECTION 8.03. Expenses; Indemnity; Damage Waiver.
----------------------------------
(a) The Borrowers shall pay (i) all reasonable out-of-pocket expenses
incurred by the Lender, including the reasonable fees, charges and disbursements
of counsel for the Lender, in connection with the preparation and administration
of this Agreement or any amendments, modifications or waivers of the provisions
hereof (whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable out-of-pocket expenses incurred by the Lender
in connection with the issuance, amendment, renewal or extension of any Letter
of Credit or any demand for payment thereunder and (iii) all out-of-pocket
expenses incurred by the Lender, including the fees, charges and disbursements
of any counsel for the Lender, in connection with the enforcement or protection
of its rights in connection with this Agreement, including its rights under this
Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.
35
<PAGE>
(b) The Borrowers shall indemnify the Lender, and each Related Party
of the Lender (each such Person being called an "Indemnitee") against, and hold
----------
each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses, including the fees, charges and disbursements of any
counsel for any Indemnitee, incurred by or asserted against any Indemnitee
arising out of, in connection with, or as a result of (i) the execution or
delivery of this Agreement or any agreement or instrument contemplated hereby,
the performance by the parties hereto of their respective obligations hereunder
or the consummation of the Transactions or any other transactions contemplated
hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom
(including any refusal by the Lender to honor a demand for payment under a
Letter of Credit if the documents presented in connection with such demand do
not strictly comply with the terms of such Letter of Credit), (iii) any actual
or alleged presence or release of Hazardous Materials on or from any property
owned or operated by any Borrower or Subsidiary, or any Environmental Liability
related in any way to any Borrower or Subsidiary, or (iv) any actual or
prospective claim, litigation, investigation or proceeding relating to any of
the foregoing, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided that such
--------
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of such Indemnitee.
(c) To the extent permitted by applicable law, no Borrower shall
assert, and each Borrower hereby waives, any claim against any Indemnitee, on
any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement or any agreement or instrument
contemplated hereby, the Transactions, any Loan or Letter of Credit or the use
of the proceeds thereof.
(d) All amounts due under this Section shall be payable not later than
five Business Days after written demand therefor.
SECTION 8.04. Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby, except that no Borrower may
assign or otherwise transfer any of its rights or obligations hereunder without
the prior written consent of the Lender (and any attempted assignment or
transfer by the Borrower without such consent shall be null and void). Nothing
in this Agreement, expressed or implied, shall be construed to confer upon any
Person (other than the parties hereto, their respective successors and assigns
permitted hereby and, to the extent expressly contemplated hereby, the Related
Parties of the Lender) any legal or equitable right, remedy or claim under or by
reason of this Agreement.
SECTION 8.05. Survival; Nature of Obligations. All covenants, agreements,
-------------------------------
representations and warranties made by any Borrower herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be joint and several obligations of all of the Borrowers,
and shall be considered to have been relied upon by the other parties hereto and
shall survive the execution and delivery of this Agreement and the making of any
Loans and issuance of any Letters of Credit, regardless
36
<PAGE>
of any investigation made by any such other party or on its behalf and
notwithstanding that the Lender may have had notice or knowledge of any Default
or incorrect representation or warranty at the time any credit is extended
hereunder, and shall continue in full force and effect as long as the principal
of or any accrued interest on any Loan or any fee or any other amount payable
under this Agreement is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Commitment has not expired or terminated. The
provisions of Sections 2.11, 2.12 and 8.03 shall survive and remain in full
force and effect regardless of the consummation of the transactions contemplated
hereby, the repayment of the Loans, the expiration or termination of the Letters
of Credit and the Commitment or the termination of this Agreement or any
provision hereof.
SECTION 8.06. Counterparts; Integration; Effectiveness. This Agreement
----------------------------------------
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement, the other
documents contemplated hereby and any separate letter agreements with respect to
fees payable to the Lender constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 4.01, this Agreement shall become
effective when it shall have been executed by the Lender and when the Lender
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 8.07. Severability. Any provision of this Agreement held to be
------------
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 8.08. Right of Setoff. If an Event of Default shall have occurred
---------------
and be continuing, the Lender and each of its Affiliates is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by the Lender or such Affiliate to or for the credit or the account of any
Borrower against any of and all the obligations of the Borrowers now or
hereafter existing under this Agreement, irrespective of whether or not the
Lender shall have made any demand under this Agreement and although such
obligations may be unmatured. The rights of the Lender under this Section are in
addition to other rights and remedies (including other rights of setoff) which
it may have.
37
<PAGE>
SECTION 8.09. Governing Law; Jurisdiction; Consent to Service of Process.
----------------------------------------------------------
(a) This Agreement shall be construed in accordance with and governed
by the law of the Commonwealth of Massachusetts.
(b) Each of the Borrowers hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Superior Court of the Commonwealth of Massachusetts sitting in Suffolk County
and of the United States District Court for the District of Massachusetts, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Agreement, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such Commonwealth of Massachusetts or, to the extent permitted
by law, such Federal court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Lender may otherwise have to bring any action or proceeding relating to this
Agreement against any Borrower or its properties in the courts of any
jurisdiction.
(c) Each of the Borrowers hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any court
referred to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 8.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 8.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
--------------------
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
38
<PAGE>
SECTION 8.11. Headings. Article and Section headings and the Table of
--------
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 8.12. Confidentiality. The Lender agrees to maintain the
---------------
confidentiality of the Information (as defined below), except that Information
may be disclosed (a) to its and its Affiliates' directors, officers, employees
and agents, including accountants, legal counsel and other advisors (it being
understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory
authority, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this Agreement,
(e) in connection with the exercise of any remedies hereunder or any suit,
action or proceeding relating to this Agreement or the enforcement of rights
hereunder, (f) subject to an agreement containing provisions substantially the
same as those of this Section, to any assignee of or participant in, or any
prospective assignee of or participant in, any of its rights or obligations
under this Agreement, (g) with the consent of the Borrowers or (h) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Section or (ii) becomes available to the Lender on a
nonconfidential basis from a source other than any Borrower. For the purposes of
this Section, "Information" means all information received from the Borrowers or
-----------
any Subsidiary relating to the Borrowers and the Subsidiaries or their
businesses, other than any such information that is available to the Lender on a
nonconfidential basis prior to disclosure by the Borrowers or such Subsidiary;
provided that, in the case of information received from the Borrowers or any
- --------
Subsidiary after the date hereof, such information is clearly identified at the
time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
[Remainder of Page Intentionally Left Blank]
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
NMT MEDICAL, INC.
By: /s/ Thomas M. Tully
---------------------------
Name: Thomas M. Tully
Title: President
NMT HEART, INC.
By: /s/ Thomas M. Tully
---------------------------
Name: Thomas M. Tully
Title: President
NMT INVESTMENTS CORP.
By: /s/ Thomas M. Tully
---------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES
(INTERNATIONAL), INC.
By: /s/ Thomas M. Tully
---------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES (US), INC.
By: /s/ Thomas M. Tully
---------------------------
Name: Thomas M. Tully
Title: President
40
<PAGE>
NMT NEUROSCIENCES (IP), INC.
By: /s/ Thomas M. Tully
---------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES
INNOVASIVE SYSTEMS, INC.
By: /s/ Thomas M. Tully
---------------------------
Name: Thomas M. Tully
Title: President
BROWN BROTHERS HARRIMAN & CO.
By: /s/ A. Heaton Robertson
-------------------------------
Name: A. Heaton Robertson
Title: Partner
41
<PAGE>
EXHIBIT 10.2
PROMISSORY NOTE
Boston, Massachusetts
$5,000,000 September 13, 1999
FOR VALUE RECEIVED, the undersigned (each a "Borrower" and collectively,
--------
the "Borrowers") hereby jointly and severally promise to pay to the order of
---------
Brown Brothers Harriman & Co. or its assigns (the "Lender"), in lawful money of
------
the United States of America in immediately available funds, at the office of
the Lender located at 40 Water Street, Boston, MA 02109-3661 on the Maturity
Date (as defined in the Agreement) the principal sum of FIVE MILLION DOLLARS
($5,000,000) or, if less, the then aggregate unpaid principal amount of all
Loans (as defined in the Agreement) outstanding under the Agreement.
The Borrowers also hereby jointly and severally promise to pay interest on
the unpaid principal amount hereof in like money at said office from the date
hereof until paid at the rates and at the times provided in the Agreement.
This Note is subject to the terms of that certain Credit Agreement, dated
as of the date hereof, among the Borrowers and the Lender (as amended, modified
or supplemented from time to time, the "Agreement") and is entitled to the
---------
benefits thereof. This Note is secured by the security documents described in
the Agreement. As provided in the Agreement, this Note is subject to prepayment
prior to the Maturity Date.
In case an Event of Default (as defined in the Agreement) shall occur and
be continuing, the principal of and accrued interest on this Note may become or
be declared to be due and payable in the manner and with the effect provided in
the Agreement.
The Borrowers hereby waive presentment, demand, protest or notice of any
kind in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW
OF THE COMMONWEALTH OF MASSACHUSETTS.
NMT MEDICAL, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
<PAGE>
NMT HEART, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT INVESTMENTS CORP.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES
(INTERNATIONAL), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES (US), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES (IP), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
2
<PAGE>
NMT NEUROSCIENCES
INNOVASIVE SYSTEMS, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
3
<PAGE>
EXHIBIT 10.3
GUARANTEE
---------
GUARANTEE dated as of September 13, 1999 made by the guarantors which are
signatories hereto (collectively, the "Guarantors" and individually, each a
----------
"Guarantor"), in favor of BROWN BROTHERS HARRIMAN & CO. (the "Lender").
- ---------- ------
Reference is made to that certain Credit Agreement, dated as of the date hereof
(as amended, supplemented, extended or otherwise modified from time to time, the
"French Credit Agreement"), among NMT NeuroSciences Implants (France) SA, a
-----------------------
French limited liability company, and NMT NeuroSciences Instruments (France)
SARL, a French limited liability company (collectively, the "French
------
Subsidiaries"), and the Lender.
- ------------
WHEREAS, the French Subsidiaries have entered into the French Credit
Agreement to arrange for loans in the aggregate principal amount of 4,847,309.74
Euros (the "Loans"), the proceeds of which will be used to enable the repayment
-----
of certain intercompany debt to one or more of the Guarantors;
WHEREAS, pursuant to the French Credit Agreement, the Lender has agreed to
make the Loans to the French Subsidiaries upon the terms and subject to the
conditions set forth therein;
WHEREAS, the Guarantors are direct or indirect parents or sister
subsidiaries of the French Subsidiaries;
WHEREAS, the operations of the French Subsidiaries and the Guarantors are
conducted on a combined basis with significant shared management, purchasing,
planning, financial controls and other functions, and the French Credit
Agreement will directly or indirectly benefit the Guarantors' various
businesses; and
WHEREAS, it is a condition precedent to the obligations of the Lender to
make the Loans to the French Subsidiaries under the French Credit Agreement that
the Guarantors shall have executed and delivered this Guarantee to the Lender.
NOW, THEREFORE, in consideration of the premises and to induce the Lender
to enter into the French Credit Agreement and to make the Loans to the French
Subsidiaries under the French Credit Agreement, each Guarantor hereby agrees
with the Lender as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein shall
-------------
have the meanings set forth in the French Credit Agreement.
2. Guarantee.
---------
(a) Each Guarantor hereby jointly and severally, unconditionally and
irrevocably, guarantees to the Lender and its respective successors, endorsees,
transferees and assigns, the prompt and complete payment and performance by the
French Subsidiaries when due (whether at the stated
<PAGE>
maturity, by acceleration or otherwise) of the unpaid principal of and interest
on the Loans and all other obligations and liabilities of the French
Subsidiaries to the Lender (including interest accruing at the then applicable
rate provided in the French Credit Agreement after the stated maturity, by
acceleration or otherwise), whether direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter incurred, which may arise under,
out of, or in connection with, the French Credit Agreement or any other document
made, delivered or given in connection therewith, whether on account of
principal, interest, fees, indemnities, costs, expenses or otherwise (including
all reasonable fees and disbursements of counsel to the Lender that are required
to be paid by the French Subsidiaries pursuant to the terms of the French Credit
Agreement) (each and all of the above obligations, collectively, the "Guaranteed
----------
Obligations").
- -----------
(b) Each Guarantor further agrees to pay any and all expenses
(including all reasonable fees and disbursements of counsel) which may be paid
or incurred by the Lender in enforcing any rights with respect to, or collecting
against, any Guarantor under this Guarantee. This Guarantee shall remain in
full force and effect until the Guaranteed Obligations and all amounts owing
hereunder are paid in full and any obligations to provide financial
accommodations to the French Subsidiaries under the French Credit Agreement are
terminated.
(c) No payment or payments made by any French Subsidiary, any
Guarantor or any other Person or received or collected by the Lender from any
French Subsidiary, any Guarantor or any other Person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of any Guaranteed Obligations shall
be deemed to modify, reduce, release or otherwise affect the liability of any
Guarantor hereunder which shall, notwithstanding any such payment or payments,
remain liable for the Guaranteed Obligations until the Guaranteed Obligations
and all amounts owing hereunder are paid in full and any obligations to provide
financial accommodations to the French Subsidiaries under the French Credit
Agreement are terminated.
3. Right of Set-off. In addition to any rights now or hereafter granted
----------------
under applicable law or otherwise, and not by way of limitation of any such
rights, upon the occurrence and during the continuance of an Event of Default,
the Lender is hereby authorized at any time or from time to time, without
presentment, demand, protest or other notice of any kind to the French
Subsidiaries, any Guarantor or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and apply any and all deposits
(general or special, but excluding any deposits in payroll or escrow accounts)
and any other Indebtedness at any time held or owing by the Lender (including,
without limitation, by branches and agencies of the Lender wherever located) to
or for the credit or the account of any Guarantor against and on account of the
obligations and liabilities of any Guarantor hereunder, and all other claims of
any nature or description arising out of or connected with this Guarantee,
irrespective of whether the Lender shall have made any demand hereunder and
although said obligations, liabilities or claims, or any of them, shall be
contingent or unmatured.
4. No Subrogation. Notwithstanding any payment or payments made by any
--------------
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Lender, no Guarantor shall be
2
<PAGE>
entitled to exercise or enforce any subrogation rights of the Lender against the
French Subsidiaries or any other Person or any guarantee or right of offset held
by the Lender for the payment of the Guaranteed Obligations, nor shall any
Guarantor seek or be entitled to seek any contribution or reimbursement from the
French Subsidiaries or any other Person in respect of payments made by any
Guarantor hereunder, until all amounts owing to the Lender by the French
Subsidiaries on account of the Guaranteed Obligations and all amounts owing
hereunder are paid in full and any obligations to provide financial
accommodations to the French Subsidiaries under the French Credit Agreement are
terminated. If any amount shall be paid to any Guarantor on account of such
subrogation rights at any time when all of the Guaranteed Obligations and all
amounts owing hereunder shall not have been paid in full or any obligations to
provide financial accommodations to the French Subsidiaries under the French
Credit Agreement shall not have been terminated, such amount shall be held by
such Guarantor in trust for the Lender, segregated from other funds of such
Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over
to the Lender in the exact form received by such Guarantor (duly indorsed by
such Guarantor to the Lender, if required), to be applied against such
Guaranteed Obligations, whether matured or unmatured, in such order as the
Lender may determine.
5. Amendments, etc. with respect to the Guaranteed Obligations; Waiver of
----------------------------------------------------------------------
Rights. Each Guarantor shall remain obligated hereunder notwithstanding that,
- ------
without any reservation of rights against such Guarantor and without notice to
or further assent by such Guarantor, any demand for payment of any of the
Guaranteed Obligations made by the Lender may be rescinded by such party and any
of the Guaranteed Obligations continued, and the Guaranteed Obligations, or the
liability of any other party upon or for any part thereof, or any guarantee
therefor or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by the Lender, and the French
Credit Agreement may be amended, modified, supplemented or terminated, in whole
or in part, as the Lender may deem advisable from time to time, and any
guarantee or right of offset at any time held by the Lender for the payment of
the Guaranteed Obligations may be waived. When making any demand hereunder
against any Guarantor, the Lender may, but shall be under no obligation to, make
a similar demand on the French Subsidiaries or any other Guarantor, and any
failure by the Lender to make any such demand or to collect any payments from
the French Subsidiaries or any other Guarantor or any release of the French
Subsidiaries or such other Guarantor shall not relieve any Guarantor, and shall
not impair or affect the rights and remedies, express or implied, or as a matter
of law, of the Lender against any Guarantor. For the purposes hereof "demand"
shall include the commencement and continuance of any legal proceedings.
6. Guarantee Absolute and Unconditional. Each Guarantor waives any and
------------------------------------
all notice of the creation, renewal, extension or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by the Lender upon
this Guarantee or acceptance of this Guarantee; the Guaranteed Obligations, and
any of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon this
Guarantee; and all dealings between the French Subsidiaries and each Guarantor,
on the one hand, and the Lender, on the other hand, likewise shall be
conclusively presumed to have been had or consummated in reliance upon this
Guarantee. Each Guarantor waives diligence, presentment, protest, demand for
payment and notice of
3
<PAGE>
default or nonpayment to or upon the French Subsidiaries or such Guarantor with
respect to the Guaranteed Obligations. Each Guarantor understands and agrees
that this Guarantee shall be construed as a continuing, absolute and
unconditional guarantee and surety of payment without regard to (a) the
validity, regularity or enforceability of the French Credit Agreement, any of
the Guaranteed Obligations or any other guarantee or right of offset with
respect thereto at any time or from time to time held by the Lender, (b) any
defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the French
Subsidiaries or any Guarantor against the Lender, or (c) any other circumstance
whatsoever (with or without notice to or knowledge of the French Subsidiaries or
any Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of any French Subsidiary for the Guaranteed
Obligations, or of any Guarantor under this Guarantee, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against any
Guarantor, the Lender may, but shall be under no obligation to, pursue such
rights and remedies as it may have against the French Subsidiaries or any other
Person or against any guarantee for the Guaranteed Obligations or any right of
offset with respect thereto, and any failure by the Lender to pursue such other
rights or remedies or to collect any payments from the French Subsidiaries or
any such other Person or to realize upon any guarantee or to exercise any such
right of offset, or any release of the French Subsidiaries or any such other
Person or any such guarantee or right of offset, shall not relieve any Guarantor
of any liability hereunder, and shall not impair or affect the rights and
remedies, whether express, implied or available as a matter of law, of the
Lender against any Guarantor. This Guarantee shall remain in full force and
effect and be binding in accordance with and to the extent of its terms upon
each Guarantor and the successors and assigns thereof, and shall inure to the
benefit of the Lender, and its respective successors, endorsees, transferees and
assigns, until all the Guaranteed Obligations and the obligations of each
Guarantor under this Guarantee shall have been satisfied by payment in full and
any obligations to provide financial accommodations to the French Subsidiaries
under the French Credit Agreement shall have been terminated.
7. Reinstatement. This Guarantee shall continue to be effective, or be
-------------
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Guaranteed Obligations is rescinded or must otherwise be restored or
returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation
or reorganization of any French Subsidiary or Guarantor, or upon or as a result
of the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, any French Subsidiary or Guarantor or any substantial part
of its property, or otherwise, all as though such payments had not been made.
8. Payments. Each Guarantor hereby guarantees that payments made by such
--------
Guarantor of principal of and interest on the Loans pursuant to the terms hereof
(such payments to be made in Euros) and any other payments hereunder (such
payments to be made in U.S. dollars) will be made to the Lender without set-off
or counterclaim at the office of the Lender located at 40 Water Street, Boston,
MA 02109-3661.
9. Representations and Warranties. In order to induce the Lender to
------------------------------
enter into the French Credit Agreement and to make the Loans to the French
Subsidiaries thereunder, each Guarantor hereby represents and warrants to the
Lender that the respective representations and warranties of such
4
<PAGE>
Guarantor set forth in Article III of that certain Credit Agreement, dated as of
the date hereof, by and among the Guarantors and the Lender (the "U.S. Credit
-----------
Agreement") (each Guarantor in such capacity, a "Borrower") are true and
- ---------
correct.
10. Compliance with U.S. Credit Agreement.
-------------------------------------
(a) In order to induce the Lender to enter into the French Credit
Agreement and to make the Loans to the French Subsidiaries thereunder, until all
amounts owing to the Lender by the French Subsidiaries on account of the
Guaranteed Obligations and all amounts owing hereunder are paid in full and any
obligations to provide financial accommodations to the French Subsidiaries under
the French Credit Agreement are terminated, each Guarantor covenants and agrees
with the Lender to, at all times, observe and perform, or cause to be observed
and performed, all of the covenants, conditions and obligations required to be
observed and performed, or caused to be observed and performed, by such
Guarantor under the U.S. Credit Agreement, including, without limitation, the
affirmative and negative covenants set forth in Articles V and VI thereof.
(b) At any time upon the request of the Lender, to the extent
permitted by applicable law, the Guarantors will, within a reasonable period
after such request, cause any Subsidiary (as defined in the U.S. Credit
Agreement) that is not a Domestic Subsidiary (as defined in the U.S. Credit
Agreement) to become a party hereto or otherwise guarantee the Guaranteed
Obligations, in form and substance satisfactory to the Lender; provided that
--------
such guarantee shall be limited in amount and otherwise in a form which does not
create any adverse U.S. tax consequences to the Guarantors in the reasonable
judgment of the Guarantors' tax advisors.
11. Notice. All notices and other communications provided for herein
------
shall be in writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to any Guarantor, to it at 27 Wormwood Street, Boston,
Massachusetts 02210-1625, Attention of Chief Financial Officer (Telecopy No.
617-737-0924), with a copy to Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109, Attention of Steven D. Singer, Esq. (Telecopy No. 617-526-
5000); and
(b) if to the Lender, to Brown Brothers Harriman & Co., 40 Water
Street, Boston, Massachusetts 02109-3661, Attention of Victoria W. Evans,
Assistant Manager (Telecopy No. 617-772-1138), with a copy to Goodwin, Procter &
Hoar LLP, Exchange Place, Boston, Massachusetts 02109-2881, Attention of Raymond
C. Zemlin, P.C. (Telecopy No. 617-523-1231);
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Guarantee shall be deemed to have been given on the date of receipt.
5
<PAGE>
12. Severability. Any provision of this Guarantee which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
13. Integration. This Guarantee and the documents referred to herein
-----------
represent the entire agreement of the Guarantors with respect to the subject
matter hereof and there are no promises or representations by the Lender
relative to the subject matter hereof not reflected herein or therein.
14. Amendments in Writing; No Waiver; Cumulative Remedies.
-----------------------------------------------------
(a) None of the terms or provisions of this Guarantee may be waived,
amended, supplemented or otherwise modified except as provided in Section 7.02
of the French Credit Agreement.
(b) The Lender shall not by any act (except by a written instrument
pursuant to Section 14(a) hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Lender any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Lender would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
15. Section Headings. The section headings used in this Guarantee are for
----------------
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
16. Successors and Assigns. This Guarantee shall be binding upon the
----------------------
successors and assigns of each Guarantor and shall inure to the benefit of the
Lender and its successors and assigns.
17. Governing Law; Jurisdiction; Consent to Service of Process.
----------------------------------------------------------
(a) This Guarantee shall be construed in accordance with and governed
by the law of the Commonwealth of Massachusetts.
(b) Each of the Guarantors hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Superior Court of the Commonwealth of
6
<PAGE>
Massachusetts sitting in Suffolk County and of the United States District Court
for the District of Massachusetts, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to this Guarantee, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such Commonwealth of
Massachusetts or, to the extent permitted by law, such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Guarantee shall
affect any right that the Lender may otherwise have to bring any action or
proceeding relating to this Guarantee against any Guarantor or its properties in
the courts of any jurisdiction.
(c) Each Guarantor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Guarantee in any court referred to
in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(d) Each Guarantor hereby agrees that service of all writs,
complaints, process and summonses in any suit, action or proceeding arising out
of or relating to this Guarantee, or for recognition or enforcement of any
judgment, may be made upon NMT Medical, Inc., a Delaware corporation (the
"Process Agent"), with an office on the date hereof at 27 Wormwood Street,
- --------------
Boston, Massachusetts 02210-1625. Each Guarantor hereby irrevocably appoints
the Process Agent its true and lawful attorney-in-fact in its name, place and
stead to accept such service of any and all such writs, complaints, process and
summonses. Each Guarantor agrees that any election by the Lender to give notice
of any such service to such Guarantor shall not impair or affect the validity of
such service or of the judgment based thereon.
(e) Each party to this Guarantee irrevocably consents to service of
process in the manner provided for notices in Section 11. Nothing in this
Guarantee will affect the right of any party to this Guarantee to serve process
in any other manner permitted by law.
18. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
--------------------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED
7
<PAGE>
TO ENTER INTO THIS GUARANTEE BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
19. No Offset. All payments by the Guarantors hereunder shall be made
---------
without setoff or counterclaim and free and clear of and without deduction for
any foreign or domestic taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restriction or conditions of any
nature now or hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein unless any Guarantor is
required by law to make such deduction or withholding. Except as otherwise
expressly provided in this Section 19, if any such obligation is imposed upon
any Guarantor with respect to any amount payable hereunder, such Guarantor will
pay to the Lender, on the date on which such amount is due and payable
hereunder, such additional amount as shall be necessary to enable the Lender to
receive the same net amount which it would have received on such due date had no
such obligation been imposed upon such Guarantor. The Guarantors will deliver
promptly to the Lender, certificates or other valid vouchers for all taxes or
other charges deducted from or paid with respect to payments made by the
Guarantors hereunder.
20. Senior Status of Obligations. All rights of the Lender with respect
----------------------------
to the payment and performance of all Guaranteed Obligations by the Guarantors
hereunder of every kind and description, whether now existing or hereafter
arising, shall be senior to all rights of the holders of the Whitney Notes, and
such rights of the Lender shall not be subordinated in right of payment to any
other Indebtedness of any Guarantor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be
duly executed and delivered by its duly authorized officer as of the day and
year first above written.
NMT MEDICAL, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT HEART, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT INVESTMENTS CORP.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES
(INTERNATIONAL), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES (US), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
9
<PAGE>
NMT NEUROSCIENCES (IP), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES
INNOVASIVE SYSTEMS, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
10
<PAGE>
EXHIBIT 10.4
SECURITY AGREEMENT
------------------
SECURITY AGREEMENT dated as of September 13, 1999 between NMT MEDICAL, INC.
and the other entities listed on Schedule I hereto (each a "Debtor" and
---------- ------
collectively, the "Debtors") and BROWN BROTHERS HARRIMAN & CO. (the "Lender").
------- ------
WHEREAS, the Debtors have entered into that certain Credit Agreement, dated
as of the date hereof, among the Debtors and the Lender (as amended,
supplemented, extended or otherwise modified from time to time, the "U.S. Credit
-----------
Agreement"), pursuant to which the Debtors have arranged for a $5,000,000 credit
- ---------
facility, the proceeds of which will be used to prepay a portion of the Whitney
Notes and for general corporate purposes;
WHEREAS, pursuant to the U.S. Credit Agreement, the Lender has agreed to
make loans to the Debtors upon the terms and subject to the conditions set forth
therein;
WHEREAS, the Debtors are parties to that certain Guarantee, dated as of the
date hereof, in favor of the Lender (as amended, supplemented, extended or
otherwise modified from time to time, the "Guarantee"), pursuant to which the
---------
Debtors have guaranteed the payment and performance by NMT NeuroSciences
Implants (France) SA, a French limited liability company, and NMT NeuroSciences
Instruments (France) SARL, a French limited liability company (collectively, the
"French Subsidiaries"), of their obligations and liabilities under that certain
-------------------
Credit Agreement, dated as of the date hereof, by and among the French
Subsidiaries and the Lender (together with the U.S. Credit Agreement, the
"Credit Agreements");
- ------------------
WHEREAS, the operations of the Debtors and the French Subsidiaries are
conducted on a combined basis with significant shared management, purchasing,
planning, financial controls and other functions, and the Credit Agreements will
directly or indirectly benefit the Debtors' various businesses; and
WHEREAS, it is a condition precedent to the obligations of the Lender to
make loans to the Debtors and the French Subsidiaries under the respective
Credit Agreements that the Debtors shall have executed and delivered this
Agreement to the Lender, as security for the payment and performance of all
obligations of the Debtors to the Lender.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
GRANT OF SECURITY
Section 1.1 Grant of Security. The Debtors, jointly and severally,
-----------------
hereby grant to the Lender a continuing first priority security interest (the
"Security Interest") in and to, and pledge and
-----------------
<PAGE>
assign to the Lender, all of the Debtors' right, title and interest in and to
all tangible and intangible personal property of the Debtors, all wherever
located and whether now existing or hereafter acquired or arising (all of which,
together with any other property in which the Lender may in the future be
granted a security interest pursuant hereto, is referred to hereinafter as the
"Personal Property Collateral"), including, without limitation, the following:
----------------------------
(a) all Accounts and all Receivables; (b) all Inventory; (c) all General
Intangibles; (d) all Equipment; (e) all Fixtures; (f) all Goods; (g) all
Tangible Personal Property; (h) all Chattel Paper; (i) all books, records,
ledgers, print-outs, papers, data, file materials and information relating to
the Debtors' businesses, the Personal Property Collateral, any account debtors
in respect thereof and/or to the operation of the Debtors' businesses, and all
rights of access to such books, records, ledgers, print-outs, papers, data, file
materials and information, and all property in which such books, records,
ledgers, print-outs, papers, data, file materials and information are stored,
recorded and maintained; (j) all Instruments, Documents of Title, Documents,
policies and certificates of insurance, Securities, investment property,
deposits, deposit accounts, money, cash or other property; (k) all federal,
state, and local tax refunds and/or abatements to which the Debtors are or
become entitled, no matter how or when arising, including, but not limited to,
any loss carryback tax refunds; (l) all Trade Secrets, Proprietary Information,
computer programs, customer lists, patient lists, manuals, Patents,
developmental ideas and concepts, and all papers, drawings, blueprints, sketches
and documents relating to all of the foregoing and/or relating to the operation
of the Debtors' businesses and/or the Personal Property Collateral; (m) all
insurance proceeds, refunds and premium rebates, whether any of such proceeds,
refunds and premium rebates arise out of any of the foregoing or otherwise; (n)
all Contracts, contract rights, leases and security agreements; and (o) all
products and proceeds of any and all of the foregoing; together with (i) all
security pledged, assigned, hypothecated or granted to or held by the Debtors to
secure any of the foregoing, (ii) all General Intangibles arising out of the
Debtors' rights in any Goods, the sale of which gave rise thereto, (iii) any
property received in payment, settlement or compromise of any Account or
Receivable, (iv) all guarantees, endorsements and indemnifications on, or of,
any of the foregoing, (v) all rights, remedies and privileges pertaining to any
of the foregoing, (vi) all powers of attorney for the execution of any evidence
of indebtedness or security or other writing in connection therewith, (vii) all
evidences of the filing of financing statements and other statements and the
registration of other instruments in connection therewith and amendments
thereto, and (viii) all of the Debtors' rights to use, in perpetuity, in
connection with the operation of the Debtors' businesses, the Marks and trade
names now or hereafter used in connection with the operation of any of the
businesses of the Debtors, and the goodwill of the Debtors with respect thereto.
Section 1.2 Security for Obligations. This Agreement and the Security
------------------------
Interest shall secure the payment and performance of all of the Secured
Obligations.
ARTICLE 2
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Debtor represents, warrants and covenants, which representations,
warranties and covenants shall survive execution and delivery of this Agreement,
as follows:
2
<PAGE>
Section 2.1 Necessary Filings. All filings, registrations, recordings
-----------------
and possession of the Personal Property Collateral necessary or appropriate to
create, preserve and perfect the Security Interest have been or will be
accomplished and the Security Interest constitutes or will constitute, upon
satisfaction of such filings, registrations, recordings and possession, a
perfected security interest therein (to the extent that the same can be
perfected by filing, registration or recording and excepting therefore railroad
cars, locomotives and other rolling stock, titled vehicles and aircraft) prior
to the rights of all other Persons therein (other than any such rights pursuant
to Permitted Encumbrances) and subject to no other Liens (other than Permitted
Encumbrances) and is entitled to all the rights, priorities and benefits
afforded to perfected security interests by the Uniform Commercial Code as
enacted in any and all relevant jurisdictions or any other relevant law.
Section 2.2 No Liens. Such Debtor is, and as to Personal Property
--------
Collateral acquired by it from time to time after the date hereof such Debtor
will be, the owner of all Personal Property Collateral pledged by it hereunder
free from any Lien, security interest, encumbrance or other right, title or
interest of any Person (other than Permitted Encumbrances), and such Debtor
shall defend the Personal Property Collateral against all material claims and
demands of all Persons at any time claiming the same or any interest therein
(other than in connection with Permitted Encumbrances) adverse to the Lender.
Section 2.3 Other Financing Statements. As of the date hereof, there is
--------------------------
no financing statement (or similar voluntary statement or instrument of
registration under the law of any jurisdiction) covering or purporting to cover
any interest of any kind in the Personal Property Collateral (other than
financing statements filed in respect of Permitted Encumbrances), and so long as
any of the Secured Obligations or any commitments of the Lender to make any
loans or advances or otherwise extend credit to any Debtor remain outstanding,
such Debtor will not execute or authorize to be filed in any public office any
financing statement (or similar statement or instrument of registration under
the law of any jurisdiction) or statements relating to the Personal Property
Collateral, except financing statements filed or to be filed in respect of and
covering the security interests granted hereby by such Debtor or in connection
with Permitted Encumbrances.
Section 2.4 Chief Executive Office; Records. As of the date hereof, the
-------------------------------
chief executive office of such Debtor is located at the address indicated on
Exhibit A hereto for such Debtor. Such Debtor will not move its chief executive
- ---------
office except to such new location as such Debtor may establish in accordance
with the last sentence of this Section 2.4. A complete set of books of account
and records of such Debtor relating to the Receivables and the contract rights
are, and will continue to be, kept at such chief executive office, at one or
more of the other record locations set forth on Exhibit A hereto for such Debtor
---------
or at such new locations as such Debtor may establish in accordance with the
last sentence of this Section. No Debtor shall establish new locations for such
offices until (a) it shall have given to the Lender not less than 30 days' prior
written notice of its intention to do so, clearly describing such new location
and providing such other information in connection therewith as the Lender may
reasonably request, and (b) with respect to such new location, it shall have
taken all action reasonably satisfactory to the Lender, to maintain the security
interest of the Lender in the Personal Property Collateral intended to be
granted hereby at all times fully perfected and in full force and effect.
3
<PAGE>
Section 2.5 Location of Receivables. All Receivables and contract
-----------------------
rights of such Debtor are, and will continue to be, maintained at, and
controlled and directed (including, without limitation, for general accounting
purposes) from, the office locations described above or such new location
established in accordance with the last sentence of this Section 2.5. No Debtor
shall establish new locations for such offices until (a) it shall have given to
the Lender not less than 30 days' prior written notice of its intention to do
so, clearly describing such new location and providing such other information in
connection therewith as the Lender may reasonably request and (b) with respect
to such new location, it shall have taken all action reasonably satisfactory to
the Lender, to maintain the security interest of the Lender in the Personal
Property Collateral intended to be granted hereby at all times fully perfected
and in full force and effect.
Section 2.6 Recourse. This Agreement is made with full recourse to each
--------
Debtor and pursuant to and upon all the warranties, representations, covenants
and agreements on the part of such Debtor contained herein, and otherwise in
writing in connection herewith or therewith.
