<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 March 31, 2000
--------------
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)
Registrant's Telephone Number, Including Area Code: 617-737-0930
------------
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 May 17, 2000, there were 10,916,928 shares of Common Stock, $.001 par
value per share, outstanding.
<PAGE>
NMT Medical, Inc.
INDEX
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<TABLE>
<CAPTION>
Page Number
----------
<S> <C>
Part I. Financial Information
---------------------
Item 1. Financial Statements.
Consolidated Balance Sheets at March 31, 2000 and
December 31, 1999 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 18
Part II. Other Information
-----------------
Item 1. Legal Proceedings. 19
Item 3. Defaults Upon Senior Securities. 19
Item 6. Exhibits and Reports on Form 8-K. 20
Signatures 21
</TABLE>
2
<PAGE>
NMT MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
At At
March 31, December 31,
2000 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,410,775 $ 3,533,475
Accounts receivable, net of allowances for doubtful accounts
of $921,000 and $934,000 as of March 31, 2000 and
December 31, 1999, respectively 9,046,572 7,900,099
Inventories 4,253,046 4,634,348
Prepaid expenses and other current assets 2,523,883 2,429,016
----------- ------------
Total current assets 18,234,276 18,496,938
----------- ------------
Property, plant and equipment, at cost:
Land and Buildings 4,650,000 4,650,000
Laboratory and computer equipment 3,383,414 3,284,294
Office furniture and equipment 1,029,982 1,062,228
Leasehold improvements 3,181,897 3,268,897
Equipment under capital lease 2,215,982 2,258,982
----------- ------------
14,461,275 14,524,401
Less- Accumulated depreciation and amortization 3,895,033 3,506,354
----------- ------------
10,566,242 11,018,047
----------- ------------
Other assets 672,097 839,733
Net assets from discontinued operations 8,200,753 8,392,448
----------- ------------
$37,673,368 $ 38,747,166
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $3,436,346 $4,100,081
Accrued expenses 4,705,539 4,629,366
Current portion of debt obligations 444,345 1,002,877
----------- ------------
Total current liabilities 8,586,230 9,732,324
----------- ------------
Long-term debt obligations, net of current portion 13,733,151 13,570,355
Deferred tax liability 1,265,158 1,283,008
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-10,900,394 and 10,783,278 shares
at March 31, 2000 and December 31,1999, respectively 10,901 10,784
Addditional paid-in capital 41,914,046 41,439,959
Cumulative translation adjustment (1,323,213) (708,253)
Accumulated deficit (26,512,905) (26,581,011)
----------- ------------
Total stockholders' equity 14,088,829 14,161,479
----------- ------------
$37,673,368 $38,747,166
=========== ============
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
3
<PAGE>
NMT MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Product sales $ 9,755,827 $ 7,316,459
License fees 249,233 450,245
----------- -----------
10,005,060 7,766,704
----------- -----------
Expenses:
Cost of product sales 4,029,031 2,897,757
Research and development 1,274,626 960,192
General and administrative 2,413,110 2,187,938
Selling and marketing 2,018,544 2,104,375
----------- -----------
9,735,311 8,150,262
----------- -----------
Income (loss) from operations 269,749 (383,558)
----------- -----------
Equity in net loss of Image Technologies Corporation - (134,129)
Currency transaction gain 133,414 200,762
Interest expense (359,651) (732,252)
Interest income 9,744 167,607
----------- -----------
(216,493) (498,012)
----------- -----------
Income (loss) before benefit for
income taxes 53,256 (881,570)
Benefit for income taxes (14,850) (179,700)
----------- -----------
Net income (loss) from continuing operations 68,106 (701,870)
----------- -----------
Net income from discontinued operations, net of income
taxes of $104,000 during the three months
ended March 31, 1999 - 167,000
----------- -----------
Net income (loss) $ 68,106 $ (534,870)
=========== ===========
Basic and diluted net income (loss) per common share:
Continuing operations $ 0.01 $ (0.07)
=========== ===========
Discontinued operations $ - $ 0.02
=========== ===========
Net income (loss) $ 0.01 $ (0.05)
=========== ===========
Basic weighted average common shares outstanding 10,821,969 10,683,775
=========== ===========
Diluted weighted average common shares outstanding 11,448,813 10,683,775
=========== ===========
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
4
<PAGE>
NMT MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 68,106 $ (534,870)
Net income from discontinued operations - (167,000)
----------- -----------
Net income (loss) from continuing operations 68,106 (701,870)
Adjustments to reconcile net loss to net cash used in
operating activities-
Equity in net loss of Image Technologies Corporation - 134,129
Depreciation and amortization 392,864 410,804
Noncash tax provision - 96,000
Noncash interest expense 39,357 163,676
Increase in accounts receivables reserves (12,875) 247,000
Changes in assets and liabilities-
Accounts receivable (1,530,236) 1,395,155
Inventories 514,717 (2,459,029)
Prepaid expenses and other current assets (128,060) (168,140)
Accounts payable (895,971) (1,539,056)
Accrued expenses 102,824 (84,249)
----------- -----------
Net cash used in operating activities (1,449,274) (2,505,580)
----------- -----------
Net cash provided by discontinued operations 191,695 1,094,000
----------- -----------
Cash flows from investing activities:
Maturities of marketable securities - 513,713
Purchases of property, plant and equipment (141,874) (270,973)
Increase in investment in Image Technologies Corporation - (100,000)
Decrease in other assets 163,698 77,363
----------- -----------
Net cash provided by investing activities 21,824 220,103
----------- -----------
Cash flows from financing activities:
Payments of capital lease obligations (184,053) (54,247)
Proceeds from issuance of common stock 474,205 74,998
Payments made under financing arrangements (428,000) -
----------- -----------
Net cash provided by (used in) financing activities (137,848) 20,751
----------- -----------
Effect of exchange rate changes on cash 250,903 136,580
----------- -----------
Net decrease in cash and cash equivalents (1,122,700) (1,034,146)
Cash and cash equivalents, beginning of period 3,533,475 4,007,014
----------- -----------
Cash and cash equivalents, end of period $ 2,410,775 $ 2,972,868
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for-
Interest $ 320,060 $ 560,576
=========== ===========
Taxes $ - $ 13,148
=========== ===========
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
5
<PAGE>
NMT MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations
NMT Medical, 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 United States and abroad and the CardioSEAL
Septal Occluder is sold commercially in the United States for certain
humanitarian uses only, and in Europe and other international markets.
