<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1998
REGISTRATION NO. 333-31927
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-1
ON
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ENDOCARDIAL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3815 41-1724963
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Identification Number) Classification Code Number)
</TABLE>
1350 ENERGY LANE, SUITE 110
ST. PAUL, MINNESOTA 55108
(612) 644-7890
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JAMES W. BULLOCK
ENDOCARDIAL SOLUTIONS, INC.
1350 ENERGY LANE, SUITE 110
ST. PAUL, MINNESOTA 55108
(612) 644-7890
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
KENNETH L. CUTLER JOHN F. WURM
Dorsey & Whitney LLP Fredrikson & Byron, P.A.
Pillsbury Center South 1100 International Centre
220 South Sixth Street 900 Second Avenue South
Minneapolis, Minnesota 55402-3901 Minneapolis, Minnesota 55402-3397
(612) 340-2600 (612) 347-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 4, 1998
PROSPECTUS
DATED
750,000 SHARES
[LOGO]
COMMON STOCK
This Prospectus relates to an aggregate of 750,000 shares (the "Shares") of
Common Stock, par value $.01 per share (the "Common Stock"), of Endocardial
Solutions, Inc., a Delaware corporation ("ESI" or the "Company"), that may be
sold from time to time by Medtronic Asset Management, Inc., a wholly owned
subsidiary of Medtronic, Inc. (collectively "Medtronic" or the "Selling
Stockholder"). See "Selling Stockholder." The Company will not receive any
proceeds from the sale of the Shares. The Company has agreed to pay the expenses
of registration of the Shares, including certain legal and accounting fees.
Any or all of the Shares may be offered from time to time in transactions on the
Nasdaq National Market, in brokerage transactions at prevailing market prices or
in transactions at negotiated prices. See "Plan of Distribution."
The Common Stock is traded on the Nasdaq National Market under the symbol
"ECSI."
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer contained herein, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, any securities offered hereby in any jurisdiction in which
it is not lawful or to any person to whom it is not lawful to make any such
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that
information herein is correct as of any time subsequent to the date hereof.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a World Wide Web site which provides on-line access to
registration statements, reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at the address "http://www.sec.gov."
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
items of which are contained in schedules and exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. Such
Registration Statement, including exhibits and schedules, may be inspected
without charge at the office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies thereof may be obtained from the Commission
at prescribed rates. Statements made in the Prospectus concerning the contents
of any documents referred to herein are not necessarily complete. With respect
to each such document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description, and each such statement shall be deemed qualified in its entirety
by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1997 and Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
which have been filed with the Commission, are hereby incorporated by reference
in this Prospectus.
The description of the Company's Common Stock contained in the Company's
Registration Statement filed pursuant to Section 12 of the Exchange Act, and any
amendment or report filed for the purpose of updating any such description, is
hereby incorporated by reference in this Prospectus.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
respective dates of filing of such documents.
Any statement contained herein or in a document all or part of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference (other
than certain exhibits to such documents). Requests for such copies should be
directed to the Company, 1350 Energy Lane, Suite 110, St. Paul, Minnesota 55108.
Telephone requests may be directed to the Secretary at (612) 644-7890.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND THE
NOTES THERETO INCORPORATED BY REFERENCE IN THIS PROSPECTUS. INVESTORS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."
Endocardial Solutions, Inc. ("ESI" or the "Company") designs, develops, and
manufactures a minimally invasive diagnostic system that diagnoses, within the
span of a few heartbeats, tachycardia, a potentially fatal abnormal heart
rhythm. The Company believes that its proprietary EnSite 3000-TM- catheter and
clinical workstation (together, the "EnSite System") is a powerful new
diagnostic tool that will enable electrophysiologists to rapidly and
comprehensively map tachycardia and improve the selection of patient treatment
options.
The Company has conducted limited clinical trials of the EnSite System on
patients in the United States and the United Kingdom for ventricular tachycardia
and supraventricular (atrial) tachycardia. Although clinical data obtained to
date are insufficient (and included patients who experienced complications) to
demonstrate the safety and efficacy of the EnSite 3000-TM- System under
applicable United States and international regulatory guidelines, the Company
anticipates that these and additional clinical trials will be used to support a
pre-market approval ("PMA") application to obtain approval to market the EnSite
System for the diagnosis of ventricular tachycardia and a 510(k) premarket
notification for atrial flutter and tachycardia mapping. The process of
obtaining FDA and other required regulatory approvals is lengthy, expensive and
uncertain. See "Risk Factors--Limited Clinical Testing Experience; Safety and
Efficacy Not Yet Established" and "--Lack of Regulatory Approval."
Tachycardia are caused by irregular electrical activity in the heart which
disrupts the heart's normal pumping action. Ventricular tachycardia ("VT") occur
in the lower chambers of the heart and frequently lead to serious complications,
including sudden cardiac death. Supraventricular tachycardia ("SVT"), including
atrial flutter and tachycardia, originate in the upper chambers of the heart and
often result in chest pain, fatigue and dizziness and, while generally not
life-threatening, are a leading cause of stroke in the United States.
It is estimated that in the United States approximately one million people
suffer from VT and approximately three million suffer from some form of SVT. The
Company estimates that a majority of these four million VT and SVT patients
suffer from complex forms of tachycardia that have multiple points of origin in
unpredictable locations in the heart ("complex tachycardia"). To date,
electrophysiologists have generally been unable to adequately diagnose complex
tachycardia due to the limited capabilities of present technology. Currently
available single-point contact catheters require time-consuming and tedious
procedures that generally produce an insufficient amount of data to effectively
locate, diagnose and optimally treat complex tachycardia.
The Company's EnSite System is designed to enable electrophysiologists to
rapidly and precisely locate the multiple, unpredictable points of origin of
complex tachycardia. The EnSite System applies proprietary mathematical
algorithms to compute more than 3,000 points of electrical activity within a
heart chamber, producing a high resolution, real-time, three-dimensional color
display of the electrical activity in the heart chamber. The "virtual
electrogram" function of the EnSite System allows electrophysiologists to
instantly view the electrical activity at any of the more than 3,000 points. The
EnSite System is also capable of tracking and displaying the location and
movements of auxiliary catheters introduced into the chamber.
The Company is a development stage company that has incurred significant
operating losses since its inception. As of March 31, 1998, the Company had an
accumulated deficit of approximately $31.4 million. See "Risk Factors--History
of Operating Losses; Accumulated Deficit; Expectation of Future Losses." The
Company's offices are located at 1350 Energy Lane, Suite 110, St. Paul,
Minnesota 55108, and its telephone number is (612) 644-7890. The Company was
incorporated in Minnesota in 1992 and was reincorporated in Delaware in 1995.
3
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE
IN THIS PROSPECTUS.
DEPENDENCE ON SUCCESSFUL DEVELOPMENT AND COMMERCIALIZATION OF THE ENSITE SYSTEM
The Company's future success is entirely dependent upon the successful
development, commercialization and market acceptance of the EnSite System, the
development of which is ongoing and the complete efficacy and safety of which
have not yet been demonstrated. The EnSite System is currently the Company's
only potential product, and the Company could be required to cease operations if
the system is not successfully commercialized. The EnSite System will require
further development, significant additional clinical trials and, ultimately,
United States and international regulatory approvals before it can be marketed
in the United States and internationally. There can be no assurance that
unforeseen problems will not occur in research and development, clinical
testing, regulatory submissions and approval, product manufacturing and
commercial scale-up, marketing or product distribution. Any such occurrence
could materially delay the commercialization of the EnSite System or prevent its
market introduction entirely. The Company will not generate any significant
revenue until such time, if ever, as the EnSite System is successfully
commercialized. There can be no assurance that the Company will ever derive
substantial revenues from the sale of the EnSite System.
LIMITED CLINICAL TESTING EXPERIENCE; SAFETY AND EFFICACY NOT YET ESTABLISHED
The Company has conducted only limited clinical trials on patients for VT
and SVT in the United States and in the United Kingdom. The Company has
experienced complications in its clinical trials, and clinical data obtained to
date are insufficient to demonstrate the safety and efficacy of the EnSite
System under applicable United States and international regulatory guidelines.
Accordingly, the Company believes it will be required to conduct extensive
clinical testing in the United States in order to support a pre-market approval
("PMA") application to the United States Food and Drug Administration ("FDA")
for marketing approval. Patients selected for clinical trials must meet
stringent guidelines to undergo testing, and there can be no assurance that
patients can be enrolled in clinical trials on a timely basis. Further, there
can be no assurance that any of the Company's products will prove to be safe and
effective in clinical trials under United States or international regulatory
guidelines or that the Company will not encounter problems in clinical testing
that will cause a delay in the commercialization of the EnSite System. Moreover,
the clinical trials may identify significant technical or other obstacles to be
overcome prior to obtaining necessary regulatory or reimbursement approvals.
LACK OF REGULATORY APPROVAL
The manufacture and sale of medical devices, including the EnSite System,
are subject to extensive ongoing regulation by numerous governmental authorities
in the United States, principally the FDA and corresponding state agencies, and
in other countries. In the United States, the Company's products are regulated
as medical devices and are subject to the FDA's premarket approval requirements,
which have not been satisfied. Securing FDA approvals requires the submission of
extensive clinical data and supporting information to the FDA. Although the
EnSite System has been used in limited clinical trials in the United States on
patients suffering from VT, under an IDE approved by the FDA, the Company cannot
file with the FDA a PMA application to market the EnSite System for diagnosing
VT in the United States until more extensive clinical trials are completed. The
process of obtaining FDA and other required regulatory approvals is lengthy,
expensive and uncertain and frequently requires from one to several years
4
<PAGE>
from the date of FDA filing, if premarket approval is obtained at all. In
addition, the use of the EnSite System to diagnose SVT is in the initial stages
of clinical development. Though the Company has received an IDE approval from
the FDA to pursue clinical testing of the EnSite System for endocardial mapping
in the atrium in the United States, significant additional testing will be
required to support a subsequent 510(k) premarket notification.
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for FDA approval, and the requirements may differ.
After mid-1998, the Company will be required to obtain the certifications
necessary to enable the CE Mark to be affixed to the Company's products in order
to sell its products in member countries of the European Union. The Company has
obtained CE certification for the EnSite catheter, but has not yet received such
certification for the EnSite 3000 clinical workstation, and there can be no
assurance it will be able to do so in a timely manner. In addition, significant
costs and requests for additional information may be encountered by the Company
in its efforts to obtain regulatory approvals. Any such events could
substantially delay or preclude the Company from marketing its products
internationally.
Regulatory approvals, if granted, may include significant limitations on the
indicated uses for which the product may be marketed. In addition, to obtain
such approvals, the FDA and certain foreign regulatory authorities may impose
numerous other requirements with which medical device manufacturers must comply.
FDA enforcement policy strictly prohibits the marketing of approved medical
devices for unapproved uses. In addition, product approvals could be withdrawn
for failure to comply with regulatory standards or the occurrence of unforeseen
problems following the initial marketing. The Company will be required to adhere
to applicable FDA regulations regarding Good Manufacturing Practices ("GMP") and
similar regulations in other countries, which include testing, control, and
documentation requirements. Ongoing compliance with GMP and other applicable
regulatory requirements will be monitored through periodic inspections by
federal and state agencies, including the FDA, and by comparable agencies in
other countries. Failure to comply with applicable regulatory requirements,
including the marketing of products for unapproved uses, could result in, among
other things, warning letters, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, refusal of the
government to grant premarket approval for devices, withdrawal of approvals and
criminal prosecution. Changes in existing regulations or adoption of new
governmental regulations or policies could prevent or delay regulatory approval
of the Company's products. Certain material changes to medical devices also are
subject to FDA review and approval.
There can be no assurance that the Company will be able to obtain PMA
approval for the EnSite System for use in diagnosing VT or 510(k) approval for
SVT, the certifications necessary for affixation of the CE Mark on the Company's
clinical workstation or other necessary regulatory approvals on a timely basis
or at all. Delays in receipt of or failure to receive such approvals, the loss
of previously obtained approvals, or failure to comply with existing or future
regulatory requirements would have a material adverse effect on the Company's
business, financial condition and results of operations.