Section 2.7 Trade Names; Change of Name. Except as set forth on Exhibit
--------------------------- -------
B, as of the date hereof, no Debtor has or operates in any jurisdiction under,
- -
or in the preceding 12 months has had or has operated in any jurisdiction under,
any trade names, fictitious names or other names except its legal name. No
Debtor shall change its legal name or assume or operate in any jurisdiction
under any trade, fictitious or other name, except new names established in
accordance with the last sentence of this Section 2.7. No Debtor shall assume
or operate in any jurisdiction under any new trade, fictitious or other name
until (a) it shall have given to the Lender not less than 20 days' prior written
notice of its intention so to do, clearly describing such new name and the
jurisdictions in which such new name shall be used and providing such other
information in connection therewith as the Lender may reasonably request and (b)
with respect to such new name, it shall have taken all action reasonably
requested by the Lender, to maintain the security interest of the Lender in the
Personal Property Collateral intended to be granted hereby at all times fully
perfected and in full force and effect.
Section 2.8 Patents. The Debtors shall notify the Lender in writing as
-------
promptly as practicable, but in no event more than five days following (i) the
filing by any Debtor of any application for the registration of any Patent with
the United States Patent and Trademark Office or any similar office or agency or
(ii) the acquisition by any Debtor of any Patent in any other manner. Such
Debtor shall execute and deliver, and have recorded, any and all agreements,
instruments, documents and papers as the Lender may request to evidence and
perfect the Lender's security interest in such Patent and the General
Intangibles of such Debtor related thereto or represented thereby.
ARTICLE 3
SPECIAL PROVISIONS CONCERNING
RECEIVABLES; CONTRACTS; INSTRUMENTS
Section 3.1 Additional Representations and Warranties. As of the time
-----------------------------------------
when each of its Receivables arises, each Debtor shall be deemed to have
represented and warranted that such
4
<PAGE>
Receivable and, to the best knowledge of such Debtor, all records, papers and
documents of such Debtor relating thereto, are what they purport to be in all
material respects, and that such Receivable will, to the best knowledge of such
Debtor and to the extent applicable, evidence true and valid obligations of the
account debtor named therein.
Section 3.2 Maintenance of Records. Each Debtor will keep and maintain
----------------------
at its own cost and expense, records of its Receivables and Contracts and such
Debtor will make the same available to the Lender for inspection, at such
Debtor's own cost and expense, at any and all reasonable times upon reasonable
prior notice to such Debtor. Upon the occurrence and during the continuance of
an Event of Default, each Debtor shall, at the reasonable request of the Lender
and at such Debtor's own cost and expense, deliver all tangible evidence of its
Receivables and contract rights (including, without limitation, all documents
evidencing the Receivables and all Contracts) and such books and records to the
Lender or to its representatives (copies of which evidence and books and records
may be retained by such Debtor). If the Lender so directs, upon the occurrence
and during the continuance of an Event of Default, such Debtor shall legend, in
form and manner satisfactory to the Lender, the Receivables and the Contracts,
as well as books, records and documents of such Debtor evidencing or pertaining
to such Receivables and Contracts with an appropriate reference to the fact that
such Receivables and Contracts have been assigned to the Lender and that the
Lender has a security interest therein.
Section 3.3 Direction to Account Debtors; Contracting Parties; etc.
-------------------------------------------------------
Upon the occurrence and during the continuance of an Event of Default, each
Debtor agrees, if the Lender so directs such Debtor, (a) to cause all payments
on account of the Receivables and Contracts to be made directly to the Cash
Collateral Account, (b) that the Lender may, at its option, directly notify the
obligors with respect to any Receivables and/or under any Contracts to make
payments with respect thereto as provided in preceding clause (a), and (c) that
the Lender may enforce collection of any such Receivables and Contracts and may
adjust, settle or compromise the amount of payment thereof, in the same manner
and to the same extent as such Debtor. Without notice to or assent by any
Debtor, the Lender may apply any or all amounts then in, or thereafter deposited
in, the Cash Collateral Account which application shall be effected in the
manner provided in Section 5.4 of this Agreement. The reasonable costs and
expenses (including reasonable attorneys' fees) of collection, whether incurred
by the relevant Debtor or the Lender, shall be borne by the relevant Debtor.
The Lender shall deliver a copy of each notice referred to in the preceding
clause (b) to the relevant Debtor; provided that the failure by the Lender to so
--------
notify such Debtor shall not affect the effectiveness of such notice or the
other rights of the Lender created by this Section 3.3.
Section 3.4 Modification of Terms; etc. No Debtor shall rescind or
---------------------------
cancel any indebtedness evidenced by any Receivable or under any Contract, or
modify any term thereof or make any adjustment with respect thereto, or extend
or renew the same, or compromise or settle any material dispute, claim, suit or
legal proceeding relating thereto, or sell any Receivable or Contract, or
interest therein, without the prior written consent of the Lender, except as not
prohibited by the U.S. Credit Agreement and in accordance with such Debtor's
reasonable business practices in the ordinary course of business.
5
<PAGE>
Section 3.5 Collection. Each Debtor shall endeavor in accordance with
----------
reasonable business practices to cause to be collected from the account debtor
named in each of its Receivables or obligor under any Contract any and all
amounts owing under or on account of such Receivable or Contract. The
reasonable costs and expenses (including, without limitation, attorneys' fees)
of collection, if incurred by a Debtor, or after an Event of Default, by the
Lender, shall be borne by the relevant Debtor.
Section 3.6 Acknowledgment. The Lender acknowledges that the Debtors
--------------
may not be permitted to assign their rights and obligations under or grant a
security interest in certain Contracts, including certain leases, pursuant to
the terms thereof. With respect to such Contracts, nothing herein shall be
construed as an assignment to the Lender of such rights and obligations or the
grant of a security interest therein to the extent so prohibited. For purposes
of clarification, to the extent permitted thereunder, the parties hereto
acknowledge that the Debtors have granted a security interest in the Debtors'
rights to receive payments under such Contracts and any other rights of the
Debtors thereunder pursuant to the terms of this Agreement.
ARTICLE 4
PROVISIONS CONCERNING ALL PERSONAL PROPERTY COLLATERAL
Section 4.1 Protection of Lender's Security. Each Debtor will at all
-------------------------------
times keep its Equipment insured in favor of the Lender, at such Debtor's own
expense; all policies or certificates with respect to such insurance (and any
other insurance maintained by such Debtor) (a) shall be endorsed to the Lender's
reasonable satisfaction for the benefit of the Lender (including, without
limitation, by naming the Lender as additional insured and loss payee) and (b)
shall state that such insurance policies shall not be canceled without 30 days'
prior written notice thereof by the insurer to the Lender; and upon the Lender's
request, certified copies of such policies or certificates with respect thereto
shall be deposited with the Lender. If any Debtor shall fail to insure its
Equipment in accordance with the preceding sentence, or if any Debtor shall fail
to so endorse and deposit all policies or certificates with respect thereto, the
Lender shall have the right (but shall be under no obligation), upon prior
written notice to such Debtor, to procure such insurance and such Debtor agrees
to promptly reimburse the Lender for all costs and expenses of procuring such
insurance. The Lender shall, at the time any proceeds of such insurance are
distributed to the Lender, apply such proceeds in accordance with Section 5.4
hereof except as otherwise provided by the applicable Credit Agreement. The
liability of each Debtor to pay the Secured Obligations shall in no way be
affected or diminished by reason of the fact that any Personal Property
Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever
unavailable to such Debtor.
Section 4.2 Further Actions. Each Debtor will, at its own expense,
---------------
make, execute, endorse, acknowledge, file and/or deliver to the Lender from time
to time such lists, descriptions and designations of its Personal Property
Collateral, warehouse receipts, receipts in the nature of warehouse receipts,
bills of lading, documents of title, vouchers, invoices, schedules, confirmatory
assignments, conveyances, financing statements, transfer endorsements, powers of
attorney, certificates,
6
<PAGE>
reports and other assurances or instruments and take such further steps relating
to the Personal Property Collateral and other property or rights covered by the
security interest hereby granted, which the Lender deems reasonably appropriate
or advisable to perfect, preserve or protect its security interest in the
Personal Property Collateral; provided that no Debtor shall be required to take
--------
any action that would expand the obligations or limit the rights of any Debtor
under this Agreement.
Section 4.3 Financing Statements. Each Debtor agrees to execute and
--------------------
deliver to the Lender such financing statements, in form reasonably acceptable
to the Lender, as the Lender may from time to time reasonably request or as are
necessary or desirable in the reasonable opinion of the Lender to establish and
maintain a valid, enforceable, first priority perfected security interest in the
Personal Property Collateral as provided herein and the other rights and
security contemplated hereby all in accordance with the Uniform Commercial Code
as enacted in any and all relevant jurisdictions or any other relevant law.
Each Debtor will pay any applicable filing fees, recordation taxes and related
expenses relating to its Personal Property Collateral. Each Debtor hereby
authorizes the Lender to file any such financing statements without the
signature of such Debtor where permitted by law.
ARTICLE 5
REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT
Section 5.1 Remedies; Obtaining the Personal Property Collateral Upon
---------------------------------------------------------
Default. Each Debtor agrees that, if an Event of Default shall have occurred
- -------
and be continuing, then and in every such case, the Lender, in addition to any
rights now or hereafter existing under applicable law, shall have all rights as
a secured creditor under the Uniform Commercial Code in all relevant
jurisdictions and may:
(a) personally, or by agents or attorneys, immediately take possession
of the Personal Property Collateral or any part thereof, from such Debtor
or any other Person who then has possession of any part thereof with or
without notice or process of law, and for that purpose may enter upon such
Debtor's premises where any of the Personal Property Collateral is located
and remove the same and use in connection with such removal any and all
services, supplies, aids and other facilities of such Debtor;
(b) instruct the obligor or obligors on any agreement, instrument or
other obligation (including, without limitation, the Receivables and the
Contracts) constituting the Personal Property Collateral to make any
payment required by the terms of such agreement, instrument or other
obligation directly to the Lender;
(c) withdraw all monies, securities and instruments in any cash
collateral or other account in which the Lender holds a security interest
for application to the Secured Obligations in accordance with Section 5.4
hereof;
(d) sell, assign or otherwise liquidate any or all of the Personal
Property Collateral or any part thereof in accordance with Section 5.2
hereof, or direct the relevant Debtor to sell,
7
<PAGE>
assign or otherwise liquidate any or all of the Personal Property
Collateral or any part thereof, and, in each case, take possession of the
proceeds of any such sale or liquidation;
(e) take possession of the Personal Property Collateral or any part
thereof, by directing the relevant Debtor in writing to deliver the same to
the Lender at any commercially reasonable place or places designated by the
Lender, in which event such Debtor shall at its own expense:
(i) forthwith cause the same to be moved to the place or
places so designated by the Lender and there delivered to the Lender;
(ii) store and keep any Personal Property Collateral so
delivered to the Lender at such commercially reasonable place or
places pending further action by the Lender as provided in Section 5.2
hereof; and
(iii) while the Personal Property Collateral shall be so stored
and kept, provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain them in
good condition; and
(f) license or sublicense, whether on an exclusive or nonexclusive
basis, any Marks, Patents or Copyrights included in the Personal Property
Collateral for such term and on such conditions and in such manner as the
Lender shall in its reasonable judgment determine;
it being understood that each Debtor's obligation so to deliver the Personal
Property Collateral is of the essence of this Agreement and that, accordingly,
upon application to a court of equity having jurisdiction, the Lender shall be
entitled to a decree requiring specific performance by such Debtor of said
obligation.
Section 5.2 Remedies: Disposition of the Personal Property Collateral.
---------------------------------------------------------
If an Event of Default shall have occurred and be continuing, any Personal
Property Collateral, whether or not in the possession of the Lender, may be
sold, assigned, leased or otherwise disposed of by the Lender under one or more
contracts or as an entirety, and without the necessity of gathering at the place
of sale the property to be sold, and in general in such manner, at such time or
times, at such place or places and on such terms as the Lender may, in
compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable. Any of the Personal Property Collateral may be sold,
leased or otherwise disposed of, in the condition in which the same existed when
taken by the Lender or after any overhaul or repair at the expense of the
relevant Debtor which the Lender shall determine to be commercially reasonable.
Any such disposition which shall be a private sale or other private proceedings
permitted by such requirements shall be made upon not less than 10 days' written
notice to the relevant Debtor specifying the time at which such disposition is
to be made and the intended sale price or other consideration therefor, and
shall be subject, for the 10 days after the giving of such notice, to the right
of the relevant Debtor or any nominee of such Debtor to acquire the Personal
Property Collateral involved at a price or for such other consideration at least
equal to the intended sale price or other consideration so specified. Any such
disposition which shall be a public sale permitted
8
<PAGE>
by such requirements shall be made upon not less than 10 days' written notice to
the relevant Debtor specifying the time and place of such sale and, in the
absence of applicable requirements of law, shall be by public auction (which
may, at the Lender's option, be subject to reserve), after publication of notice
of such auction not less than 10 days prior thereto in two newspapers in general
circulation in Boston, Massachusetts. To the extent permitted by any such
requirement of law, the Lender may bid for and become the purchaser of the
Personal Property Collateral or any item thereof, offered for sale in accordance
with this Section without accountability to the relevant Debtor. If, under
mandatory requirements of applicable law, the Lender shall be required to make
disposition of the Personal Property Collateral within a period of time which
does not permit the giving of notice to the relevant Debtor as hereinabove
specified, the Lender need give such Debtor only such notice of disposition as
shall be reasonably practicable in view of such mandatory requirements of
applicable law.
Section 5.3 Waiver of Claims. EXCEPT AS OTHERWISE PROVIDED IN THIS
----------------
AGREEMENT, (A) EACH DEBTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE LENDER'S TAKING
POSSESSION OR THE LENDER'S DISPOSITION OF ANY OF THE PERSONAL PROPERTY
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING
FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH DEBTOR
WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
OR OF ANY STATE, AND (B) EACH DEBTOR HEREBY FURTHER WAIVES, TO THE EXTENT
PERMITTED BY LAW:
(i) all damages occasioned by such taking of possession except any
damages which are determined by a final, non-appealable court order to have
been caused by the Lender's gross negligence or willful misconduct;
(ii) all other requirements as to the time, place and terms of sale
or other requirements with respect to the enforcement of the Lender's
rights hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable law
in order to prevent or delay the enforcement of this Agreement or the
absolute sale of the Personal Property Collateral or any portion thereof,
and each Debtor, for itself and all who may claim under it, insofar as it
or they now or hereafter lawfully may, hereby waives the benefit of all
such laws.
Any sale of any Personal Property Collateral properly completed in accordance
with applicable law or the grant of options to purchase, or any other
realization upon, any Personal Property Collateral shall operate to divest all
right, title, interest, claim and demand, either at law or in equity, of the
relevant Debtor therein and thereto, and shall be a perpetual bar both at law
and in equity against such Debtor and against any and all Persons claiming or
attempting to claim the Personal Property Collateral so sold, optioned or
realized upon, or any part thereof, from, through and under such Debtor.
9
<PAGE>
Section 5.4 Application of Proceeds.
-----------------------
(a) All moneys collected by the Lender upon any sale or other
disposition of the Personal Property Collateral, together with all other
moneys received by the Lender hereunder, shall be applied to the payment of
the Secured Obligations in such order or preference as is provided in the
applicable Credit Agreement.
(b) It is understood and agreed that the Debtors shall remain jointly
and severally liable to the extent of any deficiency between the amount of
the proceeds of the Personal Property Collateral hereunder and the
aggregate amount of the Secured Obligations.
Section 5.5 Remedies Cumulative. Each and every right, power and remedy
-------------------
hereby specifically given to the Lender shall be in addition to every other
right, power and remedy specifically given under this Agreement, or now or
hereafter existing at law, in equity or by statute and each and every right,
power and remedy whether specifically herein given or otherwise existing may be
exercised from time to time or simultaneously and as often and in such order as
may be deemed expedient by the Lender. All such rights, powers and remedies
shall be cumulative and the exercise or the beginning of the exercise of one
shall not be deemed a waiver of the right to exercise any other or others. No
delay or omission of the Lender in the exercise of any such right, power or
remedy and no renewal or extension of any of the Secured Obligations shall
impair any such right, power or remedy or shall be construed to be a waiver of
any Default or Event of Default or an acquiescence therein. No notice to or
demand on any Debtor in any case shall entitle it to any other or further notice
or demand in similar or other circumstances or constitute a waiver of any of the
rights of the Lender to any other or further action in any circumstances without
notice or demand. In the event that the Lender shall bring any suit to enforce
any of its rights hereunder and shall be entitled to judgment, then in such suit
the Lender may recover reasonable expenses, including reasonable attorneys'
fees, and the amounts thereof shall be included in such judgment.
ARTICLE 6
DEFINITIONS
Unless otherwise defined herein, terms which are defined in the U.S. Credit
Agreement and used herein are so used as so defined. The following terms shall
have the meanings herein specified. Such definitions shall be equally applicable
to the singular and plural forms of the terms defined.
"Accounts" shall have the meaning provided in the UCC.
--------
"Agreement" shall mean this Security Agreement as the same may be modified,
---------
supplemented or amended from time to time in accordance with its terms.
"Cash Collateral Account" shall mean one or more interest bearing cash
-----------------------
collateral accounts to be established at and maintained with the Lender,
following the occurrence of a Default. All deposits in
10
<PAGE>
such accounts shall be invested, at the option of the Debtors, in certificates
of deposit issued by the Lender or in a Lender sponsored money market fund.
"Chattel Paper" shall have the meaning provided in the UCC.
-------------
"Contract" shall have the meaning provided in the UCC.
--------
"Copyrights" shall mean any United States copyright owned (or subject to
----------
the rights of ownership) by any Debtor, including any registrations of any
copyright, in the United States Copyright Office, as well as any application for
a copyright registration now or hereafter made with the United States Copyright
Office by any Debtor.
"Default" shall mean any event which, with notice or lapse of time, or
-------
both, would constitute an Event of Default.
"Documents" shall have the meaning provided in the UCC.
---------
"Documents of Title" shall have the meaning provided in the UCC.
------------------
"Equipment" shall have the meaning provided in the UCC, including, without
---------
limitation, all fixtures, machinery, equipment, motor vehicles, and other goods,
whether now owned or hereafter acquired by the Debtors, wherever located, all
replacements, substitutions and all parts thereof and all accessions thereto, as
well as all of the Debtors' right, title and interest in and to any such goods
now or hereafter held or used by the Debtors under any lease, lease-purchase,
conditional sales, use or other agreements under which the Debtors are entitled
to the use and possession thereof, with any other rights and benefits flowing
from such agreements, all as may be used or useful in connection with the
Debtors' businesses as now or hereafter carried on, any operations incidental to
or associated with the same, or for any other purpose.
"Event of Default" shall mean any Event of Default under, and as defined
----------------
in, any Credit Agreement and shall in any event, without limitation, include any
payment default on any of the Secured Obligations after the expiration of any
applicable grace period.
"Fixtures" shall have the meaning provided in the UCC.
--------
"General Intangibles" shall have the meaning provided in the UCC.
-------------------
"Goods" shall have the meaning provided in the UCC.
-----
"Instruments" shall have the meaning provided in the UCC.
-----------
"Inventory" shall have the meaning provided in the UCC, including, without
---------
limitation, all inventory in all of its forms, wherever located, now or
hereafter existing, including, but not limited to, (a) raw materials and work in
process therefor, finished goods thereof, and materials used or consumed in
11
<PAGE>
the manufacture or production thereof, and (b) goods which are returned to or
repossessed by the Debtors and all accessions thereto and products thereof.
"Liens" shall mean any security interest, mortgage, pledge, lien, claim,
-----
charge, encumbrance, title retention agreement, lessor's interest in a financing
lease or analogous instrument, in, of, or on any Debtor's property.
"Marks" shall mean any United States trademarks, service marks and trade
-----
names now owned, subject to a right of ownership or hereafter acquired by any
Debtor, including any registration of, or application for, any trademarks and
service marks in the United States Patent and Trademark Office, and any trade
dress including logos and/or designs used by any Debtor in the United States.
"Patents" shall mean any patents owned, subject to a right of ownership by
-------
or hereafter acquired by any Debtor and any divisions, continuations, reissues,
reexaminations, extensions or renewals thereof, as well as any application for a
patent now or hereafter made by any Debtor or subject to a right of ownership in
such Debtor.
"Permitted Encumbrances" shall mean Liens permitted under Section 6.02 of
----------------------
the U.S. Credit Agreement.
"Personal Property Collateral" shall have the meaning provided in Section
----------------------------
1.1 of this Agreement.
"Proceeds" shall have the meaning provided in the UCC or under other
--------
relevant law and, in any event, shall include, but not be limited to, (a) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
the Lender or any Debtor from time to time with respect to any of the Personal
Property Collateral, (b) any and all payments (in any form whatsoever) made or
due and payable to any Debtor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Personal Property Collateral by any governmental authority (or any
Person acting under color of governmental authority) and (c) any and all other
amounts from time to time paid or payable under or in connection with any of the
Personal Property Collateral.
"Proprietary Information" means all information and know-how worldwide,
-----------------------
including, without limitation, technical data, manufacturing data, research and
development data, data relating to compositions, processes and formulations,
manufacturing and production know-how and experience, management know-how,
training programs, manufacturing, engineering and other drawings,
specifications, performance criteria, operating instructions, maintenance
manuals, technology, technical information, software, engineering and computer
data and databases, design and engineering specifications, catalogs, promotional
literature and financial, business and marketing plans, inventions and invention
disclosures.
"Receivables" shall mean collectively, all (a) Instruments, Documents,
-----------
Accounts, Proceeds, General Intangibles and Chattel Paper, and (b) rights to
payment for goods sold or leased or services rendered by the Debtors or any
other party, whether now in existence or arising from time to time
12
<PAGE>
hereafter and whether or not yet earned by performance, including, without
limitation, obligations evidenced by an account, note, contract, security
agreement, chattel paper or other evidence of indebtedness.
"Secured Obligations" shall mean (a) the full and prompt payment when due
-------------------
(whether at the stated maturity, by acceleration or otherwise) of all
obligations and liabilities of each and all of the Debtors to the Lender,
whether now existing or hereafter incurred under, arising out of or in
connection with the U.S. Credit Agreement, the Guarantee or any other agreement
with or for the benefit of the Lender to which any of the Debtors is a party or
to which any of the Debtors is bound and the due performance and compliance by
each and all of the Debtors with the terms of each such agreement, including,
without limitation, the full and prompt payment of all unpaid principal of and
interest on (including interest accruing on or after the filing of a petition in
bankruptcy or the commencement of any insolvency, reorganization or like
proceeding, relating to any one or more of the Debtors to the extent allowed
under applicable law) any and all such obligations; (b) any and all sums
advanced by the Lender in order to preserve any collateral securing the
obligations referred to in clause (a) or to preserve the security interests of
the Lender in such collateral; (c) in the event of any proceeding for the
collection or enforcement of any obligations referred to in clause (a), after an
Event of Default shall have occurred and be continuing, the reasonable expenses
of re-taking, holding, preparing for sale or lease, selling or otherwise
disposing of or realizing on the collateral securing the obligations referred to
in clause (a), or of any exercise by the Lender of its rights hereunder,
together with reasonable attorneys' fees and court costs; and (d) any and all
other liabilities and obligations whatsoever of any one or more of the Debtors
to the Lender.
"Securities" shall have the meaning provided in the UCC.
----------
"Security Interest" shall have the meaning provided in Section 1.1 of this
-----------------
Agreement.
"Tangible Personal Property" shall mean all machinery, equipment,
--------------------------
furniture, furnishings, movable walls or partitions, computers or trade
fixtures, goods, inventory supplies, and other personal property owned or leased
by the Debtors and used or useful in the operation of the Debtors' businesses or
arising in connection therewith or relating thereto.
"Termination Date" shall have the meaning provided in Section 7.8 of this
----------------
Agreement.
"Trade Secrets" shall mean any secretly held existing engineering and other
-------------
data, information, production procedures and other know-how relating to the
design, manufacture, assembly, installation, use, operation, marketing, sale and
servicing of any products or business of the Debtors worldwide whether written
or not written.
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
---
time, be in effect in The Commonwealth of Massachusetts.
13
<PAGE>
ARTICLE 7
MISCELLANEOUS
Section 7.1 Notices. Except in the case of notices and other
-------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to any Debtor, c/o NMT Medical, Inc., 27 Wormwood Street,
Boston, Massachusetts 02210-1625, Attention of Chief Financial Officer
(Telecopy No. 617-737-0924), with a copy to Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109, Attention of Steven D. Singer, Esq.
(Telecopy No. 617-526-5000); and
(b) if to the Lender, to Brown Brothers Harriman & Co., 40 Water
Street, Boston, Massachusetts 02109-3661, Attention of Victoria W. Evans,
Assistant Manager (Telecopy No. 617-772-1138), with a copy to Goodwin,
Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109-2881,
Attention of Raymond C. Zemlin, P.C. (Telecopy No. 617-523-1231).
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
Section 7.2 Waiver; Amendment. None of the terms and conditions of this
-----------------
Agreement may be changed, waived, modified or varied in any manner whatsoever
unless in writing duly signed by each Debtor directly affected thereby and the
Lender.
Section 7.3 Obligations Absolute. The obligations of each Debtor
--------------------
hereunder shall remain in full force and effect without regard to, and shall not
be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of such Debtor, (b) any
exercise or non-exercise, or any waiver of, any right, remedy, power or
privilege under or in respect of this Agreement, or (c) any amendment to or
modification of this Agreement or any security for any of the Secured
Obligations whether or not any Debtor shall have notice or knowledge of any of
the foregoing.
Section 7.4 Successors and Assigns. This Agreement shall be binding
----------------------
upon each Debtor and its successors and assigns and shall inure to the benefit
of the Lender and its successors and assigns. All agreements, statements,
representations and warranties made by each Debtor herein or in any certificate
or other instrument delivered by such Debtor or on its behalf under this
Agreement shall be considered to have been relied upon by the Lender and shall
survive the execution and delivery of this Agreement regardless of any
investigation made by the Lender on its behalf.
14
<PAGE>
Section 7.5 Headings Descriptive. The headings of the several sections
--------------------
of this Agreement are inserted for convenience only and shall not in any way
affect the meaning or construction of any provision of this Agreement.
Section 7.6 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS.
Section 7.7 Duties with Respect to Collateral. It is expressly agreed,
---------------------------------
anything herein contained to the contrary notwithstanding, that the Lender shall
not have any obligations or liabilities with respect to any Personal Property
Collateral by reason of or arising out of this Agreement, other than the duty to
use reasonable care in the safe custody of any Personal Property Collateral in
its possession, nor shall the Lender be required or obligated in any manner to
perform or fulfill any of the obligations of any Debtor under or with respect to
any Personal Property Collateral.
Section 7.8 Termination; Release. After the Termination Date, this
--------------------
Agreement shall terminate (provided that all indemnities set forth in the Credit
--------
Agreements and the Guarantee shall survive such termination) and the Lender, at
the expense of the respective Debtor, will as promptly as practicable execute
and deliver to such Debtor a proper instrument or instruments (including
termination statements) acknowledging the satisfaction and termination of this
Agreement, and will duly assign, transfer and deliver to such Debtor (without
recourse and without any representation or warranty) such of the Personal
Property Collateral as may be in the possession of the Lender and has not
theretofore been sold or otherwise applied or released pursuant to this
Agreement. As used in this Agreement, "Termination Date" shall mean the date
----------------
upon which all Secured Obligations have been paid in full, all commitments with
respect thereto have terminated, no promissory note is outstanding (and all
loans have been repaid in full), all Letters of Credit have been terminated and
all other Secured Obligations then due and payable have been paid in full.
Section 7.9 Severability. The provisions of this Agreement are intended
------------
to be severable. If for any reason any provision of this Agreement shall be
held invalid or unenforceable in whole or in part in any jurisdiction, such
provision shall, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 7.10 Counterparts. This Agreement may be executed in any number
------------
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
Section 7.11 The Lender. The Lender will hold in accordance with this
----------
Agreement all items of the Personal Property Collateral at any time received
under this Agreement. It is expressly understood and agreed that the
obligations of the Lender as holder of the Personal Property Collateral and
interests therein and with respect to the disposition thereof, and otherwise
under this Agreement, are only those expressly set forth in this Agreement and
as otherwise provided by applicable law.
15
<PAGE>
Section 7.12 JURISDICTION; IMMUNITIES.
------------------------
(a) THE DEBTORS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY
MASSACHUSETTS OR UNITED STATES FEDERAL COURT SITTING IN SUFFOLK COUNTY OVER
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
THE DEBTORS HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH MASSACHUSETTS
STATE OR FEDERAL COURT. THE DEBTORS IRREVOCABLY CONSENT TO THE SERVICE OF
ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES OF SUCH PROCESS TO THE DEBTORS AT THEIR ADDRESSES SPECIFIED IN
SECTION 7.1. THE DEBTORS AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE
DEBTORS FURTHER WAIVE ANY OBJECTION TO VENUE IN SUCH STATE AND ANY
OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM
NON CONVENIENS. THE DEBTORS FURTHER AGREE THAT ANY ACTION OR PROCEEDING
BROUGHT AGAINST THE LENDER SHALL BE BROUGHT ONLY IN MASSACHUSETTS STATE OR
UNITED STATES FEDERAL COURT SITTING IN SUFFOLK COUNTY. THE DEBTORS WAIVE
ANY RIGHT THEY MAY HAVE TO JURY TRIAL.
(b) Nothing in this Section 7.12 shall affect the right of the Lender
to serve legal process in any other manner permitted by law or affect the
right of the Lender to bring any action or proceeding against any Debtor or
its property in the courts of any other jurisdictions.
(c) To the extent that any Debtor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
from service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
such Debtor hereby irrevocably waives, to the extent permitted by law, such
immunity in respect of its obligations under this Agreement.
[Remainder of Page Intentionally Left Blank]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
NMT MEDICAL, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT HEART, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT INVESTMENTS CORP.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES
(INTERNATIONAL), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES (US), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
17
<PAGE>
NMT NEUROSCIENCES (IP), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES
INNOVASIVE SYSTEMS, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
BROWN BROTHERS HARRIMAN & CO.
By: /s/ A. Heaton Robertson
-----------------------------
Name: A. Heaton Robertson
Title: President
18
<PAGE>
Schedule I
----------
NMT Heart, Inc.
NMT Investments Corp.
NMT NeuroSciences (International), Inc.
NMT NeuroSciences (US), Inc.
NMT NeuroSciences (IP), Inc.
NMT Neurosciences Innovasive Systems, Inc.
<PAGE>
EXHIBIT 10.5
COLLATERAL PATENT ASSIGNMENT
----------------------------
WHEREAS, NMT Medical, Inc. (f/k/a Nitinol Medical Technologies, Inc.), a
Delaware corporation (the "Debtor"), owns the patents and the patent
applications and any and all patents which may issue therefrom (collectively,
the "Patent Rights"), for which there are recordings or applications in the
United States Patent and Trademark Office under the numbers shown on Schedule A;
----------
WHEREAS, the Debtor has entered into that certain Credit Agreement, dated
as of the date hereof, among the Debtor, certain subsidiaries of the Debtor
named therein (together with the Debtor, the "NMT Entities") and Brown Brothers
Harriman & Co. (the "Secured Party") (as amended, supplemented, extended or
otherwise modified from time to time, the "U.S. Credit Agreement"), pursuant to
which the NMT Entities have arranged for a $5,000,000 credit facility;
WHEREAS, the NMT Entities are parties to that certain Guarantee, dated as
of the date hereof, in favor of the Secured Party (as amended, supplemented,
extended or otherwise modified from time to time, the "Guarantee"), pursuant to
which the NMT Entities have guaranteed the payment and performance by NMT
NeuroSciences Implants (France) SA, a French limited liability company, and NMT
NeuroSciences Instruments (France) SARL, a French limited liability company
(collectively, the "French Subsidiaries"), of their obligations and liabilities
under that certain Credit Agreement, dated as of the date hereof, by and among
the French Subsidiaries and the Secured Party (together with the U.S. Credit
Agreement, the "Credit Agreements");
WHEREAS, the NMT Entities are parties to that certain Security Agreement,
dated as of the date hereof, by and among the NMT Entities and the Secured Party
(as amended, supplemented, extended or otherwise modified from time to time, the
"Security Agreement"), pursuant to which the NMT Entities have granted to the
Secured Party a security interest in all of their personal property, including,
without limitation, all of the Patent Rights, as security for the obligations of
the NMT Entities under the U.S. Credit Agreement and the Guarantee, as well as
certain other obligations as set forth in the Security Agreement (collectively,
the "Secured Obligations"); and
WHEREAS, it is a condition precedent to the obligations of the Secured
Party to make loans to the NMT Entities and the French Subsidiaries under the
respective Credit Agreements that the Debtor shall have executed and delivered
this Collateral Patent Assignment (this "Assignment") to the Secured Party.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the Debtor does hereby collaterally assign
unto the Secured Party and grant to the Secured Party a security interest in and
to:
1. The Patent Rights (including, without limitation, the inventions
and improvements described and claims therein) listed on Schedule A
----------
attached hereto;
<PAGE>
2. All reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof;
3. All income, royalties, damages and payments now and hereafter due
and/or payable under and with respect thereto, including, without
limitation, damages and payments for past or future infringements thereof;
4. The right to sue and recover for past, present and future
infringements thereof;
5. All rights corresponding thereto and throughout the world; and
6. All other proceeds and products of the foregoing, including,
without limitation, any rights pursuant to its agreements with any other
party relating thereto.
This Assignment is made for collateral purposes only. Upon payment in full
of the Secured Obligations and termination of the Security Agreement, all
remaining right, title and interest in and to the Patent Rights shall
automatically revert to the Debtor. The Debtor expressly acknowledges and
affirms that the rights and remedies of the Secured Party with respect to the
assignment and security interest granted hereby are more fully set forth in the
Security Agreement which is incorporated herein in its entirety by this
reference.
[Remainder of page intentionally left blank]
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Collateral Patent
Assignment under seal as of the date set forth below.
Dated: September 13, 1999
NMT MEDICAL, INC.