Through its NMT Neurosciences division, the Company develops, manufactures,
markets and sells specialty implants and instruments for neurosurgery
including cerebral spinal fluid shunts, the Spetzler Titanium Aneurysm Clip
and endoscopes and instrumentation for minimally invasive surgery. On
April 5, 2000, the Company sold certain assets comprising the U.K. operations
of its NMT Neurosciences division, including the Selector Ultrasonic
Aspirator, Ruggles Surgical Instruments and cryosurgery product lines and
certain assets and liabilities for approximately $12 million in cash (see
Note 3). The results of these discontinued operations have been included in
the accompanying financial statements for the three months ended March 31,
2000 and 1999.
As of March 31, 2000, 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 obtained a
waiver of default with each of these debtholders and also subsequently paid
down approximately $8.0 million of this debt with the proceeds received from
the sale of the U.K. operations of its NMT Neurosciences division.
2. Interim Financial Statements
The accompanying Consolidated Financial Statements as of March 31, 2000 and
for the three month period 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, 1999, as
amended by Amendment No. 1 thereto on Form 10K/A, and include all adjustments,
consisting
6
<PAGE>
NMT MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. Interim Financial Statements--(continued)
of only normal recurring adjustments, necessary for a fair presentation of the
results for such interim periods. The results of operations for the three
month period ended March 31, 2000 are not necessarily indicative of the
results expected for the fiscal year ending December 31, 2000.
3. Sale of the U.K. Operations of the NMT Neurosciences Division
On April 5, 2000, the Company sold certain assets comprising its U.K.
operations of its NMT Neurosciences division, including the Selector
Ultrasonic Aspirator, Ruggles Surgical Instruments and cryosurgery product
lines and certain assets and liabilities for $12.0 million in cash. The
Company recorded a $3.4 million loss on this sale, comprised of net proceeds
of $12.0 million less estimated transaction and other costs of $3.9 million,
and net assets sold of $11.4 million. The transaction costs consisted
principally of legal and accounting fees, severance arrangements with certain
employees, and other estimated costs associated with discontinuing the
operation and consummating the sale. The net assets sold consist of the
following as of March 31, 2000:
<TABLE>
<S> <C>
Current assets $ 6,807,000
Property and equipment, net 1,203,000
Goodwill and other intangible assets, net 5,495,000
-----------
Total assets 13,505,000
Current liabilities assumed by the buyer (2,089,000)
-----------
$11,416,000
===========
</TABLE>
The consolidated financial statements of the Company have been restated to
reflect the financial results of the U.K. operations as a discontinued
operation for the three month periods ended March 31, 2000 and 1999 and as of
March 31, 2000 and December 31, 1999. Reported revenues, expenses, and cash
flows exclude the operating results of the discontinued operations. The
Company did not allocate interest expense associated with the senior secured
debt and subordinated note discussed in Notes 4(a) and 4(b) to discontinued
operations. The Company used approximately $7.5 million of the proceeds from
this sale to fully pay down its senior secured debt and $500,000 to pay down
its subordinated debt, as described in Note 4.
7
<PAGE>
NMT MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. Debt
(a) Subordinated Note Payable
In July 1998, the Company financed a significant portion of the acquisition of
the neurosurgical instruments business of Elekta AB (PUBL) 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.
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 cash to further reduce the principal amount of this
note. As of March 31, 2000, 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. Additionally, subsequent to March 31,
2000, the Company paid down $500,000 of this note with the proceeds from the
sale of the U.K. operations of its NMT Neurosciences division (see Note 3).
(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, of which the entire amount is available as of March 31, 2000. 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 March 31, 2000, the Company had outstanding
borrowings of $7.5 million under this facility and was not in compliance with
certain of its covenants. The Company has obtained a waiver of default from
the bank. Additionally, subsequent to March 31, 2000, the Company paid down
this note in its entirety with the proceeds from the sale of the U.K.
operations of its NMT Neurosciences division (see Note 3).
8
<PAGE>
NMT MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. Reclassifications
Certain prior period amounts have been reclassified to conform to the current
period's presentation.
6. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Components $2,116,142 $2,379,474
Finished Goods 2,136,904 2,254,874
---------- ----------
$4,253,046 $4,634,348
========== ==========
</TABLE>
7. Net Income (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 month
period ended March 31, 1999 as the effects of the Company's potential common
stock (801,651 shares and 2,147,152 shares for the three month periods ended
March 31, 2000 and 1999, respectively) are antidilutive.
8. 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 cumulative
translation adjustment to consolidated stockholders' equity and amounted to a
cumulative loss of approximately $1.3 million and $708,000 for the three month
period ended March 31, 2000 and the year ended December 31, 1999,
respectively.
9
<PAGE>
NMT MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. Foreign Currency--(continued)
Additionally, the Company had foreign currency translation gains of
approximately $133,000 and $201,000 for the three month periods ended
March 31, 2000 and 1999, respectively.
Foreign currency translation 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.
9. Comprehensive Income (Loss)
The only components of comprehensive income (loss) reported by the Company are
net income (loss) and foreign currency translation adjustments.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Net income (loss) $ 68,106 $ (534,870)
Foreign currency translation (614,960) (1,012,000)
adjustments ----------- -----------
Comprehensive loss $ (546,854) $(1,546,870)
=========== ===========
</TABLE>
10
<PAGE>
NMT MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. Accrued Expenses
Accrued expenses consist of the following at:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Payroll and payroll related $2,078,977 $1,607,773
Sales taxes 627,000 560,000
Inventory 605,050 -
Other accrued expenses 1,394,512 2,461,593
---------- ----------
$4,705,539 $4,629,366
========== ==========
</TABLE>
11. 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 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 its neurosciences division while the neurosurgical segment
includes primarily neurosurgical medical devices that were the primary
products of its neurosciences division). 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 Spetzler Titanium Aneurysm Clip and endoscopes and instrumentation
for minimally invasive surgery.
