10-Q/A

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_____________

FORM 10-Q/A

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended June 30, 2003.

[  ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from ______ to ______

Commission file number 0-28440

ENDOLOGIX, INC.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 68-0328265
(I.R.S.Employer
Identification Number)

13900 Alton Parkway, Suite 122, Irvine, California 92618
(Address of principal executive offices)

Registrant’s telephone number, including area code (949) 595-7200

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  [X]   No  [  ]

Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes  [  ]   No  [X]  

On August 5, 2003, the Registrant had outstanding approximately 27,946,000 shares of Common Stock of $.001 par value, which is the Registrant’s only class of Common Stock.

TABLE OF CONTENTS

		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 4. DISCLOSURE CONTROLS AND PROCEDURES
Part II. OTHER INFORMATION
	Items 1. Not applicable
	Item 2. Changes in Securities and Use of Proceeds
	Items 3 – 5. Not applicable
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

ENDOLOGIX, INC.

Form 10-Q/A

June 30, 2003

TABLE OF CONTENTS

		Page
Part I.	Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed consolidated balance sheets at December 31, 2002 and June 30, 2003	3
	Condensed consolidated statements of operations for the three and six months ended June 30, 2002 and 2003	4
	Condensed consolidated statements of cash flows for the six months ended June 30, 2002 and 2003	5
	Notes to condensed consolidated financial statements	6
Item 2.	Management’s discussion and analysis of financial condition and results of operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28
Part II.	Other Information
Items 1 through 6.		29
Signatures		31
Exhibit Index		32

ENDOLOGIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

			December 31,			June 30,
			2002			2003
ASSETS
Current assets:
	Cash and cash equivalents		$	2,606		$	2,416
	Marketable securities available-for-sale			5,053			4,405
	Accounts receivable, net			622			193
	Other receivables			1,004			726
	Inventories			2,043			2,172
	Other current assets			431			335
		Total current assets		11,759			10,247
Property and equipment, net				185			141
Marketable securities available-for-sale				2,051			363
Goodwill (Note 8)				3,602			3,602
Other intangibles, net of accumulated amortization of $819 and $1,522, respectively (Note 8)				15,939			15,236
Other assets				371			375
		Total Assets	$	33,907		$	29,964
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	2,348		$	1,732
		Total current liabilities		2,348			1,732
Minority interest				83			—
		Total liabilities		2,431			1,732
Commitments and contingencies
Stockholders’ equity:
	Convertible preferred stock, $.001 par value; 5,000 shares authorized, no shares issued and outstanding			—			—
	Common stock, $.001 par value; 30,000 shares authorized, 24,314 and 24,373 shares issued and outstanding at December 31, 2002 and June 30, 2003, respectively			24			24
	Additional paid-in capital			99,495			99,574
	Accumulated deficit			(68,004	)		(70,847	)
	Treasury stock, at cost, 227 and 495 shares at December 31, 2002 and June 30, 2003, respectively			(205	)		(661	)
	Accumulated other comprehensive income			166			142
		Total stockholders’ equity		31,476			28,232
		Total Liabilities and Stockholders’ Equity	$	33,907		$	29,964

See accompanying notes

3

ENDOLOGIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

				Three Months Ended June 30,						Six Months Ended June 30,
				2002			2003			2002			2003
Revenue:
	Product			$	140		$	295		$	140		$	785
	License				1,800			694			3,568			1,366
Total revenue					1,940			989			3,708			2,151
	Cost of product revenue				83			108			152			365
Gross profit					1,857			881			3,556			1,786
Operating expenses:
	Research, development and clinical				1,699			1,715			2,716			3,561
	Marketing and sales				133			154			133			437
	General and administrative				693			697			1,091			835
	Charge for acquired in-process research and development				4,438			—			4,438			—
	Minority interest				(7	)		1			(15	)		(16	)
Total operating expenses					6,956			2,567			8,363			4,817
Loss from operations					(5,099	)		(1,686	)		(4,807	)		(3,031	)
Other income (expense):
		Interest income			185			46			411			200
		Gain (loss) on sale of assets			58			(11	)		92			(8	)
		Other expense			(6	)		(2	)		(10	)		(4	)
			Total other income		237			33			493			188
Net loss				($	4,862	)	($	1,653	)	($	4,314	)	($	2,843	)
Basic and diluted net loss per share				($	0.28	)	($	0.07	)	($	0.29	)	($	0.12	)
Shares used in computing basic and diluted net loss per share					17,081			23,915			15,133			23,981