Witness:
/s/ Lisa R. Haddad By: /s/ Thomas M. Tully
------------------------ --------------------
Name: Lisa R. Haddad Name: Thomas M. Tully
Title: President
COMMONWEALTH OF MASSACHUSETTS )
)ss
COUNTY OF SUFFOLK )
On this 13th day of September, 1999, before me Pamela Fall Rautenberg the
undersigned officer, personally appeared Thomas M. Tully known personally to me
to be the President of NMT Medical, Inc., a Delaware corporation, and
acknowledged that he, as an officer being authorized to do so, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by himself as an officer.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
/s/ Pamela Fall Rautenberg
--------------------------------
Notary Public
Print Name: Pamela Fall Rautenberg
(SEAL) My Commission Expires: December 16, 1999
3
<PAGE>
Schedule A
- ----------
U.S. PATENTS AND APPLICATIONS
PATENT NO. TITLE ISSUE DATE
- -----------------------------------------------------------------------
1 5,485,667 METHOD FOR ATTACHING A MARKER TO A 1/23/96
MEDICAL INSTRUMENT
- -----------------------------------------------------------------------
2 5,540,712 STENT AND METHOD AND APPARATUS FOR 7/30/96
FORMING AND DELIVERING THE SAME
- -----------------------------------------------------------------------
3 5,354,308 METAL WIRE STENT 10/11/94
- -----------------------------------------------------------------------
4 5,395,390 METAL WIRE STENT 3/7/95
- -----------------------------------------------------------------------
5 5,776,162 VESSEL IMPLANTABLE SHAPE MEMORY 7/7/98
APPLIANCE WTIH SUPERELASTIC HINGED JOINT
- -----------------------------------------------------------------------
6 5,741,297 DAISY OCCLUDER AND METHOD FOR SEPTAL 4/21/98
DEFECT REPAIR
- -----------------------------------------------------------------------
7 5,669,933 REMOVABLE EMBOLUS BLOOD CLOT FILTER 9/23/97
- -----------------------------------------------------------------------
8 5,746,765 STENT AND METHOD AND APPARATUS FOR 5/5/98
FORMING AND DELIVERING THE SAME
- -----------------------------------------------------------------------
9 5,755,778 ANASTOMOSIS DEVICE 5/26/98
- -----------------------------------------------------------------------
10 5,836,968 REMOVABLE EMBOLUS BLOOD CLOT FILTER 11/17/98
- -----------------------------------------------------------------------
11 5,902,317 STENT AND METHOD AND APPARATUS FOR 5/11/99
FORMING AND DELIVERING THE SAME
- -----------------------------------------------------------------------
12 5,921,995 ANASTOMOSIS DEVICE 7/13/99
- -----------------------------------------------------------------------
13 5,403,309 CRYOSURGICAL ABLATION 4/4/95
- -----------------------------------------------------------------------
14 5,368,556 IMPLANTABLE DRAINAGE VALVE FOR THE 11/29/94
TREATMENT OF HYDROCEPHALUS
- -----------------------------------------------------------------------
15 4,974,581 ULTRASONIC KNIFE 12/4/90
- -----------------------------------------------------------------------
16 4,540,400 NON-INVASIVELY ADJUSTABLE VALVE 9/10/85
- -----------------------------------------------------------------------
17 4,769,002 INTERCRANIAL PRESSURE REGULATOR VALVE 9/6/88
- -----------------------------------------------------------------------
18 4,776,838 THREE STAGE VALVE 10/11/88
- -----------------------------------------------------------------------
19 4,627,832 THREE STAGE INTRACRANIAL PRESSURE RELIEF 12/9/86
VALVE HAVING SINGLE-PIECE VALVE STEM
- -----------------------------------------------------------------------
<PAGE>
PATENT NO. TITLE ISSUE DATE
- -----------------------------------------------------------------------
20 4,714,459 THREE STAGE INTRACRANIAL PRESSURE 12/22/87
CONTROL VALVE
- -----------------------------------------------------------------------
21 4,729,762 THREE STAGE IMPLANTABLE PRESSURE RELIEF 3/8/88
VALVE WITH ADJUSTABLE VALVE STEM
MEMBERS
- -----------------------------------------------------------------------
22 5,069,663 HYDROCEPHALUS VALVE 12/3/91
- -----------------------------------------------------------------------
23 5,102,389 MEMBRANE COMPOSITE 4/7/92
- -----------------------------------------------------------------------
24 5,336,166 THREE STAGE IMPLANTABLE VALVE 8/9/94
- -----------------------------------------------------------------------
25 5,368,556 IMPLANTABLE DRAINAGE VALVE FOR THE 11/29/94
TREATMENT OF HYDROCEPHALUS
- -----------------------------------------------------------------------
26 5,437,627 IMPLANTABLE VALVE FOR THE TREATMENT OF 8/1/95
HYDROCEPHALY
- -----------------------------------------------------------------------
27 5,718,712 DILATATION BALLOON CATHETER FOR 2/17/98
ENDOSCOPY
- -----------------------------------------------------------------------
28 4,668,231 IMPLANTABLE HAND-OPERABLE DISPENSERS 5/26/87
FOR FLUID MEDICAMENTS
- -----------------------------------------------------------------------
29 4,718,894 MANUALLY ACTUATED, IMPLANTABLE DEVICE 1/12/88
TO SEQUENTIALLY FEED DOSES OF A
SUBSTANCE, IN PARTICULAR A THERAPEUTANT
- -----------------------------------------------------------------------
30 4,601,724 MANUFACTURE OF TUBING ASSEMBLY FOR 7/22/86
DRAINAGE CATHETER
- -----------------------------------------------------------------------
31 4,723,556 INTRACRANIAL VENTRICULAR CATHETER 2/9/88
ASSEMBLY
- -----------------------------------------------------------------------
32 4,731,056 EXTERNAL DRAINAGE ANTISIPHON DEVICE 3/15/88
- -----------------------------------------------------------------------
33 4,767,400 POROUS VENTRICULAR CATHETER 8/30/88
- -----------------------------------------------------------------------
34 5,409,462 CYST PUNCTURE CATHETER ASSEMBLY 4/25/95
- -----------------------------------------------------------------------
35 4,946,443 CATHETER INTRODUCER 8/7/90
- -----------------------------------------------------------------------
36 4,487,603 IMPLANTABLE MICROINFUSION PUMP SYSTEM 12/11/84
- -----------------------------------------------------------------------
37 4,548,607 IMPLANTABLE MANUALLY ACTUATED 10/22/85
MEDICATION DISPENSING SYSTEM
- -----------------------------------------------------------------------
38 4,551,128 CEREBROSPINAL FLUID SHUNT VALVE 11/5/85
- -----------------------------------------------------------------------
<PAGE>
PATENT NO. TITLE ISSUE DATE
- -----------------------------------------------------------------------
39 4,557,721 SERVO VALVE 12/10/85
- -----------------------------------------------------------------------
40 4,557,722 FILL PORT FOR AN IMPLANTABLE DISPENSING 12/10/85
SYSTEM
- -----------------------------------------------------------------------
41 4,576,035 SELF-CALIBRATING DIFFERENTIAL CONDITION 3/18/86
SENSOR
- -----------------------------------------------------------------------
42 4,578,057 VENTRICULAR RIGHT ANGLE CONNECTOR AND 3/25/86
SYSTEM
- -----------------------------------------------------------------------
43 4,583,967 TELESCOPING CATHETER SHUNT SYSTEM 4/22/86
- -----------------------------------------------------------------------
44 4,598,579 PORTABLE INSTRUMENT TO TEST 7/8/86
PRESSURE/FLOW OF VENTRICULAR SHUNT
VALVES
- -----------------------------------------------------------------------
45 4,631,051 VENTRICULAR AMNIOTIC SHUNT AND 12/23/86
INTRODUCER SYSTEM
- -----------------------------------------------------------------------
46 4,675,003 THREE STAGE PRESSURE REGULATOR VALVE 6/23/87
- -----------------------------------------------------------------------
47 4,681,559 PLURAL VALVE THREE STAGE PRESSURE RELIEF 7/21/87
SYSTEM
- -----------------------------------------------------------------------
48 4,705,499 IMPLANTABLE SERVO VALVE HAVING INTEGRAL 11/10/87
PRESSURE SENSOR
- -----------------------------------------------------------------------
49 4,714,458 THREE STAGE VALVE WITH FLEXIBLE VALVE 12/22/87
SEAT
- -----------------------------------------------------------------------
50 4,744,786 INFUSION PUMP 5/17/88
- -----------------------------------------------------------------------
51 4,776,839 THREE STAGE IMPLANTABLE PRESSURE RELIEF 10/11/88
VALVE WITH IMPROVED VALVE STEM MEMBER
- -----------------------------------------------------------------------
52 4,781,672 THREE STAGE IMPLANTABLE FLOW CONTROL 11/1/88
VALVE WITH IMPROVED VALVE CLOSURE
MEMBER
- -----------------------------------------------------------------------
53 4,676,772 ADJUSTABLE IMPLANTABLE VALVE HAVING 6/30/87
NON-INVASIVE POSITION INDICATOR
- -----------------------------------------------------------------------
54 4,636,149 DIFFERENTIAL THERMAL EXPANSION DRIVEN 1/13/87
PUMP
- -----------------------------------------------------------------------
<PAGE>
U.S.
APPLICATION NO. TITLE FILING DATE
- -----------------------------------------------------------------------
55 09/274,108 GRIPPING DEVICE FOR IMPLANTING, 3/23/99
REPOSITIONING OR EXTRACTING AN
OBJECT WITHIN A BODY VESSEL
- -----------------------------------------------------------------------
56 08/824,249 OSV2 3/26/96
- -----------------------------------------------------------------------
57 08/822,513 PRESSURE AND ANTI-GRAVITY 3/26/96
REGULATING VALVE
- -----------------------------------------------------------------------
58 09/360,654 REMOVABLE EMBOLUS BLOOD CLOT 7/26/99
FILTER AND FILTER DELIVERY UNIT
- -----------------------------------------------------------------------
59 09/160,384 REMOVABLE EMBOLUS BLOOD CLOT 9/25/98
FILTER
- -----------------------------------------------------------------------
<PAGE>
EXHIBIT 10.6
PLEDGE AGREEMENT
----------------
PLEDGE AGREEMENT dated as of September 13, 1999 (as amended, supplemented
or otherwise modified from time to time, this "Agreement"), between NMT MEDICAL,
---------
INC. and the other entities listed on Schedule I hereto (each a "Pledgor" and
---------- -------
collectively, the "Pledgors") and BROWN BROTHERS HARRIMAN & CO. (the "Lender").
-------- ------
WHEREAS, the Pledgors have entered into that certain Credit Agreement,
dated as of the date hereof, among the Pledgors and the Lender (as amended,
supplemented, extended or otherwise modified from time to time, the "U.S. Credit
-----------
Agreement"), pursuant to which the Pledgors have arranged for a $5,000,000
- ---------
credit facility, the proceeds of which will be used to prepay a portion of the
Whitney Notes and for general corporate purposes;
WHEREAS, pursuant to the U.S. Credit Agreement, the Lender has agreed to
make loans to the Pledgors upon the terms and subject to the conditions set
forth therein;
WHEREAS, the Pledgors are parties to that certain Guarantee, dated as of
the date hereof, in favor of the Lender (as amended, supplemented, extended or
otherwise modified from time to time, the "Guarantee"), pursuant to which the
---------
Pledgors have guaranteed the payment and performance by NMT NeuroSciences
Implants (France) SA, a French limited liability company, and NMT NeuroSciences
Instruments (France) SARL, a French limited liability company (collectively, the
"French Subsidiaries"), of their obligations and liabilities under that certain
-------------------
Credit Agreement, dated as of the date hereof, by and among the French
Subsidiaries and the Lender (together with the U.S. Credit Agreement, the
"Credit Agreements");
- ------------------
WHEREAS, the operations of the Pledgors and the French Subsidiaries are
conducted on a combined basis with significant shared management, purchasing,
planning, financial controls and other functions, and the Credit Agreements will
directly or indirectly benefit the Pledgors' various businesses; and
WHEREAS, it is a condition precedent to the obligations of the Lender to
make loans to the Pledgors and the French Subsidiaries under the respective
Credit Agreements that the Pledgors shall have executed and delivered this
Agreement to the Lender, as security for the payment and performance of all
obligations of the Pledgors to the Lender.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
Unless otherwise defined herein, terms which are defined in the U.S. Credit
Agreement and used herein are so used as so defined. The following terms shall
have the meanings herein specified. Such definitions shall be equally applicable
to the singular and plural forms of the terms defined.
<PAGE>
"Commitments" shall mean the obligations of the Lender to make loans and
-----------
advances, issue letters of credit and otherwise extend financial accommodations
to and for the account of the Pledgors and the French Subsidiaries under the
Credit Agreements or under any other document executed in connection therewith.
"Equity Rights" means, with respect to any Person, any subscriptions,
-------------
options, warrants, commitments, preemptive rights or agreements of any kind
(including, without limitation, any stockholders' or voting trust agreements)
for the issuance, sale, registration or voting of, or outstanding securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type held in such Person.
"Pledged Collateral" means any and all right, title and interest of each
------------------
Pledgor in, to or under the Pledged Stock, the Pledged Partnership Interests,
the Pledged Membership Interests and the Pledged Obligations, whether now owned
or hereafter acquired, together with all the proceeds thereof and any
replacements, additions or substitutions thereof or thereto and all accounts
arising from the sale or disposition thereof.
"Pledged Membership Interests" means any and all right, title and interest
----------------------------
of each Pledgor, as a member, in and to any limited liability companies that now
or in the future are listed on Schedule II hereto, and all rights and interests
-----------
of such Pledgor in the property, capital, profits and losses of, and all
distributions paid or distributed by or out of, such limited liability
companies, together with all rights of such Pledgor under the limited liability
company agreements governing such limited liability companies; provided that,
--------
with respect to the pledge of membership interests hereunder to secure the
Pledgors' obligations and liabilities to the Lender under the U.S. Credit
Agreement and the Guarantee, the term "Pledged Membership Interests" shall
----------------------------
include only sixty-five percent (65%) of the voting interests of any subsidiary
that is not a Domestic Subsidiary and which is now or in the future listed on
Schedule II hereto.
- -----------
"Pledged Obligations" means any and all right, title and interest of each
-------------------
Pledgor in and to any and all Indebtedness obligations owed to such Pledgor by
any Person, whether now existing or hereafter incurred, and in and to all
collateral granted to such Pledgor to or for the benefit of such Pledgor as
collateral security for such obligations.
"Pledged Partnership Interests" means any and all right, title and interest
-----------------------------
of each Pledgor, as a general or limited partner, in and to any general and
limited partnerships that now or in the future are listed on Schedule III
------------
hereto, and all rights and interests of such Pledgor in the property, capital,
profits and losses of, and all distributions paid or distributed by or out of,
such general and limited partnerships, together with all rights of such Pledgor
under the partnership agreements governing such general and limited
partnerships; provided that, with respect to the pledge of partnership interests
--------
hereunder to secure the Pledgors' obligations and liabilities to the Lender
under the U.S. Credit Agreement and the Guarantee, the term "Pledged Partnership
-------------------
Interests" shall include only sixty-five percent (65%) of the voting interests
- ---------
of any subsidiary that is not a Domestic Subsidiary and which is now or in the
future listed on Schedule III hereto.
------------
2
<PAGE>
"Pledged Stock" means any and all right, title and interest of each Pledgor
-------------
in and to the capital stock of and Equity Rights in and to the corporations
that now or in the future are listed on Schedule IV hereto, and all rights and
-----------
interests of such Pledgor in any dividends or other distributions paid in
respect of such capital stock and Equity Rights; provided that, with respect to
--------
the pledge of capital stock hereunder to secure the Pledgors' obligations and
liabilities to the Lender under the U.S. Credit Agreement and the Guarantee, the
term "Pledged Stock" shall include only sixty-five percent (65%) of the voting
-------------
stock of any subsidiary that is not a Domestic Subsidiary and which is now or in
the future listed on Schedule IV hereto.
-----------
"Secured Obligations" shall mean (a) the full and prompt payment when due
-------------------
(whether at the stated maturity, by acceleration or otherwise) of all
obligations and liabilities of each and all of the Pledgors to the Lender,
whether now existing or hereafter incurred under, arising out of or in
connection with the U.S. Credit Agreement, the Guarantee or any other agreement
with or for the benefit of the Lender to which any Pledgor is a party or to
which any Pledgor is bound and the due performance and compliance by each and
all of the Pledgors with the terms of each such agreement, including, without
limitation, the full and prompt payment of all unpaid principal of and interest
on (including interest accruing on or after the filing of a petition in
bankruptcy or the commencement of any insolvency, reorganization or like
proceeding, relating to any Pledgor to the extent allowed under applicable law)
any and all such obligations; (b) any and all sums advanced by the Lender in
order to preserve any collateral securing any of the obligations referred to in
clause (a) or to preserve the Lender's security interest in such collateral; (c)
in the event of any proceeding for the collection or enforcement of any
obligations or liabilities referred to in clause (a), after an Event of Default
(as hereinafter defined) shall have occurred and be continuing, the reasonable
expenses of re-taking, holding, preparing for sale or lease, selling or
otherwise disposing of or realizing on the collateral securing the obligations
referred to in clause (a), or of any exercise by the Lender of its rights
hereunder, together with reasonable attorneys' fees and court costs; and (d) any
and all other liabilities and obligations whatsoever of any Pledgor to the
Lender.
"Security" has the same meaning as in Section 2(l) of the Securities Act of
--------
1933, as amended.
"UCC" means the Uniform Commercial Code as the same may, from time to time,
---
be in effect in The Commonwealth of Massachusetts.
ARTICLE 2. COLLATERAL
Section 2.1 Grant of Security Interest. As security for the payment by
--------------------------
the Pledgors of the Secured Obligations and the performance by the Pledgors of
their obligations and undertakings under this Agreement and any other document
made in connection herewith, each of the Pledgors does hereby grant, bargain,
convey, assign, transfer, mortgage, hypothecate, pledge, confirm and grant a
continuing security interest to the Lender, in and to all right, title and
interest of such Pledgors in the Pledged Collateral.
3
<PAGE>
Section 2.2 Delivery of Certificates; Delivery of Financing Statements.
----------------------------------------------------------
(a) Each Pledgor, as applicable, hereby delivers to the Lender all of
the certificates evidencing the Pledged Stock owned by such Pledgor, in each
case, endorsed in blank or accompanied with appropriate undated stock powers
duly executed in blank. Each Pledgor has caused the Lien of the Lender in and
to the Pledged Stock to be registered upon the books of each of the issuers of
the Pledged Stock. All other shares of the Pledged Stock subsequently acquired
by any Pledgor shall be pledged and delivered to the Lender contemporaneously
with the acquisition thereof, accompanied by stock powers duly executed in
blank, with signature properly guaranteed.
(b) Each Pledgor has executed and delivered to the Lender such
financing statements as the Lender has requested, with respect to that portion
of the Pledged Collateral in which a Lien may be perfected by the filing of a
financing statement against such Pledgor. Each Pledgor has directed each of the
issuers of the Pledged Partnership Interests and the Pledged Membership
Interests to register the Lien of the Lender in and to the Pledged Partnership
Interests and the Pledged Membership Interests upon the books of each of the
issuers of the Pledged Partnership Interests and the Pledged Membership
Interests. None of the Pledged Partnership Interests or the Pledged Membership
Interests are represented by a certificate. If at any time any of the Pledged
Partnership Interests or Pledged Membership Interests shall be represented by
one or more certificates or by any documents that are Instruments (as defined in
the UCC), then the Pledgor shall promptly deliver the same to the Lender
accompanied by duly executed transfer powers endorsed in blank respecting such
certificates or documents.
(c) Each Pledgor hereby agrees to promptly deliver to the Lender, upon
the request of the Lender, all promissory notes, instruments and agreements
evidencing the Pledged Obligations held by such Pledgor in suitable form for
transfer by endorsement and delivery or accompanied by duly executed instruments
of transfer or assignment in blank. If any Pledgor shall receive any promissory
notes, instruments or agreements constituting Pledged Obligations after the date
hereof (including, without limitation, any certificate representing any
distribution in connection with any recapitalization, reclassification or
increase or reduction of capital, or issued in connection with any
reorganization) in respect of Pledged Obligations, such Pledgor agrees: (i) to
accept the same as the agent of the Lender; (ii) to hold the same in trust on
behalf of and for the benefit of the Lender subject to use or transfer permitted
by this Agreement or the U.S. Credit Agreement; and (iii) upon the request of
the Lender, to deliver any and all promissory notes, instruments or agreements
evidencing the same to the Lender, in the exact form received, with the
endorsement in blank of such Pledgor when necessary and with an appropriate
undated instrument of transfer or assignment duly executed in blank (with
signatures properly guaranteed), to be held by the Lender subject to the terms
of this Agreement, as additional Pledged Collateral.
Section 2.3 Acknowledgment. The Lender acknowledges that the Pledgors
--------------
may not be permitted to assign their rights and obligations under or grant a
security interest in certain Pledged Obligations pursuant to the terms thereof.
With respect to such Pledged Obligations, nothing herein shall be construed as
an assignment to the Lender of such Pledged Obligations or the grant of a
security interest therein to the extent so prohibited. For purposes of
clarification, to the extent permitted
4
<PAGE>
thereunder, the parties hereto acknowledge that the Pledgors have granted a
security interest in the Pledgors' rights to receive payments under such Pledged
Obligations and any other rights of the Pledgors thereunder pursuant to the
terms of this Agreement.
ARTICLE 3, REPRESENTATIONS, WARRANTIES
AND COVENANTS CONCERNING SECURITY
Section 3.1 Title, Liens. Each Pledgor represents, warrants and covenants
-------------
that:
(a) Schedules II, III and IV hereto completely and accurately list all
of the Pledged Membership Interests, the Pledged Partnership Interests and the
Pledged Stock owned by such Pledgor as described therein; and
(b) the respective Pledged Collateral is owned solely by such Pledgor
and no other Person has any right, title, interest, claim or Lien thereon, or
thereto.
Section 3.2 Sale of Pledged Collateral; Liens. Except as specifically
---------------------------------
permitted by this Agreement or the U.S. Credit Agreement, each Pledgor:
(a) will not sell, assign or otherwise transfer any of the Pledged
Collateral, other than Pledged Obligations in accordance with reasonable
business practices in the ordinary course of business;
(b) will keep all Pledged Collateral in existence on the date, and all
Pledged Collateral acquired after the date, of execution of this Agreement, free
from all Liens other than Permitted Encumbrances; and
(c) will pay and discharge, when due, all taxes, levies and other
charges upon any Pledged Collateral, and shall defend all Pledged Collateral
against all claims of any Person (other than, with respect to any Permitted
Encumbrance, the holder thereof) other than the Lender.
The Lender will not be required to take any steps to perfect its security
interest in the Pledged Partnership Interests, the Pledged Membership Interests,
the Pledged Stock or the Pledged Obligations or to collect or realize upon the
Pledged Partnership Interests, the Pledged Membership Interests, the Pledged
Stock or the Pledged Obligations or any distribution in respect thereof, nor
shall loss of or damage to the Pledged Collateral release any Pledgor from any
obligation contained in this Agreement.
Section 3.3 Voting Rights Concerning Pledged Collateral.
-------------------------------------------
(a) During the term of this Agreement, and so long as no Event of
Default shall have occurred and be continuing, each Pledgor shall have the right
to vote the Pledged Stock, the Pledged Partnership Interests and the Pledged
Membership Interests on all corporate, partnership or membership questions for
all purposes.
5
<PAGE>
(b) Upon the occurrence and during the continuance of an Event of
Default, the Lender, upon written notice to the appropriate Pledgor, shall be
permitted to exercise all voting powers pertaining to the Pledged Stock, the
Pledged Partnership Interests and the Pledged Membership Interests. The Lender,
after the occurrence and during the continuance of any such Event of Default,
and at its election, is hereby irrevocably appointed to vote the Pledged Stock,
the Pledged Partnership Interests and the Pledged Membership Interests upon any
corporate, partnership or membership matter; provided that with respect to any
--------
general partnership or membership interest included among the Pledged
Collateral, the foregoing proxy shall be construed so that, and shall be limited
to the extent necessary so that, the Lender shall not be or become liable as a
general partner or a manager or managing member.
Section 3.4 Payments.
--------
(a) So long as no Event of Default has occurred, and to the extent not
prohibited by any Credit Agreement or any other document made in connection
therewith or herewith, each Pledgor shall be entitled to receive and retain any
payments, including, without limitation, principal and interest payments, paid
on the Pledged Obligations.
(b) Upon the occurrence and during the continuance of an Event of
Default, (i) all rights of each Pledgor to receive or demand, as the case may
be, any payments, including, without limitation, principal and interest
payments, which such Pledgor is authorized to receive or demand pursuant to
paragraph (a) of this Section 3.4 shall cease, and all such rights shall
thereupon become vested in the Lender, which shall have the sole and exclusive
right and authority to receive or demand, as the case may be, and retain such
principal and interest payments (and all other payments in respect of the
Pledged Obligations); in addition, all principal and interest payments (and all
other payments in respect of the Pledged Obligations) which are received by any
Pledgor contrary to the provisions of this Section 3.4(b) shall be received in
trust for the benefit of the Lender, shall be segregated from other property or
funds of such Pledgor and shall be forthwith delivered to the Lender as Pledged
Collateral in the same form as so received (with any necessary endorsement) and
(ii) all rights of each Pledgor to exercise any rights and powers (including the
right to receive and retain payments on the Pledged Obligations) which it would
otherwise be entitled to exercise pursuant to this Section 3.4 shall cease, and
all such rights shall thereupon become vested in the Lender, which shall have
the sole and exclusive right and authority to exercise all such rights and
powers until such Event of Default shall have been cured or waived in accordance
with the applicable Credit Agreement, at which time all such rights shall
thereupon become revested in such Pledgor. Any and all money and other property
paid over to or received by the Lender as Pledged Collateral and retained by the
Lender pursuant to the provisions of this Section 3.4(b) shall be retained by
the Lender in an account to be established by the Lender upon receipt of such
money or other property and shall be applied in accordance with the provisions
of the applicable Credit Agreement.
(c) Upon the occurrence and during the continuance of an Event of
Default, each Pledgor further agrees that so long as the Pledged Obligations
continue to be Pledged Collateral under this Agreement, such Pledgor will not
permit any of the notes, instruments or other agreements evidencing the Pledged
Obligations to be amended, modified or changed in any material way, nor will
6
<PAGE>
such Pledgor accept any waiver, indulgence, modification or other departure by
any obligor under such Pledged Obligations from any provision of the Pledged
Obligations, without first obtaining written consent of the Lender, which
consent shall not be unreasonably withheld.
Section 3.5 No Restrictions. Each Pledgor represents and warrants that
---------------
each of the shares of the Pledged Stock is fully paid and non-assessable, that
there are no restrictions upon the transfer (other than pursuant to state and
federal securities laws) of, or the right to vote in respect of, any of the
Pledged Collateral and that such Pledgor has the right to vote, pledge and grant
a security interest in or otherwise transfer such Pledged Collateral free of any
Lien. Each Pledgor hereby consents to the grant of a security interest in and
the transfer of the Pledged Collateral by each other Pledgor pursuant to the
terms hereof as may be required under any applicable partnership agreement or
limited liability company agreement.
Section 3.6 Subsequent Changes Affecting Pledged Collateral. Each Pledgor
-----------------------------------------------
hereby represents and warrants that it has made its own arrangements for keeping
informed of changes or potential changes affecting the Pledged Collateral
(including, without limitation, rights to convert, rights to subscribe, payment
of dividends, reorganization or other exchanges, tender offers and voting rights
of the Pledged Stock, the Pledged Partnership Interests and the Pledged
Membership Interests), and such Pledgor agrees that the Lender shall have no
responsibility or liability for informing such Pledgor of any such changes or
potential changes or for taking any action or omitting to take any action with
respect thereto. The Lender may, upon the occurrence and during the continuance
of an Event of Default, without notice and at its option, transfer or register
the Pledged Stock, the Pledged Partnership Interests, the Pledged Membership
Interests or any part thereof, into its or its nominee's name, or endorse any of
the Pledged Obligations for negotiation, without any indication that such
Pledged Stock, Pledged Partnership Interest, Pledged Membership Interest or
Pledged Obligation is subject to the security interest hereunder.
Section 3.7 Adjustments with Respect to the Pledged Collateral. In the
--------------------------------------------------
event that, during the term of this Agreement, any stock dividend,
reclassification, adjustment or other change is declared or made in the capital
structure, of any issuer whose Securities constitute Pledged Collateral, or any
option included with the Pledged Collateral is exercised, or both, all new,
substituted and additional shares, or membership interests or other Securities,
issued by reason of any such change or exercise shall be delivered and held by
the Lender under the terms of this Agreement in the same manner as the
collateral originally pledged hereunder; provided, however, that nothing
-------- -------
contained in this Section 3.7 shall be deemed to permit the issuance of any
warrants or other rights or options by any issuer whose Securities constitute
Pledged Collateral that is not expressly permitted by the applicable Credit
Agreement or any other document made in connection therewith or herewith.
Section 3.8 Equity Rights with Respect to Pledged Collateral. In the
------------------------------------------------
event that during the term of this Agreement any Equity Rights shall be issued
or exercised in connection with the Pledged Collateral, such warrants, rights
and options and all new stock, partnership interests or membership interests or
other Securities acquired by any Pledgor in connection therewith shall be
immediately assigned and delivered to the Lender to be held under the terms of
this Agreement in the same manner as the Pledged Collateral originally pledged
hereunder; provided, however, that nothing contained in
-------- -------
7
<PAGE>
this Section 3.8 shall be deemed to permit the issuance of any Equity Rights by
any issuer whose Securities constitute Pledged Collateral that is not expressly
permitted in the applicable Credit Agreement or any other document made in
connection therewith or herewith.
Section 3.9 Certain Additional Rights. In connection with any sale of
-------------------------
Pledged Collateral by the Lender, the Lender shall have the right to execute any
document or form, in its name or the name of the appropriate Pledgor, that may
be necessary or desirable in connection with such sale after an Event of
Default.
Section 3.10 Reimbursement. The Pledgors shall pay any and all reasonable
-------------
costs, including, without limitation, reasonable attorneys' fees, legal expenses
and court costs, that the Lender may incur in enforcing, defending or protecting
its Lien on, or rights and interests in, the Pledged Collateral, or any of its
rights and remedies under this or any other agreement between the parties hereto
or in respect to any of the transactions to be had thereunder or hereunder and,
until paid by the Pledgors, such sums shall be considered as additional Secured
Obligations. The Pledgors shall indemnify and hold harmless the Lender from and
against any and all liability, loss or damage that it may suffer or incur and
that arises out of or results from a partnership or limited liability company
agreement or a certificate of partnership or limited liability company and any
claim or any alleged obligation, liability or duty on the part of the Lender to
perform or discharge any of the terms, covenants or provisions of the foregoing
or any other agreement or document obligating or binding, or purporting to
obligate or bind, together with all reasonable costs and expenses (including,
without limitation, reasonable costs and attorneys' fees) paid or incurred in
connection therewith and, until paid by the Pledgors, such sums shall be
considered as additional Secured Obligations; provided, however, that the
-------- -------
indemnification contained in this sentence shall not apply to liabilities,
losses or damages that the Lender may suffer and that (i) arise after and in the
event that it has purchased the Pledged Stock, the Pledged Partnership Interests
or the Pledged Membership Interests upon foreclosure or sale in lieu of
foreclosure or (ii) arise by reason of the gross negligence or the willful
misconduct of the Person to be indemnified. Subject to the terms of the Credit
Agreements, the Guarantee and except to the extent specifically limited by
applicable law, the Lender shall not be liable or responsible in any way for the
safekeeping of the Pledged Collateral or for any loss or damage thereto or for
any diminution in the value thereof, all of which shall be at the sole risk of
the Pledgors.
Section 3.11 Further Assurances. So long as any of the Secured
------------------
Obligations or any Commitments shall be outstanding, each Pledgor, at its
expense, will timely execute, acknowledge, deliver, file and record, or will
cause to be executed, acknowledged, delivered, filed or recorded, all such
further instruments, conveyances, transfers, financing statements, continuation
statements and assurances as may be necessary or appropriate (and, in any event,
as may be requested by the Lender) to subject to the Lien of this Agreement, and
to preserve, continue and protect the Lien of this Agreement on, the Pledged
Collateral, including, without limitation, any Pledged Collateral acquired after
the date of this Agreement, or as the Lender may reasonably require for the
better granting, bargaining, selling, remising, releasing, confirming,
conveying, warranting, assigning, transferring, pledging, delivering and setting
over to the Lender, and for perfecting the Lender's rights in, every part of the
Pledged Collateral, or as may be required in order to transfer to, or perfect
the rights of any new
8
<PAGE>
agent or agents in, the Pledged Collateral; provided that no Pledgor shall be
--------
required to take any action that would expand the obligations or limit the
rights of any Pledgor under this Agreement.
ARTICLE 4. DEFAULTS -- REMEDIES
Section 4.1 Nature of Events. An "Event of Default" shall exist if any
----------------
Event of Default under, and as defined in, any Credit Agreement occurs and is
continuing.
Section 4.2 Default Remedies.
----------------
(a) If an Event of Default exists, the Lender may exercise all of the
rights and remedies of a secured party under the Uniform Commercial Code as
enacted in any and all relevant jurisdictions and all of the rights and remedies
in this Agreement, in the Credit Agreements, the Guarantee, or in any other
document executed in connection therewith or herewith, it being expressly
understood that no such remedy is intended to be exclusive of any other remedy
or remedies, but each and every remedy shall be cumulative and shall be in
addition to every other remedy given in this Agreement, in the Credit
Agreements, in the Guarantee, or in any other document executed in connection
therewith or herewith or now or hereafter existing at law or in equity or by
statute, and may be exercised from time to time as often as may be deemed
expedient by the Lender.
(b) If an Event of Default exists, the Lender shall have the right, at
any time or from time to time, to sell any or all of the Pledged Collateral.
(c) Each Pledgor and the Lender agree that 10 days' notice to such
Pledgor of any public or private sale or other disposition of the Pledged
Collateral shall be reasonable notice thereof, and such sale shall be at such
reasonable locations as the Lender shall designate in such notice. Any other
requirement of notice, demand or advertisement for sale is, to the extent
permitted by law, waived by such Pledgor. Sales for cash at any public or
private sale are all hereby deemed (without limitation) to be commercially
reasonable. To the extent permitted by applicable law, the Lender shall have
the right to bid at any such sale. Proceeds arising from any such sale shall be
applied in the manner set forth in the applicable Credit Agreement.
(d) If an Event of Default exists, the Lender may also, with or
without proceeding with sale or foreclosure or demanding payment of the Secured
Obligations, without notice, appropriate and apply to the payment of the Secured
Obligations and the other obligations secured under this Agreement, any and all
Pledged Collateral in its possession and any and all balances, credits, deposit
accounts, reserves or other moneys due or owing to such Pledgor held by the
Lender under this Agreement or otherwise to the extent permitted by law.
(e) Anything in this Agreement contained to the contrary
notwithstanding, and in view of the fact that federal and state securities laws
may impose certain restrictions on the method by which a sale of the Pledged
Collateral that consists of Securities may be effected after an Event of
Default, upon the occurrence or existence of an Event of Default, the Lender
may, from time to time,
9
<PAGE>
attempt to sell all or any part of such Pledged Collateral by means of a private
placement restricting the bidders and prospective purchasers to those who will
represent or agree as to their investment intent or method of resale or both in
a manner reasonably required by the Lender to assure compliance with applicable
securities laws. In so doing, the Lender may solicit offers to buy such Pledged
Collateral, or any part of it, for cash, from a limited number of investors
deemed by the Lender, in its reasonable commercial judgment, to be responsible
parties who might be interested in purchasing such Pledged Collateral, and if
the Lender solicits and receives such offers from not less than three such
investors, then the acceptance by the Lender of the highest offer obtained
therefrom shall be deemed to be a commercially reasonable method of disposition
(as defined in the UCC) of such Pledged Collateral unless applicable law
provides otherwise.
(f) All covenants, conditions, provisions, warranties, guaranties,
indemnities and other undertakings of the Pledgors contained in this Agreement,
the U.S. Credit Agreement, the Guarantee, or any other document executed in
connection therewith or herewith or in any document referred to in this
Agreement, the U.S. Credit Agreement, the Guarantee, or any other document
executed in connection therewith or herewith or contained in any agreement
supplementary to this Agreement, the U.S. Credit Agreement, the Guarantee or any
other document executed in connection therewith or herewith, shall be cumulative
and not exclusive of any of the terms, covenants, conditions or agreements of
the Pledgors contained in this Agreement, the U.S. Credit Agreement, the
Guarantee, or any other document executed in connection therewith or herewith.