11
<PAGE>
NMT MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. Segment Reporting--(continued)
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:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Segment Revenues:
Core technologies products $ 5,134,060 $3,010,704
Neurosurgical products 4,871,000 4,756,000
----------- ----------
Total $10,005,060 $7,766,704
=========== ==========
Segment Interest Income:
Core technologies products $ 9,744 $ 167,607
Neurosurgical products -- --
----------- ----------
Total $ 9,744 $ 167,607
=========== ==========
Segment Interest Expense:
Core technologies products $ (297,651) $ (724,252)
Neurosurgical products (62,000) (8,000)
----------- ----------
Total $ (359,651) $ (732,252)
=========== ==========
Segment Income Tax Provision (Benefit):
Core technologies products $ -- $ (275,700)
Neurosurgical products (14,850) 96,000
----------- ----------
Total $ (14,850) $ (179,700)
=========== ==========
Segment Depreciation and Amortization:
Core technologies products $ 175,864 $ 245,804
Neurosurgical products 217,000 165,000
----------- ----------
Total $ 392,864 $ 410,804
=========== ==========
Segment Equity in Net Loss of Investee:
Core technologies products $ -- $ (134,129)
Neurosurgical products -- --
----------- ----------
Total $ -- $ (134,129)
=========== ==========
</TABLE>
12
<PAGE>
NMT MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. Segment Reporting--(continued)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Segment Income (Loss):
Core technologies products $ 64,106 $(1,241,870)
Neurosurgical products 4,000 540,000
----------- -----------
Total $ 68,106 $ (701,870)
=========== ===========
<CAPTION>
Segment balance sheet information is as follows as of March 31, 2000 and
December 31, 1999:
FOR THE THREE MONTHS ENDED
MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Segment Long-Lived Tangible Assets:
Core technologies products $ 4,090,276 $ 3,963,402
Neurosurgical products 10,371,000 10,560,999
----------- -----------
Total $14,461,276 $14,524,401
=========== ===========
</TABLE>
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
-------------
This Quarterly Report on Form 10-Q, other than the historical financial
information, contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements involve known and unknown risks, uncertainties or other factors which
may cause actual results, performance or achievement 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 for the year ended December 31, 1999,
as amended by Amendment No. 1 thereto on Form 10-K/A.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
Revenues. Revenues for the three months ended March 31, 2000 increased to $10.0
million from $7.8 million for the three months ended March 31, 1999. Product
sales increased to $9.8 million for the three months ended March 31, 2000 from
$7.3 million for the three months ended March 31, 1999. The increase is
primarily attributable to the Company's increased unit sales of CardioSEAL
Septal Occluders and vena cava filters during the three months ended March 31,
2000 as compared with the three months ended March 31, 1999. License fees for
the three months ended March 31, 2000 amounted to $249,000 of royalty revenue
from Boston Scientific. For the three months ended March 31, 1999, license fees
amounted to $450,000 and consist of royalty payments of $375,000 and cost-
sharing payments from Boston Scientific of approximately $75,000.
Cost of Product Sales. Cost of product sales increased to $4.0 million for the
three months ended March 31, 2000 from $2.9 million for the three months ended
March 31, 1999. The increase was primarily due to the Company's increased unit
sales of CardioSEAL Septal Occluders and vena cava filters in the three months
ended March 31, 2000 as compared with the three months ended March 31, 1999.
Cost of product sales as a percent of product sales increased to 41% for the
three months ended March 31, 2000 from 40% for the three months ended March 31,
1999. This increase is due to increased sales of the vena cava filter, which
has a higher cost of product sales as a percent of sales than does the
CardioSEAL Septal Occluder.
Research and Development. Research and development expenses increased to $1.3
million for the three months ended March 31, 2000 from $960,000 for the three
months ended March 31, 1999. The increase reflects increased regulatory and
clinical trial expenses relating to clinical trials of the CardioSEAL and
STARFlex Septal Occluder, as well as pending product
14
<PAGE>
enhancements. In addition, the Company increased its development activity for
vena cava filters, including regulatory support for its removable vena cava
filter, and for other products under development.
General and Administrative. General and administrative expenses increased to
$2.4 million for the three months ended March 31, 2000 from $2.2 million for the
three months ended March 31, 1999. The increase is primarily attributable to the
Company recording, during the three months ended March 31, 2000, a severance
charge of $300,000 and related executive recruiting fees of $100,000 in
connection with the resignation and replacement of Thomas M. Tully, the
Company's former Chief Executive Officer and President.
Selling and Marketing. Selling and marketing expenses decreased to $2.0 million
for the three months ended March 31, 2000 from $2.1 million for the three months
ended March 31, 1999. The decrease is primarily attributable to the Company
recording, during the three months ended March 31, 1999, $400,000 of expenses in
conjunction with the termination and replacement of certain individuals in the
sales and product management departments of the Company and for related legal
and consulting costs. This decrease was partially offset by increased marketing
activities related to the CardioSEAL Septal Occluder in connection with clinical
trials relating to fenestrated Fontan procedures (FEFs) and ventricular septal
defects (VSDs) for which the Company received FDA approval under HUD regulations
in September 1999.
Interest Expense. Interest expense was $360,000 for the three months ended
March 31, 2000 as compared to $732,000 for the three months ended March 31,
1999. The decrease was primarily the result of the Company having lower debt
balances during the three months ended March 31, 2000 as compared with the three
months ended March 31, 1999 due to the reduction of its $20 million subordinated
note payable to $6 million in September 1999 (see Note 4 of the accompanying
Notes to Consolidated Financial Statements). This note accrues interest at
10.101% per annum. In addition, the amortization of original issue discount
related to the subordinated note of $39,000 and $114,000, for the three months
ended March 31, 2000 and 1999, respectively, is included in interest expense in
the accompanying statements of operations. The Company expects interest expense
to decrease due to the reduction of its subordinated note payable and senior
secured debt by $500,000 and $7.5 million, respectively, with the proceeds from
the sale of the U.K. operations of its NMT Neurosciences division on April 5,
2000.
Interest Income. Interest income was $10,000 for the three months ended March
31, 2000 as compared to $168,000 for the three months ended March 31, 1999. The
decrease was due to lower cash balances resulting from the Company using $6
million of cash to reduce the principal amount of its $20 million subordinated
note payable in September 1999 (See Note 4 in the accompanying Notes to the
Consolidated Financial Statements).