UNCERTAINTY OF AVAILABILITY OF TREATMENTS EMPLOYING ENSITE SYSTEM
The Company has developed its EnSite System to diagnose VT and assist
electrophysiologists in selecting among treatment options. Current treatments
for VT include drugs, implantable defibrillators, surgery and, potentially,
catheter ablation. The Company believes that the EnSite System will enable
increased use of catheter ablation for treating complex VT. Because ablation
treatment for VT is a relatively new and to date an untested treatment, the long
term effects of ablation on patients are unknown. As a result, the long term
success of ablation therapy in treating VT will not be known for several years.
To date, no medical devices for treating VT patients in the United States
through catheter ablation have been approved by the FDA. Such catheter ablation
devices require PMA approval by the FDA, and there can be no assurance that any
such device will be approved by the FDA, or that any FDA
5
<PAGE>
approval will be granted in the near future. Accordingly, there can be no
assurance that the catheter ablation market will develop in the near term or
ever. Moreover, even if medical devices for catheter ablation are approved by
the FDA, there can be no assurance that the market for treating VT through
catheter ablation will develop or that the EnSite System will prove useful in
diagnosing VT for treatment by catheter ablation products approved by the FDA.
The Company is not in the process of developing a catheter for ablation
treatment and is entirely dependent upon other medical device companies for the
development of such devices. If the medical devices for treating ventricular
tachycardia through catheter ablation are not approved by the FDA or, even with
such approval, if a market for treating ventricular tachycardia by catheter
ablation does not develop, the business, financial condition and results of
operations of the Company would be materially adversely affected.
UNCERTAINTY OF MARKET ACCEPTANCE; TRAINING OF PHYSICIANS REQUIRED
The commercial success of the EnSite System is dependent upon the number of
diagnostic procedures performed by electrophysiologists using the system. There
can be no assurance that the Company's EnSite System will gain any significant
degree of market acceptance among electrophysiologists, patients and health care
insurers and managed care providers. Electrophysiologists will not recommend
that diagnostic procedures be performed using the Company's products until such
time, if at all, as clinical data demonstrate the safety and efficacy of such
procedures as compared to other diagnostic procedures currently available or
under development. See "--Significant Competition; Rapid Technological Change."
Even if the clinical safety and efficacy of procedures using the EnSite System
is established, electrophysiologists and other physicians may elect not to
recommend the procedures for any number of other reasons, including inadequate
levels of reimbursement. Broad use of the EnSite System will require training of
electrophysiologists, and the time required to complete such training could
adversely affect market acceptance. Failure of the Company's products to achieve
significant market acceptance would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"--Uncertainty of Third-Party Reimbursement."
UNCERTAINTY OF ABILITY TO DIAGNOSE AND TREAT ATRIAL FLUTTER AND TACHYCARDIA
The Company intends to apply the EnSite System to the diagnosis of atrial
flutter and tachycardia; however, the Company has conducted only limited
clinical studies of its technology on patients suffering from atrial flutter and
tachycardia. Although the Company has received an IDE from to the FDA for a
multi-center clinical study of the EnSite System in diagnosing atrial flutter
and tachycardia, to date the Company has conducted only limited clinical trials
on patients for atrial flutter and tachycardia, and there can be no assurance
that the Company will be able to successfully extend its technology to the
mapping of atrial flutter and tachycardia or obtain regulatory approval to test
and market any products developed using such technology to map atrial flutter
and tachycardia. In addition, the Company has made and expects to continue to
make significant research and development expenditures in extending its
technology to the diagnosis of atrial flutter and tachycardia. There can be no
assurance that the Company will realize any benefit from these expenditures.
Atrial flutter and tachycardia are complex diseases and the subject of
continuing research. The therapies presently available for atrial flutter and
tachycardia are in the developmental stage with no proven effectiveness. Even if
the Company is successful in extending its technology to provide products that
are capable of diagnosing atrial flutter and tachycardia, there can be no
assurance that treatments for atrial flutter and tachycardia will exist that
will require the diagnostic capabilities of any products developed by the
Company. As a result, there can be no assurance that a commercial market will
ever develop for any product developed by the Company for the diagnosis of
atrial flutter and tachycardia. The Company is not currently engaged and has no
present intention to engage in researching or developing any medical devices for
the treatment of atrial flutter and tachycardia.
6
<PAGE>
UNCERTAINTY OF ABILITY TO PENETRATE COMPLEX TACHYCARDIA PATIENT POPULATION
The Company's EnSite System is designed to diagnose patients suffering from
complex tachycardia. The Company estimates that a majority of the four million
patients who suffer from tachycardia have complex forms of this disease.
Although the Company believes that the patients who suffer from complex
tachycardia are potential candidates for diagnosis using the Company's EnSite
System, there can be no assurance as to the number of complex tachycardia
patients that will be diagnosed using the Company's products due to a number of
factors, including patient preferences, the health and clinical history of the
particular patient, the access of the patient to electrophysiology labs
employing the EnSite System, the availability of alternative diagnostic
procedures, the availability of treatment options and the expense of the
diagnosis using the EnSite System vis-a-vis alternative diagnostic procedures.
Failure of the Company's products to achieve significant penetration of the
population of patients suffering from complex tachycardia could have a material
adverse effect on the Company's business, financial condition and results of
operations. See also "--Uncertainty of Availability of Treatments Employing the
EnSite System," "--Uncertainty of Market Acceptance; Training of Physicians
Required" and "--Uncertainty of Ability to Diagnose and Treat Atrial Flutter and
Tachycardia."
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES
The Company has generated no revenue and has sustained significant operating
losses each year since its inception. The Company expects such losses to
continue at least through 1999. There can be no assurance that the Company will
ever generate substantial operating revenues or achieve profitability. The
Company's ability to generate revenues from operations and achieve profitability
is dependent upon successful development, regulatory approval, manufacturing and
commercialization of the EnSite System and the Company's successful transition
from a development stage company to a manufacturing and sales company.
SIGNIFICANT COMPETITION; RAPID TECHNOLOGICAL CHANGE
The cardiac medical device market is highly competitive and characterized by
rapid innovation and technological change. The Company's EnSite System for the
mapping of ventricular tachycardia is a new technology that must compete with
more established mapping procedures and devices such as single-point contact
catheters that are currently widely used to map tachycardia and which are
generally less expensive and, unlike EnSite catheters, are generally reused
after resterilization. Single-point contact diagnostic catheters have been
approved by the FDA for VT mapping. In addition, certain of the Company's
competitors are developing new approaches and new products for diagnosing
ventricular tachycardia and atrial flutter and tachycardia for which regulatory
approval has not been granted, including contact mapping systems using
multi-electrode basket contact catheters and single-point mapping technologies.
There can be no assurance that any of these competitors will not receive
required regulatory approval to market their products before the Company.
Certain competitors have integrated product lines that include products for both
diagnosis and ablation treatment, which may afford opportunities for product
bundling and other marketing advantages. Many of the Company's competitors have
an established presence in the field of electrophysiology and established
relationships with electrophysiology labs. Many of these competitors have
substantially greater financial and other resources than the Company, including
larger research and development staffs and more experience and capabilities in
conducting research and development activities, testing products in clinical
trials, obtaining regulatory approvals, and manufacturing, marketing and
distributing products. There can be no assurance that the Company will succeed
in developing and marketing technologies and products that are more clinically
efficacious or cost effective than the more established products or the new
approaches and products developed and marketed by its competitors. Certain of
the Company's competitors may achieve patent protection, regulatory approval or
product commercialization more quickly than the Company, which may negatively
impact the Company's ability to compete. The failure of the Company to
demonstrate the safety, benefit, efficacy and cost effectiveness of
7
<PAGE>
its products as compared to those of its competitors or the failure to develop
new technologies and products before its competitors would have a material
adverse effect on business, financial condition and results of operations.
The medical device industry is subject to rapid technological innovation
and, consequently, the life cycle of any particular product is short. There can
be no assurance that alternative diagnostic systems or other discoveries and
developments with respect to mapping tachycardia will not render the Company's
products obsolete. Furthermore, the greater financial and other resources of
many of the Company's competitors may permit such competitors to respond more
rapidly than the Company to technological advances.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in part on its ability to obtain patent
protection for its products and processes, to preserve its trade secrets and to
operate without infringing the proprietary rights of third parties. The patent
positions of medical device companies, including the Company, are uncertain and
involve complex and evolving legal and factual questions. There can be no
assurance that any pending or future patent applications will result in issued
patents, that any current or future patents will not be challenged, invalidated
or circumvented, that the scope of any of the Company's patents will exclude
competitors or that the rights granted thereunder will provide any competitive
advantage to the Company, that any of the Company's patents will be held valid
if subsequently challenged or that others will not claim rights in or ownership
of the patents and other proprietary rights held by the Company. Furthermore,
there can be no assurance that others will not independently develop similar
technologies or duplicate any technology by the Company or that the Company's
technology will not infringe patents or other rights owned by others. Moreover,
the Company cannot be certain that it was the first to make the inventions
covered by each of its issued patents and its pending patent applications, or
that it was the first to file patent applications for such inventions. In
addition, there can be no assurance that competitors, many of which have
substantial resources and have made substantial investments in competing
technologies, will not seek to apply for and obtain patents that will prevent,
limit or interfere with the Company's ability to make, use or sell its products
either in the United States or in international markets. Further, the laws of
certain foreign countries may not protect the Company's intellectual property
rights to the same extent as do the laws of the United States.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry and competitors may
resort to intellectual property litigation as a means of competition.
Intellectual property litigation is complex and expensive and the outcome of
such litigation is difficult to predict. There can be no assurance that the
Company will not become subject to patent infringement claims or litigation in a
court of law, or interference proceedings declared by the United States Patent
and Trademark Office to determine the priority of inventions or an opposition to
a patent grant in a foreign jurisdiction. Litigation or regulatory proceedings,
which could result in substantial cost and uncertainty to the Company, may also
be necessary to enforce patent or other intellectual property rights of the
Company or to determine the scope and validity of other parties' proprietary
rights. There can be no assurance that the Company will have the financial
resources to assert patent infringement suits or to defend itself from claims of
invalidity. An adverse determination in any litigation could subject the Company
to significant liabilities to third parties, or require the Company to seek
licenses from or pay royalties to third parties that may be substantial.
Furthermore, there can be no assurance that the necessary licenses would be
available to the Company on satisfactory terms, if at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing, selling
or using its proposed products, any of which would have a material adverse
effect on the Company's business, financial condition, results of operations and
prospects.
8
<PAGE>
In addition to patents, the Company relies on trade secrets and proprietary
knowledge, which it seeks to protect, in part, through confidentiality
agreements with employees, consultants and other parties. In particular, the
Company relies upon such means to protect the proprietary software used in the
EnSite System. There can be no assurance that the Company's proprietary
information or confidentiality agreements will not be breached, that the Company
will have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known to or independently developed by competitors.
LIMITED MANUFACTURING EXPERIENCE; SCALE-UP RISK
The Company has only limited experience in manufacturing the EnSite catheter
and the patient interface unit of the EnSite System. The Company currently
manufactures its catheters and patient interface units in limited quantities for
laboratory and clinical testing and intends to manufacture the EnSite catheter
for commercial sale. The Company has no experience manufacturing its products in
the volumes that will be necessary for the Company to achieve significant
commercial sales, and there can be no assurance that reliable, high-volume
manufacturing capacity can be established or maintained at commercially
reasonable costs. If the Company receives FDA or foreign approval for its
products, it will need to expend significant capital resources and develop the
necessary expertise to establish large-scale manufacturing capabilities.
