Leases

The Company leases space in Irvine, California that houses its headquarters and manufacturing facility under a non-cancellable operating lease. The lease expires in September 2018. At December 31, 2017, future minimum lease payments under non-cancellable operating leases were $71,967.

Future minimum lease payments for operating leases having an initial or remaining non-cancellable lease term in excess of one year are as follows:

Rent expense under all operating leases was approximately $92,000 for each of the years ended December 31, 2017 and 2016.

Licenses

Certain license arrangements require minimum royalty payments. As of December 31, 2017, future minimum payments under these arrangements 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 payments. Under the terms of these license agreements, the Company is required to reimburse the licensor for costs incurred by the licensor associated with patent filing, prosecution and maintenance. 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.

Technical Service and Training Agreements

The Company is a party to agreements with a university, which agreements were amended in January 2017, under which the Company may receive technical and training services. Pursuant to the terms of the amended agreements, the Company incurred approximately $17,000 and $45,000 for technical research services during the years ended December 31, 2017 and 2016, respectively.

Master Services and Software License Agreement

The Company is a party to a Master Services and Licensing Agreement (as amended, the “Master Software Agreement”) with Merge Healthcare Canada Corp. f/k/a Cedara Software Corp. (“Merge”) under which the Company may internally perform development, maintenance and support of its ClearPoint system software that was originally developed for the Company by Merge, utilizing certain of its own pre-existing software code. Under the Master Software Agreement, the Company received a non-exclusive, worldwide license to Merge’s software code, in exchange for which the Company agreed to pay Merge a license fee for each copy of the ClearPoint system software that the Company distributes, subject to a minimum license purchase commitment (the “Minimum License Purchase”) that the Company satisfied in 2013. The Company will have an obligation to pay Merge a license fee for each copy of the ClearPoint system software that the Company distributes in excess of the licenses it purchased under the Minimum License Purchase.

Of the licenses purchased under the Minimum License Purchase: (i) those licenses that the Company expects to sell in the next 12 months are included in inventory in the accompanying consolidated balance sheets; (ii) those licenses that the Company has loaned to prospective ClearPoint system customers for evaluation are included in property and equipment in the accompany consolidated balance sheets and depreciated during the evaluation period; and (iii) those licenses not included in (i) or (ii) above are classified as non-current assets and comprise software license inventory on the accompanying consolidated balance sheets.

Cardiac EP Business Participation Plan

The Company is party to agreements under which it may 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 (“Cardiac EP Operations”). In the event 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, 2017, the participation interest was 0.48%. The plan will terminate in June 2025.

Management Change

On October 6, 2017, Francis P. Grillo entered into a Separation, Transition and Consulting Agreement (the “Separation Agreement”) with the Company, under which Mr. Grillo voluntarily resigned from his position as the Chief Executive Officer and President of the Company, and as a member of the Company’s Board of Directors, and separating from the Company, effective as of November 7, 2017 (the “Transition Date”).

Under the terms of the Separation Agreement, Mr. Grillo received the following payments and other benefits, subject to certain conditions, pursuant to the Separation Agreement: (i) 87,500 unregistered shares of the Company’s common stock; (ii) a lump sum payment of $15,000; (iii) $30,000 per month for the first two months following his separation from the Company in exchange for transition and consulting services provided to the Company by Mr. Grillo, after which Mr. Grillo is being compensated on an hourly basis to the extent he renders any such consulting services; and (iv) the option exercise period of all stock options previously granted to Mr. Grillo was extended to be coterminous with the term of the option award. In addition, Mr. Grillo will receive his annual bonus, amounting to approximately $109,000 and based on his and the Company’s performance for the fiscal year ended December 31, 2017, determined in accordance with the applicable policies and procedures set forth in his employment agreement.

In conjunction with Mr. Grillo’s resignation from the positions described above, on October 6, 2017, the Company entered into an Employment Agreement (the “Employment Agreement”) with Joseph M. Burnett, whereby Mr. Burnett commenced service as the Company’s Chief Executive Officer and President, effective as of the Transition Date. In addition, the Mr. Burnett was elected to serve as a director of the Company, effective as of the Transition Date.

Under the terms of the Employment Agreement, Mr. Burnett’s base salary, effective as of the Transition Date, is $360,000. Starting with the fiscal year commencing on January 1, 2018 and for each year thereafter, Mr. Burnett will be eligible to receive an annual target incentive bonus of 40% of his annual base salary, subject to certain performance goals to be established by the Compensation Committee of the Board of Directors. In addition, the Company will pay Mr. Burnett up to $50,000 in reasonable relocation expenses during the first two years of his employment, subject to Mr. Burnett’s continued employment through such two-year period. The Employment Agreement also provides for certain payments to be made to Mr. Burnett: (a) in the event the Company terminates his employment without cause or if Mr. Burnett voluntarily terminates his employment with the Company for good reason, as those terms are defined in the Employment Agreement; or (b) if the Company terminates his employment without cause or if Mr. Burnett voluntarily terminates his employment with the Company for good reason within two months of a change of control, as such term is defined in the Employment Agreement. Also, in the event of a change of control, any unvested stock options and restricted stock previously granted to Mr. Burnett will become fully vested.

As an inducement to his employment with the Company, Mr. Burnett is entitled to receive an initial signing bonus in the aggregate amount of $100,000 under the Employment Agreement, to be paid in two equal installments: the first installment was paid on the Transition Date, and the second installment is to be paid on the 6-month anniversary of the Transition Date, conditioned upon Mr. Burnett’s continued employment. In addition, on the Transition Date Mr. Burnett was granted: (i) a non-qualified stock option to purchase up to 350,000 shares of the Company’s common stock at a per share exercise price of $2.50, which was the per share closing price of the Company’s common stock on the Transition Date; and (ii) 200,000 restricted shares of the Company’s common stock. The stock option and restricted shares will vest as follows: (i) one-third on the first anniversary of the date of grant; and (ii) the remainder in equal quarterly installments during each of the second and third years following the date of grant. In connection with the foregoing, the Company recorded compensation expense in 2017 of approximately $44,000.

Mr. Burnett is entitled to participate in any benefit plan from time to time in effect for the Company’s executives and/or employees generally, subject to the eligibility provisions of that plan.

Employment Agreements

In addition to Mr. Burnett’s Employment Agreement, the Company has employment agreements with its other executive officers that, among other provisions customary for agreements of this nature, provide for severance payments in the event the Company terminates the officer’s employment without cause. The agreements also provide for certain payments in connection with a change of control transaction and a termination of employment following a change of control transaction.