Benefit for Income Taxes. The Company had a benefit for income taxes of $15,000
for the three months ended March 31, 2000 and $180,000 for the three months
ended March 31, 1999 based on an operating loss before nondeductible items and
an estimated effective tax rate of approximately 40%.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents and marketable securities of
$2.4 million at March 31, 2000 as compared to $3.5 million at December 31, 1999.
During the three months ended March 31, 2000, the Company's operations utilized
cash of approximately $1.4 million which consists of approximately $68,000 of
cash generated by operations prior to approximately $419,000 of noncash charges
and before changes in working capital items.
In July 1998, the Company financed a portion of the acquisition of its
neurosciences division with $16.1 million of 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 balance outstanding under the subordinated
note at March 31, 2000 was approximately $5.3 million. The Company also used $6
million of 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, of which the entire amount is available as of March 31, 2000. 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 March 31, 2000, 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. On April 5, 2000, the Company used a portion of
the proceeds from the sale of the U.K. operations of its NMT Neurosciences
division (See Note 3 of the Notes to Consolidated Financial Statements in the
accompanying financial statements) to reduce the subordinated note by $500,000
and the senior secured debt by $7.5 million, leaving approximately $3.8 million
from the proceeds for working capital purposes.
Purchases and capitalized leases of property and equipment for use in the
Company's research and development and general and administrative activities
amounted to $142,000 for the three months ended March 31, 2000.
The Company is party to various contractual arrangements, including royalty
arrangements and employment and consulting agreements for current employees and
consultants which are likely to increase as additional agreements are entered
into and additional personnel are retained. On April 8, 2000, Thomas M. Tully,
then President and Chief Executive Officer, resigned from the Company. The
amount of his severance of approximately $300,000 and related recruiting fees
for his replacement were charged to operations during the three months ended
March 31, 2000.
The Company also has committed to purchase certain minimum quantities of the
vena cava filter from a supplier through June 2001. The aggregate minimum
purchases under the agreement are approximately $2.6 million.
16
<PAGE>
All of these arrangements require cash payments by the Company over varying
periods of time. Certain of these arrangements are cancelable on short notice
and certain require termination or severance payments as part of any early
termination.
The Company 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.
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 irrevocably 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 legacy currency unit of the account or in euros. Beginning on
January 1, 2002, euro banknotes and coins will be introduced, and legacy
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 legacy currency banknotes and coins will no longer be accepted
as legal tender.
The Company 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 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 March 31, 2000, the euro conversion has not had a material impact on the
operations of the Company.
17
<PAGE>
ITEM 3. QUANTATIVE 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.
Although the Company has diminished its international operations following the
recent sale of the UK operations of its Neurosciences division and concomitantly
reduced its foreign currency exposure, it remains an international concern.
Accordingly, the Company faces exposure to adverse movements in foreign currency
exchange rates. See Note 8 to the Notes to Consolidated Financial Statements.
These exposures may change over time and could have a material adverse impact on
the Company's financial condition.
The Company's most significant foreign currency exposures relate to its
manufacturing activities and assets in France. The Company translates the
accounts of its foreign subsidiaries in accordance with SFAS No. 52, "Foreign
Currency Translation." In translating these foreign currency accounts 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 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. Other than as described above, the Company does not believe that there
have been material changes in reported market risks faced by it since
December 31, 1999, as reported in its Annual Report on Form 10-K (as amended).
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
-----------------
In December 1998, the Company filed a patent infringement suit in the
United States District Court for the District of Massachusetts against AGA
Medical Corp. ("AGA"), claiming that AGA's Amplatzer aperture occlusion devices
infringe U.S. Patent No. 5,108,420, which is licensed exclusively to the
Company. The Company is seeking an injunction to prevent further infringement
as well as monetary damages. In April 1999, AGA served its Answer and
Counterclaims denying liability and alleging that the Company has engaged in
false or misleading advertising and in unfair or deceptive business practices.
AGA's counterclaims seek an injunction and an unspecified amount of damages.
In May 1999, the Company answered AGA's counterclaims denying liability. The
case is currently in discovery.
In papers dated November 24, 1999 Elekta AB (publ) filed a request for
arbitration in the London Court of International Arbitration ("LCIA") alleging
that the Company breached its payment obligation under the Sale and Purchase
Agreement between the parties dated May 8, 1998 pursuant to which the Company
purchased certain assets from Elekta. Elekta seeks approximately $1.6 million
in damages. On January 14, 2000, the Company filed its response with the LCIA
in which the Company denied Elekta's claims and indicated that it would assert a
counterclaim for Elekta's breach of the same contract. On February 17, 2000 an
arbitrator was appointed, and a Statement of the Case was sent to the LCIA by
Elekta on March 23, 2000. On May 15, 2000, the Company filed a statement of
defenses and counterclaims asserting defenses and counterclaims in the amount of
approximately $2.3 million. The parties are currently in the pleadings stage.
On January 21, 2000, a personal injury suit was filed in the Supreme Court
of the State of New York, County of New York by Martin B. Levi, et. al. against
Johnson & Johnson, Inc., et. al., including a subsidiary of the Company,
claiming damages from placement of a defective Palmaz-Schatz coronary stent
during a cardiac catherization procedure. Plaintiffs seek damages in excess of
$31 million. The Company has requested that plaintiffs dismiss the Company's
subsidiary from the action on the basis that the subsidiary never manufactured
and/or distributed the stent product.
Other than as described above, the Company has no material pending legal
proceedings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-------------------------------
(a) Material Default with Respect to Indebtedness. As of March 31, 2000, the
---------------------------------------------
Company was not in compliance with certain covenants contained in its
subordinated note agreement and in its credit agreement. The Company obtained a
waiver of default from each of J.H. Whitney & Co. and Brown Brothers Harriman &
Co. 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. Each
waiver of default is filed as an exhibit to this Quarterly Report on Form 10-Q.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits.