Manufacturers often encounter difficulties in scaling up production of new
products, including problems involving production yields, quality control and
assurance, component supply shortages, shortages of qualified personnel,
compliance with FDA and foreign regulations, and the need for further FDA or
foreign regulatory approval of new manufacturing processes. Any inability of the
Company to establish and maintain large-scale manufacturing capabilities would
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's manufacturing facilities will be subject to periodic
inspection by United States and foreign regulatory authorities. In order to
manufacture products for sale in the United States, the Company's operations
must undergo GMP compliance inspections conducted by the FDA. To date, the
Company's facilities and manufacturing processes have not undergone any such
inspections. The Company will also be required to comply with ISO 9001 and 9002
and CE Mark standards in order to sell its products in Europe. The Company
received ISO 9001 certification for its catheter and quality system in August
1997 and ISO 9002 certification for the clinical workstation and CE Mark for the
EnSite catheter in January 1998. Any failure of the Company to comply with GMP
or ISO 9001 and 9002 and CE Mark standards may result in the Company being
required to take corrective actions, such as modification of its manufacturing
policies and procedures. In addition, the Company may be required to cease all
or part of its operations for some period of time until it can demonstrate that
appropriate steps have been taken to comply with GMP or ISO 9001 and 9002 and CE
Mark regulations. Although the Company has received ISO 9001 and 9002
certification, there can be no assurance that the Company will be found in
compliance with GMP or ISO 9001 and 9002 and CE Mark standards in future audits
by regulatory authorities or that the Company will not experience difficulties
in the course of developing its manufacturing capability. A failure to comply
with GMP or ISO 9001 and 9002 and CE Mark standards, or to develop its
manufacturing capability in compliance with such standards, would prohibit the
Company from manufacturing and distributing its products and therefore have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON SOLE OR LIMITED SOURCE SUPPLIERS
The Company purchases raw materials and certain key components of its
products, including the computer workstation and certain components for its
catheter, from sole, single or limited source suppliers. For certain of these
components, there are relatively few alternative sources of supply. The Company
currently has no agreements that would assure delivery of raw materials and
components from such suppliers. Establishing additional or replacement suppliers
for any of the numerous components used in the Company's products, if required,
may not be accomplished quickly and could involve significant additional costs.
The inability of any of the Company's suppliers to provide an adequate supply of
9
<PAGE>
components in a timely manner, or the inability of the Company to locate
qualified alternative suppliers for materials and components at a reasonable
cost, could adversely affect the Company's business, financial condition and
results of operations. In the event the Company had to replace a single source
supplier, such replacement would be required to meet GMP and certain other
regulatory standards.
NEED TO MANAGE EXPANDING OPERATIONS
In order to complete clinical trials in progress, prepare additional
products for clinical trials, and develop future products, the Company believes
that it will be required to expand its operations, particularly in the areas of
research and development, manufacturing, quality assurance and sales and
marketing. As the Company expands its operations in these areas, such expansion
will likely result in new and increased responsibilities for management
personnel. To accommodate any such growth and compete effectively, the Company
will be required to implement and improve information systems, procedures, and
controls, and to expand, train, motivate and manage its work force. The
Company's future success will depend to a significant extent on the ability of
its current and future management personnel to operate effectively, both
independently and as a group. There can be no assurance that the Company's
personnel, systems, procedures and controls will be adequate to support the
Company's future operations. Any failure to implement and improve the Company's
operational, financial and management systems or to expand, train, motivate or
manage employees as required by future growth, if any, would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "--Dependence on Key Personnel; Need for Additional Personnel."
LIMITED COMMERCIAL SALES AND MARKETING EXPERIENCE
The Company has limited experience marketing the EnSite System. There can be
no assurance that the Company will be able to build and maintain a suitable
sales force or enter into or maintain satisfactory marketing arrangements with
third parties when commercial potential develops, if ever, or that its sales and
marketing efforts will be successful.
RISKS RELATING TO INTERNATIONAL OPERATIONS
The Company plans to market the EnSite System through distributors in
international markets, subject to receipt of required foreign regulatory
approvals. Sales in foreign markets are initially expected to be the Company's
only source of revenue. In September 1997 the Company signed a seven-year
distribution agreement (the "Distribution Agreement") with Medtronic to market
the EnSite System for the electrophysiology markets in Europe and Japan. The
initial market release is expected to include sites in Germany, Italy and the
United Kingdom. Under the terms of the Distribution Agreement, Medtronic has
been granted exclusive distribution rights for the Company's products in Europe
and Japan and has been granted certain rights for distribution in other regions
outside North America. The Company has no distribution arrangements for other
international markets, and currently retains all distribution rights in North
America. There can be no assurance that international distributors for the
Company's products will devote adequate resources to selling its products.
Changes in overseas economic conditions, currency exchange rates, foreign
tax laws or tariffs or other trade regulations could have a material adverse
effect on the Company's ability to market its products internationally and
therefore on its business, financial condition and results of operations. The
Company's business is also expected to subject it and its representatives,
agents and distributors to laws and regulations of the foreign jurisdictions in
which they operate or the Company's products are sold. The Company may depend on
foreign distributors and agents for compliance and adherence to foreign laws and
regulations. The regulation of medical devices in a number of such
jurisdictions, particularly in the European Union, continues to develop and
there can be no assurance that new laws or regulations will not have an adverse
effect on the Company's business, financial condition and results of operations.
In
10
<PAGE>
addition, the laws of certain foreign countries do not protect the Company's
intellectual property rights to the same extent as do the laws of the United
States.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The success of the Company is dependent in large part upon the ability of
the Company to attract and retain key management and operating personnel.
Qualified individuals are in high demand and are often subject to competing
offers. In the future, the Company will need to add additional skilled personnel
in the areas of research and development, sales, marketing and manufacturing.
There can be no assurance that the Company will be able to attract and retain
the qualified personnel needed for its business. The loss of the services of one
or more members of the Company's research, manufacturing or management group or
the inability to hire additional personnel as needed would likely have a
material adverse effect on the Company's business and prospects.
FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE
The Company may require substantial funds to meet its working capital
requirements for continued research and development, testing, regulatory
approval and full-scale commercial introduction of its EnSite System. In order
to meet its funding needs, the Company may be required to raise additional funds
through public or private financings, including the sale of equity or debt. Any
additional equity financings may be dilutive to current stockholders, and debt
financing, if available, may involve restrictive covenants. Adequate funds for
the Company's operations, whether from financial markets or from other sources,
may not be available when needed on terms attractive to the Company, if at all.
Insufficient funds may require the Company to delay, scale back or eliminate
some or all of its programs designed to facilitate the commercial introduction
of the EnSite System or prevent such commercial introduction altogether.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT
Sales of the Company's proposed products in most markets in the United
States and internationally will be dependent on availability of adequate
reimbursement for tachycardia diagnostic procedures from third-party payors,
such as government and private insurance plans, health maintenance organizations
and preferred provider organizations. In the United States, the Company's
products, if and when approved for commercial sale, would be purchased primarily
by health care providers which will then seek to be reimbursed by various third
party payors, such as Medicare, Medicaid and other government programs and
private insurance plans, for the health care services provided to their
patients. Third-party payors reimburse health care providers for medical
treatment based on a variety of methods, including a lump sum prospective
payment system based on a diagnosis related group or per diem, a blend between
the health care provider's reported costs and a fee schedule, a payment for all
or a portion of charges deemed reasonable and customary, or a negotiated per
capita fixed payment. Third-party payors are increasingly challenging the
pricing of medical products and procedures. Even if a procedure is eligible for
reimbursement, the level of reimbursement may not be adequate. Additionally,
payors may deny reimbursement if they determine that the device used in a
treatment was unnecessary, inappropriate or not cost-effective, experimental or
used for a non-approved indication.
It is anticipated that the Company's EnSite catheter will be sold at a
premium in comparison to existing single point catheters used in current
diagnostic or mapping procedures, in addition to requiring an initial capital
outlay for the companion clinical workstation. Existing single point catheters,
unlike EnSite catheters, are generally reused after sterilization. In addition
to establishing the safety and efficacy of the EnSite System, and assuming no
increase in the level of reimbursement for cardiovascular procedures expected to
utilize the Company's products, the Company will be required to economically
justify the relative increased cost of utilizing the EnSite System by
satisfactorily demonstrating the enhanced benefits of the EnSite System to
health care providers and payors in terms of such factors as enhanced patient
procedural efficiencies, reduced radiation exposure and improved patient
outcomes.
11
<PAGE>
The commercial success of the Company's EnSite System may also be affected
by the availability of adequate reimbursement for treatments for complex VT,
including catheter ablation. To date, catheter ablation has not been approved by
the FDA for treatment of VT and is not a commonly prescribed treatment for VT.
The Company believes that the improved mapping technology of the EnSite System
may enable catheter ablation for treating complex VT.
There can be no assurance that adequate levels of reimbursement will be
available to enable the Company to achieve or maintain market acceptance of its
products or maintain price levels which exceed the Company's costs of developing
and manufacturing its products. In addition, use of the Company's products will
also depend on the adequacy of third-party reimbursement for treatments that
would be used in connection with the Company's products, such as catheter
ablation treatment. There can be no assurance that adequate levels of
reimbursement for ablation treatment will be available to support the use of the
Company's products. Without adequate support from third-party payors, the market
for the Company's products may be severely limited. Moreover, the Company is
unable to predict what additional legislation or regulation, if any, relating to
the health care industry or third-party coverage and reimbursement may be
enacted in the future, or what effect such legislation or regulation would have
on the Company. There is significant uncertainty concerning third-party
reimbursement of medical devices, and there can be no assurance that third-party
reimbursement will be available in the future for the EnSite System or that any
third-party reimbursement that is obtained will be adequate. Any failure to
obtain third party reimbursement for diagnostic procedures using the Company's
products or treatment procedures that rely on the Company's products could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company expects that there will be continued pressure on
cost-containment throughout the United States health care system. Reforms may
include mandated basic health care benefits, controls on health care spending
through limitations on the growth of private health insurance premiums and
Medicare and Medicaid spending, greater reliance on prospective payment systems,
the creation of large insurance purchasing groups and fundamental changes to the
health care delivery system. The Company anticipates that Congress and state
legislatures will continue to review and assess alternative health care delivery
systems and payment methodologies and public debate of these issues will likely
continue in the future. Due to uncertainties regarding the ultimate features of
reform initiatives and their enactment and implementation, the Company cannot
predict which, if any, of such reform proposals will be adopted, when such
proposals may be adopted or what impact they may have on the Company.
Reimbursement systems in international markets vary significantly by country
and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
devices and procedures. In most markets there are private insurance systems as
well as government managed systems. There can be no assurance that reimbursement
for the Company's products will be available in international markets under
either government or private reimbursement systems.
PRODUCT LIABILITY RISK
The Company faces an inherent business risk of exposure to product liability
claims in the event that an electrophysiology patient is adversely affected by
its products. The Company currently carries a product liability insurance policy
covering the Company's clinical trial operations with an aggregate limit of $5
million, although there can be no assurance that the Company's existing
insurance coverage limits are adequate to cover the Company from any liabilities
it might incur in connection with the distribution of its products. Although the
Company expects to obtain product liability insurance coverage in connection
with the commercialization of the EnSite System, there can be no assurance that
such insurance will be available on commercially reasonable terms, or at all, or
that such insurance, even if obtained, would adequately cover any product
liability claim. A product liability or other claim with respect to uninsured
12
<PAGE>
liabilities or in excess of insured liabilities could have a material adverse
effect on the business and prospects of the Company.
POSSIBLE VOLATILITY OF PRICE
The trading prices of the Company's Common Stock could be subject to wide
fluctuations in response to quarter to quarter variations in the Company's
operating results, announcements by the Company or its competitors regarding the
results of regulatory approval filings or clinical trials or testing,
developments or disputes concerning proprietary rights, technological
innovations or new commercial products, governmental regulatory action,
third-party reimbursement decisions, general conditions in the medical
technology industry, or other events or factors, many of which are beyond the
Company's control. In addition, the stock market has experienced extreme price
and volume fluctuations, which have particularly affected the market prices of
many medical technology companies and which have often been unrelated to the
operating performance of such companies.
NO DIVIDENDS
The Company has never paid or declared a dividend on its capital stock and
does not anticipate doing so for the foreseeable future.
USE OF PROCEEDS
The Shares will be offered and sold by the Selling Stockholder for its own
account. The Company will not receive any proceeds from the sale of the Shares
pursuant to this Prospectus. The Company has agreed to pay the expenses of
registration of the Shares.
SELLING STOCKHOLDER
The maximum number of Shares that may be sold by the Selling Stockholder
pursuant to this Prospectus is 750,000. As of the date of this Prospectus, the
Selling Stockholder owned an aggregate of 1,726,850 shares of the Common Stock
of the Company and a currently exercisable warrant to purchase an additional
447,554 shares.
The Selling Stockholder acquired the Shares in a private placement (the
"Private Placement") that was consummated concurrently with the Company's
Initial Public Offering of Common Stock on March 24, 1997. In connection with
the Private Placement, the Company granted to the Selling Stockholder demand and
incidental registration rights to require that the Company register under the
Securities Act the Shares of Common Stock purchased by the Selling Stockholder
in the Private Placement.