(g) The Pledgors will pay to the Lender all reasonable expenses
(including court costs and reasonable attorneys' fees and expenses) of, or
incident to, the enforcement of any of the provisions of this Agreement and all
other charges due against the Pledged Collateral, including, without limitation,
taxes, assessments, security interests, Liens or encumbrances upon the Pledged
Collateral (except for Permitted Encumbrances) and any expenses, including
transfer or other taxes, arising in connection with any sale, transfer or other
disposition of the Pledged Collateral.
Section 4.3 Other Enforcement Rights. The Lender may proceed to protect
------------------------
and enforce this Agreement by suit or suits or proceedings in equity, at law or
in bankruptcy, and whether for the specific performance of any covenant or
agreement in this Agreement contained or in execution or aid of any power in
this Agreement granted to the extent permitted by law, or for foreclosure under
this Agreement, or for the appointment of a receiver or receivers for the
Pledged Collateral or any part thereof, for the recovery of judgment for the
obligations secured by this Agreement or for the enforcement of any other
proper, legal or equitable remedy available under applicable law.
Section 4.4 Effect of Sale, etc.
--------------------
(a) Any sale or sales properly completed pursuant to the provisions of
this Agreement and applicable law, whether under any right or power granted
hereby or thereby or pursuant to any legal proceedings, shall operate to divest
any Pledgor of all right, title, interest, claim and demand whatsoever, either
at law or in equity, of, in and to the Pledged Collateral, or any part thereof,
so sold, and any Pledged Collateral so sold shall be free and clear of any and
all rights of redemption by, through or under any Pledgor. At any such sale the
Lender may bid for and purchase
10
<PAGE>
the Pledged Collateral sold and may make payment therefor as set forth in clause
(b) of this Section 4.4, and may hold, retain and dispose of such Pledged
Collateral without further accountability.
(b) The receipt by the Lender, or by any Person authorized under any
judicial proceedings to make any such sale, of the proceeds of any such sale
shall be a sufficient discharge to any purchaser of the Pledged Collateral, or
of any part thereof, sold as aforesaid; and no such purchaser shall be bound to
see to the application of such proceeds, or be bound to inquire as to the
authorization, necessity or propriety of any such sale. In the event that, at
any such sale, the Lender is the successful purchaser, it shall be entitled, for
the purpose of making settlement or payment, to use and apply such Pledged
Collateral to its Secured Obligations by crediting thereon the amount
apportionable and applicable thereto out of the net proceeds of such sale.
Section 4.5 Delay or Omission; No Waiver. No course of dealing on the
----------------------------
part of the Lender nor any delay or failure on the part of the Lender to
exercise any right shall impair such right or operate as a waiver of such right
or otherwise prejudice the Lender's rights, powers and remedies. No waiver by
the Lender of any Default or Event of Default under any Credit Agreement,
whether such waiver be full or partial, shall extend to or be taken to affect
any subsequent Default or Event of Default under any Credit Agreement, or to
impair the rights resulting therefrom except as may be otherwise expressly
provided in this Agreement. Every right and remedy given by this Agreement, by
the Credit Agreements, by the Guarantee, by any document executed in connection
therewith and herewith or by law to the Lender may be exercised from time to
time as often as may be deemed expedient by the Lender.
Section 4.6 Application of Proceeds. The proceeds of any exercise of
-----------------------
rights with respect to the Pledged Collateral, or any part thereof, and the
proceeds and the avails of any remedy under this Agreement shall be paid to and
applied in accordance with the provisions of the applicable Credit Agreement. If
there is a deficiency, each Pledgor shall, subject always to the other
provisions of this Agreement, the Credit Agreements, and the Guarantee, remain
liable therefor and shall forthwith pay the amount of any such deficiency to the
Lender.
Section 4.7 Cumulative Remedies. No remedy under this Agreement, the
-------------------
Credit Agreements, and the Guarantee, or under any other document executed in
connection therewith or herewith is intended to be exclusive of any other
remedy, but each and every remedy shall be cumulative and in addition to any and
every other remedy given under this Agreement, any Credit Agreement, any
Guarantee, or under any other document executed in connection therewith or
herewith or otherwise existing; nor shall the giving, taking or enforcement of
any other or additional security, collateral or guaranty for the payment or
performance of the Secured Obligations operate to prejudice, waive or affect the
security of this Agreement or any rights, powers or remedies under this
Agreement, nor shall the Lender be required to look first to, enforce or exhaust
any such other or additional security, collateral or guaranties.
Section 4.8 Waivers by the Pledgors. Each Pledgor hereby waives notice of
-----------------------
acceptance of this Agreement and of extensions to any borrower under any Credit
Agreement of credit, loans, advances or other financial assistance thereunder,
or under any other agreement, note, document or
11
<PAGE>
instrument now or at any time or times hereafter executed by any Pledgor or
French Subsidiary and delivered to the Lender. Each Pledgor further waives
presentment and demand for payment of any of the Secured Obligations, protest
and notice of dishonor or default with respect to any of the Secured
Obligations, and all other notices to which such Pledgor might otherwise be
entitled, except as otherwise expressly provided in this Agreement, any Credit
Agreement or the other documents made in connection therewith or herewith, or as
prohibited by law.
Section 4.9 Consent. Each Pledgor hereby consents that from time to time,
-------
before or after the occurrence or existence of any Event of Default, with or
without notice to or assent from any Pledgor, any security at any time held by
or available to the Lender for any of the Secured Obligations, or any other
security at any time held by or available to the Lender for any obligation of
any other Person secondarily or otherwise liable for any of the Secured
Obligations, may be exchanged, surrendered, or released and any of the Secured
Obligations may be changed, altered, renewed, extended, continued, surrendered,
compromised, waived or released, in whole or in part, as the Lender or the
holder thereof may see fit, and each Pledgor shall remain bound under this
Agreement notwithstanding any such exchange, surrender, release, change,
alteration, renewal, extension, continuance, compromise, waiver or release.
ARTICLE 5. DEFEASANCE
Section 5.1 Satisfaction and Discharge. If any Pledgor shall pay and
--------------------------
discharge the entire indebtedness on all Secured Obligations outstanding by
paying or causing to be paid the principal of, and interest on, all Secured
Obligations outstanding, as and when the same become due and payable; and if any
Pledgor shall also pay or cause to be paid all other sums payable under this
Agreement with respect to the Secured Obligations and all sums payable under the
Credit Agreements, or any one or more of the documents made in connection
therewith or herewith, and fully discharges or causes to be discharged every
other obligation herein or in the Credit Agreements, or in any other document
made in connection therewith or herewith, contained or otherwise secured by this
Agreement, or any other document made in connection therewith or herewith; and
if all Commitments shall have been terminated, then and in that case all of the
right, title and interest of the Lender in the Pledged Collateral created hereby
shall cease and terminate, and thereupon the Lender shall forthwith execute and
deliver as promptly as practicable, without recourse, proper deeds, assignments,
terminations, certificates evidencing the Pledged Stock and other instruments or
documents acknowledging satisfaction and discharging all of the right, title and
interest of the Lender in the Pledged Collateral created hereby (subject to any
disposition thereof that may have been made by the Lender pursuant to any Credit
Agreement, or any other document made in connection therewith or herewith).
Section 5.2 Disposal of Assets; Release of Lien. So long as no Default or
-----------------------------------
Event of Default shall exist or be created as a result thereof under any Credit
Agreement, if any Pledgor shall sell, lease, transfer or otherwise dispose of
any of the Pledged Collateral in a manner not prohibited by any Credit
Agreement, then the Lender, upon payment to it of all amounts then owed to it as
fees and expenses under this Agreement, shall forthwith execute proper
instruments releasing the interests in such Pledged Collateral so disposed of
from the Lien of the Lender created under this Agreement. Upon the
12
<PAGE>
payment in full of any of the Pledged Obligations, the Lender, upon payment to
it of all amounts then owed to it as fees and expenses under this Agreement,
shall forthwith execute proper instruments releasing the interests of such
Pledged Collateral serving as collateral security for such Pledged Obligations,
as well as any promissory notes evidencing such Pledged Obligations, from the
Lien of the Lender created under this Agreement.
ARTICLE 6. MISCELLANEOUS
Section 6.1 Amendments and Waivers. Except as otherwise expressly
----------------------
provided in this Agreement or any Credit Agreement, any provision of this
Agreement may be amended or modified only by an instrument in writing signed by
the Pledgors and the Lender and any provision of this Agreement may be waived by
the Lender.
Section 6.2 Survival. The obligations of the Pledgors under Section 3.10
--------
and Section 4.2(g) of this Agreement shall survive the repayment of the loans
under the Credit Agreements and the termination of the Commitments.
Section 6.3 Successors and Assigns. This Agreement shall be binding upon,
----------------------
and shall inure to the benefit of, the Pledgors, the Lender, and their
respective successors and assigns.
Section 6.4 Notices. Except in the case of notices and other
-------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to any Pledgors, c/o NMT Medical, Inc., 27 Wormwood Street,
Boston, Massachusetts 02210-1625, Attention of Chief Financial Officer
(Telecopy No. 617-737-0924), with a copy to Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109, Attention of Steven D. Singer, Esq.
(Telecopy No. 617-526-5000); and
(b) if to the Lender, to Brown Brothers Harriman & Co., 40 Water
Street, Boston, Massachusetts 02109-3661, Attention of Victoria W. Evans,
Assistant Manager (Telecopy No. 617-772-1138), with a copy to Goodwin,
Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109-2881,
Attention of Raymond C. Zemlin, P.C. (Telecopy No. 617-523-1231).
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
13
<PAGE>
Section 6.5 JURISDICTION; IMMUNITIES.
------------------------
(a) THE PLEDGORS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY
MASSACHUSETTS OR UNITED STATES FEDERAL COURT SITTING IN SUFFOLK COUNTY OVER ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND THE
PLEDGORS HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH MASSACHUSETTS STATE OR FEDERAL
COURT. THE PLEDGORS IRREVOCABLY CONSENT TO THE SERVICE OF ANY AND ALL PROCESS
IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE
PLEDGORS AT THEIR ADDRESSES SPECIFIED IN SECTION 6.4. THE PLEDGORS AGREE THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. THE PLEDGORS FURTHER WAIVE ANY OBJECTION TO VENUE IN SUCH
STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF
FORUM NON CONVENIENS. THE PLEDGORS FURTHER AGREE THAT ANY ACTION OR PROCEEDING
BROUGHT AGAINST THE LENDER SHALL BE BROUGHT ONLY IN MASSACHUSETTS STATE OR
UNITED STATES FEDERAL COURT SITTING IN SUFFOLK COUNTY. THE PLEDGORS WAIVE ANY
RIGHT THEY MAY HAVE TO JURY TRIAL.
(b) Nothing in this Section 6.5 shall affect the right of the Lender
to serve legal process in any other manner permitted by law or affect the right
of the Lender to bring any action or proceeding against any Pledgor or its
property in the courts of any other jurisdictions.
(c) To the extent that any Pledgor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether from
service or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property, such Pledgor
hereby irrevocably waives, to the extent permitted by law, such immunity in
respect of its obligations under this Agreement.
Section 6.6 Headings. The headings and captions hereunder are for
--------
convenience only and shall not affect the interpretation or construction of this
Agreement.
Section 6.7 Severability. The provisions of this Agreement are intended
------------
to be severable. If for any reason any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 6.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing any such
counterpart.
14
<PAGE>
Section 6.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF
MASSACHUSETTS.
Section 6.10 Power of Attorney. Each Pledgor hereby makes, constitutes
-----------------
and appoints the Lender the true and lawful agent and attorney-in-fact of such
Pledgor, with full power of substitution:
(a) if an Event of Default exists, and to the fullest extent permitted
by applicable law, to transfer any of the Pledged Stock, the Pledged Partnership
Interests or the Pledged Membership Interests on the books of the issuer thereof
to the name of the Lender or its nominee, and to indorse for negotiation its
name;
(b) if an Event of Default exists, and to the fullest extent permitted
by applicable law, to collect all notes, checks, acceptances, drafts, money
orders or other instruments included in the Pledged Collateral, with full power
to endorse the name of such Pledgor upon any such notes, checks, acceptances,
drafts, money orders, instruments or other documents relating to the Pledged
Collateral and to effect the deposit and collection thereof, and the further
right and power to endorse the name of such Pledgor on any document relating to
the Pledged Collateral;
(c) if an Event of Default exists, to sign the name of such Pledgor to
drafts against its debtors, to notices to such debtors, to assignments and to
notices of assignments, financing statements, continuation statements or other
public records or notices and all other instruments and documents; and
(d) to execute, acknowledge, deliver, file and record, or cause to be
executed, acknowledged, delivered, filed or recorded, all such further
instruments, deeds, conveyances, mortgages, transfers, financing statements,
continuation statements and assurances as may be necessary or appropriate (and,
in any event, as may be requested by the Lender) to subject to the Lien of this
Agreement, and to preserve, continue and protect the Lien of this Agreement on,
the Pledged Collateral after a request by the Lender to take any action, and the
failure or refusal of such Pledgor to comply with such request within 10 days;
provided that the Lender shall not take any action that would expand the
- --------
obligations or limit the rights of any Pledgor under this Agreement.
Each Pledgor agrees, in the absence of willful wrongdoing or gross
negligence, that neither the Lender nor any of its agents, designees or
attorneys-in-fact will be liable for any acts of commission or omission, or for
any error of judgment or mistake of fact or law with respect to the exercise of
the power of attorney granted under this Section 6.10. The power of attorney
granted under this Section 6.10 is coupled with an interest and shall be
irrevocable so long as any Secured Obligation or Commitment remains outstanding.
Section 6.11 Term of Agreement. This Agreement shall be and remain in
-----------------
full force and effect so long as any Secured Obligations or Commitments are
outstanding.
15
<PAGE>
Section 6.12 Acknowledgment. Each of the issuers of each of the Pledged
--------------
Partnership Interests and the Pledged Membership Interests (the "Issuers"), by
-------
executing the attached acknowledgment to this Agreement, hereby acknowledges and
confirms that (a) each Pledgor has requested that each Issuer register, on each
Issuer's books, the pledge of the Pledged Partnership Interests and the Pledged
Membership Interests in favor of the Lender, and (b) the pledge of the Pledged
Partnership Interests and the Pledged Membership Interests in favor of the
Lender has been noted on the books and records of each Issuer.
[Remainder of Page Intentionally Left Blank]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
NMT MEDICAL, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT HEART, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT INVESTMENTS CORP.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES
(INTERNATIONAL), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES (US), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
17
<PAGE>
NMT NEUROSCIENCES (IP), INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES
INNOVASIVE SYSTEMS, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
BROWN BROTHERS HARRIMAN & CO.
By: /s/ A. Heaton Robertson
-----------------------------
Name: A. Heaton Robertson
Title: Partner
18
<PAGE>
Schedule I
----------
NMT Heart, Inc.
NMT Investments Corp.
NMT NeuroSciences (International), Inc.
NMT NeuroSciences (US), Inc.
NMT NeuroSciences (IP), Inc.
NMT Neurosciences Innovasive Systems, Inc.
<PAGE>
Schedule IV
-----------
to Pledge Agreement
-------------------
Pledged Stock
-------------
1. NMT Medical, Inc. (owner of 100% of the outstanding and issued shares of
-----------------
the following**):
NMT NeuroSciences (International), Inc. (a Delaware corporation)
NMT Heart, Inc. (a Delaware corporation)
NMT Investments Corp. (a Massachusetts corporation)
NMT NeuroSciences (US), Inc. (a Delaware corporation)
NMT NeuroSciences (IP), Inc. (a Delaware corporation)
Nitinol Medical Technologies FSC, Inc. (Barbados)
Nitinol Medical Technologies International B.V. (Netherlands)
2. NMT NeuroSciences (US), Inc. (owner of 100% of the outstanding and issued
----------------------------
shares of the following):
NMT Neurosciences Innovasive Systems, Inc. (a Florida corporation)
3. NMT NeuroSciences (International), Inc. (owner of 100% of the outstanding
---------------------------------------
and issued shares of the following**):
NMT Neurosciences Holdings (UK) Limited (United Kingdom)
NMT Neurosciences Holdings B.V. (Netherlands)
NMT NeuroSciences Holdings (France) SA (owner of only 99,994 out of 100,000
shares) (France)
**all pledges of shares of non-U.S. entities limited to 65% of the total
amount of such shares
20
<PAGE>
EXHIBIT 10.7
AMENDMENT NO. 2
TO
SUBORDINATED NOTE
AND
COMMON STOCK PURCHASE AGREEMENT
by and among
NMT MEDICAL, INC.,
WHITNEY SUBORDINATED DEBT FUND, L.P.
and, for certain purposes
J. H. WHITNEY & CO.
____________________________
September 13, 1999
_____________________________
<PAGE>
AMENDMENT NO. 2 TO
SUBORDINATED NOTE AND COMMON STOCK
PURCHASE AGREEMENT
This Amendment No. 2 to Subordinated Note and Common Stock Purchase
Agreement (this "Amendment"), dated as of September 13, 1999, by and among NMT
Medical, Inc. (f/k/a Nitinol Medical Technologies, Inc., ) ("Company"), a
Delaware corporation, Whitney Subordinated Debt Fund, L.P., ("Purchaser") and,
solely for the purposes of Sections 2.1 and 4(c) hereof, J.H. Whitney & Co.
("Whitney").
WHEREAS, on July 8, 1998, the parties hereto entered into the Subordinated
Note and Common Stock Purchase Agreement (the "July 8, 1998 Agreement") and on
April 14, 1999 the Company and the Purchaser entered into Amendment No. 1 (the
"First Amendment") to the July 8, 1998 Agreement (the July 8, 1998 Agreement, as
amended by the First Amendment, the "Original Agreement");
WHEREAS, contemporaneously with the execution of this Amendment, (a) the
Company, the other borrowers thereunder and Brown Brothers Harriman & Co. are
entering into a Credit Agreement (the "U.S. Credit Agreement"), and (b) NMT
NeuroSciences Implants (France) SA, the other borrower thereunder and Brown
Brothers Harriman & Co. are entering into a Credit Agreement (the "French Credit
Agreement" and together with the U.S. Credit Agreement, collectively, the
"Credit Agreement"), each dated September 13, 1999;
WHEREAS, contemporaneously with the execution of this Amendment, the
Company and the other guarantors thereunder are entering into a Guarantee in
favor of Brown Brothers Harriman & Co. (the "Guarantee"), dated September 13,
1999;
WHEREAS, a portion of the loan proceeds under the Credit Agreement together
with additional funds of the Company, shall be paid by the Company to Purchaser
upon the closing hereof, to be applied in payment of $14,000,000 of principal of
the WSDF Note and all unpaid accrued interest on the WSDF Note; and
WHEREAS, the Company has requested and the Purchaser and Whitney have
agreed to amend the Original Agreement in order to, among other things, (i)
terminate all of the security interests granted by the Company to Purchaser
under the Original Agreement except as otherwise set forth herein, (ii) amend,
among other things, the principal amount of and the subordination provisions of
the WSDF Note, and (iii) amend various covenants contained in the Original
Agreement, all as hereinafter set forth.
<PAGE>
NOW THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the sufficiency and receipt of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Original Agreement Definitions.
------------------------------
(a) All capitalized terms used in this Amendment but not defined shall
have the meanings given to them in the Original Agreement. In the event of a
conflict between the definitions contained in this Amendment and those contained
in the Original Agreement, the definitions contained herein shall prevail.
(b) All references to the Note in the Original Agreement shall be
deemed to refer to the New Note (as defined below) from and after the date
hereof.
(c) "Domestic Subsidiary" shall mean, each Subsidiary that is
incorporated or organized in the United States or any state or territory
thereof.
(d) "Barclays Debt" shall mean, the outstanding Indebtedness of
Spembly Medical Ltd. to Barclays Bank plc in the principal amount as of the date
hereof of approximately (Pounds)180,000 pursuant to that certain Barclays
Treasury Loan Facility, dated as of April 15, 1996, by and between Spembly
Medical Ltd. and Barclays Bank plc.
(e) "Senior Indebtedness" shall mean the principal of, premium, if
any, and interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect hereto, whether or not such interest is an allowed claim under
applicable law) on, and all reasonable fees, reimbursement and indemnity
obligations, and all other obligations (collectively hereinafter referred to as
the "Obligations") arising under or in connection with the Credit Agreement, the
Guarantee or any instruments, agreements or documents issued or executed in
connection therewith, as the same may be amended from time to time thereafter,
together with any Obligations created or incurred in connection with one or more
restatements, renewals, extensions, restructurings, refundings, replacements or
refinancings of the Credit Agreement or the Guarantee; provided, however, that
-------- -------
the aggregate principal amount of Senior Indebtedness shall not exceed
$13,000,000.
2
<PAGE>
ARTICLE 2
AMENDMENTS TO ORIGINAL AGREEMENT
--------------------------------
2.1 Termination of Security Interests and Amendments to Guarantee and
-----------------------------------------------------------------
Collateral Agreement.
- --------------------
(a) Purchaser and Whitney hereby terminate and release all security
interests and interests in collateral granted to Purchaser and/or Whitney, in
any capacity, pursuant to the Pledge Agreements, which are hereby terminated,
and pursuant to or contemplated by the Guarantee and Collateral Agreement;
provided that, all other obligations of the Guarantors pursuant to the Guarantee
- -------- ----
and Collateral Agreement shall continue in full force and effect, except as set
forth herein below to the contrary, and except that at any time during which
payment under the New Note may not be made pursuant to paragraph 7(a)(D)
thereof, such payment shall not be made by any Guarantor, and at any time during
which the exercise of remedies specified in paragraph 7(a)(E) of the New Note is
prohibited pursuant to said paragraph 7(a)(E), such remedies shall not be
exercised against any Guarantor, provided further that all such security
-------- -------
interests and interests in collateral which are non-U.S. patents shall continue
in full force and effect and, subject to Brown Brothers Harriman & Co. and
Purchaser and/or Whitney entering into an agreement satisfactory to them (which
shall be without representation or warranty of any kind by Purchaser and/or
Whitney) shall be held by Purchaser and/or Whitney, as applicable, for the
benefit of Brown Brothers Harriman & Co.. Accordingly, any reference in the
Original Agreement or in the Guarantee and Collateral Agreement or in any other
document related thereto to the terms "collateral," "security," "security
interests," or any similar such term, for the benefit of Purchaser and/or
Whitney, shall be deemed of no further force or effect, except with respect to
the non-U.S. patents. In furtherance of the foregoing, Sections 3 (except with
respect to the non-U.S. patents), 5.2 - 5.8, 6 and 7 of the Guarantee and
Collateral Agreement shall be of no further force and effect, and Section 8.14
of the Guarantee and Collateral Agreement shall be amended and restated in its
entirety as follows:
"8.14 Additional Grantors. Each Subsidiary of the Borrower that is
-------------------
required to become a party to this Agreement pursuant to Section 9.15 of the
Note Purchase Agreement shall become a Grantor for all purposes of this
Agreement upon execution and delivery by such Subsidiary of an Assumption
Agreement in form and substance reasonably satisfactory to the Lenders."
(b) Purchaser and/or Whitney, as applicable, shall, at the cost and
expense of the Company, (i) deliver to the Company all stock certificates and
stock powers previously delivered to Purchaser pursuant to the Pledge
Agreements, and (ii) execute and deliver to the Company such UCC-3 termination
statements and other instruments as the Company shall submit, and as are
reasonably deemed necessary or appropriate by the Company to terminate such
security interests, provided however that any of the foregoing documents
-------- -------
described in this Section 2.1 (collectively, the "Security Release Documents")
may be delivered to the Company after the date hereof and, in such event, the
Purchaser's and/or Whitney's, as applicable, obligation to deliver same shall
survive the closing of the transactions contemplated hereby.
3
<PAGE>
2.2 Financial Statements and Other Information. Any requirement contained
------------------------------------------
in Section 8.1 or elsewhere in the Original Agreement requiring delivery by the
Company, on a weekly basis, of cash flow statements, is hereby deleted. Section
8.1(j) of the Original Agreement is hereby deleted.
2.3 Payment of Obligations. Section 8.3(b) of the Original Agreement is
----------------------
amended and restated in its entirety as follows:
"(b) all lawful claims which the Company and each of its Subsidiaries
is obligated to pay, which are due and which, if unpaid, might by law become a
Lien upon its property, unless the same are being contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP are being
maintained by the Company or such Subsidiary, provided that the foregoing shall
not limit or restrict the Company's right to incur, assume or permit to exist
any Lien which constitutes a Permitted Encumbrance pursuant to Section 9.5(i) of
the Agreement."
2.4 Limitation on Indebtedness. Section 9.4 of the Original Agreement
--------------------------
shall be amended and restated in its entirety as follows:
"9.4 Limitation on Indebtedness. Neither the Company nor any Subsidiary,
will create, incur, assume or permit to exist any Indebtedness, except
Indebtedness created under the Transaction Documents and the following
Indebtedness, in an aggregate principal amount not greater than $13,000,000 (but
such limitation of amount shall not include inter-company debt or account
balances):
(a) Senior Indebtedness;
(b) Indebtedness existing on the date hereof and set forth in Schedule
9.4, and extensions, renewals and replacements of any such Indebtedness that do
not increase the outstanding principal amount thereof;
(c) Indebtedness of the Company to any Subsidiary or of any Domestic
Subsidiary to the Company or to any other Subsidiary;
(d) Guarantees existing on the date hereof and set forth in Schedule
9.4 by the Company of Indebtedness of any Subsidiary or by any Subsidiary of any
Indebtedness of the Company or any other Subsidiary, and extensions, renewals
and replacements of such guarantees that do not increase the outstanding amount
so guaranteed;
(e) Indebtedness incurred to finance the acquisition, construction or
improvement of any fixed or capital assets, including Capital Lease Obligations
and any Indebtedness assumed in connection with the acquisition of any such
assets or secured by a Lien on any such assets prior to the acquisition thereof,
and extensions, renewals and replacements of any such Indebtedness that do not
4
<PAGE>
increase the outstanding principal amount thereof; provided that (i) such
--------
Indebtedness is incurred prior to or within 90 days after such acquisition or
the completion of such construction or improvement and (ii) the aggregate
principal amount of Indebtedness permitted by this clause (e) shall not exceed
$300,000 at any time outstanding;
(f) the Barclays Debt, but no extensions, renewals or replacements
thereof; and
(g) Indebtedness in an aggregate principal amount of up to $1,200,000
to be extended after the date hereof to NMT NeuroSciences Implants (France) SA
by CIC Lyonnaise De Banque upon such terms and conditions as shall be approved
by Purchaser, which approval shall not be unreasonably withheld, and solely for
the lease of computer equipment, but no extensions, renewals or replacements
thereof.
2.5 Limitations on Restricted Payments. Section 9.7 of the Original
----------------------------------
Agreement shall be amended and restated in its entirety as follows:
"9.7 Limitations on Restricted Payments. The Company shall not, and shall
not permit any of its Subsidiaries to declare, or make any Restricted Payment,
except that Subsidiaries may pay dividends to the Company or any other
Subsidiary."
2.6 Financial Covenants. Section 9.8 of the Original Agreement shall be
-------------------
amended and restated in its entirety as follows:
"9.8 Financial Covenants.
(a) Total Leverage Test. The Company and the Subsidiaries
-------------------
(collectively, the "Borrowers") shall not permit the ratio of the Borrowers'
consolidated Net Funded Indebtedness as of the last day of any calendar quarter
ending on the date or during any of the periods set forth below to the
Borrowers' consolidated Adjusted Operating Cash Flow for the twelve (12) month
period ending on the last day of such calendar quarter to be greater than the
ratio set forth below for such period:
<TABLE>
<CAPTION>
Date or Period Ratio
-------------- -----
<S> <C>
September 30, 1999 4.0:1.00
December 31, 1999 3.0:1.00
January 1, 2000 and thereafter 2.5:1.00
</TABLE>
"Net Funded Indebtedness" and "Adjusted Operating Cash Flow" will be
calculated as illustrated on Schedule 9.8.
5
<PAGE>
(b) Fixed Charge Coverage. The Borrowers shall not permit the
---------------------
Borrowers' consolidated Fixed Charge Coverage for any twelve (12) month period
ending on the last day of a calendar quarter to be less than 1.50 to 1.00.
"Fixed Charge Coverage" will be calculated as illustrated on Schedule 9.8.
(c) Current Ratio. The Borrowers shall not permit the ratio of the
-------------
Borrowers' consolidated Current Assets to the Borrowers' consolidated Current
Liabilities as of the last day of any calendar quarter to be less than 1.25 to
1.00.
As used herein, the following terms shall have the following meanings:
"Current Assets" shall mean, at any date, the aggregate of the current
assets of the Borrowers determined on a consolidated basis as of such date, as
determined in accordance with GAAP.
"Current Liabilities" shall mean, at any date, the aggregate of the current
liabilities of the Borrowers, determined on a consolidated basis as of such
date, as determined in accordance with GAAP; provided, that at all times all
outstanding loans under the Credit Agreement shall be deemed to be Current
Liabilities.
(d) Tangible Net Worth. The Borrowers shall not permit the Borrowers'
------------------
Consolidated Tangible Net Worth as of the last day of any calendar quarter
during any of the periods set forth below to be less than the amount set forth
below for such period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
September 30, 1999 to and including December 30, 1999 $16,250,000
December 31, 1999 to and including December 30, 2000 $17,750,000
December 31, 2000 to and including December 30, 2001 $21,000,000
December 31, 2001 and thereafter $25,000,000
</TABLE>
As used herein, the term "Consolidated Tangible Net Worth" means (a) the total
assets of the Borrowers on a consolidated basis as determined in accordance with
GAAP, minus (b) the total liabilities of the Borrowers on a consolidated basis
-----
as determined in accordance with GAAP, minus (c) the total book value of all
-----
assets of the Borrowers properly classified as intangible assets in accordance
with GAAP, including such items as good will, the purchase price of acquired
assets in excess of the fair market value thereof, trademarks, trade names,
service marks, brand names, copyrights, patents and licenses, and rights with
respect to the foregoing, minus (d) all amounts representing any write-up in the
-----
book value of any
6
<PAGE>
assets of the Borrowers resulting from a revaluation thereof subsequent to the
date hereof, minus (e) to the extent otherwise includable in the computation of
-----
Consolidated Tangible Net Worth, any subscriptions receivable, minus (f) all
-----
amounts representing any ownership interest in Image Technology Corp.; provided,
however, that in calculating Consolidated Tangible Net Worth no effect shall be
given to any foreign currency translations."
2.7 Limitation on Liens. Sections (i), (j) and (k) of Section 9.5 of the
-------------------
Original Agreement are hereby deleted and the following is hereby included as
Section 9.5(i) thereof:
"(i) Liens to secure Indebtedness permitted by Section 9.4, including,
without limitation, (x) Liens existing on the date hereof, all of which Liens
currently in existence are set forth on Schedule 9.5 hereto and renewals and
extensions thereof and (y) Liens otherwise permitted by Section 6.02 of the U.S.
Credit Agreement."
2.8 Section 9.6(c) of the Original Agreement shall be amended and restated
in its entirety as follows:
"(c) Sale and leaseback transactions relating to real estate or capital
equipment; provided however, that, subject to the Purchaser obtaining the prior
----------------
consent of the holders of the Senior Indebtedness, 50% of the Net Proceeds of
any such transaction shall be utilized by the Company to prepay the outstanding
principal and any outstanding interest or penalties on the New Note."
2.9 Subsidiaries. Section 9.15 of the Original Agreement shall be amended
------------
and restated in its entirety as follows:
"9.15 Subsidiaries.
(a) The Company shall not, nor shall any of the Subsidiaries be
permitted to, directly or indirectly, establish, create or acquire any new
Domestic Subsidiary unless (i) such new Domestic Subsidiary shall have become a
Guarantor under the Guarantee and Collateral Agreement by executing a joinder in
form and substance satisfactory to the Purchaser, which Guarantee shall be
subordinate and junior to all Senior Indebtedness as and to the extent provided
in the New Note, and (ii) there shall have been delivered to the Purchaser such
approvals, opinions and other documents as the Purchaser may reasonably request.
(b) With respect to any Subsidiary of the Borrower which is not a
Domestic Subsidiary (each a "Foreign Subsidiary"), the Purchaser may request any
such Foreign Subsidiary to execute a guarantee, in form and substance
satisfactory to the Purchaser, pursuant to which such Foreign Subsidiary shall
guarantee the prompt and complete payment and performance by the Company, when
due (whether at the stated maturity, acceleration or otherwise), of the
Borrower's Obligations (as defined in the Guarantee and Collateral Agreement) (a
"Foreign Guarantee"), provided that each such Foreign Guarantee
-------- ----
7
<PAGE>
shall be limited to the amount that such Foreign Subsidiary executing such
Foreign Guarantee benefits and receives value from the Borrower Obligations (it
being intended that any such Foreign Guarantee shall be in a form which does not
create any adverse U.S. tax consequences to the Company or any Subsidiary of the
Company, in the reasonable judgment of the Company's tax advisors); and provided
--------
further that such Foreign Guarantee shall be subordinate and junior to all
- -------
Senior Indebtedness as and to the extent provided in the New Note. Each Foreign
Subsidiary executing a Foreign Guarantee shall deliver to the Purchaser such
approvals and other documents reasonably requested by the Purchaser, but no
legal or other professional opinions, provided that the Company will not be
-------- ----
required to provide any such approvals or other documents if the Company will
incur more than a minimal cost to document the same. The Company shall not, nor
shall any of the Subsidiaries be permitted to, directly or indirectly,
establish, create or acquire any new Foreign Subsidiary unless the Company gives
the Purchaser at least ten Business Days prior written notice of the Company's
or any Subsidiary's intention to do so."
2.10 Notices. Section 11.3 of the Original Agreement shall be amended and
-------
restated in its entirety as follows:
"11.3 Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier (with
receipt confirmed), courier service or personal delivery:
(a) if to the Purchaser:
Whitney Subordinated Debt Fund, L.P.
177 Broad Street
Stanford, Connecticut 06901
Telecopier No.: (203) 973-1422
Attention: Mr. Daniel J. O'Brien
with a copy to:
Morrison, Cohen, Singer & Weinstein, LLP
750 Lexington
New York, New York 10022
Telecopier No.: (212) 735-8708
Attention: David A. Scherl, Esq.
(b) if to the Company
NMT Medical, Inc.
27 Wormwood Street
Boston, Massachusetts 02210
Telecopier: (617) 737-0924
Attention: Mr. Theodore I. Pincus
8
<PAGE>
with a copy to:
Hale and Dorr, LLP
60 State Street
Boston, Massachusetts 02109
Telecopier: (617) 526-5000
Attention: Steven D. Singer, Esq.
All such notices and communications shall be deemed to have been duly
given; when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; if mailed, five
Business Days after being deposited in the mail, postage prepaid; or if
telecopies, when receipt is acknowledged."
2.11 Investments. Section 9.11 of the Original Agreement is hereby amended
-----------
to include as a permitted investment the Company's investment in ITC described
on Schedule 9.11.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
------------------------------
The Company represents and warrants to the Purchaser as follows:
3.1 Corporate Existence and Power. The Company and each of its Domestic
-----------------------------
Subsidiaries: (a) is, and after giving effect to the transactions contemplated
by this Amendment, will be a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation; (b) will
have all requisite corporate power and authority to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently, or is currently proposed to be, engaged; and
(c) is, and after giving effect to the transactions contemplated by this
Amendment, will be duly qualified as a foreign corporation, licensed and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except to the extent that the failure to do so would not have a
material adverse effect on the Condition of the Company. The Company has the
corporate power and authority to execute, deliver and perform its obligations
under this Amendment and the New Note.