--------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<C> <S>
2.1* Purchase Agreement by and among NMT Medical, Inc., NMT NeuroSciences
(US), Inc., NMT NeuroSciences Holdings (UK) Ltd., NMT NeuroSciences
(UK) Ltd., Spembly Medical Ltd., Spembly Cryosurgery Ltd., Swedemed
AB, Integra Neurosciences Holdings (UK) Ltd., and Integra Selector
Corporation, dated as of March 20, 2000.
2.2* Asset Purchase Agreement by and among NMT NeuroSciences (US), Inc.,
NMT Medical, Inc. and Integra Selector Corporation, dated as of
March 20, 2000.
10.1 Amendment No. 3 to Subordinated Note and Common Stock Purchase
Agreement, dated as of April 5, 2000, by and among
NMT Medical, Inc., Whitney Subordinated Debt Fund, L.P. and, for
certain purposes, J.H. Whitney & Co.
10.2 First Amendment to Credit Agreement, dated as of April 5, 2000, 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 the Borrowers and Brown Brothers Harriman & Co. as
the Lender.
10.3 Severance and Settlement Agreement and Release, dated as of April 8,
2000, by and between NMT Medical, Inc. and Thomas M. Tully.
10.4 Letter Agreement of Compliance with Certain Covenants, dated as of
May 19, 2000, by and among NMT Medical, Inc. and its domestic
subsidiaries as the Borrowers and Brown Brothers Harriman & Co. as
the Lender.
10.5 Waiver, made as of May 18, 2000, by and between NMT Medical, Inc.
and Whitney Subordinated Debt Fund, L.P.
27 Financial Data Schedule
- ----------
</TABLE>
* Incorporated by reference to the Company's Annual Report on Form 10-K, as
amended, for the fiscal year ended December 31, 1999.
(b) Reports on Form 8-K. On March 22, 2000, the Company filed a Current
-------------------
Report on Form 8-K with the Securities and Exchange Commission reporting that on
March 20, 2000, the Company entered into definitive agreements with Integra
LifeSciences Holdings Corporation, a Delaware corporation ("Integra"), for the
sale of the Selector(R) Ultrasonic Aspirator, Ruggles(TM) Surgical Instruments
and cryosurgery product lines of its NMT Neurosciences division to companies
controlled by Integra for an aggregate purchase price of $12 million in cash
(the "Sale"). A copy of the Company's March 21, 2000 press release announcing
the execution of definitive agreements for the Sale was included as Exhibit 99.1
to the Form 8-K.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NMT MEDICAL, INC.
Date: May 22, 2000 By: /s/ William J. Knight
---------------------------------
William J. Knight
Vice President of Finance and
Administration and Chief Financial
Officer
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
---------- ----------------------
<C> <S>
2.1* Purchase Agreement by and among NMT Medical, Inc., NMT NeuroSciences
(US), Inc., NMT NeuroSciences Holdings (UK) Ltd., NMT NeuroSciences
(UK) Ltd., Spembly Medical Ltd., Spembly Cryosurgery Ltd., Swedemed
AB, Integra Neurosciences Holdings (UK) Ltd., and Integra Selector
Corporation, dated as of March 20, 2000.
2.2* Asset Purchase Agreement by and among NMT NeuroSciences (US), Inc.,
NMT Medical, Inc. and Integra Selector Corporation, dated as of
March 20, 2000.
10.1 Amendment No. 3 to Subordinated Note and Common Stock Purchase
Agreement, dated as of April 5, 2000, by and among
NMT Medical, Inc., Whitney Subordinated Debt Fund, L.P. and, for
certain purposes, J.H. Whitney & Co.
10.2 First Amendment to Credit Agreement, dated as of April 5, 2000, 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 the Borrowers and Brown Brothers Harriman & Co. as
the Lender.
10.3 Severance and Settlement Agreement and Release, dated as of April 8,
2000, by and between NMT Medical, Inc. and Thomas M. Tully.
10.4 Letter Agreement of Compliance with Certain Covenants, dated as of
May 19, 2000, by and among NMT Medical, Inc. and its domestic
subsidiaries as the Borrowers and Brown Brothers Harriman & Co. as
the Lender.
10.5 Waiver, made as of May 18, 2000, by and between NMT Medical, Inc.
and Whitney Subordinated Debt Fund, L.P.
27 Financial Data Schedule
- ----------
</TABLE>
* Incorporated by reference to the Company's Annual Report on Form 10-K, as
amended, for the fiscal year ended December 31, 1999.
<PAGE>
Exhibit 10.1
AMENDMENT NO. 3 TO SUBORDINATED NOTE AND COMMON STOCK PURCHASE AGREEMENT
------------------------------------------------------------------------
Amendment No. 3 to Subordinated Note and Common Stock Purchase Agreement
dated as of April 5, 2000 by and among J.H. Whitney & Co. ("JHW"), Whitney
Subordinated Debt Fund, L.P. ("WSDF" and, together with JHW, "Whitney") and NMT
Medical, Inc. ("NMT").
Reference is made to that certain Subordinated Note and Common Stock
Purchase Agreement, dated as of July 8, 1998 (the "Whitney Purchase Agreement"),
by and among WSDF, NMT and, for certain purposes, JHW, as amended by that
certain Amendment No. 1 dated April 14, 1999 ("Amendment No. 1") and as further
amended by that certain Amendment No. 2 dated September 13, 1999 ("Amendment No.
2") (the Whitney Purchase Agreement as so amended, the "Amended Whitney
Purchase Agreement");
Reference is further made to that certain Waiver and Consent Agreement
dated as of March 20, 2000 (the "Waiver Agreement"), by and among Brown Brothers
Harriman & Co. ("BBH"), NMT, certain other subsidiaries of NMT, and Whitney.
WHEREAS, the Waiver Agreement provides, inter alia, that upon the reduction
of the principal amount outstanding under NMT's credit agreement with BBH (the
"U.S. Credit Agreement") to $2,000,000, the amount of permitted Senior
Indebtedness (as defined in the Amended Whitney Purchase Agreement) shall be
reduced to $2,000,000;
WHEREAS, upon the closing of the Sale Transactions (as defined in the
Waiver Agreement) on April 5, 2000, the principal amount outstanding under the
U.S. Credit Agreement was reduced to $2,000,000; and
WHEREAS, the parties now wish to memorialize the reduction of permitted
Senior Indebtedness as contemplated by the Waiver Agreement.