PLAN OF DISTRIBUTION
The sale or transfer of all or a portion of the Shares offered hereby by the
Selling Stockholder or by its pledgees, donees or other applicable transferees
or successors in interest may be effected from time to time on one or more
exchanges, on the Nasdaq National Market, in the over-the-counter market, or
otherwise at prevailing market prices at the time of such sales, at prices
related to such prevailing prices, at fixed prices (that may be changed) or at
negotiated prices. The Selling Stockholder may effect such transactions by
selling directly to purchasers in negotiated transactions, to dealers acting as
principals or through one or more brokers, in an exchange distribution in
accordance with the rules of such exchange, or any combination of these methods
of sale. In addition, Shares may be transferred in connection with call options,
short sales, loans or pledges of shares, hedging transactions or similar
transactions that may be effected by the Selling Stockholder directly or with or
through broker-dealers. As of the date of this Prospectus, the Company is not
aware of any agreement, arrangement or understanding between any broker or
dealer and the Selling Stockholder.
13
<PAGE>
Dealers or brokers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholder. The Company and the
Selling Stockholder may agree to indemnify such brokers or dealers against
certain liabilities, including liabilities under the Securities Act.
The Selling Stockholder is not restricted as to the price or prices at which
it may sell its Shares. Sales of such Shares at less than the market price could
adversely affect the market price of the Common Stock. Moreover, the Selling
Stockholder is not restricted as to the number of Shares which may be sold at
any one time, and it is possible that a significant number of Shares could be
sold at the same time, which could also adversely affect the market price of the
Common Stock.
Pursuant to agreements with the Selling Stockholder, the Company will pay
substantially all of the expenses incident to this registration of the Shares.
Under certain registration rights agreements entered into with the Company, the
Selling Stockholder will be indemnified by the Company against certain civil
liabilities, including certain liabilities under the Securities Act.
The Selling Stockholder will pay all selling commissions, transfer taxes and
related charges in connection with the offer and sale of the Shares.
VALIDITY OF SHARES
The validity of the securities offered hereby will be passed upon for the
Company by Dorsey & Whitney LLP, Minneapolis, Minnesota.
EXPERTS
The financial statements of the Company appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report therein
and incorporated by reference herein. Such financial statements are incorporated
by reference herein in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
14
<PAGE>
No dealer, salesperson or other person is authorized to give any information or
to make representations not contained in this Prospectus in connection with the
offer made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, the Selling Stockholder or any other person. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such an offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the affairs of the Company since the date hereof or the information herein
is correct as of any time subsequent to the date of this Prospectus.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 4
Use of Proceeds........................................................... 13
Selling Stockholder....................................................... 13
Plan of Distribution...................................................... 13
Validity of Shares........................................................ 14
Experts................................................................... 14
</TABLE>
750,000 SHARES
[LOGO]
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following fees and expenses will be paid by the Company in connection
with the issuance and distribution of the securities registered hereby and do
not include underwriting commissions and discounts. All such expenses, except
for the SEC, are estimated.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 2,273
Legal fees and expenses............................................ 20,727
Accounting fees and expenses....................................... 2,000
Transfer Agent's and Registrar's fees.............................. 1,000
Printing and engraving expenses.................................... 25,000
---------
Total...................................................... $ 51,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred arising under the Securities Act of 1933, as
amended (the "Securities Act"). Article VIII, Section 8.01 of the Company's
Bylaws provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Company's Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall not
be liable for monetary damages for breach of the directors' fiduciary duty as
directors to the Company and its stockholders. This provision in the Certificate
of Incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as an injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 28, 1994, the Company has issued and sold the following
securities that were not registered under the Securities Act:
1. In November 1994, the Company issued a warrant to purchase an aggregate
of 46,607 shares of the Company's Series B Preferred Stock, with an
exercise price of $3.40 per share, to Comdisco, Inc.
2. In January 1995, the Company issued and sold 1,794,194 shares of Series
B Preferred Stock at $3.40 per share, convertible into the same number of
shares of Common Stock, to a total of 12 investors, including certain
existing shareholders, venture capital firms and investment partnerships,
for an aggregate purchase price of $6,100,258.
3. In March 1995, the Company issued and sold 32,353 shares of Series B
Preferred Stock at $3.40 per share, convertible into the same number of
shares of Common Stock, to a total of 2 investors for an aggregate
purchase price of $110,000.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (CONTINUED)
4. In April 1996, the Company issued and sold 976,850 shares of Series C
Preferred Stock at $10.24 per share, convertible into the same number of
shares of Common Stock, to Medtronic for an aggregate purchase price of
$10,000,000.
5. In August 1996, the Company issued a warrant to purchase an aggregate of
7,500 shares of the Company's Series D Preferred Stock, with an exercise
price of $10.24 per share, to Comdisco, Inc.
6. In March 1997, the Company issued and sold 750,000 shares of Common
Stock at $9.00 per share to Medtronic for an aggregate purchase price of
$6,750,000.
7. In January 1998, the Company issued a warrant to purchase an aggregate
of 447,554 shares of Common Stock, with an exercise price of $11.1125 per
share, to Medtronic.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, as transactions by an issuer not involving
a public offering. The recipients of the securities in each such transaction
represented their intention to acquire the securities for investment purposes
only and not with a view to or for sale in connection with any distribution
thereof, and appropriate legends were affixed to the share certificates and
instruments issued in such transactions. All recipients had adequate access,
through their relationship with the Company or otherwise, to information about
the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1, dated January 29, 1997, as amended on March 5,
1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))
3.2 Amended Bylaws of the Company (incorporated by reference to Exhibit 3.3 to
the Company's Registration Statement on Form S-1, dated January 29,
1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997
(File No. 333-20677))
4.1 Warrant Agreement dated November 18, 1993 between the Company and Tikkun
Resource Development relating to warrant issued to Tikkun Resource
Development to purchase shares of Common Stock (incorporated by
reference to Exhibit 4.2 to the Company's Registration Statement on Form
S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997
and March 18, 1997 (File No. 333-20677))
4.2 Warrant Agreement dated November 15, 1994 between the Company and
Comdisco, Inc. relating to Warrant issued to Comdisco, Inc. to purchase
shares of Series B Preferred Stock (incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form S-1, dated January
29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997
(File No. 333-20677))
4.3 Warrant Agreement dated August 20, 1996 between the Company and Comdisco,
Inc. relating to Warrant issued to Comdisco, Inc. to purchase shares of
Series D Preferred Stock (incorporated by reference to Exhibit 4.4 to
the Company's Registration Statement on Form S-1, dated January 29,
1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997
(File No. 333-20677))
</TABLE>
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.1 Real Property Lease Agreement dated September 15, 1993 between the Company
and the Port Authority of St. Paul, together with Amendment Nos. 1, 2
and 3 thereto dated February 6, 1995, May 16, 1995, June 4, 1996,
respectively (incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, dated January 29, 1997, as amended
on March 5, 1997, March 13, 1997 and March 18, 1997 (File No.
333-20677))
10.2 Amendment No 4 to the Real Property Lease Agreement dated September 15,
1993 between the Company and the Port Authority of St. Paul
(incorporated by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997)
10.3 Master Lease Agreement dated November 14, 1994, as amended, between the
Company and Comdisco, Inc., with Exhibits (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form S-1, dated
January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March
18, 1997 (File No. 333-20677))
10.4 1993 Long-Term Incentive and Stock Option Plan, including forms of option
agreements (incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1, dated January 29, 1997, as amended
on March 5, 1997, March 13, 1997 and March 18, 1997 (File No.
333-20677))
10.5 Directors' Stock Option Plan (incorporated by reference to Exhibit 10.4 to
the Company's Registration Statement on Form S-1, dated January 29,
1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997
(File No. 333-20677))
10.6 1997 Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-1, dated January
29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997
(File No. 333-20677))
10.7 Employment Agreement dated May 25, 1994 between the Company and James W.
Bullock (incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1, dated January 29, 1997, as amended
on March 5, 1997, March 13, 1997 and March 18, 1997 (File No.
333-20677))
10.8 Investment Agreement dated April 26, 1996 between the Company and
Medtronic, Inc. (incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1, dated January 29, 1997, as
amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No.
333-20677))
10.9 Amended and Restated Investors Rights Agreement dated January 31, 1995,
together with Amendments thereto dated March 1, 1995 and April 26, 1996,
respectively, between the Company and the holders of the Company's
Series A and Series B Preferred Stock (incorporated by reference to
Exhibit 10.9 to the Company's Registration Statement on Form S-1, dated
January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March
18, 1997 (File No. 333-20677))
10.10 Stock Purchase Agreement between the Company and Medtronic, Inc.
(incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1, dated January 29, 1997, as amended
on March 5, 1997, March 13, 1997 and March 18, 1997 (File No.
333-20677))
</TABLE>
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.11 Purchase Agreement between the Company, Piper Jaffray Inc., and Volpe,
Welty & Company LLC (incorporated by reference to Exhibit 1.1 to the
Company's Registration Statement on Form S-1, dated January 29, 1997, as
amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No.
333-20677))
10.12** License Agreement dated January 30, 1998 between the Company and
Medtronic, Inc. (incorporated by reference to Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998)
10.13** Distribution/Supply Agreement, dated September 8, 1997, between the
Company and Medtronic, Inc. (filed herewith)
23.1 Consent of Ernst & Young LLP (filed herewith)
24.1* Power of Attorney
</TABLE>
- ------------------------
* Previously filed.
** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of exhibits 10.12 and 10.13 have been deleted and
filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant further undertakes:
(1) That for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(2) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
II-4
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (2)(i) and (2)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(3) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(4) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-3 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on June 3, 1998.
ENDOCARDIAL SOLUTIONS, INC.
By: /s/ JAMES W. BULLOCK
-----------------------------------------
James W. Bullock
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities indicated on June 3, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- --------------------------------------
<C> <S>
/s/ JAMES W. BULLOCK President, Chief Executive Officer and
- ---------------------------------------- Director (principal executive
James W. Bullock officer)
/s/ LEOTA PEARSON
- ---------------------------------------- Controller (principal financial and
Leota Pearson accounting officer)
GRAYDON E. BEATTY* Director
RONALD H. KASE* Director
JAMES E. DAVERMAN* Director
ROBERT G. HAUSER, M.D.* Director
STEVEN R. LAPORTE* Director
</TABLE>
*By: /s/ JAMES W. BULLOCK
-------------------------
James W. Bullock
ATTORNEY-IN-FACT
II-6
<PAGE>
Exhibit 10.13
DISTRIBUTION / SUPPLY AGREEMENT
THIS DISTRIBUTION / SUPPLY AGREEMENT (the "Agreement") is made and entered
into as of the 8TH day of SEPTEMBER 1997, between ENDOCARDIAL SOLUTIONS, INC.
(as defined below, "ESI"), a Minnesota corporation, and MEDTRONIC, INC. (as
defined below, "Medtronic"), a Minnesota corporation.
WITNESSETH:
WHEREAS, ESI manufactures and distributes diagnostic and mapping systems
for the treatment of ventricular and atrial arrhythmias; and
WHEREAS, Medtronic manufactures and distributes devices and systems which
treat ventricular and atrial arrhythmias; and
WHEREAS, ESI and Medtronic desire to provide Medtronic with certain rights
to distribute ESI's systems within agreed upon territories; and
WHEREAS, the parties desire to enter into this Agreement for that purpose.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and for other valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties mutually
agree as follows:
ARTICLE I
DEFINITIONS
1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the following terms
have the meanings set forth or referenced below:
"AFFILIATE" of a specified person (natural or juridical) means a person
that directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified. "Control"
shall mean ownership of more than 50% of the shares of stock entitled to vote
for the election of directors in the case of a corporation, and more than 50% of
the voting power in the case of a business entity other than a corporation.
"ESI" means Endocardial Solutions, Inc. and its Affiliates.
1
<PAGE>
"CONFIDENTIAL INFORMATION" means know-how, trade secrets and other
unpublished or proprietary information disclosed (whether before or during the
term of this Agreement) by one of the parties (the "disclosing party") to the
other party (the "receiving party") or generated under this Agreement, excluding
information which:
(a) is now or comes to be in the public domain through no fault of the
receiving party;
(b) is released without restriction to the receiving party by the
disclosing party in writing;
(c) is lawfully obtained by the receiving party from third parties;
(d) can be demonstrated by competent proof to have been known by the
receiving party prior to any disclosure of Confidential Information by the
disclosing party;
(e) has been in the possession of the receiving party, as a result of
disclosure under this Agreement, for a period of five (5) years; or
(f) is required by law to be disclosed, provided that the receiving party
has given the disclosing party prompt written notice of such disclosure
requirement and has cooperated with the disclosing party so that the disclosing
party may seek a protective order or other appropriate remedy to avoid or limit
such disclosure.