3.2 Authority, Etc. The execution and delivery by the Company of this
--------------
Amendment and the performance by the Company of all of its agreements and
obligations under this Amendment and the Original Agreement as amended hereby
(i) are within the corporate authority of the Company, (ii) have been duly
authorized by all necessary corporate proceedings by the Company, (iii) do not
conflict with or result in any breach or contravention of any provision of law,
statute, rule or regulation to which the Company is subject or any judgment,
order, writ, injunction, license or permit applicable to the Company, and (iv)
do not conflict with any provision of the corporate charter or by-laws of, or
any agreement or other instrument binding upon, the Company.
9
<PAGE>
3.3 Enforceability of Obligations. This Amendment and the Original
-----------------------------
Agreement as amended hereby constitute the legal, valid and binding obligations
of the Company, enforceable against it in accordance with their respective
terms.
3.4 No Default. After giving effect to this Amendment no default or Event
----------
of Default exists under the New Note.
ARTICLE 4
CONDITIONS TO EFFECTIVENESS
---------------------------
Concurrently with the execution of this Amendment:
(a) the Company shall deliver to the Purchaser:
(i) an original counterpart signature to this Amendment, duly
executed and delivered by the Company;
(ii) a copy of the fully-executed Credit Agreement and Guarantee
with all exhibits and schedules thereto in form and substance satisfactory to
the Purchaser;
(iii) $14,415,110.00 by wire transfer of immediately available
funds to such account as Purchaser shall designate, in payment of $14,000,000 of
principal of the WSDF Note and all interest accrued on the WSDF Note through
September 13, 1999;
(iv) a Note in the principal amount of $6,000,000 (the "New
Note"), the form of which is attached hereto as Exhibit A, and
---------
(v) a certificate from the Company and dated the date of this
Amendment and signed by the Secretary or an Assistant Secretary of the Company,
certifying (A) that the attached copies of the Certificate of Incorporation and
By-laws of the Company, and resolutions of the Board of Directors of the
Company, approving the Transaction Documents to which it is a party and the
transactions contemplated hereby and thereby, are all true, complete and correct
and remain unamended and in full force and effect, and (B) as to the incumbency
and specimen signature of each officer of the Company executing any Transaction
Document to which it is a party or any other document delivered in connection
herewith on behalf or the Company;
(b) the Company shall reimburse all of the Purchaser's and Whitney's
reasonable out-of-pocket expenses, including without limitation, the reasonable
fees and disbursements of counsel, Morrison Cohen Singer & Weinstein, LLP; and
10
<PAGE>
(c) Purchaser and Whitney, as applicable, shall deliver to the
Company:
(i) the WSDF Note in the original principal amount of
$20,000,000, for cancellation, and
(ii) the Security Release Documents to the extent required to be
delivered at such time, as provided in Section 2.1.
ARTICLE 5
MISCELLANEOUS
-------------
5.1 Continued Effectiveness. Notwithstanding anything contained herein,
-----------------------
the terms of this Amendment are not intended to and do not serve to effect a
novation as to the Original Agreement. The parties hereto expressly do not
intend to extinguish the Original Agreement. Instead, it is the express
intention of the parties hereto to reaffirm the Indebtedness created under the
Original Agreement, in the reduced amount as described herein, (including,
without limitation, the New Note) and the other documents contemplated thereby
and to reaffirm the rights and obligations contained in the Original Agreement
as amended hereby. The Original Agreement as amended hereby and each of the
other documents contemplated thereby, as amended hereby, shall remain in full
force and effect. Except as herein amended, the Original Agreement shall remain
unchanged and in full force and effect, and is hereby ratified in all respects.
All of the representations, warranties and covenants contained in the Original
Agreement as amended hereby and in this Amendment shall survive the execution
and delivery of this Amendment.
5.2 Successors and Assigns; Third Party Beneficiaries. This Amendment
-------------------------------------------------
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto. The Company may not assign any of its rights
under the Agreement without the prior written consent of the Purchaser. Except
as provided in Article 7 of the Original Agreement and in Article 7 of the New
Note, no Person other than the parties hereto and their successors and permitted
assigns is intended to be a beneficiary of any of the Transaction Documents.
5.3 References. Any reference to the Original Agreement contained in any
----------
notice, instrument, certificate, or other document executed concurrently with or
after the execution and delivery of this Amendment shall be deemed to include
the amendments contained in this Amendment unless otherwise stated therein.
5.4 Signatures; Counterparts. Telefacsimile transmissions of any executed
------------------------
original document and/or retransmission of any executed telefacsimile
transmission shall be deemed to be the same as the delivery of an executed
original. At the request of any party hereto, the other parties hereto shall
confirm telefacsimile transmissions by executing duplicate original documents
and delivering the same to the requesting party or parties. This Amendment may
be executed in any number of counterparts and by the
11
<PAGE>
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
5.5 Headings. The headings in this Amendment are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
5.6 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE (INCLUDING GIVING EFFECT TO GOL
SECTION 5-1401).
5.7 Severability. If any one or more of the provisions contained herein,
------------
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
5.8 Certain Expenses. The Company will pay all reasonable expenses of the
----------------
Purchaser and of Whitney (including fees, charges and disbursements of counsel)
in connection with review, execution and delivery after the date hereof of any
of the Security Release Documents, any further amendment, supplement,
modification or waiver of or to any provision of the Agreement, the New Note,
any agency or similar agreement with respect to security interests in non-U.S.
patents requested by the Company and the holder of the Senior Indebtedness, or
any consent to any departure by the Company from the terms of any provision of
the Original Agreement as amended hereby or the New Note.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their respective officers hereunto duly authorized
as of the date first above written.
NMT MEDICAL, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
WHITNEY SUBORDINATED DEBT FUND, L.P.
By: /s/ Daniel J. O'Brien
---------------------------
Name: Daniel J. O'Brien
A General Partner
For purposes of Sections 2.1 and 4(c) only:
J. H. WHITNEY & CO.
By: /s/ Daniel J. O'Brien
---------------------------
Name: Daniel J. O'Brien
Title: General Partner
[signature page to amendment no.2]
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EXHIBIT 10.8
SUBORDINATED PROMISSORY NOTE
----------------------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS
NMT MEDICAL, INC.
10.101% SUBORDINATED PROMISSORY NOTE
DUE SEPTEMBER 30, 2003
$6,000,000 New York, New York
as of July 8, 1998
FOR VALUE RECEIVED, the undersigned, NMT MEDICAL, INC. (f/k/a Nitinol
Medical Technologies, Inc.), a Delaware corporation (the "Borrower") hereby
promises to pay to the order of Whitney Subordinated Debt Fund, L.P. ("WSDF"),
a Delaware limited partnership, or its registered assigns (the "Holder"), the
principal sum of SIX MILLION DOLLARS ($6,000,000) on September 30, 2003 (the
"Maturity Date"), with interest thereon from time to time as provided herein.
1. Purchase Agreement. This Subordinated Promissory Note (the "Note") is
------------------
issued by the Borrower, as of the date hereof, pursuant to the Subordinated Note
and Common Stock Purchase Agreement, dated as of July 8, 1998, by and among the
Borrower, WSDF and, for certain purposes, J. H. Whitney & Co., as amended by
Amendment No. 1 thereto dated April 14, 1999 and Amendment No. 2 thereto dated
as of September 13, 1999 (as so amended, the "Purchase Agreement"). This Note,
together with all other notes issued pursuant to paragraph 12 hereof are
hereinafter referred to as the "Notes." The Holder is entitled to the benefits
of this Note and the Purchase Agreement, as it relates to the Note, and may
enforce the agreements of the Borrower contained herein and therein and exercise
the remedies provided for hereby and thereby or otherwise available in respect
hereto and thereto. Capitalized terms used herein without definition are used
herein with the meanings ascribed to such terms in the Purchase Agreement.
2. Interest. The Borrower promises to pay interest on the principal
--------
amount of this Note at the rate of 10.101 % per annum. The Borrower shall pay
accrued interest quarterly on each March 31, June 30, September 30 and December
31 of each year or, if any such date shall not be a Business Day,
<PAGE>
on the next succeeding Business Day to occur after such date (each date upon
which interest shall be so payable, an "Interest Payment Date"), beginning on
September 30, 1998; provided, however, that notwithstanding anything to the
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contrary contained herein or in the Purchase Agreement, the interest accruing
under this Note in respect of the quarterly periods ending September 30, 1998,
December 31, 1998 and March 31, 1999 (other than additional interest incurred
upon and during the occurrence of an Event of Default) shall be satisfied as
specified in Section 8.10 of the Purchase Agreement, provided further that
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interest accruing under this Note in respect of the period beginning July 1,
1999 and ended September 13, 1999 shall be paid on September 13, 1999. Interest
on this Note shall be paid by wire transfer of immediately available funds to an
account at a bank designated by the Holder. Interest on this Note shall accrue
from the date of issuance until repayment of the principal and payment of all
accrued interest in full. Interest shall accrue and be computed on the basis of
a 360-day year of twelve 30-day months. Notwithstanding the foregoing provisions
of this Section 2, but subject to applicable law, any overdue principal of and
overdue interest on this Note shall bear interest, payable on demand in
immediately available funds, for each day from the date payment thereof was due
to the date of actual payment, at a rate equal to the rate of interest otherwise
in effect pursuant to the first sentence of this Section 2 plus 2% per annum,
----
and, upon and during the occurrence of an Event of Default (as hereinafter
defined) (other than an Event of Default pursuant to Section 6(a)(ii) of this
Note), this Note shall bear interest, from the date of the occurrence of such
Event of Default until such Event of Default is cured or waived, payable on
demand in immediately available funds, at a rate equal to the rate of interest
otherwise in effect pursuant to the first sentence of this Section 2 plus 2% per
annum. Subject to applicable law, any interest that shall accrue on overdue
interest on this Note as provided in the preceding sentence and shall not have
been paid in full on or before the next Interest Payment Date to occur after the
Interest Payment Date on which the overdue interest became due and payable shall
itself be deemed to be overdue interest on this Note to which the preceding
sentence shall apply. In the event that any interest rate provided for herein
shall be determined to be unlawful, such interest rate shall be computed at the
highest rate permitted by applicable law. Any payment by the Borrower of any
interest amount in excess of that permitted by law shall be considered a
mistake, with the excess being applied to the principal of this Note without
prepayment premium or penalty.
3. Mandatory Payment.
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(a) Secondary Public Offering. Subject to the Holder having obtained
-------------------------
such consent as is required pursuant to Section 7(c) hereof and to the other
provisions of Section 7 hereof, upon the consummation of a Secondary Public
Offering (as hereinafter defined), the Borrower shall prepay the outstanding
principal amount of this Note (together with interest accrued and unpaid
thereon), within 5 Business Days after receipt by the Borrower of the proceeds
of such Secondary Public Offering. For the purposes hereof, "Secondary Public
Offering" means the sale by the Borrower of its capital stock pursuant to a
registration statement on Form S-1, Form S-3 or otherwise under the Securities
Act in which the issuer receives Net Cash Proceeds equal to or in excess of $25
million. For the purposes hereof, "Net Cash Proceeds" means (x) the cash
proceeds in respect of a Secondary Public Offering minus (y) brokerage
-----
commissions or underwriting fees and other fees and expenses (including, without
limitation, fees, charges and disbursements of counsel) relating to such
Secondary Public Offering.
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(b) Change of Control. Subject to the Holder having obtained such
-----------------
consent as is required pursuant to Section 7(c) hereof and to the other
provisions of Section 7 hereof, upon a Change of Control (as hereinafter
defined), the Borrower shall prepay the outstanding principal amount of this
Note (together with interest accrued and unpaid thereon), within 5 Business Days
after the occurrence of such Change of Control. For the purposes hereof,
"Change of Control" means (i) any transaction or series of transactions in which
any Person or group, other than WSDF, Whitney Equity Partners, L.P., the
Borrower or any affiliates of the foregoing becomes the beneficial owner of 50%
or more of the then outstanding capital stock of the Borrower or of any
Subsidiary of the Borrower, the operations of which in the reasonable judgment
of the Holder would constitute a material part of the business or operations of
the Borrower and all of its Subsidiaries, taken as a whole, (ii) the sale of all
or substantially all of the assets of the Borrower or any Subsidiary of the
Borrower, the operations of which in the reasonable judgment of the Holder would
constitute a material part of the business or operations of the Borrower and all
of its Subsidiaries, taken as a whole, (iii) the liquidation of the Borrower, or
(iv) the combination of the Borrower or of any Subsidiary of the Borrower, the
operations of which in the reasonable judgment of the Holder would constitute a
material part of the business or operations of the Borrower and all of its
Subsidiaries, taken as a whole, with another entity, as a result of which (A)
the shareholders of Borrower or any of its Subsidiaries hold less than 50% of
the total of all voting shares outstanding or (B) directors of the Borrower or
any of its Subsidiaries constitute less than a majority of the Board of
Directors of the combined entity; provided, however, that any of the events
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described in subdivisions (i), (ii) or (iv) as applied to a Subsidiary of the
Borrower shall be a Change in Control only if such event is also an Event of
Default.
(c) Notice. The Borrower shall give written notice to the Holder of
------
the existence of an event giving rise to any potential mandatory prepayment
pursuant to this Section 3 at least 5 Business Days prior to the date of such
prepayment. Such notice shall be given in the manner specified in Section 11.3
of the Purchase Agreement.
4. Optional Prepayment.
-------------------
(a) Upon notice given to the Holder as provided in Section 4(b), and
subject to the Borrower obtaining such consent as is required pursuant to
Section 7(c) hereof and to the other provisions of Section 7 hereof, the
Borrower, at its option, may prepay all or any portion of this Note at any time,
by paying an amount equal to the outstanding principal amount of this Note, or
the portion of this Note called for prepayment, together with interest accrued
and unpaid thereon to the date fixed for prepayment, together with costs and
expenses (including, without limitation, reasonable fees, charges and
disbursements of counsel), if any, associated with such prepayment, without
penalty or premium; provided, however, each prepayment of less than the full
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outstanding principal balance of the Note shall be in an aggregate principal
amount of $500,000 or a whole multiple thereof.
(b) The Borrower may give written notice of prepayment of this Note or
any portion thereof not less than 10 nor more than 30 days prior to the date
fixed for such prepayment. Such notice of prepayment shall be given in the
manner specified in Section 11.3 of the Purchase Agreement. Upon
3
<PAGE>
notice of prepayment being given by the Borrower, the Borrower covenants and
agrees that it will prepay, on the date therein fixed for prepayment, this Note
or, if applicable, the portion hereof so called for prepayment at the
outstanding principal amount thereof of the portion thereof so called for
prepayment, together with interest accrued and unpaid thereon to the date fixed
for such prepayment, together with the costs and expenses referred to in Section
4(a) or 4(c).
(c) All optional prepayments under this Section 4 shall include
payment of accrued and unpaid interest on the principal amount so prepaid and
shall be applied first to all costs, expenses and indemnities payable under the
Purchase Agreement, then to payment of default interest, if any, then to payment
of accrued interest, and thereafter to principal.
5. Amendment. Amendments and modifications of this Note may be made only
---------
in the manner provided in Section 11.6 of the Purchase Agreement.
6. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default" shall occur if
-----------------
(i) the Borrower shall default in the payment of the principal
of this Note, when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise; or
(ii) the Borrower shall default in the payment of any
installment of interest on this Note according to its terms, when and
as the same shall become due and payable and such default shall
continue for a period of five days; or
(iii) the Borrower shall default in the due observance or
performance of any covenant to be observed or performed pursuant to
Sections 8.1, 8.2(a), 8.3 (except to the extent otherwise covered in
Sections 6(a)(i) and 6(a)(ii) above), 8.7, 8.9 or Article 9 of the
Purchase Agreement; or
(iv) the Borrower or any of its Subsidiaries shall default in
the due observance or performance of any other material covenant,
condition or agreement on the part of the Borrower, its parent or any
of its Subsidiaries to be observed or performed pursuant to the terms
hereof or pursuant to the terms of the Purchase Agreement or any of
the Transaction Documents (other than those referred to in clauses
(i), (ii) or (iii) of this Section 6(a)), and such default shall
continue for 30 days after the earlier of (A) the date the Borrower is
required pursuant to the Transaction Documents or otherwise to give
notice thereof to the Holder (whether or not such notice is actually
given) or (B) the date of written notice thereof, specifying such
default and, if such default is capable of being remedied, requesting
that the same be remedied, shall have been given to the Borrower by
the Holder; or
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<PAGE>
(v) any representation, warranty or certification made by or
on behalf of the Borrower or its Subsidiaries in the Purchase
Agreement, this Note, the Transaction Documents or in any certificate
or other document delivered pursuant hereto or thereto shall have been
incorrect in any material respect when made; or
(vi) any event or condition shall occur that results in (A) the
acceleration of the maturity of any Indebtedness of the Borrower or
any of its Subsidiaries, or (B) a default of any Indebtedness of the
Borrower or any of its Subsidiaries, in either case in a principal
amount aggregating $1,000,000 or more; or
(vii) any uninsured damage to or loss, theft or destruction of
any assets of the Borrower or any of its Subsidiaries shall occur that
is in excess of $250,000; or
(viii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (a) relief in respect of the Borrower or any of
its Subsidiaries, or of a substantial part of their property or
assets, under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (b) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Borrower or any of its Subsidiaries, or for a
substantial part of their property or assets, or (c) the winding up or
liquidation of the Borrower or any of its Subsidiaries; and in each
case such proceeding or petition shall continue undismissed for 60
days, or an order or decree approving or ordering any of the foregoing
shall be entered; or
(ix) the Borrower or any of its Subsidiaries shall (a)
voluntarily commence any proceeding or file any petition seeking
relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (b) consent to the
institution of, or fail to contest in a timely and appropriate manner,
any proceeding or the filing of any petition described in paragraph
(viii) of this Section 6(a), (c) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any of its
Subsidiaries, or for a substantial part of their property or assets,
(d) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (e) make a general assignment
for the benefit of creditors, (f) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or (g)
take any action for the purpose of effecting any of the foregoing; or
(x) one or more judgments for the payment of money in an
aggregate amount in excess of $100,000 (to the extent not covered by
insurance) shall be rendered against the Borrower or any of its
Subsidiaries and the same shall remain undischarged for a period of 30
days during which execution shall not be effectively stayed, or any
action shall
5
<PAGE>
be legally taken by a judgment creditor to levy upon assets or
properties of the Borrower or any of its Subsidiaries to enforce any
such judgment; or
(xi) any guaranty given by a Guarantor shall at any time after
its execution and delivery and for any reason cease to be in full
force and effect or shall be declared null and void, or the validity
or enforceability thereof shall be contested by any Guarantor or any
Guarantor shall deny it has any further liability or obligation
thereunder; or
(xii) the Guarantee and Collateral Agreement shall at any time
after its execution and delivery and for any reason cease to be in
full force and effect or shall be declared null and void, or the
validity or enforceability thereof shall be contested by the Borrower
or any Guarantor or the Borrower or any Guarantor shall deny it has
any further liability or obligation under such Agreement or the
Borrower or any Guarantor shall fail to perform any of its obligations
thereunder.
(b) Acceleration. If an Event of Default occurs under Section
------------
6(a)(viii) or (ix), then the outstanding principal of and all accrued interest
on this Note shall automatically become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived. If any other Event of Default occurs and is continuing the
Holder, by written notice to the Borrower may declare the principal of and
accrued interest on this Note to be immediately due and payable. Upon such
declaration, such principal and interest shall become immediately due and
payable. The Holder shall rescind an acceleration and its consequences if all
existing Events of Default have been cured or waived, except nonpayment of
principal or interest that has become due solely because of the acceleration,
and if the rescission would not conflict with any judgment or decree. Any
notice or rescission shall be given in the manner specified in Section 11.3 of
the Purchase Agreement.
7. Subordination.
-------------
(a) Anything contained in this Note to the contrary notwithstanding,
the indebtedness evidenced by this Note shall be subordinate and junior, to the
extent set forth in the following paragraph, to all Senior Indebtedness of the
Borrower. "Senior Indebtedness" shall mean the principal of, premium, if any,
-------------------
and interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect hereto, whether or not such interest is an allowed claim under
applicable law) on, and all reasonable fees, reimbursement and indemnity
obligations, and all other obligations (collectively hereinafter referred to as
the "Obligations") arising under or in connection with the Credit Agreements,
each dated as of September 13, 1999, among the Borrower, the other borrowers
thereunder and Brown Brothers Harriman & Co. (the "U.S. Credit Agreement") and
among NMT Neurosciences Implants (France) SA, the other borrower thereunder and
Brown Brothers Harriman & Co. (the "French Credit Agreement" and together with
the U.S. Credit Agreement, collectively, the "Credit Agreement") and the
Guarantee, dated as of September 13, 1999, among the Borrower and the other
guarantors thereunder in favor of Brown Brothers Harriman & Co. (the
"Guarantee") or any instruments, agreements or documents issued or executed in
connection therewith, as the same may be amended from
6
<PAGE>
time to time thereafter, together with any Obligations created or incurred in
connection with one or more restatements, renewals, extensions, restructurings,
refundings, replacements or refinancings of the Credit Agreement or the
Guarantee; provided, however, that the aggregate principal amount of Senior
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Indebtedness shall not exceed $13,000,000.
(A) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to the Borrower or
its creditors or its property, and in the event of any
proceedings for voluntary liquidation, dissolution or other
winding up of the Borrower, whether or not involving insolvency
or bankruptcy proceedings, then all Senior Indebtedness shall
first be paid in full in cash, before any payment, whether on
account of principal, interest or otherwise, is made upon this
Note.
(B) In any of the proceedings referred to in paragraph (A) above, any
payment or distribution of any kind or character, whether in
cash, property, stock or obligations which may be payable or
deliverable in respect of this Note shall be paid or delivered
directly to the holders of Senior Indebtedness for application in
payment thereof, unless and until all Senior Indebtedness shall
have been paid in full in cash and all obligations to provide
financial accommodations to the Borrower pursuant to the Credit
Agreement shall have been terminated; provided, however, that (i)
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the Holder may receive securities that are subordinate to the
Senior Indebtedness to at least the same extent as this Note if
pursuant to such proceedings the distributions to the holders of
the Senior Indebtedness in the form of cash, securities or other
property, by set-off or otherwise, provide for payment of the
full amount of the allowed claim of the holders of the Senior
Indebtedness, and (ii) if payment or delivery by the Borrower of
cash, securities or other property to the Holder is authorized by
an order or decree giving effect, and stating in such order or
decree that the effect is given, to the subordination of this
Note to the Senior Indebtedness, and made by a court of competent
jurisdiction in such proceeding, payment or delivery by the
Borrower of such cash, securities or other property shall be made
to the Holder in accordance with such order or decree.
(C) No payment shall be made, directly or indirectly, on account of
this Note upon maturity of any Senior Indebtedness, whether as a
result of the lapse of time, acceleration or otherwise, unless
and until all principal thereof and interest thereon and all
other Obligations in respect thereof shall first be paid in full
in cash and all obligations to provide financial accommodations
to the Borrower pursuant to the Credit Agreement shall have been
terminated.
(D) Upon receipt by the Borrower and the Holder of a Blockage Notice
(as defined below), then the Borrower shall not make, directly or
indirectly, to the Holder any
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payment of any kind of or on account of all or any part of this
Note and the Holder shall not accept from the Borrower any
payment of any kind of or on account of all or any part of this
Note prior to the expiration of the Blockage Period (as defined
below), unless and until (i) the Senior Default (as defined
below) to which the Blockage Notice refers shall have been cured
or waived or shall have ceased to exist or (ii) all such Senior
Indebtedness shall have been paid in full in cash and all
obligations to provide financial accommodations to the Borrower
pursuant to the Credit Agreement shall have been terminated; it
being understood that (x) in the case of a Blockage Notice which
refers to a Nonmonetary Default (as defined below) not more than
two (2) such Blockage Notices may be given during any period of
360 days, provided that if such Blockage Notices are given in a
manner which creates a continuous Blockage Period, then such
continuous Blockage Period shall be limited to 150 days, and (y)
if a Blockage Notice which refers to a Senior Payment Default (as
defined below) and a Blockage Notice which refers to any Senior
Default are given in a manner which creates a continuous Blockage
Period, then such continuous Blockage Period shall be limited to
360 days.
For purposes of this Section 7, the following terms have the
meanings specified below:
"Blockage Notice" shall mean written notice of the occurrence and
continuance of a Senior Default delivered to the Borrower and the
Holder.
"Blockage Period" shall mean the period commencing upon the
receipt by the Borrower and the Holder of a Blockage Notice and
having a duration of:
(i) 360 days if the Senior Default to which the Blockage
Notice refers is a Senior Payment Default; or
(ii) 120 days if the Senior Default to which the Blockage
Notice refers is a Nonmonetary Default.
"Nonmonetary Default" shall mean an event of default or any event
or circumstance (other than a Senior Payment Default) with
respect to any Senior Indebtedness permitting (after notice or
lapse of time or both if required) one or more holders of such
Senior Indebtedness to declare such Senior Indebtedness due and
payable prior to the date on which it is otherwise due and
payable or to suspend the providing of credit to the Borrower
pursuant to any agreements relating to such Senior Indebtedness.
"Senior Default" shall mean a Senior Payment Default or a
Nonmonetary Default.
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"Senior Payment Default" shall mean any default in payment of any
principal of, premium, if any, or interest on or any other
obligations payable in respect of Senior Indebtedness when the
same becomes due and payable (other than at maturity, whether as
a result of the lapse of time, acceleration or otherwise).
(E) As long as any Senior Indebtedness or any obligation to provide
financial accommodations to the Borrower pursuant to the Credit
Agreement remains outstanding, upon the occurrence of an Event of
Default under this Note, the Holder shall not, unless any holder
of Senior Indebtedness shall have caused such Senior Indebtedness
to become due prior to its stated maturity or any of the
proceedings referred to in paragraph (A) above shall have been
commenced, demand, receive, retain, sue for or otherwise seek
enforcement or collection of any amounts payable on account of
principal of or interest on this Note or otherwise take any
action against the Borrower to enforce its rights under the
Purchase Agreement and this Note or applicable law prior to the
expiration of 120 days after written notice of intention to
accelerate on account of the occurrence of such Event of Default
shall have been given by the Holder to the Borrower and the
holders of the Senior Indebtedness (the "Remedy Standstill
Period"). Upon the expiration or termination of any Remedy
Standstill Period, the Holder may exercise its rights under this
Note other than the right to accelerate the maturity date of this
Note based upon the occurrence of any Event of Default which has
been cured or otherwise remedied during the Remedy Standstill
Period.
(b) Subject to the payment in full in cash of all Senior Indebtedness
and the termination of all obligations to provide financial accommodations to
the Borrower pursuant to the Credit Agreement, the Holder shall be subrogated to
the rights of the holders of Senior Indebtedness to receive payments or
distributions of any kind or character, whether in cash, property, stock or
obligations, which may be payable or deliverable to the holders of Senior
Indebtedness, until the principal of, and interest on, this Note shall be paid
in full in cash, and, as between the Borrower, its creditors other than the
holders of Senior Indebtedness, and the Holder, no such payment or distribution
made to the holders of Senior Indebtedness by virtue of this Section 7 which
otherwise would have been made to the Holder shall be deemed a payment by the
Borrower on account of the Senior Indebtedness, it being understood that the
provisions of this Section 7 are and are intended solely for the purposes of
defining the relative rights of the Holder, on the one hand, and the holder of
the Senior Indebtedness, on the other hand. Subject to the rights under this
Section 7 of holders of Senior Indebtedness to receive cash, property, stock or
obligations otherwise payable or deliverable to the Holder, nothing herein shall
(i) impair, as between the Borrower and the Holder, the obligation of the
Borrower, which is unconditional and absolute, to pay to the Holder the
principal hereof and interest hereon in accordance with its terms, or (ii)
prevent (except as otherwise specified therein) the Holder from exercising all
remedies otherwise permitted by applicable law or hereunder upon default
hereunder, or (iii) affect the relative rights of the Holder and creditors of
the Borrower other than holders of Senior Indebtedness.
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(c) If any payment or distribution of any character or any security,
whether in cash, securities or other property, shall be received by the Holder
in contravention of any of the terms hereof or the Borrower shall prepay all or
any portion of this Note in accordance with Section 4 hereof without the Holder
having received the prior written consent of the holders of the Senior
Indebtedness, in each case before all the Senior Indebtedness obligations have
been paid in full in cash and all obligations to provide financial
accommodations to the Borrower pursuant to the Credit Agreement have been
terminated, such payment or distribution or security shall be received in trust
for the benefit of, and shall be paid over or delivered and transferred to, the
holders of the Senior Indebtedness at the time outstanding in accordance with
the priorities then existing among such holders for application to the payment
of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all
such Senior Indebtedness in full in cash and, in such event, any such payment or
distribution so paid over, delivered or transferred shall not, as between the
Borrower and its creditors on the one hand, and the Holder on the other hand, be
deemed a payment by Borrower on account of this Note.
(d) The rights under these subordination provisions of the holders of
any Senior Indebtedness as against the Holder shall remain in full force and
effect without regard to, and shall not be impaired or affected by:
(i) any act or failure to act on the part of the Borrower; or
(ii) any extension or indulgence in respect of any payment or
prepayment of any Senior Indebtedness or any part thereof or in
respect of any other amount payable to any holder of any Senior
Indebtedness; or
(iii) any amendment, modification or waiver of, or addition or
supplement to, or deletion from, or compromise, release, consent or
other action in respect of, any of the terms of any Senior
Indebtedness or any other agreement which may be made relating to any
Senior Indebtedness; or
(iv) any exercise or non-exercise by the holder of any Senior
Indebtedness of any right, power, privilege or remedy under or in
respect of such Senior Indebtedness or these subordination provisions
or any waiver of any such right, power, privilege or remedy or of any
default in respect of such Senior Indebtedness or these subordination
provisions or any receipt by the holder of any Senior Indebtedness of
any security, or any failure by such holder to perfect a security
interest in, or any release by such holder of, any security for the
payment of such Senior Indebtedness; or
(v) any merger or consolidation of the Borrower or any of its
subsidiaries into or with any other person, or any sale, lease or
transfer of any or all of the assets of the Borrower or any of its
subsidiaries to any other person; or
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(vi) any absence of any notice to, or knowledge by, the Holder
of any claim hereunder of the existence or occurrence of any of the
matters or events set forth in the foregoing clauses (i) through (v).
(e) To the extent permitted by applicable law, the Holder
unconditionally waives (i) notice of any of the matters referred to in Section
7(d); (ii) all notices which may be required, whether by statute, rule of law or
otherwise, to preserve intact any rights of any holder of any Senior
Indebtedness, including, without limitation, any demand, presentment and
protest, proof of notice of nonpayment under any Senior Indebtedness, and notice
of any failure on the part of the Borrower to perform and comply with any
covenant, agreement, term or condition of any Senior Indebtedness; (iii) any
right to the enforcement, assertion or exercise by any holder of any Senior
Indebtedness of any right, power, privilege or remedy conferred in such Senior
Indebtedness or otherwise; (iv) any requirements of diligence on the part of any
holder of any of the Senior Indebtedness; (v) any requirement on the part of the
holder of any Senior Indebtedness to mitigate damages resulting from any default
under such Senior Indebtedness; and (vi) any notice of any sale, transfer or
other disposition of any Senior Indebtedness by any holder thereof.
(f) The obligations of the Holder under these subordination
provisions shall continue to be effective, or be reinstated, as the case may be,
if at any time any payment in respect of any Senior Indebtedness, or any other
payment to any holder of any Senior Indebtedness in its capacity as such, is
rescinded or must otherwise be restored or returned by the holder of such Senior
Indebtedness upon the occurrence of any proceeding referred to in paragraph 7(a)
(A) or upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, the Borrower or any
substantial part of its property or otherwise, all as though such payment had
not been made.
(g) Notwithstanding anything to the contrary herein, the Borrower
shall not, as long as any Senior Indebtedness remains outstanding or any
obligation to provide financial accommodations to the Borrower pursuant to the
Credit Agreement remains outstanding, offer (and the Holder shall not at any
such time accept) any pledge of collateral with respect to the obligations of
the Borrower under this Note, provided that the foregoing shall not prevent any
subsidiary of the Borrower from guaranteeing the obligations of the Borrower
under this Note.
(h) The provisions of this Section 7 are for the benefit of the
holders from time to time of the Senior Indebtedness and, as long as any Senior
Indebtedness or any obligations to provide financial accommodations to the
Borrower pursuant to the Credit Agreement remains outstanding, may not be
modified, rescinded or canceled in whole or in part without the prior written
consent thereto of the holders of the Senior Indebtedness.
(i) The Borrower and the Holder hereby expressly agree that the
holders of the Senior Indebtedness may enforce any and all rights derived herein
by suit, either in equity or law, for specific performance of any agreement
contained in this Section 7 or for judgment at law and any other relief
whatsoever appropriate to such action or procedure.
11
<PAGE>
(j) The Holder acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an inducement and a
consideration to each holder of Senior Indebtedness, and each holder of the
Senior Indebtedness shall be deemed conclusively to have relied upon such
subordination provisions in acquiring or continuing to hold such Senior
Indebtedness.
(k) The failure to make a payment on account of principal of or
interest on or other amounts constituting Subordinated Indebtedness by reason of
any provision of this Section 7 shall not be construed as preventing the
occurrence of an Event of Default under Section 6.
8. Use of Proceeds. The Borrower shall use the principal from this Note
---------------
(a) for the payment of fees and expenses in connection with the transactions
contemplated under the Transaction Documents and (b) to fund the purchase price
of the Acquisition under the Elekta Purchase Agreement.
9. Suits for Enforcement.
---------------------
(a) Subject to Section 7, upon the occurrence of any one or more
Events of Default, the Holder of this Note may proceed to protect and enforce
its rights hereunder by suit in equity, action at law or by other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in the Purchase Agreement or this Note or in aid of the exercise of
any power granted in the Purchase Agreement or this Note, or may proceed to
enforce the payment of this Note, or to enforce any other legal or equitable
right of the Holders of this Note.
(b) In case of any default under this Note, the Borrower will pay to
the Holder such amounts as shall be sufficient to cover the reasonable costs and
expenses of such Holder due to such default, as provided in Article 7 of the
Purchase Agreement.
10. Remedies--Cumulative. No remedy herein conferred upon the Holder is
--------------------
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
11. Remedies Not Waived. No course of dealing between the Borrower and
-------------------
the Holder or any delay on the part of the Holder in exercising any rights
hereunder shall operate as a waiver of any right.
12. Transfer.
--------
(a) The term "Holder" as used herein shall also include any transferee
of this Note whose name has been recorded by the Borrower in the Note Register.
Each transferee of this Note acknowledges that this Note has not been registered
under the Securities Act, and may be transferred only pursuant to an effective
registration under the Securities Act or pursuant to an applicable exemption
from the registration requirements of the Securities Act.
12
<PAGE>
(b) The Borrower shall maintain a register (the "Note Register") in
its principal offices for the purpose of registering the Note and any transfer
thereof, which register shall reflect and identify, at all times, the ownership
of any interest in the Note. Upon the issuance of this Note, the Borrower shall
record the name of the initial purchaser of this Note in the Note Register as
the first Holder. Upon surrender for registration of transfer or exchange of
this Note at the principal offices of the Borrower, the Borrower shall, at its
expense, execute and deliver one or more new Notes of like tenor and of
denominations of at least $500,000 (except as may be necessary to reflect any
principal amount not evenly divisible by $500,000) of a like aggregate principal
amount, registered in the name of the Holder or a transferee or transferees.
Every Note surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by written instrument of transfer duly executed by
the Holder of such Note or such Holder's attorney duly authorized in writing.