See accompanying notes

4

ENDOLOGIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
(In thousands)

					Six Months Ended June 30,
					2002			2003
Cash flows from operating activities:
	Net loss					($4,314	)		($2,843	)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		Depreciation and amortization				130			752
		Amortization of deferred compensation				(12	)		44
		Charge for acquired in-process research and development				4,438			—
		Bad debt expense (recovery)				5			(50	)
		Loss (gain) on sale of assets				(55	)		18
		Minority interest in losses of subsidiary				(8	)		(16	)
		Forgiveness of officer loan				137			—
	Change in (net of effects of acquisition):
			Trade accounts receivable			166			479
			Inventories			72			(129	)
			Other receivables and other assets			791			370
			Accounts payable and accrued expenses			(643	)		(616	)
			Deferred revenue			(40	)		—
				Net cash provided by (used in) operating activities		667			(1,991	)
Cash flows provided by investing activities:
	Purchases of available-for-sale securities					(6,529	)		(728	)
	Sales of available-for-sale securities					12,691			3,035
	Purchase of (former) Endologix, net of cash acquired of $2,097					(3,214	)		—
	Final distribution to subsidiary minority interest shareholder					—			(67	)
	Capital expenditures for property and equipment					(27	)		(7	)
				Net cash provided by investing activities		2,921			2,233
Cash flows provided by (used in) financing activities:
	Proceeds from sale of common stock under employee stock purchase plan					14			35
	Proceeds from exercise of common stock options					40			—
	Purchases of treasury stock					—			(456	)
				Net cash provided by (used in) financing activities		54			(421	)
Effect of exchange rate changes on cash and cash equivalents						12			(11	)
Net increase (decrease) in cash and cash equivalents						3,654			(190	)
Cash and cash equivalents, beginning of period						3,327			2,606
Cash and cash equivalents, end of period					$	6,981		$	2,416

Supplemental disclosure of non-cash operating activities:

In May 2002, the Company acquired all of the common stock of (former) Endologix (Note 8). The following is a summary of the transaction as of June 30, 2002:

Fair value of assets acquired, including intangible assets		$	25,664
Acquired in-process research and development			4,501
Cash paid			(5,311	)
Merger consideration payable			(3,830	)
Common stock issued			(18,637	)
	Liabilities assumed	$	2,387

See accompanying notes

5

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

1.     Business and Basis of Presentation

Endologix, Inc. (formerly named Radiance Medical Systems, Inc. referred to as “Endologix” or the “Company”) was incorporated in California in March 1992 and reincorporated in Delaware in June 1993. In May 2002, the Company merged with privately held Endologix, Inc., and changed its name to Endologix, Inc.

The Company is engaged in the development, manufacture, sales and marketing of minimally invasive therapies for the treatment of vascular disease. The Company’s primary focus is the development of the PowerLink System, a catheter-based alternative treatment for abdominal aortic aneurysms, or AAA. AAA is a weakening of the wall of the aorta, the largest artery of the body. Once AAA develops, it continues to enlarge and if left untreated becomes increasingly susceptible to rupture. Prior to the restructuring in September 2001 (Note 10) and the merger in May 2002 (Note 8), the Company was developing proprietary devices to deliver radiation to prevent the recurrence of blockages in arteries following balloon angioplasty, vascular stenting, arterial bypass surgery and other interventional treatments of blockages in coronary and peripheral arteries. The Company also manufactured, licensed and sold angioplasty catheters and stent products primarily through medical device distributors. The Company operates in a single business segment.

For the six months ended June 30, 2003, the Company incurred a net loss of $2.8 million. As of June 30, 2003, the Company had an accumulated deficit of approximately $70.8 million. The Company believes that current cash and cash equivalents, marketable securities and cash generated by operations will be sufficient to meet anticipated cash needs for operating and capital expenditures through at least December 31, 2004. Unanticipated reductions in royalty revenue, failure of the market to accept the products, or failure to reduce certain discretionary expenditures, if necessary, could have a material adverse effect on the Company’s ability to achieve the intended business objectives.