All Confidential Information disclosed by one party to the other under this
Agreement shall be in writing and bear a legend "Proprietary," "Confidential" or
words of similar import or, if disclosed in any manner other than writing, shall
be preceded by an oral statement indicating that the information is Company
proprietary or confidential, and shall be followed by transmittal of a
reasonably detailed written summary of the information provided to the receiving
party with identification as Confidential Information designated as above within
thirty (30) days.
"FIELD OF USE" means diagnostic and mapping procedures for ventricular and
atrial arrhythmias.
"INTELLECTUAL PROPERTY" means all patents, trade names, trademarks, service
marks, copyrights and applications or registrations for any of the foregoing,
inventions, discoveries, know-how, trade secrets, data, information, technology,
processes, formulas, drawings, designs, computer programs, licenses, and all
amendments, modifications, and improvements to any of the foregoing.
2
<PAGE>
"MEDTRONIC" means Medtronic, Inc. and its Affiliates.
"MEDTRONIC COMPETITORS" means those entities set forth on the attached
Schedule 1.1 engaged in the manufacture or sale of devices or systems that are
marketed to the same class of persons (e.g., electrophysiologists, cardiologists
and cardiac surgeons) to whom Medtronic markets the Systems.
"MEDTRONIC TERRITORIES" means those countries included within Medtronic's
currently designated "Europe" and "Japan" sales regions as more fully described
on Schedule 1.2 hereto.
"NORTH AMERICA" means The United States of America and Canada, including
all territories and possessions thereof.
"SPECIFICATIONS" means the current specifications for the Systems, as may
be amended from time to time hereafter by ESI.
"SYSTEMS" means ESI's current and future capital equipment and software
systems designed and used for diagnosing and mapping ventricular and atrial
arrhythmias, including without limitation the current and future Ensite 3000
systems, Ensite catheters and all other disposable and reusable catheters.
1.2 OTHER TERMS. Other terms may be defined elsewhere in the text of this
Agreement and shall have the meaning indicated throughout this Agreement.
1.3 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereof," "herein," and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as
a whole and not to any particular provisions of this Agreement.
(b) The terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.
(c) References to a "Schedule" are, unless otherwise specified, to one of
the Schedules attached to or referenced in this Agreement, and
references to an "Article" or a "Section" are, unless otherwise
specified, to one of the Articles or Sections of this Agreement.
(d) The term "person" includes any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any
department or agency thereof.
3
<PAGE>
(e) The term "Dollars" or "$" shall refer to the currency of the United
States of America.
(f) The term "knowledge" means actual knowledge of a fact or the knowledge
which such person or its officers or employees could reasonably be
expected to have based on reasonable investigation and inquiry.
(g) All references to time shall refer to Minneapolis, Minnesota time.
ARTICLE 2
MEDTRONIC AS DISTRIBUTOR IN EUROPE AND JAPAN
2.1 APPOINTMENT.
(a) Subject to commencement of the term of this Agreement as set forth in
Article 5.1, ESI hereby appoints Medtronic, and Medtronic hereby accepts
appointment, as ESI's exclusive distributor, with the right to sell and
distribute the Systems in the Field of Use in the Medtronic Territories. ESI
represents and warrants to Medtronic that all other distributorship agreements
or sales representative agreements, if any, written or oral, with any third
party permitting the sale of Systems in the Field of Use in the Medtronic
Territories have been terminated at ESI's sole cost and expense.
(b) Medtronic may appoint subdistributors for the sale or distribution of
Systems in the Field of Use in the Medtronic Territories, and will provide to
ESI a list of such subdistributors from time to time. Notwithstanding such
appointment of subdistributors, Medtronic shall remain fully responsible for the
performance of all of its covenants and obligations hereunder, and any sales by
ESI to such Medtronic subdistributors shall be billed by ESI to Medtronic
directly.
(c) ESI shall promptly forward to Medtronic all leads for sales of Systems
in the Field of Use in the Medtronic Territories.
(d) During the term of Medtronic's distribution rights pursuant to this
Article 2. Medtronic shall not market or sell products which compete with the
Systems, as defined herein, in the Medtronic Territories.
2.2 REGULATORY APPROVALS.
(a) Medtronic will assist ESI in obtaining all necessary government or
regulatory approvals which are a prerequisite to the commercial sale of the
Systems in the Field of Use in the Medtronic Territories, provided that ESI
shall remain
4
<PAGE>
responsible for all costs associated with obtaining such government or
regulatory approvals.
(b) In Europe, ESI will be responsible for gaining, at ESI's cost and
expense and in ESI's name, the CE Mark under the appropriate Medical Device
Directive. Medtronic shall act as the ESI authorized representative in the
Medtronic Territories and Medtronic will be responsible for all dealings with
the appropriate Competent Authority such as Notification, Medical Device
Vigilance and national labeling issues, provided that translation and
preparation of such labels are subject to final review and verification by ESI,
and further provided that ESI will bear final legal responsibility for the
content of all its own labeling. For purposes of this Section 2.2, labeling
shall include labels, instructions for use, operating manuals, service and
maintenance manuals and promotional materials.
(c) Upon receipt of any notices of an adverse event from competent
authorities, Medtronic shall promptly inform ESI (and provide copies of all such
correspondence), and ESI in conjunction with Medtronic shall agree to the
appropriate disposition of such event.
2.3 PRICING.
(a) During the term of this Agreement, Medtronic will purchase the Systems
from ESI at the prices set forth in Schedule 2.3. At least six (6) months prior
to the second anniversary of this Agreement and annually thereafter, the parties
agree to negotiate any adjustments to the prices for the next one-year term
renewal. The following factors will be considered as the criteria for
determining any price adjustments;***/ If the parties cannot agree on a price,
the matter shall be submitted to arbitration pursuant to Article 9.15.
(b) Medtronic shall be entitled to purchase from ESI a reasonable number
of demonstration Systems, as mutually determined by ESI and Medtronic, at a
price equal to ESI's fully burdened manufacturing cost for a System, excluding
catheters which shall be purchased at the price set forth in Schedule 2.3,
reasonably determined in accordance with generally accepted accounting
principles (excluding freight, duties and customs, and any extraordinary
start-up costs). Such reasonable number of demonstration Systems shall be
consistent with the number of Medtronic "sales specialists" that Medtronic hires
to demonstrate and sell the Systems in the Medtronic Territories and shall in no
event be resold by Medtronic.
- ----------
***/ Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of
1933.
5
<PAGE>
ESI may provide refurbished Systems for this purpose, however any refurbished
Systems shall be warranted and certified to be in new condition.
(c) (i) During the first two (2) years of this Agreement, payments made
by Medtronic for Systems purchased for resale by Medtronic pursuant to
Article 2.3(a) shall be due and payable in full within sixty (60) days
after the date of invoice by ESI. Any unpaid balance shall bear
interest at the rate of ***/ percent (***%) per month.
(ii) Within ninety (90) days prior to the third year of this
Agreement, the parties will review and mutually agree on payment terms
for the remaining term of the Agreement, which shall not be less than
forty-five (45) days or more than sixty (60) days. The parties will
consider such factors as customer payment practices within the
Medtronic Territory, cash flows, foreign currency, consignment
policies, etc. All payments will be in U.S. dollars, regardless of
the place of service or delivery.
(iii) Payments made by Medtronic for demonstration Systems shall be
due and payable in full within thirty (30) days after the date of
invoice by ESI. Terms shall be F.O.B. ESI's manufacturing facility
(currently in St. Paul, Minnesota).
(iv) Freight, duties and handling will be paid by Medtronic U.S. to
Kerkrade, The Netherlands or such other destinations designated by
Medtronic.
(d) ESI shall ensure the prices charged to Medtronic for the Systems and
disposable catheters shall be no less favorable than that price charged to other
distributors of the Systems in the Field of Use outside of the United States.
2.4 INSPECTION AND WARRANTY.
(a) In the event of any shortage, damage or discrepancy in or to a
shipment of Systems or in the event any of the Systems fail to comply with the
then current Specifications for the Systems, Medtronic shall report the same to
ESI and furnish such written evidence or other documentation as ESI reasonably
may deem appropriate. If the substantiating evidence delivered by Medtronic
demonstrates that such shortage, damage or discrepancy or non-conformity with
Specifications
- ----------
***/Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of
1933.
6
<PAGE>
existed at the time of delivery of the Systems at the F.O.B. point, Medtronic
may return the Systems to ESI at ESI's expense, and at Medtronic's request ESI
shall use all reasonable efforts to promptly deliver replacement Systems to
Medtronic in accordance with the delivery procedures set forth herein.
(b) ESI represents and warrants to Medtronic that all Systems sold and
delivered to any account under this Agreement will have been manufactured, if
required by law, in accordance with FDA Good Manufacturing Practices, European
Medical Device Directive requirements, ISO 9000 series certification, and all
other applicable manufacturing requirements, and that continually during the
term of this Agreement no Systems delivered by ESI to Medtronic or to any
Medtronic account shall be adulterated or misbranded at the time of delivery
within the meaning of the U.S. Food, Drug and Cosmetic Act and regulations
thereunder. ESI shall cause Medtronic's regulatory personnel to be provided
with reasonable access from time to time to the facilities and records of ESI
for the purpose of confirming ESI's compliance with all applicable requirements
noted in this Article.
(c) ESI warrants to Medtronic and to Medtronic's customers the Systems in
accordance with the warranty attached hereto as Schedule 2.4. Medtronic shall
bear all responsibility for, and shall indemnify and hold ESI harmless from any
claim, action or loss which arises out of or results from any other warranties
made by Medtronic, its employees or agents with respect to the Systems.
(d) THE WARRANTIES SET FORTH ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, WHICH ARE HEREBY DISCLAIMED AND EXCLUDED BY ESI, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE, EXCEPT ESI SHALL ALSO PROVIDE WITH RESPECT TO SYSTEMS SOLD TO
MEDTRONIC OR TO MEDTRONIC'S CUSTOMERS SUCH OTHER WARRANTIES AS ESI CUSTOMARILY
PROVIDES TO ITS CUSTOMERS OR END-USERS OF THE SYSTEMS IN THE FIELD OF USE (A
COPY OF THE CURRENT VERSION OF SUCH CUSTOMER WARRANTY IS ATTACHED HERETO AS
SCHEDULE 2.4).
2.5 PERFORMANCE OBJECTIVES, SALES AND SERVICE.
(a) During the term of this Agreement, Medtronic agrees to purchase and
distribute the Systems and catheters set forth as a minimum total dollar amount
of Systems and catheters described in Schedule 2.5 ("Performance Objectives").
Six (6) months prior to the end of the 2nd anniversary of this Agreement and
annually thereafter, ESI and Medtronic shall negotiate in good faith the
Performance Objectives for the Medtronic Territories for the upcoming twelve
(12) month period. Progress towards Performance Objectives shall be reviewed on
an annual basis for years 1 through 3, and semi-annually thereafter. In the
event of Medtronic's sale to
7
<PAGE>
a successor in interest in that portion of the business to which this Agreement
relates, quarterly progress reviews would be conducted. The Performance
Objectives for the Medtronic Territories shall take into account such factors as
the size of the market, average selling prices of the Systems, potential
applications of the Systems, selling cycle, ESI's manufacturing capacity, size
of the relative sales forces, and other relevant factors. In the event the
parties are unable to agree upon the Performance Objectives for the Medtronic
Territories, then such dispute shall be settled by binding arbitration pursuant
to Article 9.15.
(b) Medtronic shall be responsible for selling, installing and "first-line
trouble shooting and servicing" all Systems in the Field of Use in the Medtronic
Territories, provided ESI shall be responsible for all software and hardware
repairs and servicing. ESI will provide an inventory of spare parts and a "hot"
spare System in Kerkrade, The Netherlands to support rapid turnaround for
repairs. The Systems shall be sold under ESI trademarks and trade names subject
to Medtronic's right to indicate its status as distributor thereof on sales and
marketing materials for the Systems. Medtronic shall be responsible for the
hiring and training of any technical customer engineers for the purpose of
performing services pursuant to this Section.