13. Replacement of Note. On receipt by the Borrower of an affidavit of an
-------------------
authorized representative of the Holder stating the circumstances of the loss,
theft, destruction or mutilation of this Note (and in the case of any such
mutilation, on surrender and cancellation of such Note), the Borrower, at its
expense, will promptly execute and deliver, in lieu thereof, a new Note of like
tenor. If required by the Borrower, such Holder must provide an indemnity bond
or other indemnity sufficient in the judgment of the Borrower to protect the
Borrower from any loss which it may suffer if a lost, stolen or destroyed Note
is replaced.
14. Covenants Bind Successors and Assigns. All the covenants,
-------------------------------------
stipulations, promises and agreements in this Note contained by or on behalf of
the Borrower shall bind its successors and assigns, whether so expressed or not.
15. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
16. Headings. The headings in this Note are for convenience of
---------
reference only and shall not limit or otherwise affect the meaning hereof.
NMT MEDICAL, INC.
By: /s/ Thomas M. Tully
-------------------------
Name: Thomas M. Tully
Title: President
13
<PAGE>
EXHIBIT 10.9
________________________________________________________________________________
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of August 27, 1999
between
NMT Medical, Inc. (the "Lender")
and
Image Technologies Corporation (the "Borrower")
________________________________________________________________________________
<PAGE>
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Amended and Restated Loan and Security Agreement, dated as of August
27, 1999, is between NMT Medical, Inc. (f/k/a Nitinol Medical Technologies,
Inc.), a Delaware corporation having a principal place of business at 27
Wormwood Street, Boston, Massachusetts 02210-1625 (the "Lender") and Image
Technologies Corporation, a Delaware corporation having a principal place of
business at 27 Wormwood Street, Boston, Massachusetts 02210-1625 (the
"Borrower").
RECITALS
--------
WHEREAS, the Lender and the Borrower are parties to that certain Loan and
Security Agreement dated as of May 29, 1997, as amended by Amendment No. 1
dated as of December 30, 1998 ("Amendment No. 1"), Amendment No. 2 dated as of
February 3, 1999 ("Amendment No. 2") and Amendment No. 3 dated as of July 14,
1999 ("Amendment No. 3"; the Loan and Security Agreement, Amendment No. 1,
Amendment No. 2 and Amendment No. 3 referred to collectively as the "Loan and
Security Agreement"), pursuant to which the Lender has provided the Borrower
with an approximately $2,100,000 revolving working capital line of credit for
the operation of the Borrower's business;
WHEREAS, the Lender has advanced $2,100,000 to the Borrower under such line
of credit and no additional advances are expected to be made hereunder;
WHEREAS, the Borrower, the Lender and Argo Capital Partners I L.P., a
Delaware limited partnership ("Argo") are entering into a Note Purchase
Agreement of even date herewith (such Note Purchase Agreement, together with any
addendum entered into pursuant to Section 1.4 thereof referred to collectively
as the "Note Purchase Agreement"), pursuant to which the Borrower will issue and
sell to Argo, and Argo will purchase from the Borrower, convertible notes in the
aggregate principal amount of $2,000,000, which notes will be secured pursuant
to the terms and conditions of the Argo Security Documents (as defined below);
and
WHEREAS, the parties hereto wish to further amend the Loan and Security
Agreement to reflect the extension of the full credit commitment to the Borrower
by the Lender and the transactions contemplated by the Note Purchase Agreement.
NOW, THEREFORE, in consideration of the undertakings set forth herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement:
"Agreement" means this Amended and Restated Loan and Security Agreement, as
it may be amended or modified and in effect from time to time.
"Argo Notes" means (i) the Senior Secured Convertible Note, Series A of the
Borrower, of even date herewith, payable to Argo in the aggregate principal
amount of $1,500,000, (ii) the Senior Secured Convertible Note, Series B of the
Borrower, of even date herewith, payable to Argo in the aggregate principal
amount of $500,000, and (iii) any Supplemental Series A Notes (as defined in the
Note Purchase Agreement) issued pursuant to Section 1.4 of the Note Purchase
Agreement.
"Argo Security Documents" means (i) the Security Agreement, of even date
herewith, between the Borrower and Argo, (ii) the Guarantee, of even date
herewith, executed by Robert Lee Thompson and Pinotage for the benefit of Argo
and (iii) the Security Agreement, of even date herewith, between Argo, Robert
Lee Thompson and Pinotage.
"Business Day" means, with respect to any borrowing or payment, a day other
than Saturday or Sunday on which banks are open for business in Boston,
Massachusetts.
"Code" means the Uniform Commercial Code of the jurisdiction with respect
to which such term is used, as in effect from time to time.
"Collateral" shall have the meaning assigned to such term in Article IV
hereof.
"Default" means any of the events specified in Article VII, whether or not
any requirement for the giving of notice, lapse of time, or both, or any other
condition has been satisfied.
"Event of Default" shall have the meaning set forth in Article VII.
"GAAP" means generally accepted accounting principles consistent with those
from time to time adopted by the Financial Accounting Standards Board, or its
successor.
2
<PAGE>
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantors" means Robert Lee Thompson and Pinotage.
"Guarantee" means the Amended and Restated Guarantee, of even date
herewith, in substantially the form attached hereto as Exhibit B, executed by
---------
Robert Lee Thompson and Pinotage in favor of the Lender.
"Indebtedness" means all liabilities, obligations and indebtedness of any
and every kind and nature, including, without limitation, all liabilities and
all obligations to general creditors (other than trade payables), whether now or
hereafter owing, arising, due or payable, from Borrower to any Person and
howsoever evidenced, created, incurred, acquired or owing, whether primary,
secondary, direct, contingent, fixed or otherwise.
"Intellectual Property Assignments" means those Grants of Security Interest
in substantially the form attached hereto as Exhibits E(1) and E(2), executed
------------- ----
and delivered by the Borrower in favor of the Lender.
"Intercreditor Agreement" means the intercreditor agreement, of even date
herewith, by and between the Lender and Argo in substantially the form attached
hereto as Exhibit F.
---------
"Interest Payment Date" means, subject to Section 9.5, each March 31, June
30, September 30 and December 31, beginning March 31, 2001, and the Payment
Date.
"Lender Guarantees" shall have the meaning assigned to such term in Article
II hereof.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge, levy, execution,
seizure, attachment, garnishment, security interest or other encumbrance or any
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever.
"Loan" means the loan made to Borrower from Lender pursuant to this
Agreement in the aggregate principal amount of $2,100,000.
3
<PAGE>
"Loan Documents" means this Agreement, the Guarantee, the Security
Agreement, the Note, the Intellectual Property Assignments and all other
documents, agreements or instruments executed or delivered in connection with
any of the foregoing.
"Loan Parties" means the Borrower, any Guarantor, or any other Person that
guarantees or grants a Lien to secure the Note or the Obligations or any part
thereof; individually, a "Loan Party."
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, operations or financial or other condition of Borrower, (ii)
the Borrower's ability to pay the Obligations in accordance with the terms
thereof or (iii) the Collateral or the Lender's Liens on the Collateral or the
priority of such Liens.
"Note" has the meaning set forth in Section 2.1 of this Agreement, and as
such Note may be amended pursuant to Section 9.5 of this Agreement.
"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Note, all amounts due under the Lender Guarantees and all other
obligations, interest (including post-petition interest) (whether or not allowed
by applicable law), fees, charges and expenses of the Borrower to the Lender
arising under or in connection with the Loan Documents or the Lender Guarantees.
"Other Agreements" means all Supplemental Documentation, the Lender
Guarantees and all agreements, instruments and documents, including, without
limitation, notes, mortgages, deeds of trust, chattel mortgages, pledges, powers
of attorney, consents, assignments, contracts, notices, security agreements,
leases, financing statements, subordination agreements, trust account agreements
and all other written matter whether heretofore, now, or hereafter executed by
or on behalf of Borrower and delivered to the Lender with respect to this
Agreement.
"Payment Date" means December 31, 2002.
"Permitted Indebtedness" means the indebtedness or obligations described in
Section 6.11(a) of this Agreement.
"Permitted Liens" means the liens, mortgages, encumbrances, pledges and
other security interests described in clauses (i), (ii) and (iv) of Section
6.11(b) of this Agreement.
4
<PAGE>
"Person" means any corporation, natural person, firm, joint venture,
partnership, trust, unincorporated organization, enterprise, government or any
department or agency of any government.
"Pinotage" means Pinotage, L.L.C., an Arkansas limited liability company.
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, statute, ordinance, code, order, decree, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"Security Agreement" means the Amended and Restated Security Agreement in
substantially the form attached hereto as Exhibit C, executed by Robert Lee
---------
Thompson and Pinotage in favor of the Lender.
"Series A Preferred" means the Series A Convertible Preferred Stock, $0.01
par value per share, of the Borrower.
"Solvent" means, with respect to any Person on a particular date, the
condition that on such date, (a) the fair value of the property of such Person
is greater than the total amount of liabilities, including contingent
liabilities, of such Person, (b) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liabilities of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature, and (d) such Person is not engaged in any business or a
transaction, and is not about to engage in any business or a transaction, for
which such Person's property would constitute an unreasonably small amount of
capital. Contingent liabilities shall be computed as the amount which, in light
of the relevant facts and circumstances, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Stockholders Option Agreement" means the Amended and Restated Stockholders
Option Agreement, dated as of March 30, 1999, by and among the Borrower, each of
the stockholders named therein and the Lender, as it may be amended or modified
and in effect from time to time.
"Supplemental Documentation" means agreements, instruments, documents,
financing statements, warehouse receipts, bills of lading, notices of assignment
of
5
<PAGE>
accounts, schedules of accounts assigned, mortgages and other written matter
necessary or requested by the Lender to perfect and maintain perfected the
Lender's security interest in the Collateral.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing. All other undefined terms contained in this Agreement shall,
unless the context indicates otherwise, have the meanings provided for by the
Code as in effect in the Commonwealth of Massachusetts to the extent the same
are used or defined therein. The words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole, including the
Exhibits and Schedules hereto, as the same may from time to time be amended,
modified or supplemented and not to any particular section, subsection or clause
contained in this Agreement.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter.
ARTICLE II
THE LOAN
--------
2.1. The Loan. On the terms and conditions set forth in this Agreement,
--------
the Lender has made the Loan to the Borrower. The Loan is evidenced by two
promissory notes, one in the original principal amount of $2,000,000 (the
"$2,000,000 Note"), and one in the original principal amount of $100,000 (the
"$100,000 Note"), both executed and delivered by the Borrower in substantially
the form of Exhibit A(1) and A(2) hereto (referred to collectively as the
---------------------
"Note"). The Borrower shall repay the aggregate outstanding principal amount of
the Loan together with all accrued but unpaid interest due on the Loan and all
other amounts owing under this Agreement or the Loan Documents or the Lender
Guarantees on the Payment Date.
2.2. Interest.
--------
(a) Interest Rates and Payments. The Loan, and the amount due under
---------------------------
any Lender Guarantee, shall accrue interest at a rate per annum equal to ten
percent (10%)
6
<PAGE>
(the "Interest Rate"). Subject to Section 9.5 of this Agreement, interest on the
Loan shall be payable quarterly in arrears on each Interest Payment Date.
(b) Interest Basis. Interest shall be calculated for actual days
--------------
elapsed on the basis of a 360-day year unless such calculation would result in a
usurious rate of interest in which case interest shall be calculated on the
basis of a 365 or 366 day year, as the case may be. Interest shall be payable
for the day the Loan is made but not for the day of any payment on the amount
paid if payment is received prior to noon (local time) at the place of payment.
If any payment of principal of or interest on the Loan shall become due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day and, in the case of a principal payment, such extension of time
shall be included in computing interest in connection with such payment.
2.3. Method of Payment. All payments of principal, interest and fees
-----------------
hereunder shall be made in immediately available funds in United States Dollars
to the Lender at the Lender's address specified pursuant to Section 10.14 of
this Agreement, by noon (local time) on the date when due. Beginning January 1,
2001, the Loan may be prepaid in whole or in part without penalty.
2.4. Lender Guarantees. The Lender may, in its sole discretion, agree, on
-----------------
the terms and conditions set forth in this Agreement, to guarantee obligations
of the Borrower under (i) that certain Lease by and between the Borrower and
Wormwood Realty Trust for the lease of premises located at 27 Wormwood Street,
Boston, Massachusetts and (ii) that certain Equipment Lease by and between the
Borrower and BancBoston Leasing, which guarantees in an aggregate amount shall
not exceed $1.2 million and shall be on terms and conditions acceptable to the
Lender, in its sole discretion (the "Lender Guarantees"). The Borrower shall
repay to the Lender any amounts paid under the Lender Guarantees, together with
all accrued interest thereon, no later than the Payment Date. Unless otherwise
agreed by the parties, all Lender Guarantees issued by the Lender hereunder
shall terminate on the Payment Date. The Borrower acknowledges and agrees that
in the event the Lender is required to make any payments under Lender's
guarantee of the Lease described above, the Borrower shall, at the request of
the Lender, assign all of its rights, including occupancy, under the Lease to
the Lender and promptly vacate the leased premises, as provided in that certain
agreement, dated as of May 29, 1997, by and between the Lender and the Borrower.
ARTICLE III
CONDITIONS PRECEDENT
--------------------
7
<PAGE>
Simultaneous with the execution and delivery of this Agreement, the
Borrower shall furnish to the Lender, or caused to be furnished to the Lender
(unless otherwise waived by the Lender), the following, in a form and substance
reasonably satisfactory to the Lender and its counsel:
(a) the Note;
(b) the Security Agreement and the Guarantee, together with written
documentation satisfactory to Lender evidencing that Lender holds a
perfected security interest in the collateral securing such Guarantee;
(c) each of the other Loan Documents;
(d) a certificate of the Secretary of the Borrower: (1) certifying that
attached thereto are true and correct copies of documents evidencing
all corporate action taken to authorize this transaction and (2)
giving the name, position and signature specimen of all authorized
officers;
(e) the written opinion of counsel to the Borrower, addressed to the
Lender in the form attached hereto as Exhibit D;
---------
(f) written documentation satisfactory to Lender evidencing that Lender
holds a perfected security interest in the Collateral junior only to
the Permitted Liens; and
(g) such other documents as Lender or its counsel may reasonably request.
ARTICLE IV
GRANT OF SECURITY INTEREST
--------------------------
4.1 To secure payment and performance when due of all Obligations, the
Borrower hereby grants to the Lender a security interest in all of the
following, whether now owned or hereafter acquired by the Borrower:
(a) Inventory, including but not limited to all inventory, supplies, raw
materials, work in process, goods, merchandise, finished inventory and
other tangible personal property held by the Borrower for sale or for
lease, furnished or to be furnished under contracts of service, or
used or consumed in the Borrower's business, goods in transit, any and
all returned
8
<PAGE>
or repossessed inventory or merchandise and all documents of title
(whether negotiable or non-negotiable) representing any of the
foregoing, and all proceeds thereof; and
(b) Accounts, including but not limited to all accounts, all rights of the
Borrower to payment for goods sold or leased or for services rendered,
and all accounts receivable of the Borrower; all obligations owing to
the Borrower evidenced by an instrument or chattel paper; all rights
of the Borrower to payment under a contract not yet earned by
performance; all obligations owing to the Borrower of any kind or
nature, including all writings, if any, evidencing the same, including
all instruments, drafts, acceptances and chattel paper; and any and
all proceeds of any of the foregoing. Further included within the term
"Accounts" are all right, title and interest of Borrower in and to the
inventory which gave rise to any Account (including the right of
stoppage in transit), all guaranties of, and security and liens with
respect to, any Account, and all Accounts, and Documents of Borrower
as defined in the Uniform Commercial Code; and
(c) Instruments and Chattel Paper, including all instruments and chattel
paper as defined in the Uniform Commercial Code and all proceeds
thereof; and
(d) General Intangibles, including, but not limited to, all general
intangibles as defined in the Uniform Commercial Code and all proceeds
thereof, including without limitation, any and all contract rights,
any and all rights of Borrower to any refund of any tax assessed
against Borrower or paid by Borrower, loss carry-back tax refunds,
insurance premium rebates, unearned premiums, insurance proceeds,
choses in action, names, trade names, goodwill, trade secrets,
computer programs, computer records, data, computer software, customer
lists, patents, patent rights, patent applications, patents pending,
patent licenses or assignments, development ideas and concepts,
licenses, permits, franchises, telephone numbers, literary rights,
rights to performance, trademarks, trademark applications, trademark
rights, logos, intellectual property, technology, trade secrets,
technical information, copyrights, proprietary or other processes,
blueprints, drawings, designs, diagrams, plans, reports, charts,
catalogs, manuals, research, literature, proposals, cost estimates,
routes, and other reproductions on paper or otherwise, of any and all
concepts or ideas, whether or not related to the business or
operations of Borrower, and including the patents and trademarks
listed on Schedule I hereto; and
----------
9
<PAGE>
(e) Equipment, including but not limited to all equipment, vehicles,
machinery, tools, furniture, fixtures, trade fixtures and parts.
Further included within the term "Equipment" is all tangible personal
property utilized in the conduct of the Borrower's business (but
excluding any property hereinbefore defined as "Inventory") and all
additions, accessions, substitutions, components, and replacements
thereto, therefor and thereof and all proceeds thereof; and
(f) Investment Property (as defined in Article 8 of the Uniform Commercial
Code); and
(g) All other tangible and intangible property of the Borrower; and
all products and proceeds of all of the above subclauses (a) through (g),
including insurance proceeds (collectively, the "Collateral").
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants to the Lender that on the date hereof:
5.1. Organization; Good Standing. The Borrower is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified and in good standing in
every other jurisdiction where it is doing business.
5.2. Executive Offices. The location of the Borrower's chief executive
-----------------
office, principal place of business, other offices and places of business and of
the Borrower's Accounts and Inventory are set forth on Schedule 5.2 hereto, and
------------
are the sole offices and places of business of Borrower.
5.3. Corporate Power; Authorization; Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by Borrower of the Loan Documents and Other
Agreements, to the extent it is a party thereto, and the creation of all Liens
provided for herein and therein: (i) are within Borrower's corporate power;
(ii) have been, and will be, duly authorized by all necessary or proper action;
(iii) are not in contravention of any provision of Borrower's by-laws or
charter; (iv) will not violate any Requirement of Law; (v) will not conflict
with or result in the breach or termination of, constitute a default under, or
accelerate any performance required by, any indenture, mortgage, deed of
10
<PAGE>
trust, lease, agreement or other instrument to which Borrower is a party or by
which Borrower or any of its property is bound (except for such conflict,
breach, termination, default or acceleration as could not reasonably be expected
to have a Material Adverse Effect or which has been waived or consented to);
(vi) will not result in the creation or imposition of any Lien upon any of the
property of Borrower other than those in favor of the Lender, all pursuant to
the Loan Documents; and (vii) do not require the consent or approval of any
Governmental Authority or any other Person except such consents as have been
obtained and are in effect. Each of the Loan Documents has been duly executed
and delivered for the benefit of or on behalf of Borrower and each constitutes a
legal, valid and binding obligation of Borrower, enforceable against it in
accordance with its terms.
5.4. Title; No Other Liens. Except for the security interest granted to
---------------------
the Lender pursuant to this Agreement and as listed in Schedule 5.4, the
------------
Borrower owns each item of the Collateral free and clear of any and all Liens,
encumbrances or claims of others. No financing statement, Lien instrument or
other public notice with respect to all or any part of the Collateral is on file
or of record in any public office, except such as have been filed in favor of
the Lender pursuant to this Agreement and as listed in Schedule 5.4.
------------
5.5. Perfected Liens. The security interests granted pursuant to this
---------------
Agreement (a) upon completion of the filings and other actions specified on
Schedule 5.5(a) (which, in the case of all filings and other documents referred
- ---------------
to on such Schedule, have been delivered to the Lender in completed and duly
executed form) will constitute valid perfected security interests in all of the
Collateral in favor of the Lender, as collateral security for the Obligations,
enforceable in accordance with the terms hereof against all creditors of the
Borrower and any Persons purporting to purchase any Collateral from the Borrower
and (b) are prior to all other Liens on the Collateral in existence on the date
hereof except for Liens described on Schedule 5.5(b).
---------------
5.6. Solvency. As of the date hereof, after giving effect to the
--------
transactions contemplated by the Loan Documents, the Borrower will be Solvent.
5.7. Other Representations and Warranties in Note Purchase Agreement. All
---------------------------------------------------------------
of the representations and warranties of the Borrower set forth in Section 3 of
the Note Purchase Agreement are true and correct as if made on the date hereof.
ARTICLE VI
COVENANTS
---------
11
<PAGE>
Unless the Lender shall otherwise consent in writing, while the Note or any
Obligations remain outstanding to the Borrower under this Agreement or any other
agreement, note, document or instrument with the Lender, Borrower covenants and
agrees with the Lender that from and after the date of this Agreement until the
Obligations shall have been paid in full:
6.1. Covenants in Loan Document. Borrower shall take, or shall refrain
--------------------------
from taking, as the case may be, each action that is necessary to be taken or
not taken, as the case may be, so that no Default or Event of Default is caused
by the failure to take such action.
6.2. Delivery of Instruments and Chattel Paper. If any amount payable
-----------------------------------------
under or in connection with any of the Collateral shall be or become evidenced
by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
immediately delivered to the Lender, duly endorsed in a manner satisfactory to
Lender, to be held as Collateral pursuant to this Agreement.
6.3. Maintenance of Insurance.
------------------------
(a) The Borrower will maintain, with financially sound and reputable
companies, insurance policies (i) insuring the Inventory and Equipment
against loss by fire, explosion, theft and such other casualties as
may be reasonably satisfactory to the Lender and (ii) to the extent
requested by the Lender, insuring the Borrower and the Lender against
liability for personal injury and property damage relating to such
Inventory and Equipment, such policies to be in such form and amounts
and having such coverage as may be reasonably satisfactory to the
Lender.
(b) All such insurance shall (i) provide that no cancellation, reduction
in amount or change in coverage thereof shall be effective until at
least 30 days after receipt by the Lender of written notice thereof,
(ii) name the Lender as insured party or loss payee, (iii) if
reasonably requested by the Lender, include a breach of warranty
clause and (iv) be reasonably satisfactory in all other respects to
the Lender.
(c) The Borrower shall deliver to the Lender a report of a reputable
insurance broker with respect to such insurance during the month of
April in each calendar year and such supplemental reports with respect
thereto as the Lender may from time to time reasonably request.
12
<PAGE>
6.4. Payment of Obligations. The Borrower will pay and discharge or
----------------------
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if the amount or validity thereof is currently being
contested in good faith by appropriate proceedings, reserves in conformity with
GAAP with respect thereto have been provided on the books of the Borrower and
such proceedings could not reasonably be expected to result in the sale,
forfeiture or loss of any material portion of the Collateral or any interest
therein.
6.5. Maintenance of Perfected Security Interest; Further Documentation.
-----------------------------------------------------------------
(a) The Borrower shall maintain the security interest and shall defend
such security interest against the claims and demands of all Persons
whomsoever.
(b) The Borrower will furnish to the Lender from time to time statements
and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Lender
may reasonably request, all in reasonable detail.
(d) At any time and from time to time, upon the written request of the
Lender, and at the sole expense of the Borrower, the Borrower will
promptly and duly execute and deliver and have recorded, such further
instruments and documents and take such further actions as the Lender
may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing
or continuation statements under the Uniform Commercial Code (or
other similar laws) in effect in any jurisdiction with respect to the
security interests created hereby and complying with the Federal
Assignment of Claims Act.
(d) A photographic or other reproduction of this Agreement shall be
sufficient as a financing statement or other filing or recording
document or instrument for filing or recording in any jurisdiction.
6.6. Changes in Locations, Name, Etc. The Borrower will not, except upon
--------------------------------
30 days prior written notice of and delivery to the Lender of (a) all additional
executed financing statements and other documents reasonably requested by the
Lender to maintain the validity, perfection and priority of the security
interests provided for herein
13
<PAGE>
and (b) if applicable, a written supplement to Schedule 5.2 showing any
additional location at which such Borrower's Inventory or Equipment shall be
kept:
(i) permit any of the Inventory or Equipment to be kept at a
location other than those listed on Schedule 5.2;
------------
(ii) change the location of its chief executive office from that
referred to in this Agreement; or
(iii) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Lender in connection with this
Agreement would become misleading.
6.7. Notices. The Borrower will advise the Lender immediately in
-------
reasonable detail of:
(a) any Lien on any of the Collateral;
(b) any Default or Event of Default; and
(c) the occurrence of any other event which could reasonably be expected
to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.
6.8. Intellectual Property.
---------------------
(a) The Borrower will (i) continue to use each trademark on each and every
trademark class of goods applicable to its current line as reflected
in its current catalogs, brochures and price lists in order to
maintain such trademark in full force free from any claim of
abandonment for non-use, (ii) maintain as in the past the quality of
products and services offered under such trademark, (iii) use such
trademark with the appropriate notice of registration and all other
notices or legends required by applicable Requirements of Law, (iv)
not adopt or use any mark which is confusingly similar or a colorable
imitation of such trademark unless the Lender shall obtain a perfected
security interest in such mark pursuant to this Agreement, and (v) not
(and not permit any licensee or sublicensee, thereof to) do any act or
knowingly omit to do any act whereby such trademark may become
invalidated or impaired in any way.
14
<PAGE>
(b) The Borrower will not do any act, or omit to do any act, whereby any
patent may become abandoned or dedicated to the public.
(c) The Borrower (either itself or through licensees) will not infringe
upon the intellectual property rights of any other Person.
(d) The Borrower will notify the Lender immediately if it knows or has
reason to know, that any application or registration relating to any
material intellectual property may become forfeited, abandoned or
dedicated to the public, or of any adverse determination or
development (including, without limitation, the institution of, or any
such determination or development in, any proceeding in the United
States Patent and Trademark Office, the United States Copyright Office
or any court or tribunal in any country) regarding the Borrower's
ownership of, or the validity of, any material intellectual property
or such Borrower's right to register the same or to own and maintain
the same.
(e) Whenever the Borrower, either by itself or through any agent,
employee, licensee or designee, shall file an application for the
registration of any intellectual property with the United States
Patent and Trademark Office, the United States Copyright Office or any
similar office or agency in any other country or any political
subdivision thereof, the Borrower shall report such filing to the
Lender within five Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon the request of the Lender,
the Borrower shall execute and deliver, and have recorded, any and all
agreements, instruments, documents and papers as the Lender may
request to evidence the Lender's security interest in any patent or
trademark and the goodwill and general intangibles of such Grantor
relating thereto or represented thereby.
(f) The Borrower will take all reasonable and necessary steps, including
without limitation, in any proceeding before the United States Patent
and Trademark Office, or any similar office or agency in any other
country or any political subdivision thereof, to maintain and pursue
each application (and to obtain the relevant registration) and to
maintain each registration of the intellectual property, including,
without limitation, filing of applications for renewal, affidavits of
use and affidavits of incontestability.
(g) In the event that any intellectual property is infringed,
misappropriated or diluted by a third party, the Borrower shall (i)
take such actions as the Borrower shall reasonably deem appropriate
under the circumstances to
15
<PAGE>
protect such intellectual property and (ii) if such intellectual
property is of material economic value, promptly notify the Lender
after it learns thereof and sue for infringement, misappropriation or
dilution, to seek injunctive relief where appropriate and to recover
any and all damages for such infringement, misappropriation or
dilution.
6.9. Landlord and Warehouseman Waivers. The Borrower shall deliver to the
---------------------------------
Lender waivers of contractual and statutory landlord's, landlord's mortgagee's
and warehouseman's Liens in form and substance satisfactory to the Lender under
each existing lease, warehouse agreement or similar agreement to which the
Borrower is a party. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of Lender's agents or processors, the
Lender shall notify such warehouseman, bailee, agent or processor of the
security interests created hereby and to hold all such Collateral for the
Lender's account subject to the Lender's instructions.
6.10. Transactions with Affiliates. Borrower shall not make any payments
----------------------------
or distributions of any kind to any shareholder of the Borrower or any
affiliates of such shareholder on account of stock ownership. Borrower shall not
enter into any transaction for the purchase, sale or exchange of property or the
rendering of any service to or for any shareholder or director of the Borrower,
or any affiliate of such person or entity, unless such transactions are in the
ordinary course of Borrower's business and are upon fair and reasonable terms no
less favorable to Borrower than Borrower would obtain in a comparable arm's
length transaction with an unaffiliated person.
6.11. Indebtedness and Liens.
----------------------
(a) The Borrower will not create, incur, assume, guarantee or become
liable, contingently or otherwise, with respect to any indebtedness or
obligation, except (i) Indebtedness which is subordinated to the Obligations,
provided the terms of such Indebtedness, including the terms of subordination
- --------
thereof, are satisfactory to the Lender, in its sole discretion, in all
respects; (ii) current liabilities of the Borrower incurred in the ordinary
course of business consistent with past practice and not incurred through the
borrowing of money or the obtaining of credit (except credit on an open account
customarily extended); (iii) Indebtedness in respect of taxes or other
governmental charges being contested in good faith by the appropriate
proceedings; (iv) operating leases entered into by the Borrower in the ordinary
course, provided such operating leases shall not cause an Event of Default
--------
herein; (vi) Indebtedness pursuant to the terms and conditions of the Note
Purchase Agreement; and (vii) such other Indebtedness described on Schedule 5.4
------------
hereto.
16
<PAGE>
(b) The Borrower will not create, incur or allow to be created or
exist any Lien, encumbrance, mortgage, pledge or other security interest of any
kind upon any of its assets, except (i) Liens securing the Obligations; (ii)
Liens securing taxes or governmental charges not yet due; (iii) Liens securing
obligations under the Note Purchase Agreement; or (iv) Liens described on
Schedule 5.4 hereto.
- ------------
6.12. Issuance of Securities. Borrower will not authorize or issue, or
----------------------
enter into any agreement for the authorization or issuance of, any shares of any
class or series of stock of the Borrower or any rights, options or warrants to
subscribe for, purchase or otherwise acquire common stock or other capital stock
of the Borrower or any evidences of indebtedness, shares or other securities
directly or indirectly convertible into or exchangeable or exercisable for
common stock or other capital stock of the Borrower, other than (i) up to an
aggregate of 200,000 shares of common stock issued pursuant to the Borrower's
1997 Stock Option Plan as in effect on the date hereof, (ii) shares of Series A
Preferred (and shares of common stock issuable upon conversion thereof) issued
pursuant to this Agreement, (iii) any warrants issuable to Junewicz & Company
("Junewicz", and all such warrants referred to collectively as the "Junewicz
Warrants") pursuant to that certain engagement letter dated May 23, 1997 between
the Company and Junewicz (and shares of Common Stock issuable upon exercise
thereof), (iv) the Argo Notes (and shares of Common Stock issuable upon
conversion thereof), (v) shares of Series A Preferred (and shares of Common
Stock issuable upon conversion thereof) issued to the Lender pursuant to Section
1.2 and 1.4 of the Note Purchase Agreement and (vi) shares of Common Stock
issuable to Argo pursuant to Sections 1.4 of the Note Purchase Agreement.
6.13. Inspection. Borrower will keep accurate and complete records of
----------
the Collateral, and Lender or any of its agents shall have the right, upon
reasonable notice, to inspect the Collateral wherever located and to visit
Borrower's place or places of business, at intervals to be determined by Lender
and without Borrower's hindrance or delay, to inspect, audit, check and make
extracts from any copies of books, records, journals, orders, receipts and
correspondence that relate to the Collateral or to the general financial
condition of Borrower. Lender may temporarily remove any of the Borrower's
records for the purpose of having copies made thereof.
Borrower hereby authorizes the Lender to communicate directly with its
independent certified public accountants and authorizes those accountants to
disclose to the Lender any and all financial statements and other supporting
financial documents and schedules.
6.14. Taxes. Borrower will pay all real and personal property taxes,
-----
assessments and charges as well as all franchise, income, unemployment, old age
benefit,
17
<PAGE>
withholding, sales and other taxes assessed against it, or payable by it at such
times and in such manner as to prevent any penalty from accruing or any lien or
charge from attaching to its property, and will furnish the Lender upon request,
receipts, or other evidence that deposits or payments have been made.
6.15. Sales. Borrower will not sell or dispose of any of its assets,
-----
including the Collateral, except in the ordinary and usual course of its
business.
6.16. Reimbursement. Borrower will reimburse Lender on demand for any
-------------
sums paid or advanced by Lender to satisfy any tax, lien or security interest or
other encumbrance on the Collateral, to provide insurance on the Collateral or
to pay for the maintenance and preservation of the Collateral; provided however,
-------- -------
that Lender shall not be obligated to make any such payments or deposits. Any
such sums paid or advanced by Lender shall be deemed secured by the Collateral
and constitute part of the Obligations.
6.17. Solvency. Borrower will remain Solvent.
--------
ARTICLE VII
DEFAULTS
--------
The occurrence of any one or more of the following events shall constitute
an Event of Default, without further notice or demand:
7.1. Any representation or warranty made or deemed made by the Borrower or
any other Loan Party in this Agreement, the Other Agreements, any Loan Document,
the Series A Purchase Agreement, the Stockholders Option Agreement, or in any
certificate, document or financial or other statement furnished by it at any
time under or in connection with this Agreement, the Other Agreements, any other
Loan Document, the Series A Purchase Agreement or the Stockholders Option
Agreement shall prove to have been incorrect in any material respect on or as of
the date made or deemed made.
7.2. Nonpayment of principal of or interest on the Note when due.
7.3. The breach by the Borrower, or by any other Loan Party, of any
covenant or agreement contained in this Agreement, the Series A Purchase
Agreement or the Stockholders Option Agreement.
7.4. There shall have occurred a default or an event of default under any
of the Loan Documents or under any other agreement, instrument or document with
respect to
18
<PAGE>
borrowed money to which the Borrower is a party, including the Note Purchase
Agreement, the Argo Security Documents or the Argo Notes.
7.5. The Borrower or any other Loan Party shall (i) have an order for
relief entered with respect to it under the Federal bankruptcy laws as now or
hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii)
apply for, seek, consent to, acquiesce in, or have appointed for it or any
substantial portion of its property a receiver, custodian, trustee, examiner,
liquidator or similar official for it or any substantial part of its property,
(iv) institute any proceeding seeking an order for relief under the Federal
bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (v) take any corporate or
other action to authorize or effect any of the foregoing actions set forth in
this Section 7.5, (vi) generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due, or (vii) cease to be
Solvent.
7.6. Any of the Loan Documents shall cease, for any reason, to be in full
force and effect, or the Borrower or any other Loan Party which is a party to
any Loan Document shall so assert or the Lien created by any Loan Document shall
cease to be enforceable and of the same effect and priority purported to be
created thereby.
7.7. One or more judgments or decrees shall be entered against the Borrower
or any other Loan Party involving in the aggregate a liability (not paid or
fully covered by insurance) of $250,000 or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending appeal
within thirty days from the entry thereof.
7.8 The Guarantee shall cease, for any reason, to be in full force and
effect or any Guarantor shall so assert.
ARTICLE VIII
ACCELERATION AND REMEDIES
-------------------------
8.1. Acceleration. If any Event of Default described in Sections 7.4 or
------------
7.5 occurs with respect to the Borrower, the Obligations shall immediately
become due and payable without any election, notice or action on the part of the
Lender. If any other Event of Default occurs, the Lender may declare the
Obligations to be due and payable, whereupon the Obligations shall become
immediately due and payable, without
19
<PAGE>
presentment, demand, protest or notice of any kind, all of which the Borrower
hereby expressly waives.