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the unaudited six-month period ended June 30, 2003 are not necessarily indicative of results that may be expected for the

6

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

year ending December 31, 2003 or any other period. For further information, including information on significant accounting policies and use of estimates, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

2.     Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under SFAS No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation,” and amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” requires use of option valuation models that were not developed for use in valuing employee stock options. Under the provisions of APB 25, the Company recognizes compensation expense only to the extent that the exercise price of the Company’s employee stock options is less than the market price of the underlying stock on the date of grant. SFAS No. 123 requires the presentation of pro forma information as if the Company has accounted for its employee stock options granted under the fair value method. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.

Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

In calculating the pro forma information, the fair value was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 2.7% and 2.1%; a dividend yield of 0% and 0%; volatility of the expected market price of the Company’s common stock of 80.0% and 81.0%; and a weighted-average expected life of the options of 5.0 years and 5.0 years for the second quarter and first six months of 2002 and 2003, respectively.

7

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information for the quarters ended June 30, 2002 and 2003 follows:

		2002			2003
Net loss, as reported		$	(4,862	)	$	(1,653	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(90	)		(44	)
Pro forma net loss		$	(4,952	)	$	(1,697	)
Earnings per share:
	Basic and diluted-as reported	$	(0.28	)	$	(0.07	)
	Basic and diluted-pro forma	$	(0.29	)	$	(0.07	)

     The Company’s pro forma information for the six month periods ended June 30, 2002 and 2003 follows:

		2002			2003
Net loss, as reported		$	(4,314	)	$	(2,843	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(180	)		(122	)
Pro forma net loss		$	(4,494	)	$	(2,965	)
Earnings per share:
	Basic and diluted-as reported	$	(0.29	)	$	(0.12	)
	Basic and diluted-pro forma	$	(0.30	)	$	(0.12	)

The Company accounts for non-employee stock-based awards, in which goods or services are the consideration received for the stock options issued, in accordance with the provisions of SFAS No. 123 and related interpretations. Compensation expense for non-employee stock-based awards is recognized in accordance with FASB Interpretation 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Options or Award Plans, an Interpretation of APB Opinions No. 15 and 25” (“FIN 28”). Under SFAS No. 123 and FIN 28, the Company records compensation expense based on the then-current fair values of the stock options at each financial reporting date. Compensation recorded during the service period is adjusted in subsequent periods for changes in the stock options’ fair value until the options vest.

8

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

3.     Net Income (Loss) Per Share

Net income (loss) per common share is computed using the weighted average number of common shares outstanding during the periods presented. Certain options to purchase shares of the Company’s common stock granted under the Company’s stock option plan have been excluded from the calculation of diluted earnings per share, as they are anti-dilutive. If anti-dilutive stock options were included for the second quarter of 2002 and 2003, the number of shares used to compute diluted net loss per share would have been increased by approximately 0.1 million shares and 0.4 million shares. In addition, options to purchase 1.3 million shares and 1.1 million shares with an exercise price above the average market price for the first quarter of 2002 and 2003, respectively, were excluded from the computation of diluted loss per share because the effect would have been antidilutive.

If anti-dilutive stock options were included for the first six months of 2002 and 2003, the number of shares used to compute diluted net loss per share would have been increased by approximately 0.1 million shares and 0.3 million shares. In addition, options to purchase 1.7 million shares and 1.1 million shares with an exercise price above the average market price for the first quarter of 2002 and 2003, respectively, were excluded from the computation of diluted loss per share because the effect would have been antidilutive.