(c) Subject to Article 2.7 below, Medtronic shall be solely responsible
for providing customer and physician training to any purchaser of Systems for
use in the Field of Use in the Medtronic Territories.
(d) Medtronic shall be solely responsible for establishing the marketing,
selling and pricing strategies for the Systems in the Field of Use in the
Medtronic Territories. Such strategies will be available for review by ESI.
2.6 MARKETING.
(a) ESI, at ESI's cost and expense, shall provide Medtronic with an
initial commercially reasonable supply of Systems sales, marketing, advertising
and promotional materials in English and in five (5) languages for use in the
Medtronic Territories and with additional materials as changes to the collateral
materials occur from time to time. Medtronic shall have the right, at its cost
and expense and subject to the reasonable approval of ESI, to adapt or modify
the ESI sales, marketing, advertising and promotional materials and user manuals
to reflect the culture or business practices and languages of the particular
regions within the Medtronic Territories and to reflect Medtronic as the
exclusive distributor of the Systems, or as otherwise deemed appropriate by
Medtronic.
(b) ESI and Medtronic may jointly fund and participate in those trade
shows mutually agreed to by the parties. As further mutually agreed to by the
parties, employees of ESI and Medtronic, respectively, would be allowed to
interact with customers in the booth of the other. In addition, Medtronic shall
have the
8
<PAGE>
right to demonstrate the ESI System in its booths in connection with Medtronic's
cardiac disease and disorder management products.
2.7 TRAINING.
(a) ESI will, at its cost and expense, provide the initial technical
training of Medtronic's sales specialists and field service supervisors in the
use, installation, trouble shooting and service of the Systems on such date and
place as Medtronic shall designate in the Medtronic Territories. ESI shall also
provide, at its cost and expense, any additional training necessary with respect
to any enhancements or modifications made by ESI to the System. Medtronic will
be responsible for the cost and expense of ongoing training of its field sales
and service representatives, such training to be provided by ESI (i.e.,
Medtronic will pay travel costs for its sales personnel).
(b) ESI will provide training for the "customer trainers" (i.e., those
Medtronic personnel and other third parties engaged in training customers at
training sites) in the Medtronic Territories on such dates and at such places as
Medtronic shall designate to ESI (not to exceed once per quarter). ESI will
bear the cost of such training and Medtronic will bear the costs associated with
the Medtronic personnel and customers.
2.8 ORDERS.
(a) Medtronic and ESI shall jointly develop order and delivery procedures
and guidelines for the Systems, including quarterly forecasts that correspond to
Medtronic's fiscal periods. Medtronic's orders shall be given no less favorable
treatment by ESI than orders from customers in North America or any other
geographic region. The parties intend that Medtronic will maintain minimal
inventories of Systems and that, under most circumstances, ESI will ship Systems
directly to locations designated by Medtronic.
(b) Medtronic shall submit purchase orders for Systems to ESI in writing,
whether by mail, telecopier, telegram or otherwise, which shall, at a minimum,
set forth the product numbers, quantities, delivery dates, shipping instructions
and shipping addresses for all Systems ordered. All orders shall be subject to
acceptance in accordance with the terms of this Agreement by ESI at its office.
Each purchase order shall, upon acceptance by ESI, give rise to a contract
between Medtronic and ESI for the sale of the Systems ordered and shall be
subject to and governed by the terms of this Agreement. The terms and
conditions of this Agreement shall so govern and supersede any additional or
contrary terms set forth in Medtronic's purchase order or any ESI or Medtronic
acceptance, confirmation, invoice or other document unless duly signed by an
officer of Medtronic and an officer of ESI and
9
<PAGE>
expressly stating and identifying which specific additional or contrary terms
shall supersede the terms and conditions of this Agreement.
(c) No purchase order shall be modified or canceled except upon the mutual
agreement of the parties. Mutually agreed upon change orders shall be subject
to all provisions of this Agreement, whether or not the change order so states.
Notwithstanding the foregoing, any purchase order may be canceled by Medtronic
as to any Systems which are not delivered within sixty (60) days of the delivery
date requested by Medtronic, and any such cancellation shall not limit or affect
any contract remedies available to Medtronic with respect thereto. Any such
cancellation by Medtronic must be by written notice to ESI, given within fifteen
(15) business days after such sixtieth (60th) day.
(d) All deliveries of Systems shall be F.O.B. ESI's manufacturing facility
(currently St. Paul, Minnesota). Except as provided in Article 2.4 above, ESI
shall have no further responsibility after delivery of the Systems to the F.O.B.
point, and all risk of damage to or loss or delay of Systems shall pass to
Medtronic, upon their delivery to Medtronic at the F.O.B point. All Systems
deliveries shall be made by a common carrier specified by Medtronic or, in the
event that no carrier shall have been specified by Medtronic on or before the
date fifteen (15) days prior to the requested shipment date, a common carrier
reasonably selected by ESI.
(e) ESI shall promptly inform Medtronic of any modifications or
enhancements of the Systems or any other material changes in the Specifications
for the Systems. If such changes would affect the applicable regulatory
approvals of the Systems, Medtronic shall not be required to purchase such
Systems until such time as regulatory authorization is received and termination
of obligation to proceed is only enacted if regulatory status is adversely
affected or cannot be obtained within the specified period. Notwithstanding the
foregoing, ESI shall not, without Medtronic's consent, make any changes to the
Product which would make the System less useful or effective for the Field of
Use.
(f) ESI shall be responsible for packaging and any necessary sterilization
of Systems purchased under this Agreement in accordance with the Specifications.
2.9 UPGRADES. ESI shall make software and hardware upgrades and
replacement parts available to Medtronic for the Systems at prices and on terms
and conditions no less favorable than those offered to ESI's other distributors,
if any, in the Field of Use.
2.10 REPORTS. Medtronic shall provide ESI, on a quarterly basis, with
current customer lists for Systems sold or installed by Medtronic and physician
users (of which Medtronic is aware) of the Systems in the Field of Use in
the Medtronic Territories and such other information as the parties may mutually
agree upon.
10
<PAGE>
Medtronic will also periodically provide ESI with the customer name and address
for each System installation in the Field of Use in the Medtronic Territories
for warranty and regulatory purposes. Medtronic shall report any "adverse
incidents" (as defined by FDA regulations, Medical Devices Directive and
national regulations) promptly to ESI.
2.11 EXPORT/IMPORT APPROVALS.
(a) ESI shall be responsible for obtaining, at ESI's cost and expense, all
export licenses and permits as may be required to export the Systems from the
country of manufacture into the particular countries within the Medtronic
Territories.
(b) Medtronic shall be responsible for obtaining, at Medtronic's cost and
expense, all import licenses and permits as may be required to import the
Systems into particular countries within the Medtronic Territories as selected
by Medtronic in accordance with then prevailing laws and regulations of such
countries. All such filings and registrations of the Systems shall be in the
name of Medtronic, whenever feasible in accordance with prevailing laws and
regulations. ESI shall cooperate fully with Medtronic in its efforts to obtain
any such approvals.
ARTICLE 3
ESI SALES AND DISTRIBUTION
ESI retains all rights to the Systems not expressly granted to Medtronic.
ESI shall establish a direct sales force for Systems in North America through a
combination of ESI employees and/or independent third-party sales
representatives. ESI shall use its commercially reasonable best efforts to
ensure that any such independent third-party sales representatives of Systems in
North America are not Medtronic Competitors.
ARTICLE 4
FIRST OFFER FOR OTHER DISTRIBUTION RIGHTS
4.1 RIGHT OF FIRST OFFER OUTSIDE MEDTRONIC TERRITORIES.
(a) In the event that ESI proposes to enter into any distribution, sales
representative or similar license agreement with any third party regarding the
sale, distribution or licensing of the Systems in the Field of Use outside the
Medtronic Territories and North America (such regions to be described as (i)
Asia Pacific (excluding Japan), (ii) Australia/New Zealand, (iii) Central/South
America and (iv)
11
<PAGE>
the Middle East and Africa, ESI agrees it shall offer Medtronic a first right to
become ESI's exclusive distributor of the ESI System in each of such regions.
(b) Prior to entering into any discussions regarding such distribution,
sales representative or similar license agreement, ESI shall notify Medtronic in
writing of such intention to enter into such discussions, including the material
terms and provisions upon which ESI would be willing to enter into such a
distribution, sales representative or similar license agreement for such region
(for purposes of this Article 4. 1, "ESI's Notice"). For a period of thirty
(30) days after Medtronic's receipt of ESI's Notice (for purposes of this
Article 4.1, the "Exclusive Period"), ESI shall negotiate in good faith
exclusively with Medtronic regarding such distribution, sales representative or
similar license agreement for the applicable region specified in ESI's Notice.
During the Exclusive Period, ESI will not solicit offers from, negotiate with,
or provide information to any third party regarding any distribution, sales
representative or similar license relationship for Systems in such region.
(c) If Medtronic and ESI fail to reach mutual agreement upon the terms and
provisions of a definitive agreement for such distribution, sales representative
or license relationship during the Exclusive Period, then ESI may enter into a
definitive agreement for such distribution, sales representative or similar
license relationship with a third party for the applicable region specified in
ESI's Notice, provided that ESI may not enter into such definitive agreements
unless the terms and provisions thereof are, in the aggregate, no less favorable
to ESI than the terms and provisions proposed by Medtronic during the Exclusive
Period. If ESI fails to enter into such definitive agreement for the applicable
region within one hundred eighty (180) days after expiration of the Exclusive
Period, then Medtronic's first rights under this Article shall be reinstated and
ESI may not enter into any distribution, sales representative or similar license
relationship with respect to Systems in such region without first giving
Medtronic a new ESI's Notice and complying with the terms of this Article.
(d) In the event Medtronic declines the offer made pursuant to this
Article 4.1, ESI shall use commercially reasonable efforts to utilize existing
Medtronic distributors in the offered area prior to extending such offer to
other third parties.
(e) Medtronic's rights under this Article 4.1 shall terminate upon a
Change of Control of ESI. Notwithstanding the foregoing, Medtronic will
continue to have distribution rights to the Systems in any such region pursuant
to the terms of any then effective distribution agreement between ESI and
Medtronic pursuant and subject to Article 4.3.
12
<PAGE>
4.2 RIGHT OF FIRST OFFER OUTSIDE FIELD OF USE.
(a) In the event that ESI proposes to enter into any distribution, sales
representative or license agreement with any third party regarding the sale,
distribution or licensing of the Systems for use in enabling any cardiac
minimally invasive surgical procedures in cardiology (outside of the Field of
Use), neurology or urology procedures, then, prior to entering into any
discussions regarding such distribution, sales representative or licensing
agreement, ESI shall notify Medtronic in writing of such intention to enter into
such discussions, including the material terms and provisions upon which ESI
would be willing to enter into such a distribution, sales representative or
licensing agreement for such procedures (for purposes of this Article 4.2,
"ESI's Notice").
(b) For a period of thirty (30) days after Medtronic's receipt of ESI's
Notice (for purposes of this Article 4.2, the "Exclusive Period"), ESI shall
negotiate in good faith exclusively with Medtronic regarding such distribution,
sales representative or licensing agreement for the applicable procedures
specified in ESI's Notice. During the Exclusive Period, ESI will not solicit
offers from, negotiate with, or provide information to any third party regarding
any distribution, sales representative or licensing relationship for Systems for
such procedures.
(c) If Medtronic and ESI fail to reach mutual agreement upon the terms and
provisions of a definitive agreement for such distribution, sales representative
or licensing relationship, then ESI shall have one hundred eighty (180) days
from the earlier of expiration of the Exclusive Period or termination by
Medtronic of negotiations between ESI and Medtronic in which to negotiate and
enter into a definitive agreement for such distribution, sales representative or
licensing relationship with a third party for the applicable procedures
specified in ESI's Notice, provided that ESI may not enter into such definitive
agreements unless the terms and provisions thereof are, in the aggregate, no
less favorable to ESI than the terms and provisions proposed by Medtronic during
the Exclusive Period. If ESI fails to enter into such definitive agreement for
the applicable procedures within such 180-day period, then Medtronic's rights
under this Article shall be reinstated and ESI may not enter into any
distribution, sales representative or licensing relationship for the sale of
Systems for such procedures without first giving Medtronic a new ESI's Notice
and complying with the terms of this Article.
