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 2023. The Company has the option to renew the lease for two additional periods of five years each.

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 $94,907 and $91,513 for the years ended December 31, 2018 and 2017, respectively.

Licenses

Certain license arrangements require minimum royalty payments. As of December 31, 2018, 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.

Under the license agreement described above, the Company incurred royalty expense of $40,000 for each of the years ended December 31, 2018 and 2017.

Technical Service and Training Agreements

The Company is a party to agreements with a university, which agreements were amended in January 2018, under which the Company may receive technical and training services. Pursuant to the terms of the amended agreements, the Company incurred expense of approximately $37,146 and $35,561 for technical research services during the years ended December 31, 2018 and 2017, respectively. 

Software License Agreements

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 sells in which the Merge code is embedded, subject to a minimum license purchase commitment (the “Minimum License Purchase”) that the Company satisfied in 2013. The per license cost is charged to costs of sales based on the Company’s sales of the ClearPoint system software in which the Merge code is embedded. The Company will have an obligation to pay Merge a license fee for each copy of the ClearPoint system software in which the Merge code is embedded that the Company sells in excess of the licenses it purchased under the Minimum License Purchase.

In connection with the development of ClearPoint 2.0, the Company’s most recent software platform, which received FDA clearance in November 2018 and is in limited market release, the Company entered into two additional agreements under which it received worldwide, non-exclusive licenses to software code related to certain functional elements of ClearPoint 2.0, for which the Company is committed to pay royalties for each copy of its ClearPoint 2.0 system sold, or in certain cases, loaned by to end-users.

Royalties incurred by the Company under the software license agreements described above during the years ended December 31, 2018 and 2017 amounted to $107,200 and $122,500, respectively.

Minimum Purchase Commitments

On October 16, 2018 (the “Effective Date”), the Company entered into a distribution agreement and a license agreement with a third-party for the purchase of integrated hardware and software systems and related disposable products. The agreements subject the Company to minimum purchase commitments for the systems and disposable products for approximately the next five years following the Effective Date.

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, 2018, the participation interest was 0.47%. The plan will terminate in June 2025.

Employment Agreements

The Company has employment agreements with its 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.

Key Personnel Incentive Program

Under the terms of the Company’s Key Personnel Incentive Program (as amended, “KPIP”), two participants, one a consultant to the Company and a former non-employee director of the Company, and the other a former employee of the Company, will each be entitled to receive a $1 million payment in the event of a sale of the Company. In addition, one of the participants will be entitled to receive a payment equal to $700,000 in the event the net proceeds from a sale of the Company exceeds $50,000,000. If a sale of the Company has not occurred by December 31, 2025, KPIP will terminate.