4.     Inventories

Inventories are stated at the lower of cost, determined on an average cost basis, or market value. Inventories consist of the following:

	December 31, 2002		June 30, 2003
Raw materials	$	1,069	$	1,018
Work-in-process		174		406
Finished goods		800		748
	$	2,043	$	2,172

5.     Note Receivable

In February 2001, the Company amended the Assets Sale and Purchase agreement with Escalon Medical Corporation (“Escalon”) regarding the payment of royalties. As part of this amended agreement, the Company received a prime (4.25% at June 30, 2003) plus one percent interest bearing note receivable for $718, payable in eleven equal quarterly installments from April 2002 to October 2004, representing the remaining minimum

9

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

royalties, on a discounted basis, due for 2001 to 2003. Additional royalties above the minimums will be paid under the amended agreement only if related product sales exceed $3,000 annually. The Company recognizes interest income and license revenue under the $718 note receivable when the payment is received, as collection of this note receivable was not reasonably assured. Accordingly, the note receivable and deferred revenue are not recorded on the condensed consolidated balance sheet.

The Company recognized interest income of $5 and $6 in the second quarter of 2002 and 2003, respectively, under this arrangement. The Company recognized $65 and $65 in revenue in the second quarter of 2002 and 2003, respectively, under this arrangement.

The Company recognized interest income of $16 and $13 in the first six months of 2002 and 2003, respectively, under this arrangement. The Company recognized $65 and $130 in revenue in the first six months of 2002 and 2003, respectively, under this arrangement.

6.     License Revenue

In June 1998, the Company licensed to Guidant Corporation, an international interventional cardiology products company, the right to manufacture and distribute stent delivery products using the Company’s Focus technology. The Company receives royalty payments based upon the sale of products by Guidant using the Focus technology. The agreement includes minimum annual royalties of $250 and expires in 2008. During the second quarter of 2002 and 2003, the Company recorded $1,715 and $628, respectively, in license revenue due on product sales by Guidant. During the first six months of 2002 and 2003, the Company recorded $3,463 and $1,235, respectively, in license revenue due on product sales by Guidant.

7.     Comprehensive Loss

The Company’s comprehensive loss included the following:

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2002			2003			2002			2003
Net loss	$	(4,862	)	$	(1,653	)	$	(4,314	)	$	(2,843	)
Unrealized loss on available-for-sale securities		(65	)		(14	)		(182	)		(29	)
Foreign currency translation adjustment		10			8			9			5
Comprehensive loss	$	(4,917	)	$	(1,659	)	$	(4,487	)	$	(2,867	)

10

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

8.     Merger

     Reasons for the Merger

In September 2001, the Company decided to search for additional commercial opportunities by evaluating technologies outside of vascular radiation therapy, then the primary operational focus. Positive data had been presented, and was continuing to be presented, from several major medical device companies, on the effectiveness of drug-coated stents to prevent restenosis, or re-blockage of arteries. As a result, the Company believed the market for its radiation catheter would be limited.

In the fourth quarter of 2001, the Company began discussions with Endologix, Inc. (“former Endologix”), a privately held developer and manufacturer of the PowerLink System, an endoluminal stent graft for minimally invasive treatment of abdominal aortic aneurysms. Based on its investigation of the PowerLink System, the Company believed that it was a novel device and that clinical results to date indicated that the PowerLink System had several features and benefits that may provide a better clinical outcome in comparison to devices currently on the market.

The Company believed that the acquisition of former Endologix’s technology would provide the Company with a new and different medical device technology for a promising and potentially lucrative market.

     Merger Transaction

In May 2002, the Company acquired all of the capital stock of former Endologix. The Company paid stockholders of former Endologix $0.75 cash for each share of former Endologix common stock, for an aggregate of $8,355, and one share of Radiance common stock for each share of former Endologix common stock, for an aggregate of 11,141 shares. The results of former Endologix have been included in the consolidated financial statements since May 2002.

In addition, the Company agreed to pay contingent consideration in the amount of $5,579 in the event pre-market approval, or PMA, is received in the U.S. for the PowerLink System on or before March 31, 2004, or $2,790 if PMA approval is received by June 30, 2004. The Company may choose to pay the contingent consideration, if payable, in cash or common stock at its sole discretion. As of June 30, 2003, PMA approval has not yet been obtained and such contingent consideration has not been recorded in the consolidated financial statements. Any contingent payment made will be capitalized as an addition to the purchase price.