(d) Medtronic's rights under this Article 4.2 will terminate at the end of
the "Initial Term" (as defined below).
13
<PAGE>
ARTICLE 5
TERM AND TERMINATION
5.1 INITIAL TERM. The initial term (the "Initial Term") for Medtronic's
rights and obligations as the sales agent for Systems in the Medtronic
Territories shall commence on ESI's receipt of regulatory approval (CE Mark) for
the Systems in Europe and end five (5) years thereafter. If Medtronic has made
its first commercial sale of a System within ninety (90) days of CE Mark
approval, the Agreement shall automatically be extended for a two (2) year
period in addition to the five (5) year term.
5.2 RENEWAL TERM; PERFORMANCE OBJECTIVES. In the event Medtronic fails to
make its first commercial sale of a System within ninety (90) days of CE Mark
approval, the Initial Term of Medtronic's rights and obligations as exclusive
distributor for Systems in the Medtronic Territories may be renewed for up to
(a) two (2) additional one (1) year periods (each a "Renewal Term"), provided
Medtronic has met or exceeded the Performance Objectives set forth on Schedule
2.5, and thereafter to be established by the parties for the Medtronic
Territories for the then current Renewal Term and provided the parties mutually
agree to pricing and Performance Objectives for the Renewal Term.
5.3 CONVERSION TO NON-EXCLUSIVE FOR FAILURE TO MEET PERFORMANCE
OBJECTIVES. Subject to Article 7 hereof, if Medtronic fails to meet the
Performance Objectives for the Medtronic Territories, ESI shall have the right
to convert Medtronic's future rights and obligations as distributor for the
Medtronic Territories to a non-exclusive basis. ESI shall give Medtronic at
least thirty (30) days' prior written notice of any such intent to convert
Medtronic's distributor rights hereunder to non-exclusive, and Medtronic shall
have sixty (60) days in which to cure such failure to meet the Performance
Objectives or present ESI with reasonable evidence of a plan that will cure any
such failure to meet the Performance Objectives within an additional ninety (90)
days. In the event Medtronic does not cure such failure within such additional
ninety (90) days, ESI shall have the right to convert Medtronic's rights as
distributor in the Medtronic Territories to non-exclusive.
5.4 MEDTRONIC'S TERMINATION FOR ESI BREACH.
(a) Subject to Article 7 hereof, if ESI breaches any of its material
obligations under this Agreement then Medtronic shall be entitled to terminate
Medtronic's rights and obligations under this Agreement. Medtronic shall give
ESI thirty (30) days' written notice of any such intent to terminate, and ESI
shall have ninety (90) days in which to cure such material breach.
14
<PAGE>
(b) Upon any such termination pursuant to Article 5.4(a) above, ESI will
repurchase from Medtronic, at a price equal to Medtronic's cost thereof,
Medtronic's entire inventory of Systems (including demonstration Systems),
accessories and related materials as of the termination date relating to
Medtronic's rights and obligations under Article 2 of this Agreement, as
applicable. Notwithstanding the foregoing, ESI shall not be obligated to
repurchase any Systems, accessories or related materials which are not in good
repair or which are not, due to any action or inaction by Medtronic, suitable
for their original intended purposes.
5.5 ESI'S TERMINATION FOR MEDTRONIC BREACH.
(a) Subject to Article 7 hereof and except as otherwise provided in
Article 5.3, if Medtronic breaches any of its material obligations under this
Agreement, then ESI shall be entitled to terminate Medtronic's rights and
obligations. ESI shall give Medtronic thirty (30) days' written notice of any
such intent to terminate, specifying whether such termination will apply to
Medtronic's rights and obligations, and Medtronic shall have ninety (90) days in
which to cure such material breach. Subject to Article 7 and further subject to
ESI's obligation to maintain sufficient inventory of the Systems to meet
Medtronic's orders, ensure that the Systems meet all applicable safety and
quality specifications and provide appropriate clinical proof supporting the
safety and efficacy of the Systems, Medtronic's failure to satisfy the
Performance Obligations set forth in Schedule 2.4 (a) shall be considered a
breach of material obligation and shall be subject to termination pursuant to
this Article 5.5.
(b) Upon any such termination pursuant to Article 5.5(a) above, ESI shall
have the option, exercisable within forty-five (45) days after such termination,
to repurchase from Medtronic, at Medtronic's cost, Medtronic's entire inventory
of Systems (including demonstration Systems), accessories and related materials,
as of the termination date relating to Medtronic's rights and obligations under
this Agreement, as applicable. In the event ESI fails to exercise such
repurchase option, Medtronic shall have the right to sell off its remaining
inventory of Systems for up to one hundred twenty (120) days from termination.
Notwithstanding the foregoing, ESI shall not be obligated to repurchase any
Systems, accessories or related materials which are not in good repair or which
are not, due to any action or inaction by Medtronic, suitable for their original
intended purposes.
5.6 RIGHTS AND OBLIGATIONS ON TERMINATION. In the event of termination of
all or a portion of this Agreement for any reason, the parties shall have the
following rights and obligations: In the event of the termination of
Medtronic's distribution rights with respect to all of the Medtronic Territories
in accordance with Article 5.4 or Article 5.5, (i) all purchase orders for
Systems which provide for delivery after the effective date of termination shall
be canceled, except that Medtronic shall be permitted to fill any outstanding
orders from customers made prior to the date of termination, (ii) Medtronic
shall assign, at ESI's cost and expense,
15
<PAGE>
all regulatory approvals and files regarding sales of Systems in such geographic
area to ESI, and (iii) Medtronic and ESI shall cooperate to assure continued
service and support to customers in such geographic area who purchased Systems
from Medtronic. ESI hereby acknowledges Medtronic's right to continue to sell
Systems purchased from ESI to any person or entity in the Medtronic Territories
for up to one hundred twenty (120) days, at which time any remaining inventory
will be repurchased by ESI. If this Agreement is terminated for other than a
breach by ESI, Medtronic will reimburse ESI for any out-of-pocket restocking
fees and related cancellation charges.
ARTICLE 6
INDEMNIFICATION
6.1 ESI'S LIABILITY. ESI shall indemnify, defend and hold harmless
Medtronic and each of its subsidiaries, officers, directors, employees,
shareholders and distributors from and against and in respect of any and all
third party demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, interest and penalties, costs and expenses (including,
without limitation, reasonable legal fees and disbursements incurred in
connection therewith and in seeking indemnification therefor, and any amounts or
expenses required to be paid or incurred in connection with any action, suit,
proceeding, claim, appeal, demand, assessment or judgment) ("Indemnifiable
Losses"), resulting from, arising out of, or imposed upon or incurred by any
person to be indemnified hereunder by reason of (i) any breach of
representation, warranty, covenant or agreement on the part of ESI under this
Agreement, (ii) total or partial Systems recalls, (iii) alleged defects in
materials, workmanship, product performance or design of the Systems, but in any
event excluding matters for which Medtronic is responsible under Article 6.2
below, or (iv) any infringement claims by third parties of Intellectual
Property. ESI shall maintain product liability insurance or self-insurance in
such amounts as is advisable pursuant to ordinary good business practice for a
similar company in a similar type of business, and shall provide Medtronic with
evidence of this coverage.
6.2 MEDTRONIC'S LIABILITY. Medtronic shall indemnify, defend and hold
harmless ESI and each of its subsidiaries, officers, directors, employees,
shareholders and suppliers from and against and in respect of any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, interest and penalties, costs and expenses (including, without
limitation, reasonable legal fees and disbursements incurred in connection
therewith and in seeking indemnification therefor, and any amounts or expenses
required to be paid or incurred in connection with any action, suit, proceeding,
claim, appeal, demand, assessment or judgment) ("Indemnifiable Losses"),
resulting from, arising out of, or imposed upon or incurred by any person to be
indemnified hereunder by reason of (i) any breach of representation, warranty,
covenant or agreement on the part of Medtronic under this Agreement, (ii)
product claims whether written or oral, made
16
<PAGE>
or alleged to be made, by Medtronic in its advertising, publicity, promotion or
sale of any Systems where such product claims were not provided by or approved
by ESI, or (iii) negligent handling by Medtronic of the Systems, but in any
event excluding matters for which ESI is responsible under Article 6.1 above.
6.3 THIRD PARTY CLAIMS.
(a) If a claim by a third party is made against any indemnified party,
such indemnified party shall promptly notify the indemnifying party of such
claim, provided however that failure to give timely notice shall not affect the
rights of the indemnified party so long as the failure to give timely notice
does not materially adversely affect the indemnifying party's ability to defend
such claim against a third party. The indemnifying party shall have the sole
right to manage, settle and defend such claim, at the expense of the
indemnifying party and with counsel chosen by the indemnifying party. The
indemnified party shall have the right to participate in such action, at its own
expense and with counsel of its own choice. The indemnified party shall provide
reasonable cooperation and assistance to the indemnifying party, at the expense
of the indemnifying party. The indemnified party shall not enter into any
agreement with respect to such claim or threatened claim without receipt of
prior written approval from the indemnifying party.
(b) In the event of a third party claim of Intellectual Property
infringement, ESI will (1) obtain a license for Medtronic, (2) modify the
Systems to make them noninfringing, or if (1) and (2) are not commercially
feasible, terminate the Agreement, provided however so long as ESI continues to
market, sell and distribute the Systems, ESI shall not have the right to
terminate the Agreement under this Section and shall continue to make Systems
available to Medtronic hereunder.
6.4 COOPERATION AS TO INDEMNIFIED LIABILITY. Each party hereto shall
cooperate fully with the other parties with respect to access to books, records
or other documentation within such party's control, if deemed reasonably
necessary or appropriate by any party in the defense of any claim which may give
rise to indemnification hereunder.
ARTICLE 7
FORCE MAJEURE
7.1 FORCE MAJEURE. "Force Majeure" shall mean any event or condition, not
existing as of the date of signature of this Agreement, not reasonably
foreseeable as of such date and not reasonably within the control of either
party, which prevents in whole or in material part the performance by one of the
parties of its obligations hereunder, such as an act of God, act of government,
war or related actions, civil
17
<PAGE>
insurrection, riot, sabotage, strike, epidemic, fire, flood, windstorm and
similar events.
7.2 NOTICE. Upon giving notice to the other party, a party affected by an
event of Force Majeure shall be released without any liability on its part from
the performance of its obligations under this Agreement, except for the
obligation to pay any amounts due and owing hereunder, but only to the extent
and only for the period that its performance of such obligations is prevented by
the event of Force Majeure.
7.3 SUSPENSION OF PERFORMANCE. During the period that the performance by
one of the parties of its obligations under this Agreement has been suspended by
reason of an event of Force Majeure, the other party may likewise suspend the
performance of all or part of its obligations (other than payment obligations)
hereunder to the extent that such suspension is commercially reasonable.
ARTICLE 8
INTELLECTUAL PROPERTY
8.1 TRADEMARK LICENSE. Medtronic shall have a royalty-free license to use
all trademarks, trade names and logotypes of ESI relating to the Systems solely
in connection with the sale or other distribution, promotion, advertising and/or
maintenance of the Systems in the Field of Use. Medtronic shall acquire no
right, title or interest in such ESI trademarks, trade names and logotypes,
other than as provided for above, and Medtronic shall not use any ESI
trademarks, trade names and logotypes as part of Medtronic's corporate or trade
name or permit any third party under Medtronic's control to do so without the
prior written consent of ESI. All fights under this Article 8.1 shall terminate
upon termination of this Agreement, subject to Article 5.6.
8.2 OWNERSHIP. ESI represents and warrants to Medtronic that as of the
Effective Date:
(a) It has the right to grant the rights and licenses granted to Medtronic
in this Agreement and the execution and performance of this Agreement by ESI and
the transactions contemplated herein do not conflict with any agreement to which
ESI is a party or by which it is bound;
(b) It is the exclusive owner or licensee of the Intellectual Property
necessary for the manufacture, use or sale of the Systems as contemplated herein
(excluding third party materials for which ESI may have non-exclusive rights);
18
<PAGE>
(c) ESI warrants to Medtronic and to Medtronic's customers that Systems
sold by ESI do not infringe any currently issued patents, trade secrets,
trademarks or other intellectual property rights of any third party;
(d) It has no knowledge of any claim by a third person that manufacture,
use or sale of the Systems as contemplated in this Agreement infringes the
patent, copyright, trademarks, trade secret or other intellectual property
rights of any third person.