NOW, THEREFORE, in consideration of the foregoing and the promises and
agreements set forth herein, the parties agree as follows:
1. The maximum aggregate principal amount of permitted Senior
Indebtedness (as defined in the Amended Whitney Purchase Agreement) is hereby
reduced from $13,000,000 to $2,000,000.
2. Except for the foregoing, all of the terms and conditions of the
Amended Whitney Purchase Agreement (as affected by the Waiver Agreement and that
certain Release of Security Interest Agreement dated as of March 20, 2000 by and
among Whitney, BBH, NMT and NMT's domestic subsidiaries) remain in full force
and effect.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE>
WHEREFORE, the parties have executed this agreement as a document under
seal as of the date first written above.
WHITNEY SUBORDINATED DEBT FUND, L.P.
By: /s/ Daniel J. O'Brien
-----------------------
Name: Daniel J. O'Brien
Title: General Partner
J.H. WHITNEY & CO.
By: /s/ Daniel J. O'Brien
----------------------
Name: Daniel J. O'Brien
Title: General Partner
NMT MEDICAL, INC.
By: /s/ William J. Knight
----------------------
Name: William J. Knight
Title: Vice President - Finance and Administration
and Chief Financial Officer
<PAGE>
Exhibit 10.2
FIRST AMENDMENT TO
CREDIT AGREEMENT
----------------
This FIRST AMENDMENT TO CREDIT AGREEMENT ("Amendment"), dated as of April
5, 2000, by and among NMT Medical, Inc., a Delaware corporation ("NMT"), 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 (collectively, the "Borrowers"), and Brown Brothers Harriman
& Co. (the "Lender").
WHEREAS, the Borrowers and the Lender are parties to a certain Credit
Agreement dated as of September 13, 1999 (the "Credit Agreement") (capitalized
terms which are not defined in this Amendment shall have their respective
meanings specified in the Credit Agreement);
WHEREAS, NMT and certain of its subsidiaries entered into purchase
agreements pursuant to which Integra Selector Corporation and Integra
Neurosciences Holdings (UK) Limited purchased on the date hereof, certain assets
of, or the capital shares in, certain subsidiaries of NMT (the "Sale
Transactions");
WHEREAS, pursuant to a Waiver and Consent Agreement, dated as of March 20,
2000, by and among the Borrowers, the Lender, J.H. Whitney & Co. and Whitney
Subordinated Debt Fund, L.P. (the "Waiver and Consent"), the Borrowers agreed to
pay to the Lender such amount from the proceeds of the Sale Transactions as
necessary to reduce the outstanding principal balance under the Credit Agreement
to $2,000,000;
WHEREAS, upon the reduction of the outstanding principal balance under the
Credit Agreement to $2,000,000 as contemplated by the Waiver and Consent, the
Borrowers and the Lender agreed to permanently reduce the Commitment to
$2,000,000; and
WHEREAS, the Borrowers and the Lender desire to amend the Credit Agreement
to so reduce the Commitment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby amend the Credit
Agreement as follows:
Section 1. Article I. Article I of the Credit Agreement is hereby amended
---------
by deleting the definition for "Commitment" and substituting therefor the
following:
" "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 $2,000,000."
<PAGE>
Section 2. Representations and Warranties. The Borrowers hereby confirm
------------------------------
to the Lender that the representations and warranties of the Borrowers set forth
in Article III of the Credit Agreement are true and correct as of the date
hereof, as if set forth herein in full, except to the extent that such
representations and warranties are no longer true and correct as a result solely
of the consummation of the Sale Transactions.
Section 3. No Default. The Borrowers hereby acknowledge that there is no
----------
Default or Event of Default existing under the Credit Agreement.
Section 4. No Other Changes. Except as amended by this Amendment, the
----------------
Credit Agreement remains in full force and effect.
Section 5. Counterparts. This Amendment may be executed in any number of
------------
counterparts each of which shall be an original with the same effect as if all
of the signatures to this Amendment were upon the same instrument.
Section 6. Miscellaneous. This Amendment shall be governed by and
-------------
construed and enforced under the laws of the Commonwealth of Massachusetts.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
NMT MEDICAL, INC.
By: /s/ William J. Knight
----------------------
Name: William J. Knight
Title: Vice President-Finance and
Administration and Chief Financial
Officer
NMT HEART, INC.
By: /s/ William J. Knight
----------------------
Name: William J. Knight
Title: Treasurer and Secretary
NMT INVESTMENTS CORP.
By: /s/ William J. Knight
----------------------
Name: William J. Knight
Title: Treasurer and Clerk
NMT NEUROSCIENCES
(INTERNATIONAL), INC.
By: /s/ William J. Knight
----------------------
Name: William J. Knight
Title: Treasurer and Secretary
NMT NEUROSCIENCES (US), INC.
By: /s/ William J. Knight
----------------------
Name: William J. Knight
Title: Treasurer and Secretary
3
<PAGE>
NMT NEUROSCIENCES (IP), INC.
By: /s/ William J. Knight
----------------------
Name: William J. Knight
Title: Treasurer and Secretary
NMT NEUROSCIENCES
INNOVASIVE SYSTEMS, INC.
By: /s/ William J. Knight
----------------------
Name: William J. Knight
Title: Treasurer and Secretary
BROWN BROTHERS HARRIMAN & CO.
By: /s/ Louise A. Coughlan
----------------------
Name: Louise A. Coughlan
Title: Senior Vice President
4
<PAGE>
Exhibit 10.3
SEVERANCE AND SETTLEMENT AGREEMENT AND RELEASE
----------------------------------------------
AGREEMENT made as of this 8th day of April, 2000, by and between NMT
Medical, Inc. (the "Company") and Thomas M. Tully (the "Employee").
WHEREAS, the parties wish to resolve amicably the Employee's separation
from the Company and establish the terms of the Employee's severance
arrangement;
NOW, THEREFORE, in consideration of the promises and conditions set forth
in this Agreement and Release, the sufficiency of which is acknowledged, the
Company and the Employee agree as follows:
1. Termination Date. The Employee's effective date of termination from
----------------
full-time employment as President and Chief Executive Officer of the Company is
April 8, 2000 (the "Termination Date"). The Employee hereby resigns, and upon
request of the Company agrees to execute and deliver a further written
resignation, from all positions held with the Company except that described in
the separate Employment Agreement executed with the Company on this same date.