11

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

The acquisition was accounted for as a purchase under SFAS No. 141, “Business Combinations.” In accordance with SFAS No. 141, the Company allocated the purchase price based on the fair value of the assets acquired and liabilities assumed. In the merger, the Company acquired, in addition to the net tangible assets of the business, intangible assets such as the PowerLink and PowerWeb (an earlier version of the PowerLink) technologies, both developed and in-process, the Endologix trade name and PowerLink and PowerWeb trademarks, and goodwill. The Company employed valuation techniques reflecting recent guidelines from the AICPA on approaches and procedures for identifying and allocating the purchase price to assets to be used in research and development activities, including acquired in-process research and development, or IPR&D. To value IPR&D and developed technology, the Company estimated their future net cash flows and discounted them to their present value. To value trademarks and tradenames, the Company estimated the royalties that would have been paid for their use and discounted them to their net present value.

To determine the proper allocation of purchase price to technology assets, the Company first determined whether technological feasibility had been reached for a particular technology based upon whether it had been approved for sale by the appropriate regulatory body, or, in the absence of regulatory approval, whether there existed any material costs yet to be incurred, material changes to the technology to be completed or material risks of approval for sale. Then, the Company considered whether the technology had any alternative future uses.

If technological feasibility of projects had not been reached and the technology had no alternative future uses, the Company considered the technology to be IPR&D. The IPR&D is comprised of technological development efforts aimed at the discovery of new, technologically advanced knowledge, the conceptual formulation and design of possible alternatives, as well as the testing of process and product cost improvements. Specifically, these technologies included, but were not limited to, research and development efforts towards U.S. commercialization and expansion of the PowerLink product line to include a larger size of the device.

The Company then estimated that it would spend $6,700 to complete the regulatory process for U.S. commercialization of the PowerLink System by mid-2004. The Company also estimated that it would spend $6,600 to complete the research and development and regulatory approval process for a larger size PowerLink System for commercialization in Europe by late 2002, and in the U.S. by mid-2007.

The Company then determined the weighted average stage of completion for IPR&D projects was approximately 60% for U.S. commercialization of the PowerLink System and 33% for the development and commercialization of the larger size of the PowerLink

12

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

System as of merger date. The cash flows from revenues forecasted in each period are reduced by related expenses, capital expenditures, the cost of working capital, and an assigned contribution to the core technologies serving as a foundation for the research and development. The discount rates applied to the individual technology’s net cash flows were 40%, based upon the level of risk associated with a particular technology and the current return on investment requirements of the market.

The amount of merger consideration allocated to IPR&D was then determined by estimating the stage of completion of each IPR&D project at the date of the merger, estimating the cash flows for the future research and development, clinical trials and release of products employing these technologies, all as described above, and discounting the net cash flows to their present values. As a result of the foregoing determinations, the Company expensed the portion of the purchase price allocated to IPR&D of $4,501 during the year ended December 31, 2002.

The Company also determined the fair value of developed technology at the merger date to be $14,050, which represents the acquired, aggregate fair value of individually identified technologies that were fully developed at the time of the merger. As with the IPR&D, the developed technology was valued using the income approach and a discount rate of 30%, in context of the business enterprise value of the former Endologix. The Company determined a value of $2,708 for trademarks and tradenames based upon the estimated royalty that would have to be paid for the right to use these assets if they had not been acquired by the Company, and a discount rate of 35%. The residual amount of $3,602 was allocated to goodwill. The trademarks and tradenames have an indefinite life and the developed technology is being amortized over ten years. The Company recognized amortization expense on intangible assets of $113 and $351 during the second quarter of 2002 and 2003, respectively. The Company recognized amortization expense on intangible assets of $113 and $703 during the first six months of 2002 and 2003, respectively. The amortization expense on intangible assets for the next five years will be $1,405 per year.

Other intangibles consisted of the following:

	December 31, 2002			June 30, 2003
Developed technology	$	14,050		$	14,050
Accumulated amortization		(819	)		(1,522	)
		13,231			12,528
Trademarks and tradenames		2,708			2,708
Intangible assets, net	$	15,939		$	15,236

13

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

Through June 30, 2003, actual results do not materially differ from the estimates and assumptions used in the valuation.

The following pro forma data summarizes the results of operations for the period indicated as if the Endologix merger had been completed as of the beginning of the period presented. The pro forma data gives effect to actual operating results prior to the merger, adjusted to include the pro forma effect of amortization of identified intangible assets.