8.2. Preservation of Rights; No Adverse Impact. No delay or omission of
-----------------------------------------
the Lender to exercise any right under this Agreement or any of the Loan
Documents, shall impair such right or be construed to be a waiver of any Event
of Default or an acquiescence therein. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents, whatsoever shall be valid unless
in writing signed by the Lender, and then only to the extent in such writing
specifically set forth. All remedies contained in the Loan Documents, or by law
afforded shall be cumulative and all shall be available to the Lender until the
Obligations have been paid in full.
8.3. Remedies.
--------
(a) If an Event of Default shall occur and be continuing, the Lender
may exercise, in addition to all other rights and remedies granted to it under
this Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the Uniform Commercial Code or any other applicable law. Without limiting the
generality of the foregoing, the Lender may, upon an Event of Default, proceed
to protect and enforce the Lender's rights by suit in equity, action of law
and/or other appropriate proceeding either for specific performance of any
covenant or condition contained in this Agreement, any Loan Document or in any
instrument or document delivered to the Lender pursuant hereto, or in the
exercise of any rights, remedies or powers granted in this Agreement, any Loan
Document and/or any such instrument or document.
(b) The Lender may enter and take possession of all Collateral and the
premises on which they are located, and in the Lender's sole discretion operate
and use Borrower's equipment, whether or not Collateral hereunder, complete work
in process, without being liable to Borrower on account of any losses, damage or
depreciation that may occur as a result thereof so long as Lender shall act
reasonably and in good faith; and at the Lender's option and without notice to
Borrower (except as specifically herein provided) Lender may sell, lease, assign
and deliver the whole or any part of the Collateral, or any substitute therefor
or any addition thereto, at public or private sale, for cash, upon credit, or
for future delivery, at such prices and upon such terms as Lender deems
advisable, including without limitation, the right to sell or lease in
conjunction with other property, real or personal, and allocate the sale or
lease proceeds among the items of property sold without the necessity of the
Collateral being present at any such sale or lease, or in view of prospective
purchasers thereof. Lender shall give Borrower at
20
<PAGE>
least ten (10) days' notice by hand delivery or by United States first-class
mail, postage prepaid (in which event notice shall be deemed to have been given
when so deposited in the mail), to the address specified herein, of the time and
place of any public or private sale or other disposition unless the Collateral
is perishable, threatens to decline speedily in value, or is the type
customarily sold in a recognized market. Upon such sale, Lender may become the
purchaser of the whole or any part of the Collateral, discharged from all claims
and free from any right of redemption. In case of any such sale by Lender of all
or any of said Collateral on credit or for future delivery, property so sold may
be retained by Lender until the selling price is paid by the purchaser. Lender
shall incur no liability in case of the failure of the purchaser to take up and
pay for the property so sold. In case of any such failure, the said property may
again be sold.
(c) The Lender, for a term to commence on the date of the occurrence
of an Event of Default and continuing thereafter until all debts and Obligations
of any kind or character owing from Borrower to Lender are fully paid and
discharged, may enter and use all premises or places of business which Borrower
presently has or may hereafter have and where any of said Collateral may be
located, and the Lender may use all machinery and equipment owned or leased by
Borrower and all goodwill, patent rights, trade names, or logos, whether or not
Collateral hereunder.
(d) Borrower will assemble the Collateral in a single location at a
place to be designated by Lender and make the Collateral at all times secure and
available to Lender.
(e) Following the occurrence of an Event of Default, at Borrower's
expense, the Lender in its own name or in the name of others may communicate
with account debtors in order to verify with them to Lender's satisfaction the
existence, amount and terms of any accounts or contract rights and also notify
account debtors that Collateral has been assigned to Lender and that payments
shall be made directly to Lender. Upon request of Lender, Borrower will so
notify such account debtors and will indicate on all billings to such account
debtors that their accounts must be paid to Lender. Borrower does hereby
appoint Lender and its agents as Borrower's attorney-in-fact: to collect,
compromise, endorse, sell or otherwise deal with the Collateral or proceeds
thereof in its own name or in the name of the Borrower; to endorse the name of
Borrower upon any notes, checks, drafts, money orders, or other instruments,
documents, receipts or Collateral that may come into its possession and to apply
the same in full or part payment of any amounts owing to Lender; to sign and
endorse the name of Borrower upon any documents, instruments, drafts against
account debtors, assignments, verifications and notices in connection with
Accounts, and any instrument or document relating thereto or to Borrower's
rights therein; and to give written notice to any office and officials of the
United States Post Office to effect such
21
<PAGE>
change or changes of address that all mail addressed to Borrower may be
delivered directly to Lender. Borrower hereby grants to its said attorney-in-
fact full power to do any and all things necessary to be done in and about the
premises as fully and effectually as Borrower might or could do, and hereby
ratifies all that its attorney-in-fact shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and is
irrevocable for the term of this Agreement for all transactions hereunder and
thereafter as long as Borrower may be indebted to Lender. For the purpose of
enabling the Lender, during the continuance of an Event of Default, to exercise
rights and remedies hereunder at such time as the Lender will be lawfully
entitled to exercise such rights and remedies, and for no other purpose, the
Borrower hereby grants to the Lender, to the extent assignable, an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to the Borrower), until the Obligations are paid in full, to use,
assign, license or sublicense any of the intellectual property now owned or
hereafter acquired by the Borrower, wherever the same may be located, including
in such license reasonably access to all media in which any of the licensed
items may be recorded or stored and to all computer programs used for the
compilation or printout thereof.
8.4. Application of Proceeds. Any and all proceeds of any Collateral
------------------------
realized or obtained by the Lender upon exercise of its rights and remedies
hereunder, shall be applied to the amounts outstanding under this Agreement or
any other Loan Document, after payment of any and all costs and expenses, fees
and commissions and taxes of such sale, collection or other realization, in
accordance with the following:
(a) Any and all proceeds of any Collateral shall first be applied to the
payment of any and all expenses (including reasonable attorneys'
fees), charges or other amounts which may be due and owing under this
Agreement or the Loan Documents; and
(b) Any and all proceeds of any Collateral remaining after application as
provided in paragraph (a) above shall first be applied to the payment
of principal, interest and all other amounts outstanding under the
Note or under the Loan Documents; and
(c) Any surplus remaining after application as provided in paragraphs (a)
and (b) above shall be paid to the Borrower, or its successors or
assigns, or to whomsoever may be lawfully entitled to receive the
same.
8.5 Deficiency. The Borrower shall remain liable for any deficiency if
----------
the proceeds of any sale or other disposition of the Collateral are insufficient
to pay its
22
<PAGE>
Obligations and the fees and disbursements of any attorneys employed by the
Lender to collect such deficiency.
8.6 Remedies Cumulative. All remedies available under this Agreement are
-------------------
cumulative and the exercise of any one remedy shall not preclude the exercise of
any other remedy hereunder.
ARTICLE IX
CONVERSION
----------
9. Optional Conversion. The Note shall be subject to optional
-------------------
conversion, at the Lender's option, as set forth below (the "Conversion
Rights"):
9.1 Right to Convert. The outstanding principal amount of the Note shall
----------------
be convertible, at the option of the Lender, in whole or in part, at any time
and from time to time prior to December 31, 2000, into fully paid and
nonassessable shares of Series A Preferred in accordance with the provisions set
forth below. The principal amount of the $2,000,000 Note to be converted shall
be convertible into the number of shares of Series A Preferred obtained by
dividing the principal amount of the $2,000,000 Note by $2.54 (as adjusted for
stock splits and similar events) and the principal amount of the $100,000 Note
to be converted shall be convertible into the number of shares of Series A
Preferred obtained by dividing the principal amount of the $100,000 Note by
$9.97 (as adjusted for stock splits and similar events).
9.2 Fractional Shares. No fractional shares of Series A Preferred shall
-----------------
be issued upon conversion of any portion of the Note, but the Note will be
marked to reflect a credit for the amount of the Note converted in respect of
which any fraction of a share would otherwise be issuable upon conversion of
such portion of the Note. Such credit shall be based on the fair market value
of the Series A Preferred at the time of conversion of any portion of the Note,
as determined in good faith by the Board of Directors.
9.3 Mechanics of Conversion.
-----------------------
(a) In order for the Lender to convert any portion of the Note into
shares of Series A Preferred, the Lender shall deliver to the Borrower, during
usual business hours at the Borrower's principal executive offices, written
notice of its election to convert the portion of the Note specified in such
notice, into shares of Series A Preferred. Such notice shall also state the name
or names (and addresses) in which the Lender wishes the certificate or
certificates for shares of Series A Preferred which shall be issuable on such
conversion to be issued. Such conversion shall be deemed to have been
23
<PAGE>
made at the time the notice specified above shall have been received by the
Borrower at its principal executive office (the "Conversion Date"), and the
holder in whose name any certificate or certificates for shares of Series A
Preferred shall be issuable upon such conversion shall be deemed to have become
on the Conversion Date the holder of record of the shares represented thereby.
The Borrower shall, as soon as practicable after the Conversion Date (and, in
any event, within five Business Days), issue and deliver to the Lender, or to
its nominees, a certificate or certificates for the number of shares of Series A
Preferred to which the Lender shall be entitled. If less than the entire
outstanding principal amount of the Note is being converted, the Note shall
promptly be marked to reflect a credit for the amount of the Note so converted.
(b) The Lender shall, at all times prior to January 1, 2001, reserve
and keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Note such number of its duly authorized shares
of Series A Preferred as shall from time to time be sufficient to effect the
conversion of the Note.
(c) The Borrower shall pay any and all issue and other taxes that may
be payable in respect of any issuance or delivery of shares of Series A
Preferred pursuant to this Article IX.
9.4 Mergers and Consolidations. If, prior to January 1, 2001, the
--------------------------
Borrower shall at any time consolidate or merge with, or otherwise combine with,
another corporation (other than a merger or consolidation in which the Borrower
is the surviving corporation), the Lender will thereafter be entitled to
receive, upon the conversion of any portion of the Note, the securities or
property to which a holder of the number of shares of Series A Preferred then
deliverable upon the conversion of the Note would have been entitled upon such
consolidation, merger or combination, and the Borrower shall take such steps in
connection with such consolidation, merger or combination as may be necessary to
ensure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter
deliverable upon the conversion of the Note.
9.5 Accrued Interest. Upon the conversion of any portion of the Loan, the
----------------
Borrower shall not be required to pay any accrued but unpaid interest on the
amount so converted up to the Conversion Date. In the event the Note is not
converted on or prior to December 31, 2000, on January 1, 2001 all accrued but
unpaid interest on the Note up to such date will be added to the principal
amount of the Note and the Note will be amended to reflect such increase.
9.6 Securities Act of 1933. Upon conversion of any portion of the Note,
----------------------
the Lender may be required to execute and deliver to the Borrower an instrument,
in form
24
<PAGE>
satisfactory to the Borrower, representing that the shares issuable upon
conversion of the Note are being acquired for investment and not with a view to
distribution within the meaning of the Securities Act of 1933, as amended.
ARTICLE X
GENERAL PROVISIONS
------------------
10.1. Survival of Representations. All representations and warranties of
---------------------------
the Borrower contained in this Agreement shall survive delivery of the Note.
10.2. Headings. Section headings in this Agreement are for convenience of
--------
reference only, and shall not govern the interpretation of any of the provisions
of this Agreement.
10.3. Entire Agreement. The Loan Documents and the Note Purchase
----------------
Agreement embody the entire agreement and understanding between the Borrower and
the Lender and supersede all prior agreements and understandings between the
Borrower and the Lender, including the Loan and Security Agreement, relating to
the subject matter hereof.
10.4. No Third-Party Beneficiary. This Agreement shall not be construed
--------------------------
so as to confer any right or benefit upon any Person other than the parties to
this Agreement and their respective successors and assigns.
10.5. Expenses. All expenses (including, without limitation, all
--------
reasonable attorneys' fees and expenses) incurred in connection with preparing,
executing and delivering this Agreement and the Loan Documents and all related
instruments and documents executed and delivered in connection herewith, and in
connection with any and all amendments and/or modifications of the Loan
Documents shall be borne by the Borrower. Upon the occurrence of a Default, or
Event of Default that has occurred and is continuing, Borrower shall pay to
Lender on demand all expenses incurred in connection with the collection and
enforcement of all Obligations under the Loan Documents, including, without
limitation, all reasonable attorneys' fees and expenses, and all costs incurred
by Lender in connection with the collection and enforcement of the Obligations
and in connection with any proceeding commenced by or against the Borrower under
Title 11 of the U.S. Code.
10.6. Indemnity. Borrower hereby indemnifies the Lender and its
---------
respective directors, officers, employees, affiliates and agents (collectively,
"Indemnified Persons") against, and agrees to hold each such Indemnified Person
harmless from, any and all losses, claims, costs, fees, expenses, damages and
liabilities, including claims brought by
25
<PAGE>
any officer, director or shareholder or former officer, director or shareholder
of the Borrower, and related expenses (including reasonable counsel fees and
expenses), incurred by such Indemnified Person arising out of any claim,
litigation, investigation or proceeding (whether or not such Indemnified Person
is a party thereto) relating to any transactions, services or matters that are
the subject of, or related to, the Loan Documents; provided, however, that such
-------- -------
indemnity shall not apply to any such losses, claims, costs, fees, expenses,
damages or liabilities determined by a court of competent jurisdiction to have
arisen from the gross negligence or willful misconduct of such Indemnified
Person. All amounts due hereunder shall be payable on demand, shall survive
repayment of the Note, and shall constitute Obligations secured by this
Agreement.
10.7. Severability of Provisions. Any provision in this Agreement that is
--------------------------
held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as
to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of this Agreement are declared to be severable.
10.8. CHOICE OF LAW. THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE
-------------
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF
LAWS THEREOF.
10.9. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO
-----------------------
THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS AND THE
UNITED STATES DISTRICT COURT OF MASSACHUSETTS FOR THE PURPOSE OF ANY SUIT,
ACTION OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF
THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE LENDER OR ANY
AFFILIATE OF THE LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY LOAN
26
<PAGE>
DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN THE COMMONWEALTH OF MASSACHUSETTS.
10.10. WAIVER OF JURY TRIAL. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN
--------------------
ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO,
OR CONNECTED WITH THIS AGREEMENT OR ANY LOAN DOCUMENT OR THE RELATIONSHIP
ESTABLISHED THEREUNDER.
10.11. Further Assurances. The Borrower, at its own expense, shall do,
------------------
make, execute and deliver all such additional and further acts, deeds,
assurances, documents, instruments and certificates as the Lender may reasonably
require, including, without limitation, (a) executing, delivering and filing
financial statements and continuation statements under the Code and grants of
security interests in patents, patent applications, trademarks, trademark
applications and other intellectual property of the Borrower, (b) obtaining
governmental and other third party consents and approvals, and (c) obtaining
waivers from mortgagees and landlords.
10.12. Set off. In addition to, and without limitation of, any rights of
-------
the Lender under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Event of Default occurs, any indebtedness from the Lender to
the Borrower may be offset and applied toward the payment of the Obligations
owing to the Lender, whether or not the Obligations, or any part hereof, shall
then be due.
10.13. Successors and Assigns. The terms and provisions of this Agreement
----------------------
and the Loan Documents shall be binding upon and inure to the benefit of the
Borrower and the Lender and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights or obligations under
the Loan Documents.
10.14. Giving Notice. All notices and other communications provided to
-------------
any party hereto under this Agreement or any other Loan Document shall be in
writing and shall be delivered by hand, sent by fax or overnight courier or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid, in each case addressed or delivered to such party at their
addresses set forth in the first paragraph of this Agreement, unless otherwise
designated in writing to the other parties hereto.
Notices provided in accordance with this Section 10.14 shall be deemed given (1)
when received, if sent by hand, (2) when received, if sent by fax prior to 5:00
p.m. local time at the place received (otherwise on the next following Business
Day), (3) one Business Day
27
<PAGE>
after delivery to a nationally reorganized overnight courier service and (4)
three Business Days after deposit in the U.S. mail, first class certified or
registered, postage prepaid.
10.15. Change of Address. The Borrower and the Lender may each change the
-----------------
address for service of notice upon it by a notice in writing to the other
parties hereto.
10.16. Amendments. The Lender and the Borrower may enter into written
----------
agreements supplemental hereto for the purpose of adding or modifying any
provisions to the Loan Documents or changing in any manner the rights of the
Lender or the Borrower hereunder or waiving any Default hereunder. To be
effective, any such amendment or waiver must be in writing and signed by the
Lender and the Borrower.
10.17. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart. This Agreement shall be effective when it has been executed by the
Borrower and the Lender.
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement as of the date first above written.
Borrower: IMAGE TECHNOLOGIES CORPORATION
27 Wormwood Street
Boston, MA 02210
By: /s/ James C. Torraco
---------------------
Name: James C. Torraco
Title: President
Lender: NMT MEDICAL, INC.
27 Wormwood Street
Boston, MA 02210
By: /s/ Thomas M. Tully
--------------------
Name: Thomas M. Tully
Title: President
28
<PAGE>
EXHIBIT 10.10
-------------
SECOND AMENDED AND RESTATED
STOCKHOLDERS' OPTION AGREEMENT
This Second Amended and Restated Stockholders' Option Agreement (the
"Agreement") is made this 27th day of August, 1999, by and among NMT Medical,
Inc. (f/k/a Nitinol Medical Technologies, Inc.), a Delaware corporation (the
"Purchaser"), Image Technologies Corporation, a Delaware corporation (the
"Company"), and the holders (the "Stockholders") of (1) the shares of common
stock, $.01 par value per share ("Common Stock"), (2) the warrants to purchase
shares of Common Stock ("Warrants"), of the Company listed on Schedule A hereto
----------
and (3) the Senior Secured Convertible Notes of the Company listed on Schedule A
----------
hereto (the "Notes"). All such shares of Common Stock, together with the
Warrants, are collectively referred to as the "Shares."
Recitals:
--------
WHEREAS, (a) the Purchaser and the Company entered into a Series A
Preferred Stock Purchase Agreement dated as of May 29, 1997 (the "Series A
Purchase Agreement"), pursuant to which the Purchaser purchased an aggregate of
345,722 shares of the Company's Series A Convertible Preferred Stock, $.01 par
value per share (the "Series A Preferred"), and (b) in connection with the
execution and delivery of the Series A Purchase Agreement, the Company, the
Purchaser and certain of the Stockholders entered into a Stockholders' Option
Agreement (the "Option Agreement") of even date therewith, and as subsequently
amended, providing the Purchaser with an option to purchase all Shares owned by
such Stockholders;
WHEREAS, in connection with the execution and delivery of that certain
Stock Purchase Agreement, dated as of March 30, 1999 (the "Purchase Agreement")
by and between the Company and Argo Capital Partners I L.P., a Delaware limited
partnership ("Argo Capital"), pursuant to which (a) Argo Capital purchased an
aggregate of 120,361 shares of Common Stock and (b) 39,159 shares of Series A
Preferred were issued to the Purchaser, the parties hereto entered into an
Amended and Restated Stockholders' Option Agreement dated as of March 30, 1999
(the "Amended and Restated Option Agreement") to, among other things, (x)
consent to any transfers of Shares made by Stockholders prior to the date
thereof and (y) include Argo Capital as a "Stockholder" and the Common Stock
issued or to be issued to Argo Capital as "Shares" for all purposes under the
Option Agreement.
WHEREAS, the Company, Argo Capital and the Purchaser are entering into a
Note Purchase Agreement of even date herewith (the "Note Purchase Agreement"),
pursuant to which the Company will issue and sell to Argo, and Argo will
purchase from the Company, the Notes; and
<PAGE>
WHEREAS, the parties wish to amend and restate the Amended and Restated
Option Agreement to, among other things, include the shares of Common Stock
issuable upon conversion of the Notes as "Shares" for all purposes hereunder.
NOW THEREFOR, in consideration of the mutual covenants contained herein and
for other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
STOCK OPTION
Section 1.1 Grant of Stock Option. Each of the Stockholders hereby grants
---------------------
to the Purchaser an irrevocable option (the "Option") to purchase all Shares
currently owned by such Stockholder as set forth on Schedule A hereto and any
----------
additional Shares acquired by such Stockholder (whether by purchase, dividend,
stock split, recapitalization or otherwise) after the date of this Agreement
(all such Shares being referred to as the "Stockholder's Shares" and,
collectively, as the "Stockholder Shares"). The aggregate purchase price payable
by the Purchaser for the Stockholder Shares is $24,500,000, to be paid pro rata
per Stockholder Share, thirty-two percent (32%) of which shall be paid in cash
and the balance of which shall be paid in shares of common stock, $.001 par
value per share, of the Purchaser (the "Purchaser Common Stock") (as it may be
adjusted pursuant to Section 1.6, collectively, the "Purchase Price"). For
purposes of the foregoing, the Purchaser Common Stock shall be valued at the
average of the closing prices of Purchaser Common Stock as reported by the
Nasdaq National Market System on each of the last ten trading days ending five
business days prior to the Closing (as defined below).
Section 1.2 Exercise of Option.
------------------
(a) The Option may be exercised by the Purchaser, in whole but
not in part, at any time after the date hereof and prior to December 1, 1999.
(b) In the event the Purchaser wishes to exercise the Option for
the Stockholder Shares, the Purchaser shall send a written notice (the "Exercise
Notice") to the Stockholders specifying the place, the date (not more than 120
days from the date of the Exercise Notice), and the time for the closing of such
purchase. The closing of the purchase of Stockholder Shares pursuant to this
Section 1.2(b) (the "Closing") shall occur at the place, on the date and at the
time designated by the Purchaser in its Exercise Notice, provided that if, at
the date of the Closing herein provided for, the conditions set forth in
Sections 1.4 and 1.5 shall not have been satisfied (or waived), the
-2-
<PAGE>
Purchaser may postpone the Closing until a date within five business days after
such conditions are satisfied. Any such postponement shall not relieve the
Stockholders of any liability for failure to meet the conditions specified in
Section 1.5 hereof.
(c) The Purchaser shall not be under any obligation to deliver an
Exercise Notice and may allow the Option to terminate without purchasing any
Stockholder Shares hereunder; provided, however, that once the Purchaser has
delivered to the Stockholders an Exercise Notice, subject to the terms and
conditions of this Agreement and the satisfaction of the provisions of Section
1.5 hereof, the Purchaser shall be bound to effect the purchase as described in
such Exercise Notice.
Section 1.3 Closing. At the Closing, (a) each Stockholder shall deliver
-------
to the Purchaser (in accordance with the Purchaser's instructions) a certificate
or certificates (the "Certificates") representing the number of such
Stockholder's Shares to be purchased at such Closing, duly endorsed or
accompanied by stock powers duly executed in blank and (b) the Purchaser shall
deliver to such Stockholder (i) a certified or bank cashier's check or checks
payable to or upon the order of such Stockholder in the amount set forth
opposite such Stockholder's name on Schedule A hereto and (ii) a certificate
----------
representing shares of Purchaser Common Stock valued in accordance with Section
1.1.
Section 1.4 Stockholder Conditions. The obligation of each Stockholder
----------------------
to sell Stockholder Shares at the Closing is subject to the following
conditions:
(i) The representations and warranties of the Purchaser contained
in Article IV shall be true and correct in all material respects on the
date thereof as if made on such date.
(ii) All waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act") applicable to the exercise of the
Option shall have expired or been terminated.
(iii) There shall be no preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent jurisdiction
or by a governmental, regulatory or administrative agency or commission,
nor any statute, rule, regulation or order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining the purchase
of the Stockholder Shares pursuant to the exercise of the Option.
(iv) All Stockholder Shares are purchased at the Closing.
-3-
<PAGE>
Section 1.5 Purchaser's Conditions. The obligation of the Purchaser to
----------------------
purchase the Stockholder Shares at the Closing is subject to the following
conditions:
(i) The representations and warranties of the Stockholders and
the Company contained in Article II and Article Ill, respectively, shall be
true and correct in all material respects on the date thereof as if made on
such date.
(ii) All waiting periods under the HSR Act applicable to the
exercise of the Option shall have expired or been terminated.
(iii) There shall be no preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent jurisdiction
or by a governmental, regulatory or administrative agency or commission,
nor any statute, rule, regulation or order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining the purchase
of the Stockholder Shares pursuant to the exercise of the Option.
(iv) The Company shall have complied with its covenants in Article
VI of this Agreement.
Section 1.6 Adjustment Upon Changes in Capitalization or Merger.
---------------------------------------------------
In the event of any change in the Company's capital stock by reason of
stock dividends, stock splits, mergers, consolidations, recapitalizations,
combinations, conversions, exchanges of shares, extraordinary or liquidating
dividends, or other changes in the corporate or capital structure of the Company
which would have the effect of diluting or changing the Purchaser's rights
hereunder, the number and kind of shares or securities subject to the Option and
the Purchase Price per Stockholder Share (but not the total Purchase Price)
shall be appropriately and equitably adjusted so that the Purchaser shall
receive upon exercise of the Option the number and class of shares or other
securities or property that the Purchaser would have received in respect of the
Stockholder Shares purchasable upon exercise of the Option if the Option had
been exercised immediately prior to such event. Each Stockholder shall take such
steps in connection with such consolidation, merger, liquidation or other such
action as may be necessary to assure that the provisions hereof shall thereafter
apply as nearly as possible to any securities or property thereafter deliverable
upon exercise of the Option.
ARTICLE II
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<PAGE>
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders severally represents and warrants to the Purchaser
as follows:
Section 2.1 Title to Shares. Such Stockholder has good and marketable
---------------
title to the Stockholder's Shares free and clear of any and all covenants,
conditions, restrictions, voting trust arrangements, liens, charges,
encumbrances, options and adverse claims or rights whatsoever. Schedule A
-----------
attached hereto sets forth a true and correct description of all shares of (and
rights to acquire) capital stock of the Company owned by such Stockholder.
Schedule B attached hereto is a true and complete list of the stockholders,
- -----------
optionholders, warrantholders and other security holders of the Company showing
(i) the number of shares of Common Stock, Preferred Stock or other securities or
rights of the Company held by each Stockholder as of the date of this Agreement
and the consideration paid to the Company, if any, therefore, and (ii) the fully
diluted percentage interest in the Company held by each Stockholder, after
giving effect to the transactions contemplated hereby and the exercise of all
options, warrants or other rights or securities convertible into or exchangeable
or exercisable for Common Stock or other securities of the Company (including
shares issued or issuable under the Company's 1997 Stock Option Plan and shares
issuable upon exercise of any warrants issued or issuable to Junewicz & Company
("Junewicz," and any such warrants referred to collectively as the "Junewicz
Warrants") pursuant to that certain engagement letter dated May 23, 1997 between
the Company and Junewicz (the "Junewicz Agreement") and (iii) the number of
shares of Common Stock or other securities of the Company issuable upon the
exercise of options, warrants or other rights held by each optionholder,
warrantholder or rights holder as of the date of this Agreement, together with
the grant date, exercise price, vesting schedule and expiration date of each
outstanding option, warrant or other right. Except as set forth on Schedule B,
----------
there are no shares of Common Stock, preferred stock or other securities or
capital stock of the Company issued or outstanding. Except as set forth on
Schedule B attached hereto (i) no subscription, warrant, option, convertible
- ----------
security or other right (contingent or otherwise) to purchase or acquire any
shares of capital stock of the Company is authorized or outstanding, (ii) the
Company has no obligation (contingent or otherwise) to issue any subscription,
warrant, option, convertible security or other such right or to issue or
distribute to holders of any shares of its capital stock any evidences of
indebtedness or assets of the Company and (iii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
-5-
<PAGE>
Section 2.2 Authority. Such Stockholder has the full right, power and
---------
authority to enter into this Agreement and to transfer, convey and sell to the
Purchaser at the Closing the Stockholder's Shares to be sold by such Stockholder
hereunder and, upon consummation of the purchase contemplated hereby, the
Purchaser will acquire from such Stockholder good and marketable title to such
Stockholder's Shares, free and clear of all covenants, conditions, restrictions,
voting trust arrangements, liens, charges, encumbrances, options and adverse
claims or rights whatsoever. Such Stockholder has duly executed and delivered
this Agreement and this Agreement constitutes the valid and binding obligation
of such Stockholder enforceable against such Stockholder in accordance with its
terms. The execution of and performance of the transactions contemplated by this
Agreement and compliance with its provisions by such Stockholder will not
violate any provision of law and will not conflict with or result in any breach
of any of the terms, conditions or provisions of, or constitute a default under,
or require a consent or waiver under, the Certificate of Incorporation or By-
Laws of the Company (each as amended to date) or any agreement or instrument to
which such Stockholder is a party or by which he or any of his properties is
bound, or any decree, judgment, order, statute, rule or regulation applicable to
such Stockholder.
Section 2.3 Government Consents. No consent, approval, order or
-------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of such
Stockholder or the Company in connection with the execution and delivery of this
Agreement or the transactions to be consummated at the Closing, as contemplated
by this Agreement (except that the pre-merger notification provisions of the HSR
Act may apply).
Section 2.4 Litigation. Such Stockholder is not a party to, subject to
----------
or bound by any agreement or any judgment, order, writ, prohibition, injunction
or degree of any court or other government body, and there is no action, suit or
proceeding or governmental inquiry or investigation pending which would prevent
the execution or delivery of this Agreement by such Stockholder or the transfer,
conveyance and sale of the Stockholder's Shares to be sold by such Stockholder
to the Purchaser pursuant to the terms hereof.
Section 2.5 Brokers. No broker or finder has acted for such Stockholder
-------
in connection with this agreement or the transactions contemplated hereby,
except that, pursuant to the Junewicz Agreement, a true and correct copy of
which is attached hereto as Schedule C, the Company has retained Junewicz in
----------
connection with the transactions contemplated by this Agreement and, except for
compensation due to Junewicz, no broker or finder is entitled to any brokerage
or finder's fee or other commissions in respect of such transactions based upon
agreements, arrangements or understandings made by or on behalf of such
Stockholder.
-6-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
Section 3.1 Authority. The execution, delivery and performance by the
---------
Company of this Agreement, and the consummation by the Company of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms. The execution of and performance of
the transactions contemplated by this Agreement and compliance with its
provisions by the Company will not violate any provision of law and will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or waiver
under, its Certificate of Incorporation or By- Laws (each as amended to date) or
any indenture, lease, agreement or other instrument to which the Company is a
party or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.
Section 3.2 Capitalization. The authorized capital stock of the Company
--------------
(immediately prior to the Closing) consists of 5,000,000 shares of common stock,
$0.01 par value per share (the "Common Stock"), of which 1,146,196 shares are
issued and outstanding, and 1,000,000 shares of Preferred Stock, $0.01 par value
per share, all of which 1,000,000 shares have been designated as Series A
Preferred, of which 345,722 shares are issued and outstanding. All of the
issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. The total number of shares
of Common Stock that may be issued under the 1997 Stock Option Plan is 200,000,
of which 134,200 shares are issuable pursuant to outstanding stock options. No
options to be issued pursuant to the 1997 Stock Option Plan will vest or become
exercisable prior to the expiration of the Option. Except as set forth in
Exhibit B hereto, (i) no subscription, warrant, option, convertible security or
- ---------
other right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, (ii) the Company has
no obligation (contingent or otherwise) to issue any subscription, warrant,
option, convertible security or other such right or to issue or distribute to
holders of any shares of its capital stock any evidences of indebtedness or
assets of the Company, and (iii) the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any shares of its capital
stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
-7-
<PAGE>
Section 3.3 Government Consents. No consent, approval, order or
-------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, or the
transactions to be consummated at the Closing, as contemplated by this
Agreement, except such filings as shall have been made prior to and shall be
effective on and as of the Closing (except that the pre-merger notification
provisions of the HSR Act may apply).
Section 3.4 Litigation. There is no action, suit or proceeding, or
----------
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company, which
questions the validity of this Agreement or the right of the Company to enter
into it.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to each of the Stockholders that the
Purchaser has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution, delivery and
performance by the Purchaser of this Agreement and the consummation by the
Purchaser of the transactions contemplated hereby (i) have been duly authorized
by the Board of Directors of the Purchaser and no other corporate action on the
part of the Purchaser is necessary to authorize the execution, delivery or
performance by the Purchaser of this Agreement and the consummation by the
Purchaser of the transactions contemplated hereby and (ii) will not result in a
violation of any order, writ, injunction, decree, statute, rule or regulation
applicable to the Purchaser (except that the pre-merger notification
requirements of the HSR Act may apply). This Agreement has been duly executed
and delivered by the Purchaser and is a valid and binding agreement of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights generally.
ARTICLE V
COVENANTS OF THE STOCKHOLDERS
Each of the Stockholders hereby covenants and agrees that:
-8-
<PAGE>
Section 5.1 No Proxies for or Encumbrances on Stockholder Shares. Except
----------------------------------------------------
as provided in this Agreement, such Stockholder shall not during the term of
this Agreement, without the prior written consent of the Purchaser, directly or
indirectly, (i) grant any proxies or enter into any voting trust or other
agreement or arrangement with respect to the voting of any Stockholder Shares or
(ii) sell, assign, transfer, encumber or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the
direct or indirect sale, assignment, transfer, encumbrance or other disposition
of, any Shares. Such Stockholder shall not seek or solicit any such sale,
assignment, transfer, encumbrance or other disposition or any such contract,
option or other arrangement or assignment or understanding and agrees to notify
the Purchaser promptly and to provide all details requested by the Purchaser if
such Stockholder shall be approached or solicited, directly or indirectly, by
any person with respect to any of the foregoing. Notwithstanding the foregoing,
the Purchaser hereby consents to the transfers, sales or other dispositions by
Stockholders of Stockholder Shares which have occurred between the period
beginning on May 29, 1997 and ending on the date of this Agreement and which are
reflected on the Schedule of Stockholder Shares on Schedule A hereto, and waives
any claims for breach of contract that it might have with respect to such
dispositions of Stockholder Shares made in violation of Section 5.1 of the
Option Agreement.
Section 5.2 No Shop. Such Stockholder shall not directly or indirectly
-------
(i) solicit, initiate or encourage (or authorize any person to solicit, initiate
or encourage) any inquiry, proposal or offer from any person to acquire the
business, property or capital stock of the Company or any direct or indirect
subsidiary thereof, or any acquisition of a substantial equity interest in, or a
substantial amount of the assets of, the Company or any direct or indirect
subsidiary thereof, whether by merger, purchase of assets, tender offer or other
transaction or (ii) participate in any discussion or negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or encourage any effort
or attempt by any other person to do or seek any of the foregoing. Such
Stockholder shall promptly advise the Purchaser of the terms of any
communications it may receive relating to any of the foregoing.
Section 5.3 Conduct of Stockholders. Such Stockholder will not (i) take,
-----------------------
agree or commit to take any action that would make any representation and
warranty of such Stockholder hereunder inaccurate in any respect as of any time
prior to the termination of this Agreement or (ii) omit, or agree or commit to
omit, to take any action necessary to prevent any such representation or
warranty from being inaccurate in any respect at any such time.