2. Monetary and other Consideration.
--------------------------------
(a) In return for the execution of this Agreement and Release, the Company
agrees to: pay the Employee (i) a total of $278,650 in 24 equal semi monthly
payments of $11,610.42; and (ii) 11,626.90 for accrued and unused vacation.
Employee understands that the foregoing amounts are not being paid to him as an
employee and will be paid without withholding. The Company shall furnish a Form
1099 for payments made pursuant to Section 2(a)(i). The amount of accrued and
unused vacation will be paid to the Employee in a lump-sum on May 1, 2000.
<PAGE>
(b) In addition to the monetary consideration described above, the Company
agrees to:
(i) pay all medical, prescription, dental, and life insurance premiums
for Employee coverage currently in effect through April 8, 2000;
3. Release. By executing this Agreement and Release, the Employee fully,
-------
forever, irrevocable and unconditionally releases, remises and discharges the
Company, its officers, directors, stockholders, corporate affiliates, agents and
employees from any and all claims, charges, complaints, demands, actions, causes
of action, suits, rights, debts, sums of money, costs, accounts, reckonings,
covenants, contracts, agreements, promises, doings, omissions, damages,
executions, obligations, liabilities, and expenses (including attorneys' fees
and costs), of every kind and nature which he ever had or now has against the
Company, its officers, directors, stockholders, corporate affiliates, agents and
employees, including, but not limited to, all claims arising out of his
employment, all employment discrimination claims under Title VII of the Civil
Rights Act of 1964, 42 U.S.C. (S)2000e et seq., the Age Discrimination in
Employment Act, 29 U.S.C. (S)621 et seq., the Americans With Disabilities Act,
42 U.S.C. (S)12101 et seq., the Massachusetts Fair Employment Practices Act,
M.G.L. c.151B, (S)1 et seq., all claims arising out of the Massachusetts Civil
Rights Act, M.G.L. c.12 (S)(S)11H and 11I, the Massachusetts Equal Rights Act,
c.93 (S)102 and M.G.L. c. 214, (S)1C, all damages arising out of all employment
discrimination claims, wrongful discharge claims or other common law claims and
damages.
4. Nature of Agreement. The Employee understands and agrees that this
-------------------
Agreement and Release is a severance and settlement agreement and does not
constitute an admission of liability or wrongdoing on the part of the Company.
5. Amendment. This Agreement shall be binding upon the parties and may not
---------
be abandoned, supplemented, changed or modified in any manner, orally or
otherwise, except by an instrument in writing of concurrent or subsequent date
signed by a duly authorized representative
-2-
<PAGE>
of the parties hereto. This Agreement is binding upon and shall inure to the
benefit of the parties and their respective agents, assigns, heirs, executors,
successors and administrators.
6. Validity. Should any provision of this Agreement and Release be declared
--------
or be determined by any court of competent jurisdiction to be illegal or
invalid, the validity of the remaining parts, terms, or provisions shall not be
affected thereby and said illegal and invalid part, term or provision shall be
deemed not to be a part of this Agreement and Release.
7. Confidentiality. The Employee understands and agrees that the terms and
---------------
contents of this Agreement and Release, and the contents of the negotiations and
discussions resulting in this Agreement and Release, shall be maintained as
confidential by the Employee, his agents and representatives, and none of the
above shall be disclosed except to the extent required by federal or state law
or as otherwise agreed to in writing by the authorized agent of each party. In
addition, the Employee acknowledges that the Employee Nondisclosure and Secrecy
Agreement, dated as of September 1, 1995, between the Employee and the Company
(the "Nondisclosure Agreement") remains in full force and effect.
8. Non-Competition; Non-Solicitation. The Employee and the Company
---------------------------------
acknowledge and agree that the Employee shall continue to be bound by the
provisions of Sections 7 and 8 of the Employment Agreement, dated January 1,
1999, by and between the Employee and the Company (the "Employment Agreement")
and that Sections 7 and 8 of the Employment Agreement remain in full force and
effect.
9. Entire Agreement. This Agreement, the Nondisclosure Agreement, Sections
----------------
7 and 8 of the Employment Agreement and the Employment Agreement dated April 8,
2000 between the Company and the Employee, contain and constitute the entire
understanding and agreement between the parties hereto with respect to severance
and settlement and cancel all previous oral and written negotiations,
agreements, commitments, and writings in connection with such matters.
-3-
<PAGE>
10. Applicable Law. This Agreement shall be governed by the laws of The
--------------
Commonwealth of Massachusetts.
11. Acknowledgments. The Employee acknowledges that he has been given
---------------
twenty-one (21) days to consider this Agreement and that the Company advised him
to consult with an attorney of his own choosing prior to signing this Agreement.
The Employee may revoke this Agreement for a period of seven (7) days after the
execution of this Agreement, and the Agreement shall not be effective or
enforceable until the expiration of this seven (7) day revocation period.
12. Voluntary Assent. The Employee affirms that no other promises or
----------------
agreements of any kind have been made to or with him by any person or entity
whatsoever to cause him to sign this Agreement, and that he fully understands
the meaning and intent of this Agreement. The Employee states and represents
that he has had an opportunity to fully discuss and review the terms of this
Agreement with an attorney. The Employee further states and represents that he
has carefully read this Agreement, understands the contents herein, freely and
voluntarily assents to all of the terms and conditions hereof, and signs his
name of his own free act.
13. Counterparts. This Agreement may be executed in two (2) signature
------------
counterparts, each of which shall constitute an original, but all of which taken
together shall constitute but one and the same instrument.
-4-
<PAGE>
IN WITNESS WHEREOF, all parties have set their hand and seal to this
Agreement as of the date written above.
NMT MEDICAL, INC.
/s/ C. Leonard Gordon
- ----------------------
By: C. Leonard Gordon Date: April 8, 2000
Its: Acting President -------------
/s/ Thomas M. Tully
- --------------------
Thomas M. Tully Date: April 8, 2000
-------------
-5-
<PAGE>
Exhibit 10.4
May 19, 2000
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, as amended (the "Credit Agreement"), by and among NMT
Medical, Inc. ("NMT") and its domestic subsidiaries (together with NMT, the
"Borrowers") and Brown Brothers Harriman & Co. (the "Lender") and (ii) 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"). Capitalized terms used herein and not defined
shall have the meanings ascribed to such terms in the Credit Agreement.
