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Note 10 - Commitments
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Dec. 31, 2012
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| Commitments and Contingencies Disclosure [Text Block] |
10.
Commitments
Leases
The
Company leases office space in Tennessee and California
under non-cancellable operating leases. The leases expire
in 2014 and 2015, respectively.
Future
minimum lease payments under non-cancellable operating
leases are as follows:
Rent
expense under all operating leases was approximately
$145,000, $174,000 and $181,000 for the years ended
December 31, 2012, 2011, and 2010, respectively.
Licenses
Certain
license arrangements require minimum royalty
payments. As of December 31, 2012, future
minimum royalty payments are as follows:
Royalty
payment amounts may be greater than the minimum required
payment amounts based on the negotiated royalty rates. If
the Company sublicenses the intellectual property that is
licensed from the licensor and the Company receives any
royalty payment under or with respect to such sublicense,
the Company is obligated to pay the licensor an agreed
upon percentage of any such payment(s). Under the terms
of these license agreements, the Company is required to
reimburse the licensor for all costs associated with
patent filing, prosecution and maintenance as well as
expenses related to enforcing the related patent rights.
The Company may terminate these license agreements for
any reason, upon giving the licensor either 60 or 90 days
written notice, depending on the agreement. The Company
has not sold any products to date that are subject to
royalties under the arrangements mentioned above that
provide for minimum royalty payments.
Co-Development
Agreement
The
Company has entered into a co-development agreement
whereby it would pay up to approximately $2,476,000 in
milestone-based payments for software development to be
used in conjunction with products being developed by the
Company. The software, upon completion, will be owned by
the co-developer and sold through licenses. The
co-developer will pay the Company a fixed amount per
license sold by the co-developer until the Company
recoups its investment in the software. At December 31,
2012, the Company has made a total of $1,373,889 in
milestone payments.
Shared
Research Agreements
The
Company entered into research agreements with certain
universities whereby the Company committed to pay certain
research-related expenses. At December 31, 2012, the
Company’s accounts payable balance includes
approximately $599,000 related to one of these
agreements. In addition, as of December 31,
2012, the Company is obligated to make payments totaling
approximately $238,000, all payable in 2013 for research
to be performed in 2013, under another such
agreement.
Master
Services and Software License Agreement
Effective
June 22, 2012, the Company and its ClearPoint system
software development partner entered into an amendment
(the “Software Amendment”) to the master
services and licensing agreement (the “Master
Software Agreement”) between the parties.
The
Company entered into the Master Software Agreement in
July 2007 for the software development partner to develop
on the Company’s behalf, based on the
Company’s detailed specifications, a customized
software solution for the Company’s ClearPoint
system. The software development partner was in the
business of providing software development and
engineering services on a contract basis to a number of
companies. In developing the Company’s ClearPoint
system software, the software development partner
utilized certain of its own pre-existing software code.
Under the Master Software Agreement, the Company received
a non-exclusive, worldwide license to that code as an
integrated component of the Company’s ClearPoint
system software. In return, the Company agreed to pay the
software development partner a license fee for each copy
of the ClearPoint system software that the Company
distributes, subject to certain minimum license purchase
commitments by the Company.
Pursuant
to the Software Amendment, the Company agreed to issue
the software development partner 1,500,000 shares of the
Company’s common stock (1) in full payment and
satisfaction of license fees owed to the software
development partner in the amount of $612,500 for
licenses previously purchased by the Company, (2) in full
payment and satisfaction of all of the Company’s
remaining minimum license purchase commitments from the
software development partner in the amount of $962,500,
and (3) in exchange for additional licenses provided by
the software development partner to the Company valued at
$87,500 based on the original terms of the Master
Software Agreement. The Company applied guidance in FASB
ASC 505-50, “Equity-Based Payments to
Non-Employees,” using the contractual value of the
amounts owed and of the licenses acquired to measure and
record the transaction. The portion of the licenses
purchased by the Company that is not expected to be sold
or placed in service during the next twelve months, in
the amount of $1,137,500, has been recorded as a
non-current asset, software license inventory.
In
addition, in September 2012, the Company and the software
development partner entered into a new statement of work
under the Master Software Agreement, pursuant to which
the software development partner agreed to make certain
enhancements to the ClearPoint system software in
exchange for payments to be made over a twelve month
period of $300,000 in the aggregate. A total
of $100,000 was paid under this statement of work in
2012; the balance of $200,000 is scheduled to be paid in
2013.
Cardiac
EP Business Participation Plan
In
June 2010, the Company adopted a plan to provide a key
product development advisor and consultant with financial
rewards in the event that the Company sells its business
operations relating to catheter-based MRI-guided cardiac
ablation to treat cardiac arrhythmias, which the Company
refers to as its cardiac EP operations. In the event that
the Company sells its cardiac EP operations, whether on a
stand-alone basis or as part of the sale of the Company,
the participant will receive a payment under the plan
equal to (i) the transaction value paid for or allocated
to the cardiac EP operations in the sale, multiplied by
(ii) the participant’s “participation
interest” at the time of the sale. The participant
was initially awarded a participation interest of
6.6%. However, pursuant to the terms of the
plan, the participation interest is equitably reduced
from time to time to take into account equity financing
transactions in which the Company issues shares of its
common stock, or securities convertible into shares of
its common stock, in exchange for cash proceeds. At
December 31, 2012, the participation interest was
3.7%. The plan will terminate in June
2025.
Employment
Agreements
During
2012, the Company entered into employment agreements
(each, an “Employment Agreement,” and
collectively, the “Employment Agreements”)
with five executive officers (each, an
“Executive,” and collectively, the
“Executives”). Among other
provisions customary for agreements of this nature, the
Employment Agreements provide for severance in the event
of a termination without cause or if the Executive
terminates his employment for good reason, as those terms
are defined in each Employment Agreement. Likewise, the
Employment Agreements provide for certain payments in
connection with a change of control transaction.
Key
Personnel Incentive Program
The
Company adopted its Key Personnel Incentive Program to
provide a key consultant (who is a non-employee director
of the Company) and a key employee (collectively, the
“Participants”) with the opportunity to
receive incentive bonus payments based on the performance
of future services to the Company or upon a consummation
of a transaction involving the sale of the Company. In
June 2012, the Participants voluntarily and irrevocably
relinquished their rights to receive, and the
Participants discharged the Company from its obligations
to make, any and all incentive bonus payments under the
Key Personnel Incentive Program based on the performance
of services.
Pursuant
to the Key Personnel Incentive Program, in the event of a
sale transaction, each of the Participants will be
entitled to receive an incentive bonus payment equal to
$1,000,000. In addition, one of the
Participants will also receive an incentive bonus payment
equal to 1.4% of net proceeds from the sale transaction
in excess of $50,000,000, but not to exceed $700,000. If
a sale has not occurred by December 31, 2025, the Key
Personnel Incentive Program will terminate.
Because
the Company was discharged from any obligations to make
incentive bonus payments related to performance of
services under the Key Personnel Incentive Program, in
June 2012 the Company reversed all amounts previously
accrued for such service-based payments under the
program. This resulted in a credit to reversal of R&D
obligation of $882,537 in 2012 for the amounts that had
been accrued as research and development costs in 2010,
2011 and during the first three months of 2012 ($120,895
was accrued during the three months ended March 31,
2012).
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