ARTICLE VI
-9-
<PAGE>
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees that during the term of this
Agreement, the Company shall not, without the prior written consent of the
Purchaser:
(a) authorize or issue, or enter into any agreement for the issuance
of, any shares of any class or series of stock of the Company or any rights,
options or warrants to subscribe for, purchase or otherwise acquire Common Stock
or any capital stock or other capital stock or securities of the Company or any
evidence of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable or exercisable for Common Stock of the Company
other than (i) up to an aggregate of 200,000 shares of Common Stock issued
pursuant to the Company's 1997 Stock Option Plan as in effect on the date
hereof, (ii) shares of Series A Preferred (and shares of Common Stock of the
Company issuable upon conversion thereof) issuable pursuant to the Series A
Purchase Agreement, (iii) shares of Series A Preferred (and shares of Common
Stock of the Company issuable upon conversion thereof) issued pursuant to the
Loan and Security Agreement and (iv) the Junewicz Warrants and shares of Common
Stock issuable upon exercise of the Junewicz Warrants;
(b) grant or award any option pursuant to the 1997 Stock Option Plan
that vests or becomes exercisable prior to the expiration of the Option or
accelerate the vesting of any such option prior to the expiration of the Option;
(c) grant or award any option pursuant to the 1997 Stock Option Plan
to either of Robert Lee Thompson or James C. Torraco;
(d) create, incur, assume, guarantee or become liable, contingently or
otherwise with respect to any indebtedness or obligation, other than pursuant to
the Loan and Security Agreement or in the ordinary course of business consistent
with past practice;
(e) create, incur or allow to be created or exist any lien,
encumbrance, mortgage, pledge or other security interest of any kind upon any of
its assets except (i) liens securing the obligations of the Company under the
Loan and Security Agreement, (ii) liens securing taxes or governmental charges
not yet due, or (iii) liens described on Schedule D hereto; or
----------
(f) enter into any agreement or arrangement relating to the patents,
patent applications, trademarks, service marks, trademark and service mark
applications, trade names, copyright registrations and licenses or other product
rights
-10-
<PAGE>
necessary for the conduct of the Company's business as conducted and as proposed
to be conducted which could adversely affect the Company's ownership interest or
rights therein.
ARTICLE VII
PURCHASER RIGHT OF FIRST REFUSAL
(a) In the event the Purchaser does not exercise the Option, then, in
such event, during the 12-month period commencing on the date of expiration of
the Option, the Company shall not enter into any agreement for the (i) sale of
all or substantially all of the capital stock of the Company, (ii) merger of the
Company with or into, or the consolidation of the Company with, any other
corporation, or any similar combination with any other corporation or (iii)
sale, lease or disposition of all or substantially all of the Company's
properties or assets (any such transaction referred to as a "Purchase
Transaction"), unless in each such case the Company shall have first complied
with this Agreement. The Company shall deliver to the Purchaser a written
notice of any proposed or intended Purchase Transaction (the "Offer"), which
Offer shall (i) identify and describe in reasonable detail the terms of the
proposed Purchase Transaction, (ii) describe in reasonable detail the price and
other terms of the proposed Purchase Transaction, (iii) identify by name the
persons or entities that will be parties to the proposed Purchase Transaction,
and (iv) offer to enter into an agreement with the Purchaser on the same terms
and conditions as the proposed Purchase Transaction. The Purchaser shall have
the right, for a period of sixty (60) days following receipt of such Offer, to
exercise its right to enter into an agreement with the Company on the same terms
and conditions specified in the Offer. The Offer by its term shall remain open
and irrevocable for such 60-day period.
(b) To accept the Offer, the Purchaser must deliver a written notice
to the Company, prior to the end of the 60-day period, setting forth its desire
to enter into an agreement with the Company at the price and upon the other
terms specified in the Offer.
(c) The obligation of the Purchaser to enter into an agreement with
the Company pursuant to the provisions of this Article VII is subject in all
cases to the preparation, execution and delivery by the Company and the
Purchaser of definitive agreements relating to such transaction reasonably
satisfactory in form and substance to the Purchaser and its counsel. Each party
agrees to negotiate diligently and in good faith to enter into such definitive
agreements.
-11-
<PAGE>
(d) The rights of the Purchaser under this Article VII shall only
apply in the event that the proposed Purchase Transaction is related to, results
from or follows any change, modification or amendment of, or waiver of rights
under, the License Agreement of even date herewith by and between the Company
and Robert Lee Thompson.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Expenses. All costs and expenses incurred in connection with
--------
this Agreement shall be paid by the party incurring such cost or expense;
provided, however, that Argo Capital's reasonable costs and expenses incurred in
connection with this Agreement shall be paid by the Company.
Section 8.2 Further Assurances. The Purchaser and the Stockholders will
------------------
each execute and deliver or cause to be executed and delivered all further
documents and instruments and use their respective best efforts to secure such
consents and take all such further action as may be reasonably necessary in
order to consummate the transactions contemplated hereby or to enable the
Purchaser and any assignee to exercise and enjoy all benefits and rights of the
Stockholders with respect to the Option and the Stockholder Shares.
Section 8.3 Additional Agreements. Subject to the terms and conditions
---------------------
of this Agreement, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations and which may be required under any agreements, contracts,
commitments, instruments, understandings, arrangements or restrictions of any
kind to which such party is a party or by which such party is governed or bound,
to consummate and make effective the transactions contemplated by this
Agreement.
Section 8.4 Remedies. The parties hereto agree that the Purchaser may be
--------
irreparably damaged if for any reason any Stockholder fails to sell such
Stockholder's Shares (or other securities deliverable pursuant to Section 1.6)
upon exercise of the Option or to perform any of its other obligations under
this Agreement, or if the Company fails to perform any of its obligations under
Article VII of this Agreement, and that the Purchaser would not have any
adequate remedy at law for money damages in such event. Accordingly, the
Purchaser shall be entitled to specific performance and injunctive and other
equitable relief to enforce the performance of this Agreement by each
Stockholder and to enforce the performance of Article VII of this
-12-
<PAGE>
Agreement by the Company. This provision is without prejudice to any other
rights that the Purchaser may have against any Stockholder for any failure to
perform its obligations under this Agreement. If the Purchaser breaches its
obligation to effect the purchase of the Stockholder Shares after delivery of
its Exercise Notice, subject to the terms and conditions of the Agreement and
the satisfaction of Section 1.5 hereof, the Stockholders will be entitled to
pursue usual and customary legal, equitable and other remedies.
Section 8.5 Notices. All notices, requests, consents and other
-------
communications under this Agreement shall be in writing and shall be delivered
by hand, sent by fax or nationally recognized overnight courier or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid:
If to the Company, at 27 Wormwood Street, Boston, Massachusetts 02210,
Attention: President, or at such other address or addresses as may have been
furnished in writing by the Company to the Purchaser with a copy to Peter B.
Finn, Esq., Rubin and Rudman LLP, 50 Rowes Wharf, Boston, Massachusetts 02110;
If to a Stockholder, at his address set forth on Schedule A to this
----------
Agreement or at such other address or addresses as may have been furnished in
writing by such Stockholder to the Purchaser, with a copy to Peter B. Finn,
Esq., Rubin and Rudman LLP, 50 Rowes Wharf, Boston, Massachusetts 02110; or
If to the Purchaser, at NMT Medical, Inc., 27 Wormwood Street, Boston,
Massachusetts 02210, or at such other address as may have been furnished to the
Company and the Stockholders in writing by the Purchaser, with a copy to Steven
D. Singer, Esq., Hale and Dorr LLP, 60 State Street, Boston, Massachusetts
02109.
Notices provided in accordance with this Section 8.5 shall be deemed given
(1) when received, if sent by hand, (2) when received, if sent by fax prior to
5:00 p.m. local time at the place received (otherwise on the next following
business day), (3) one business day after delivery to a nationally recognized
overnight courier service, and (4) three business days after deposit in the U.S.
mail, first class certified or registered, postage prepaid.
Section 8.6 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained in this Agreement shall survive
delivery of and payment for the Stockholder Shares.
Section 8.7 Amendments; Termination. Any term of this Agreement,
-----------------------
including the allocation of the Purchase Price between cash and Purchaser Common
-13-
<PAGE>
Stock set forth in Section 1.1, may be amended or modified and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactivity or prospectively), with the written consent of
the Purchaser, the Company and Stockholders holding at least a majority of the
Shares. Any amendment, modification or waiver effected in accordance with this
Section 8.7 shall be binding upon each Stockholder, the Company and the
Purchaser. This Agreement may be terminated upon written consent of the parties
hereto.
Section 8.8 Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that the Purchaser may assign its
rights and obligations to any affiliate of the Purchaser and provided, further,
that no Stockholder may assign, delegate or otherwise transfer any of its rights
or obligations under this Agreement without the consent of the Purchaser.
Section 8.9 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of the Commonwealth of Massachusetts
without giving effect to the principles of conflicts of laws thereof.
Section 8.10 Counterparts; Effectiveness. This Agreement may be signed in
---------------------------
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instruments.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
Section 8.11 Obligations Separate. The obligations of the Stockholders
--------------------
hereunder are several and not joint.
Section 8.12 Publicity. The Company (represented by James C. Torraco),
---------
on the one hand, and the Purchaser, on the other hand, will consult with each
other and obtain the prior approval of the other party before issuing any press
release or other public statements with respect to the transactions consummated
pursuant to the Purchase Agreement and any related agreements, as well as the
operations of the Company generally, and shall not issue any such press release
or make any such public statement prior to such consultation, except as may be
required by applicable law.
* * * Remainder of page intentionally left blank * * *
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PURCHASER:
NMT MEDICAL, INC.
By: /s/ Thomas M. Tully
-------------------------------------
Name: Thomas M. Tully
Title: President
COMPANY:
IMAGE TECHNOLOGIES CORPORATION
By: /s/ James C. Torraco
-------------------------------------
Name: James C. Torraco
Title: President
STOCKHOLDERS:
/s/ James C. Torraco
----------------------------------------
James C. Torraco
----------------------------------------
Dean Witter f/b/o William L. Clayborn
----------------------------------------
William L. Clayborn
----------------------------------------
Lisa L. Williams
----------------------------------------
Ryan G. Williams
-15-
<PAGE>
----------------------------------------
Joseph A. Staley
----------------------------------------
Ken A. Cornelius
----------------------------------------
William R. Ross
----------------------------------------
Ronald G. Williams
----------------------------------------
Laura Ann and James Robertson
/s/ Bjorn R. Koritz
----------------------------------------
Bjorn R. Koritz
----------------------------------------
Robert Lee Thompson, Jr.
----------------------------------------
Michael Meyers
----------------------------------------
Evan Ratner
----------------------------------------
Herb Feldman
----------------------------------------
Steven Kantor
-16-
<PAGE>
----------------------------------------
Mark Von Kreuter
----------------------------------------
J. Mark Junewicz
----------------------------------------
J. Mark Junewicz c/o Christian J. Junewicz
----------------------------------------
Peter Green
THE DEVER FAMILY TRUST
By:
-------------------------------------
Name:
Title:
ROBERTSON OIL CO., INC.
By:
-------------------------------------
Name:
Title:
RICHARD S. RUTKOWSKI REVOCABLE TRUST
By:
-------------------------------------
Name:
Title:
-17-
<PAGE>
WAYBURN RAY SMITH REVOCABLE TRUSTS
By:
-------------------------------------
Name:
Title:
MARILYN JOANNE SMITH REVOCABLE TRUSTS
By:
-------------------------------------
Name:
Title:
CURRAN PARTNERS, L.P.
By:
-------------------------------------
Name:
Title:
DELAWARE GUARANTY & TRUST, F/B/O JOHN
P. CURRAN IRA
By:
-------------------------------------
Name:
Title:
----------------------------------------
Walter E. Rockwell
----------------------------------------
Gene Niswander
-18-
<PAGE>
----------------------------------------
Martin Ruzicka
PINOTAGE, LLC
By: /s/ Robert Lee Thompson
-------------------------------------
Name: Robert Lee Thompson
Title: Manager
JUNEWICZ & CO., INC.
By:
-------------------------------------
Name:
Title:
----------------------------------------
Marc Van Lith
ARGO CAPITAL PARTNERS I L.P.
By:
-------------------------------------
Name:
Title:
-19-
<PAGE>
Schedule A
----------
<TABLE>
<CAPTION>
Name and Address of Number of Stockholder
Stockholder Shares/1/
- ---------------------------- --------------------------
<S> <C>
James C. Torraco 188,036
3 Sewell Court
Medfield, MA 025052
Dean Witter f/b/o 200,000
William L. Clayborn
P.O. Box 610167
Dallas, Texas 75261
William L. Clayborn 24,563
P.O. Box 610167
Dallas, TX 75261
Lisa L. Williams 16,666
123 Seminole Drive
Trophy Club, TX 76262
Ryan G. Williams 16,666
123 Seminole Drive
Trophy Club, TX 76262
Joseph A. Staley 50,000
104 Forest Hill Drive
Trophy Club, TX 76262
Ken A. Cornelius 5,556
2501 Kensington Place
Collegeville, TX 76034
William R. Ross 5,556
1008 Trophy Club Drive
Trophy Club, TX 76262
</TABLE>
- ----------------------------
/1/ Represents shares of Common Stock of the Company unless otherwise
indicated.
-20-
<PAGE>
Ronald G. Williams, 16,668
President
Instramed Surgical
Associates, Inc.
602 Front Street
Roanoke, TX 76261
Laura Ann and James 25,000
Robertson
11710 Pleasant Ridge Terrace
Apt. 1411
Little Rock, AR 72212
Bjorn R. Koritz 29,249
48 Old Mill Road
Greenwich, CT 06831
Robert Lee Thompson, Jr. 25,000
8334 Dogwood Lane
Rogers, AR 72756
Michael Meyers 10,571
215 East 68th Street
Apt. 11K
New York, NY 10021
Evan Ratner 3,571
105 Giordano Drive
West Orange, NJ 07052
Herb Feldman 7,142
215 East 68th Street
Apt. 29C
New York, NY 10021
Steven Kantor 7,142
175 East 74th Street, Apt. 11C
New York, NY 10021
Mark Von Kreuter 3,571
124 Goodwives River Road
Darien, CT 06820
-21-
<PAGE>
J. Mark Junewicz 11,071
Junewicz & Co., Inc.
45 Rockefellar Plaza
Suite 2000
New York, NY 10111
J. Mark Junewicz c/o 1,313; Warrant to
Christian J. Junewicz purchase 17,737 shares
Junewicz & Company of Common Stock/2/
45 Rockefeller Plaza
Suite 2000
New York, NY 10111
Peter Green 15,000
5 Mallard Street
London, England
Dever Family Trust 13,888
c/o The Dever Family Trust
2941 Oakland Zion Road
Fayetteville, Arkansas 72701
Robertson Oil Co., Inc. 12,776
123 N. Block Street, Suite A
Fayetteville, Arkansas 72701
Richard S. Rutkowski 11,250
Revocable Trust
133 Pomeroy Avenue
Pittsfield, Massachusetts
01201
Wayburn Ray Smith 3,571
Revocable Trust
[address]
- ----------------------------
/2/ In the event the Purchaser converts the principal amount borrowed by the
Company under the Loan and Security Agreement into additional shares of
Series A Preferred, Junewicz & Company shall be entitled to receive a
warrant to purchase a number of shares of Common Stock equal to 5% of the
number of additional share of Series A Preferred issued to the Purchaser.
-22-
<PAGE>
Marilyn Joanne Smith 3,571
Revocable Trust
[address]
Curran Partners, L.P. 30,063
Curran Management
237 Park Avenue, Suite 900
New York, New York 10017
Delaware Guaranty & Trust, 15,031
f/b/o John P. Curran IRA
Curran Management
237 Park Avenue, Suite 900
New York, New York 10017
Walter E. Rockwell 1,500
9737 Mast Boulevard
Santee, California 92071
Gene Niswander 1,000
1909 Central Drive, Suite 300
Bedford, Texas 76021
Martin Ruzicka 5,000
142 Stawell Street
Burnley, Victoria, Australia
3121
Pinotage, LLC 384,689
19308 Pinecrest Trail
Rogers, Arizona 72756
Junewicz & Co., Inc. Warrant to purchase 76
45 Rockefellar Plaza shares of Common
Suite 2000 Stock/3/
New York, New York 10111
- ----------------------------
/3/ In the event the Purchaser converts the principal amount borrowed by the
Company under the Loan and Security Agreement into additional shares of
Series A Preferred, Junewicz & Company shall be entitled to receive a
warrant to purchase a number of shares of Common Stock equal to 5% of the
number of additional share of Series A Preferred issued to the Purchaser.
-23-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Marc Van Lith Warrants to purchase
525 West 22nd Street 10,735 shares of
Apt. 5(f) Common Stock.
New York, New York 10011
Argo Capital Partners I L.P. 120,361/4/
8080 North Central Senior Secured
Expressway, Suite 1600 Convertible Notes of the
Dallas, Texas 75206-1819 Company dated August
27, 1999 in the aggregate
principal amount of
$2,000,000
Total: 1,266,557 shares of
Common Stock and
warrants to purchase
28,548 shares of
Common Stock.
</TABLE>
- -----------------------
/4/ Refers to Shares subject to adjustment pursuant to (S) 1.2 of the
Purchase Agreement.
-24-
<PAGE>
Schedule C
----------
[LETTERHEAD OF JUNEWICZ & CO., INC. APPEARS HERE]
May 23, 1997
Image Technologies Corporation
1909 Central Drive, Suite 302
Bedford, TX 76021
Attention: Mr. R. Lee Thompson
President and CEO
Gentlemen:
This letter agreement (the "Agreement") will confirm the arrangement under
which Junewicz & Co., Inc. ("Junewicz") has been engaged by Image Technologies
Corporation (the "Company") to act as its exclusive financial advisor in
connection with the transactions being contemplated with Nitinol Medical
Technologies, Inc. ("Nitinol").
As the Company's financial advisor, Junewicz has introduced the Company and
other investors to Nitinol and has assisted the Company in structuring and
negotiating the transactions being contemplated with Nitinol.
The Company and Junewicz further agree as follows:
1. Transactions Contemplated with Nitinol
--------------------------------------
The transactions being contemplated between the Company, R. Lee Thompson
("Thompson"), James C. Torraco ("Torraco") and Nitinol, Curran Capital
Management and John P. Curran (collectively "Curran") are as follows:
At the first closing, the following transactions will occur:
a) Nitinol will purchase $2.3 million of Series A Preferred Stock
("Preferred Stock") from the Company ("Transaction 1a");
b) Curran will purchase $300,000 of Common Stock ("Common Stock") from the
Company ("Transaction 1b"); and
c) The Company will purchase $300,000 of Common Stock from Thompson and
Torraco ("Transaction 1c").
Subsequent to the first closing, the following transactions may occur:
d) Nitinol will provide a credit line to the Company of up to $2.0 million
of senior debt (the "Revolving Credit Loan"). Nitinol will have the
right to convert all or any portion of the amount drawn down under the
Revolving Credit Line into additional shares of Preferred Stock of the
Company. Nitinol may also, at any time during the Option Period
(defined as the period during Nitinol may exercise its option to
purchase all of the outstanding capital stock of the Company pursuant
to the Stockholders Option Agreement (the "Purchase Option")), convert
all or any
-25-
<PAGE>
Image Technologies Corporation
May 23, 1997
Page 2
portion of any undrawn amounts under the Revolving Credit Loan into
additional shares of Preferred Stock of the Company ("Transaction 1d").
e) Nitinol will have the option to purchase all remaining shares of the
Company for an additional $24.5 million at any time during the Option
Period ("Transaction 1e").
2. Fees and Expenses
-----------------
In consideration for its services hereunder, Junewicz shall receive 7,500
shares of the Company's Common Stock as a retainer payment. Such shares shall
be issued on or before the closing of Transactions 1a, 1b and 1c. In addition,
Junewicz shall be entitled to receive the following indicated compensation from
the indicated obligors at the closing of the respective transactions:
a) The Company shall pay to Junewicz a cash fee equal to 5% of the gross
proceeds of any sale of Preferred Stock by the Company to Nitinol. In
addition, the Company shall issue to Junewicz an amount of warrants
equal to 5% of the number of shares of Preferred Stock sold by the
Company to Nitinol, less the number of shares of Common Stock redeemed
by the Company from Thompson and Torraco in Transaction 1c.
(Transactions 1a and 1d)
b) The Company shall pay to Junewicz a cash fee equal to 6% of the gross
proceeds of any sale of Common Stock by the Company to Curran or other
investors originated by Junewicz. In addition, the Company shall issue
to Junewicz an amount of warrants equal to 6% of the number of shares
of Common Stock sold by the Company to Curran or other investors
originated by Junewicz. (Transaction 1b)
c) If Nitinol purchases the remaining shares of the Company, the Company
agrees to pay Junewicz an additional cash transaction fee equal to 2.0%
of the Aggregate Consideration paid to the Company's shareholders up to
$25 million, and 1.5% of the Aggregate Consideration on the portion
greater than $25 million. (Transaction 1e)
The warrants (to purchase Common Stock) issued to Junewicz under Transactions
1a, 1b and 1d shall have an exercise price equal to the price paid for the
Preferred Stock or Common Stock by Nitinol, Curran or other investors originated
by Junewicz and shall be exerciseable at any time for a period of five years
from the date of the respective transactions. In the event of (i) an initial
public offering by the Company, or (ii) a reorganization, merger or sale of the
Company, the Company shall permit the "cashless exercise" of any warrants
granted to Junewicz in this Paragraph (i.e., the exercise of the warrants
without payment of the exercise price in cash with the result that Junewicz
receives upon exercise cash representing the difference between the exercise
price of the warrants and the initial public offering or sale price of the
Common Stock without requiring Junewicz to pay the exercise price in cash).
For purposes of this agreement, the term "Aggregate Consideration" shall mean
the total fair market value (on the date of payment) of all consideration
(including cash, securities, property, all remaining debt on the Company's
financial statements and other indebtedness and obligations assumed by Nitinol
and any other form of consideration) paid or payable, or otherwise distributed,
directly or indirectly, to the Company or its security holders in connection
with Transaction 1e. In addition to the foregoing compensation, the Company
shall reimburse Junewicz promptly
-26-
<PAGE>
Image Technologies Corporation
May 23, 1997
Page 3
upon request, for its reasonable out-of-pocket expenses, which may include fees
and disbursements of its legal counsel.
3. Indemnification
---------------
The Company jointly and severally agree to indemnify Junewicz in accordance
with the indemnification provisions (the "Indemnification Provisions") as set
forth in Annex A to this Agreement, which is incorporated by reference into this
Agreement.
4. Prior Representation of Nitinol by Junewicz
-------------------------------------------
The Company has been advised that Junewicz has performed investment banking
services for Nitinol within the past two years and has a continuing personal and
business relationship with Nitinol, its executive officers and with J.H. Whitney
& Co., a major shareholder of Nitinol. In addition, the Company was advised
after the engagement of Junewicz but before the execution of any definitive
agreements relating to the transactions discussed herein that Junewicz holds
99,660 warrants in Nitinol. The Company hereby expressly consents to Junewicz,
representation of the Company notwithstanding the information set forth in this
Paragraph. In particular, the information that is set forth in this Paragraph
shall not constitute gross negligence or willful misconduct by Junewicz within
the meaning set forth in Annex A.
5. Governing Law and Other Matters
-------------------------------
This agreement shall be governed by and construed in accordance with the Laws
of the State of New York without regard to the conflict of laws principles
thereof.
Neither this Agreement nor any written advice (written or oral) rendered by
Junewicz in connection with this Agreement may be disclosed to any third party
or circulated or referred to publicly without the prior written consent of
Junewicz.
Please confirm that the foregoing is in accordance with your understanding by
signing and returning the enclosed duplicate copy of this Agreement, which shall
thereupon constitute a binding agreement as of the date set forth above.
Very truly yours,
JUNEWICZ & CO., INC.
By: /s/ J. Mark Junewicz
----------------------
J. Mark Junewicz
Confirmed and Agreed to this 23 day of May, 1997:
IMAGE TECHNOLOGIES CORPORATION
By: /s/ Robert Lee Thompson
-------------------------
R. Lee Thompson
President & Chief Executive Officer
-27-
<PAGE>
Image Technologies Corporation
May 23, 1997
Annex A
In the event that Junewicz becomes involved in any capacity in any action,
proceeding or investigation brought by or against any person including
stockholders of the Company, in connection with any matter referred to in this
Agreement, the Company periodically will reimburse Junewicz for its legal and
other expenses (including the cost of any investigation and preparation)
incurred in connection therewith. The Company also will indemnify and hold
harmless against any losses, claims, damages, expenses or liabilities to any
such person in connection with any matter referred to in this Agreement, except
to the extent that any loss, claim, damage or liability is judicially determined
to have resulted primarily from the gross negligence or willful misconduct of
Junewicz in performing the services that are the subject of this Agreement. If
for any reason the foregoing indemnification is unavailable to Junewicz or
insufficient to hold it harmless, then the Company shall contribute to the
amount paid or payable by Junewicz as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative benefits
of the Company and the other stockholders on one hand and Junewicz on the other
hand in the matters contemplated by this Agreement, as well as the relative
fault of the Company on the one hand and Junewicz on the other hand with respect
to such loss, claim, damage or liability and any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, including, without limitation, any liability which
the Company may have to Junewicz pursuant to the Agreement and shall extend upon
the same terms and conditions to the controlling person of Junewicz, and shall
be binding upon and inure to the benefit of any successors, assigns, heirs, and
personal representatives of the Company, Junewicz, any such affiliate and any
such person. The Company also agrees that neither Junewicz nor its control
person shall have any liability to the Company or the stockholders of the
Company for or in connection with any matter referred to in this Agreement
except to the extent that any losses, claims, damages, liabilities or expenses
incurred by the Company are judicially determined to have resulted primarily
from the gross negligence or willful misconduct of Junewicz in performing the
services that are subject to this Agreement. The foregoing provisions shall
survive any termination or completion of the engagement provided by this
Agreement and this Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflict of laws
principles thereof. The Company agrees that they will not settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder unless such settlement, compromise or consent includes an
unconditional release of Junewicz and the controlling person of Junewicz from
all liability arising out of such claim, action, suit or proceeding.
-28-
<PAGE>
EXHIBIT 10.11
November 15, 1999
NMT Medical, Inc.
27 Wormwood Street
Boston, MA 02210
Re: Waiver of Compliance with Certain Covenants
-------------------------------------------
Ladies and Gentlemen:
Reference is made to (i) that certain Credit Agreement, dated as of
September 13, 1999 (the "U.S. Credit Agreement"), by and among NMT Medical, Inc.
("NMT") and its domestic subsidiaries (together with NMT, the "U.S. Borrowers")
and Brown Brothers Harriman & Co. (the "Lender"), (ii) that certain Credit
Agreement, dated as of September 13, 1999 (the "French Credit Agreement"), by
and among NMT NeuroSciences Implants (France) SA and NMT NeuroSciences
Instruments (France) SARL, each a wholly owned subsidiary of NMT (collectively,
the "French Borrowers" and together with the U.S. Borrowers, the "Borrowers"),
and the Lender, (iii) that certain Guarantee, dated as of September 13, 1999
(the "Guarantee"), made by the U.S. Borrowers in favor of the Lender, pursuant
to which the U.S. Borrowers guaranteed the obligations of the French Borrowers
under the French Credit Agreement, and (iv) that certain letter agreement
regarding the post-closing delivery of certain documentation and the
satisfaction of certain conditions, dated September 13, 1999 (the "Letter
Agreement"). The U.S. Credit Agreement, the French Credit Agreement, the
Guarantee and the Letter Agreement are referred to collectively herein as the
"Credit Documents."
The U.S. Borrowers have delivered to the Lender the calculations attached
hereto as Exhibit A regarding compliance with the financial covenants set forth
in Section 6.09 of the U.S. Credit Agreement for the third quarter of 1999.
Based on such calculations, the U.S. Borrowers were not in compliance with the
financial covenants set forth in Sections 6.09(a), (b) and (d) of the U.S.
Credit Agreement, which covenants are incorporated by reference into the
Guarantee in Section 10(a) thereof.
In addition, as of the date hereof, the Borrowers have not delivered the
following items to the Lender on or before September 30, 1999 as required by the
Letter Agreement: (i) such releases, termination statements and other
instruments as reasonably requested by the Lender and its counsel to evidence
the termination of the security interests in, and the release of, all of the
collateral securing the Barclays Debt (as defined in the U.S. Credit Agreement),
other than the U.K. Lease (as defined in the U.S. Credit Agreement), and (ii)
the pledge of the stock of Image Technology Corp. (together with related stock
powers executed in blank). Also, certain of the documents previously delivered
<PAGE>
and conditions previously satisfied as required by the Letter Agreement were not
so delivered or satisfied on or before the September 30, 1999 deadline.
The Lender hereby waives the Borrowers' compliance with the financial
covenants set forth in the U.S. Credit Agreement and the provisions of the
Letter Agreement described in the preceding two paragraphs, but only (x) to the
extent of the deviations from the relevant financial covenants set forth in
Exhibit A and the U.S. Borrowers' failure to comply with such covenants for the
third quarter of 1999 and (y) solely with respect to the deviations from the
Letter Agreement described above; provided that the Borrowers shall deliver the
remaining documentation and satisfy the remaining conditions set forth in the
Letter Agreement on or before January 31, 2000. The Borrowers acknowledge and
agree that if all of the documentation required to be delivered under the Letter
Agreement and all of the conditions required to be satisfied as set forth
therein are not so delivered and satisfied on or before January 31, 2000, it
shall constitute an immediate Event of Default under both the U.S. Credit
Agreement and the French Credit Agreement.
This waiver applies only with respect to the Borrowers' non-compliance with
the provisions of the U.S. Credit Agreement, the Guarantee and the Letter
Agreement described herein, and nothing contained herein or in any other
communication between any Borrower and the Lender shall constitute a consent to
any other deviation from the terms of any of the Credit Documents. Nothing
contained in this waiver shall be deemed to modify or amend any of the Credit
Documents, each of which remains in full force and effect, or constitute a
course of dealing among the Borrowers and the Lender.
By their acknowledgment in the spaces provided below, (A) the U.S.
Borrowers hereby confirm to the Lender that the representations and warranties
of the U.S. Borrowers set forth in Article III of the U.S. Credit Agreement are
true and correct as of the date hereof as if set forth herein in full, (B) the
French Borrowers hereby confirm to the Lender that the representations and
warranties of the French Borrowers set forth in Article III of the French Credit
Agreement are true and correct as of the date hereof as if set forth herein in
full, and (C) the Borrowers hereby certify that, after giving effect to this
waiver, no Default (as defined in the applicable Credit Agreement) exists under
either the U.S. Credit Agreement or the French Credit Agreement.
This waiver is conditioned upon, and shall be effective only
contemporaneous with, the granting and effectiveness of a similar waiver by
Whitney Subordinated Debt Fund, L.P. ("Whitney") under that certain Subordinated
Note and Stock Purchase Agreement, dated as of July 8, 1998, by and among NMT,
Whitney and, for limited purposes, J.H. Whitney & Co., as amended (the "Whitney
Agreement"), with respect to NMT's failure to comply with the same financial
covenants as set forth in Sections 9.8(a), (b) and (d) of the Whitney Agreement.
[Remainder of Page Intentionally Left Blank]
2
<PAGE>
Very truly yours,
BROWN BROTHERS HARRIMAN & CO.
By: /s/ Jared S. Keyer
------------------------------
Name: Jared S. Keyer
Title: Manager
ACKNOWLEDGED AND AGREED:
NMT MEDICAL, INC.
By: /s/ William J. Knight
------------------------------
Name: William J. Knight
Title: Vice President of
Finance and Administration
and Chief Financial Officer
NMT HEART, INC.
By: /s/ Thomas M. Tully
------------------------------
Name: Thomas M. Tully
Title: President
NMT INVESTMENTS CORP.
By: /s/ Thomas M. Tully
------------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES
(INTERNATIONAL), INC.
By: /s/ Thomas M. Tully
------------------------------
Name: Thomas M. Tully
Title: President
3
<PAGE>
NMT NEUROSCIENCES (US), INC.
By: /s/ Thomas M. Tully
------------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES (IP), INC.
By: /s/ Thomas M. Tully
------------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES
INNOVASIVE SYSTEMS, INC.
By: /s/ Thomas M. Tully
------------------------------
Name: Thomas M. Tully
Title: President
NMT NEUROSCIENCES IMPLANTS
(FRANCE) SA
By: /s/ David A. Chazanovitz
------------------------------
Name: David A. Chazanovitz
Title: Director
NMT NEUROSCIENCES INSTRUMENTS
(FRANCE) SARL
By: /s/ David A. Chazanovitz
------------------------------
Name: David A. Chazanovitz
Title: Co-Manager
4
<PAGE>
EXHIBIT 10.12
WAIVER NO. 2
------------
This Waiver No. 2, made as of November 12, 1999 (this "Waiver"), is by and
between NMT Medical, Inc. (the "Company"), on the one hand, and Whitney
Subordinated Debt Fund, L.P., on the other hand. Capitalized terms used herein
and not otherwise defined have the meanings assigned to such terms in the
Purchase Agreement (as defined below).
W I T N E S S E T H
-------------------
WHEREAS, the Company and the Purchaser are parties to the Subordinated Note
and Common Stock Purchase Agreement, dated as of July 8, 1998, as amended by
Amendment No. 1 dated as of April 14, 1999 and Amendment No. 2 dated as of
September 13, 1999 (as so amended, the "Purchase Agreement"), regarding the
Company's subordinated notes due September 30, 2003;
WHEREAS, the Company has requested the Purchaser to waive compliance with
certain covenants contained in the Purchase Agreement for the fiscal quarter
ended September 30, 1999.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. The Purchaser hereby waives compliance by the Company with the
provisions of Section 9.8(a), 9.8(b) and 9.8(d) of the Purchase Agreement solely
with respect to the fiscal quarter ended September 30, 1999. Such waiver shall
not apply to any other covenants or to any period other than the fiscal quarter
ended September 30, 1999.
2. This Waiver may be signed in counterparts, and by the various parties
on separate counterparts. Each set of counterparts which contains the signature
of each of the parties shall constitute a single instrument with the same effect
as if the signature thereto were upon the same instrument. The parties hereto
agree that each party shall accept facsimile signatures as legally sufficient,
binding and admissible evidence of the execution of this Waiver.
3. Except as expressly modified by this Waiver, all of the terms and
provisions of the Purchase Agreement and the Notes shall continue in full force
and effect and all parties hereto shall be entitled to the benefits thereof.
4. This Waiver shall be governed by and construed in accordance with the
laws of the State of New York, without regard to the principals of conflict of
laws of such state.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be signed
by their respective duly authorized officers as of the date first written above.
NMT MEDICAL, INC.
By: /s/ William J. Knight
-----------------------------------------
Name: William J. Knight
Title: Vice President of Finance and
Administration and Chief Financial
Officer
WHITNEY SUBORDINATED DEBT FUND, L.P.
By: /s/ Jeffrey R. Jay
-----------------------------------------
Name: Jeffrey R. Jay
Title: A General Partner
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1999 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,259,924
<SECURITIES> 0
<RECEIVABLES> 12,241,639
<ALLOWANCES> 994,289
<INVENTORY> 11,158,237
<CURRENT-ASSETS> 27,445,359
<PP&E> 15,932,699
<DEPRECIATION> 3,219,373
<TOTAL-ASSETS> 54,386,369
<CURRENT-LIABILITIES> 11,051,432
<BONDS> 0
0
0
<COMMON> 10,770
<OTHER-SE> 27,994,862
<TOTAL-LIABILITY-AND-EQUITY> 54,386,369
<SALES> 34,365,725
<TOTAL-REVENUES> 36,011,663
<CGS> 14,253,660
<TOTAL-COSTS> 22,286,504
<OTHER-EXPENSES> 482,387
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,799,091
<INCOME-PRETAX> (2,809,979)
<INCOME-TAX> 93,900
<INCOME-CONTINUING> (2,903,879)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,618,428)
<CHANGES> 0
<NET-INCOME> (5,522,307)
<EPS-BASIC> (.52)
<EPS-DILUTED> (.52)
</TABLE>