The Borrowers have delivered to the Lender in connection herewith
calculations regarding compliance with the financial covenants set forth in
Section 6.09 of the Credit Agreement for the first quarter of 2000 (the
"Calculations"). Based on the Calculations, the Borrowers were not in
compliance with the financial covenants set forth in Sections 6.09(a), (b) and
(d) of the Credit Agreement. The Lender hereby waives the Borrowers' compliance
with the financial covenants set forth in the Credit Agreement, but only to the
extent of the deviations from the relevant financial covenants set forth in the
Calculations and the Borrowers' failure to comply with such covenants for the
first quarter of 2000.
In addition, as of the date hereof, the Borrowers have not delivered the
pledge of the stock of Image Technology Corp. (together with related stock
powers executed in blank), which items are required to be delivered to the
Lender on or before May 31, 2000 in accordance with the terms of the Letter
Agreement, as modified by that certain Waiver and Consent Agreement, dated as of
March 20, 2000 (the "Waiver and Consent"), by and among the Lender, Whitney
Subordinated Debt Fund, L.P. ("Whitney"), J.H. Whitney & Co. ("JHW") and the
Borrowers. The Lender hereby agrees to extend the date of delivery for the
remaining documentation under the Letter Agreement to on or before July 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 July 31, 2000, it shall constitute an immediate Event of Default
under the Credit Agreement.
<PAGE>
This waiver applies only with respect to the Borrowers' non-compliance with
the provisions of the Credit 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 the Credit
Agreement. Nothing contained in this waiver shall be deemed to modify or amend
the Credit Agreement, 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, (i) the Borrowers
hereby confirm to the Lender that the representations and warranties of the
Borrowers set forth in Article III of the Credit Agreement are true and correct
as of the date hereof as if set forth herein in full, except to the extent that
such representations and warranties are no longer true and correct as a result
solely of the consummation of the Sale Transactions (as defined in the Waiver
and Consent), and (ii) the Borrowers hereby certify that, after giving effect to
this waiver, no Default exists under the Credit Agreement.
This waiver is conditioned upon, and shall be effective only
contemporaneous with, the granting and effectiveness of a waiver by 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, JHW, as
amended (the "Whitney Agreement"), with respect to NMT's failure to comply with
the financial covenants 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/ Louise A. Coughlan
----------------------------
Name: Louise A. Coughlan
Title: Senior Vice President
ACKNOWLEDGED AND AGREED:
NMT MEDICAL, INC.
By: /s/ William J. Knight
----------------------
Name: William J. Knight
Title: Vice President-Finance and
Administration and Chief
Financial Officer
NMT HEART, INC.
By: /s/ William J. Knight
---------------------
Name: William J. Knight
Title: Treasurer and Secretary
NMT INVESTMENTS CORP.
By: /s/ William J. Knight
---------------------
Name: William J. Knight
Title: Treasurer and Clerk
NMT NEUROSCIENCES
(INTERNATIONAL), INC.
By: /s/ William J. Knight
---------------------
Name: William J. Knight
Title: Treasurer and Secretary
3
<PAGE>
NMT NEUROSCIENCES (US), INC.
By: /s/ William J. Knight
---------------------
Name: William J. Knight
Title: Treasurer and Secretary
NMT NEUROSCIENCES (IP), INC.
By: /s/ William J. Knight
---------------------
Name: William J. Knight
Title: Treasurer and Secretary
NMT NEUROSCIENCES
INNOVASIVE SYSTEMS, INC.
By: /s/ William J. Knight
---------------------
Name: William J. Knight
Title: Treasurer and Secretary
4
<PAGE>
Exhibit 10.5
WAIVER
------
This Waiver, made as of May 18, 2000 (this "Waiver"), is by and among NMT
Medical, Inc. (the "Company"), on the one hand, and Whitney Subordinated Debt
Fund, L.P. (the "Purchaser"), 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 (i)
Amendment No. 1, dated April 14, 1999, (ii) Amendment No. 2, dated September 13,
1999, and (iii) Amendment No. 3, dated as of April 5, 2000, by and among the
Company, the Purchaser, and, for certain purposes, J. H. Whitney & Co. (as so
amended, the "Purchase Agreement"), regarding the Company's $20,000,000
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 March 31, 2000.
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 Sections 9.8(a), (b) and (d) of the Purchase Agreement solely with respect to
the fiscal quarter ended March 31, 2000.
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, by and among the Company and the
Purchaser, 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 principles of conflict of laws
of such state.
5. IN WITNESS WHEREAS, the parties hereto have caused this Waiver to be
signed by their respective duly authorized officers as of the date first written
above.
<PAGE>
NMT MEDICAL, INC.
By: /s/ William J. Knight
----------------------
Name: William J. Knight
Title: Vice President-Finance and
Administration and Chief Financial
Officer
WHITNEY SUBORDINATED DEBT FUND, L.P.
By: /s/ James A. Fordyce
--------------------------
Name: James A. Fordyce
A General Partner
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,410,775
<SECURITIES> 0
<RECEIVABLES> 9,967,572
<ALLOWANCES> 921,000
<INVENTORY> 4,253,046
<CURRENT-ASSETS> 18,234,276
<PP&E> 14,461,275
<DEPRECIATION> 3,895,033
<TOTAL-ASSETS> 37,673,368
<CURRENT-LIABILITIES> 8,586,230
<BONDS> 0
0
0
<COMMON> 10,901
<OTHER-SE> 14,077,928
<TOTAL-LIABILITY-AND-EQUITY> 37,673,368
<SALES> 9,755,827
<TOTAL-REVENUES> 10,005,060
<CGS> 4,029,031
<TOTAL-COSTS> 5,706,280
<OTHER-EXPENSES> (143,158)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 359,651
<INCOME-PRETAX> 53,256
<INCOME-TAX> (14,850)
<INCOME-CONTINUING> 68,106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,106
<EPS-BASIC> $.01
<EPS-DILUTED> $.01
</TABLE>