8.3 IMPROVEMENTS AND ENHANCEMENTS TO THE SYSTEMS. During the term of this
Agreement, ESI shall promptly inform and make available to Medtronic any
material invention, improvement, upgrading or modification relating to the
Systems or ESI's Intellectual Property relating to the Systems.
ARTICLE 9
MISCELLANEOUS
9.1 NON-DISCLOSURE. Except as permitted or required for performance by
the party receiving such Confidential Information of its rights or duties
hereunder, each party agrees (i) not to disclose or use any Confidential
Information of the other party obtained in connection with the performance of
this Agreement, and (ii) not to disclose or provide any of such Confidential
Information of the other party to any third party and to take appropriate
measures to prevent any such disclosure by its present and future employees,
officers, agents, subsidiaries or consultants.
9.2 RELATIONSHIP. This Agreement does not make either party the employee,
agent or legal representative of the other for any purpose whatsoever. Neither
party is granted any right or authority to assume or to create any obligation or
responsibility, express or implied, on behalf of or in the name of the other
party. In fulfilling its obligations pursuant to this Agreement, each party
shall be acting as an independent contractor.
9.3 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors or assigns of the parties
hereto, provided that (i) the rights and obligations of ESI herein may not be
assigned except to an Affiliate or any person who succeeds to substantially all
of the assets and business of ESI to which this Agreement relates subject to the
provisions of Article 4.3, and (ii) the fights and obligations of Medtronic
herein may not be assigned except to an Affiliate or any person who succeeds to
substantially all of Medtronic's business. In the event of an assignment
pursuant to this Section 9.3, all interests and obligations created under this
Agreement shall continue uninterrupted. In the event of assignment to a
successor in ESI's interest, the parties agree to negotiate to extend the
Agreement or do a buyout of Medtronic's interest. Medtronic shall not,
19
<PAGE>
however, be obligated to negotiate any change in the Agreement. In the event of
a sale of Medtronic's interest in that portion of the business to which this
Agreement relates, Medtronic shall present ESI with a plan for continued
distribution of ESI Systems. ESI shall have the right to terminate the
Agreement in the event Medtronic fails to meet the performance objectives for
the renewal period. No Medtronic Affiliate may assign the rights granted
herein. Notwithstanding the foregoing, ESI shall have the right to assign its
responsibility of servicing the Systems to third parties, provided ESI shall
retain the obligation of ensuring such service is provided pursuant to the terms
of this Agreement.
9.4 COMPLETE AGREEMENT. This Agreement and the Schedules hereto
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements whether written or oral
relating hereto. This Agreement supersedes all written correspondence,
including but not limited to all terms sheets, between James Bullock and
Medtronic negotiating the terms directly related to the subject matter hereof.
9.5 GOVERNING LAW. Except as set forth in Article 9.15, the parties agree
that in the event of any dispute, the resolution of that dispute shall be
conducted in the state or federal courts in Minneapolis, Minnesota. The parties
agree that this contract is entered into and is to be performed in the State of
Minnesota. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Minnesota, including all matters of construction,
validity, performance and enforcement, without giving effect to principles of
conflict of laws.
9.6 SURVIVAL. All of the representations, warranties and covenants made
in this Agreement, and all terms and provisions hereof intended to be observed
and performed by the parties after the termination hereof, shall survive such
termination and continue thereafter in full force and effect.
9.7 WAIVER, DISCHARGE, AMENDMENT, ETC. The failure of any party hereto to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part thereof or the fight of the party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.
Any amendment to this Agreement shall be in writing and signed by the parties
hereto.
9.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed as original and all of which
together shall constitute one instrument.
9.9 TITLES AND HEADINGS; CONSTRUCTION. The titles and headings to
Articles herein are inserted for the convenience of reference only and are not
intended to be
20
<PAGE>
a part of or to affect the meaning or interpretation of this Agreement. This
Agreement shall be construed without regard to any presumption or other rule
requiring construction hereof against the party causing this Agreement to be
drafted.
9.10 BENEFIT. Nothing in this Agreement, expressed or implied, is intended
to confer on any person other than the parties to this Agreement or their
respective successors or assigns, any fights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.11 NOTICES. All notices or other communications to a party required or
permitted hereunder shall be deemed given if in writing and delivered personally
or sent by telecopy (with confirmation of transmission) or certified mail
(return receipt requested) to such party at the following addresses (or at such
other addresses as shall be specified by like notice):
If to Medtronic, to: Medtronic, Inc.
Corporate Center
7000 Central Avenue NE
Minneapolis, MN 55432
Attention: General Counsel
Fax (612) 572-5459
with a copy to: Medtronic, Inc.
Corporate Center
7000 Central Avenue NE
Minneapolis, MN 55432
Attention: Vice President Corporate Development
and Associate General Counsel
Fax (612) 572-5404
and if to ESI, to: Endocardial Solutions Inc.
1350 Energy Lane, Suite 110
St. Paul, MN 55108-5254
Attention: James Bullock
Fax (612) 644-7897
with a copy to: Endocardial Solutions Inc.
1350 Energy Lane, Suite 110
St. Paul, MN 55108-5254
Attention: Dennis McFadden
Fax (612) 644-7897
Medtronic or ESI may change their respective above-specified recipient
and/or mailing address by notice to the other party given in the manner herein
21
<PAGE>
prescribed. All notices shall be deemed given on the day when actually
delivered as provided above (if delivered personally or by telecopy) or on the
day shown on the return receipt (if delivered by mail).
9.12 ILLEGALITY. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
9.13 PUBLIC ANNOUNCEMENT. Each of the parties to this Agreement hereby
agrees with the other parties hereto that, except as may be required to comply
with the requirements of applicable law or any exchange upon which such party's
capital stock is listed or traded, no press release or similar public
announcement or communication will be made or caused to be made concerning the
execution or performance of this Agreement unless specifically approved in
advance by Medtronic and ESI. The foregoing shall not restrict either party's
communications with employees, customers or private investors.
9.14 EXECUTION OF FURTHER DOCUMENTS. Each party agrees to execute and
deliver without further consideration any further applications, licenses,
assignments or other documents, and to perform such other lawful acts as the
other party may reasonably require to fully secure and/or evidence the rights or
interests herein.
9.15 DISPUTE RESOLUTION. Any dispute with respect to the determination of
the Transfer Prices pursuant to Article 2.3 or the Performance Objectives
pursuant to Article 5.2(b) which remains unresolved for a period of at least 90
days despite the parties' good faith efforts to negotiate a resolution thereof
may be submitted by either party to binding arbitration pursuant to the
commercial arbitration rules of the American Arbitration Association. The
arbitrator shall be an individual mutually agreed to by the parties, or if the
parties are unable to agree, selected by the AAA, who is knowledgeable and
experienced in the high technology medical device industry.
IN WITNESS WHEREOF, each of the parties has caused this Sales Agreement to
be executed in the manner appropriate to each, as of the date first above
written.
ENDOCARDIAL SOLUTIONS, INC. MEDTRONIC, INC.
By /s/ James Bullock By /s/ Stephen R. LaPorte
------------------------- --------------------------
Its President/CEO Its V.P. Cardio Rythm
------------------------- --------------------------
22
<PAGE>
ATTACHMENTS:
Schedule 1.1 - Medtronic Competitors
Schedule 1.2 - The Medtronic Territories
Schedule 2.3 - Pricing
Schedule 2.4 - ESI's System Product Warranty
Schedule 2.5 - Performance Objectives
Schedule 5.3 - Depreciation Schedule
23
<PAGE>
Schedule 1.1
MEDTRONIC COMPETITORS
Medtronic Competitors include the following entities and their respective
affiliates:
***/
- ----------
***/ Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of
1933.
24
<PAGE>
Schedule 1.2
THE MEDTRONIC TERRITORIES
1. EUROPE. The European Territory shall include all of continental Europe,
the United Kingdom, Ireland and the Scandinavian geographies, Eastern
Europe, Serbia and Russia.
2. JAPAN.
25
<PAGE>
Schedule 2.3
PRICING
Systems $***/
Catheters $***/
Other Products ***/
- ----------
***/Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of
1933.
26
<PAGE>
Schedule 2.4
ESI PRODUCT WARRANTY
1. WARRANTY AND RETURN PROCEDURE. ESI warrants to Medtronic and to
Medtronic's customers that, for a period of one (1) year from installation, the
Systems shall meet the Specifications therefor and shall be free of defects in
materials and workmanship. Medtronic shall promptly notify ESI in writing of
any System that does not meet such warranty, but in no event more than
forty-five (45) days after it has actual notice of the basis for such claim or
the expiration date of the warranty set forth above, whichever date is later.
Each such claim shall state the nature and details of the claim, the date the
cause of the claim was first observed and the serial number and order number of
the Systems concerned. Medtronic shall comply with ESI's RMA procedure with
respect to the return of any System subject to a warranty claim. Return of
defective Systems shall be at the expense of ESI.
2. WARRANTY EXCLUSIONS. ESI shall have no obligation to Medtronic or its
customers under this warranty if:
(a) The Systems in question have been modified in any manner without the
prior written consent of ESI;
(b) The defect is caused by the use of the Systems in combination with any
other unapproved hardware, software, medical device or product; or
(c) Repair or replacement of the Systems in question was necessitated in
whole or in part by catastrophe or the Systems were damaged or mishandled by
Medtronic, its customer or any other party who is not an employee or
representative of ESI.
3. REPAIR; REPLACEMENT PRODUCTS. If ESI confirms that the returned System
meets the above warranty, it shall promptly repair or replace such detective
System, at ESI's sole option, and shall bear the entire cost of such repair or
replacement Products and the shipping thereof if repair or replacement is not
commercially feasible, ESI will refund to Medtronic the amount paid for such
System.
4. THIRD PARTY MATERIALS. Notwithstanding the foregoing, any third party
materials provided as part of the Systems (software, hardware, etc.) will be
warranted solely to the extent warranted by the third party manufacturer.
5. SOLE REMEDY. The remedies set forth above are the exclusive remedies of
Medtronic and its customer for any breach of this warranty.
27
<PAGE>
6. DISCLAIMER. THE WARRANTIES SET FORTH ABOVE ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE HEREBY DISCLAIMED AND EXCLUDED BY ESI,
INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE. ANY DEFECTS IN SOFTWARE WHICH DO NOT AFFECT THE
SPECIFICATIONS ARE EXCLUDED FROM THIS WARRANTY.
28
<PAGE>
Schedule 2.5
PERFORMANCE OBJECTIVES
<TABLE>
<CAPTION>
Estimated Targets Non-Exclusivity Threshold Termination Threshold
Targeted Targeted Total Targeted Targeted Total Targeted Targeted Total
Systems Catheters Dollars Systems Catheters Dollars Systems Catheters Dollars
-------- --------- ------- -------- --------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Units (***) (***) (***) (***) NA NA
Unit Price $ (***) $ (***) $ (***) $ (***)
------- ------- ------- ------- ------- ------- ------- ------- -------
Dollars $ (***) $ (***) $ (***) $ (***) $ (***) $ (***) NA NA NA
------- ------- ------- ------- ------- ------- ------- ------- -------
Dollars
(% of ESI Target) (***)% #VALUE!
1999
Units (***) (***) (***) (***) (***) (***)
Unit Price $ (***) $ (***) $ (***) $ (***) $ (***) $ (***)
------- ------- ------- ------- ------- ------- ------- ------- -------
Dollars $ (***) $ (***) $ (***) $ (***) $ (***) $ (***) $ (***) $ (***) $ (***)
------- ------- ------- ------- ------- ------- ------- ------- -------
Dollars
(% of ESI Target) (***)% (***)%
</TABLE>
Progress towards Performance Objectives shall be reviewed on an annual basis for
years 1 through 3, and semi-annually thereafter. In the event of Medtronic's
sale to a successor in interest of that portion of the business to which this
Agreement relates, quarterly progress reviews would be conducted.
- ----------
***/Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of
1933.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Post-Effective Amendment No. 1 to Form S-1 on Form S-3 and related Prospectus of
Endocardial Solutions, Inc. for the registration of 750,000 shares of its common
stock and to the incorporation by reference therein of our report dated February
6, 1998, with respect to the financial statements of Endocardial Solutions, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1997,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
--------------------------
Minneapolis, Minnesota
June 2, 1998