		Six Months Ended
		June 30, 2002
Proforma:
	Revenue	$	4,997
	Net loss	$	(3,160	)
	Net loss per share-basic and diluted	$	(0.13	)
	Weighted-average shares outstanding		24,304

The above pro forma calculation does not include the charge of $4,501 for acquired IPR&D.

9.     Commitments and Contingencies

Sole-Source, Related-Party Supplier Agreement

In February 1999, the former Endologix agreed to purchase a key component for its PowerLink product from Impra, Inc., a subsidiary of C.R. Bard, Inc., which at the time was a significant shareholder and thus a related party, under a supplier agreement that expires in December 2007, and which then automatically renews, on a year by year basis, for additional one year periods without notice, unless a party provides notice not to renew within thirty days from the expiration of the renewal period. Under the terms of the agreement, the Company has agreed to purchase certain unit quantities of the component, with built in annual quantity increases, or the agreement may be canceled by Impra. In January 2002, the agreement was amended, increasing the minimum quantity purchase requirements for 2002 and thereafter and increasing the prices each year after 2002 according to the general increase in the Consumer Price Index. During 2003, the Company is required under the supplier agreement to purchase a minimum number of units, which depending on the units purchased, could range in cost from approximately $816 to $1,100. If the Company receives FDA approval to commercially distribute devices using the component, the price that the Company will pay Impra for the component will materially increase. The Company believes that U.S. commercialization could occur during 2004.

14

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

The Company is economically dependent on this vendor as it is the sole source for the key component.

Legal Matters

On September 15, 1999, EndoSonics Corporation, now a wholly-owned subsidiary of Jomed N.V., filed a complaint for declaratory relief in the Superior Court in Orange County, California, claiming that under a May 1997 agreement between the parties, EndoSonics had rights to combine the Company’s Focus balloon technology with an EndoSonics’ ultrasound imaging transducer on the same catheter with a coronary vascular stent. In February 2001 the court ruled in the Company’s favor, ruling that Jomed-EndoSonics had no such rights to include a stent with the Focus balloon and ultrasound imaging transducer. Under the judgment, the Company was entitled to recover approximately $468 of its legal fees and costs it had previously expensed, plus interest. In May 2001, Jomed-EndoSonics appealed the judgment, and in January 2003 the appeals court upheld the judgment in the favor of the Company. In February 2003, the Company agreed to accept payment of the judgment for legal fees and costs of $468, which was recorded as a reduction to general and administrative expenses, and interest due of $94, all of which was collected by March 31, 2003.

In July 2002, the Company terminated its contracts with two of its European distributors of PowerLink products for non-performance. In October 2002, the Company commenced an arbitration proceeding against the distributors to recover delinquent receivables of $376. In response, the distributors filed counterclaims for breach of contract, intentional and negligent misrepresentation and concealment of material facts in which they claim damages of $1,000. In February 2003, the parties agreed to a mutual release of claims made in the arbitration action and signed a new distribution agreement. The European distributors paid $320 to the Company in full settlement of delinquent receivables, net of product returns for $47 and expense reimbursement of $17. The Company also accepted a one-time exchange of products valued at $80.

The Company is a party to ordinary disputes arising in the normal course of business. Management is of the opinion that the outcome of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

10.     Restructuring Charges

In September 2001, two companies published clinical study data for drug-coated stents, a competing technology to the Company’s radiation catheter system. That data

15

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

demonstrated the high level of efficacy of drug-coated stents in preventing restenosis. Considering that efficacy, and the ease of use and probable cost effectiveness of drug-coated stents compared to the Company’s radiation catheter system, the Company determined that the market for the radiation-based system likely would be limited.

As a result, in order to conserve cash prior to assessing the outcome of its clinical study on its radiation catheter and deciding whether to make a PMA filing, and to be in position to take advantage of strategic alternatives, the Company decided in September 2001 to restructure its operations. The restructuring plan was comprised of the following: a) discontinue marketing and manufacturing of the radiation catheter in Europe and other international markets in the third quarter of 2001, b) discontinue marketing and manufacturing of products using the Company’s other stent and catheter technology, subject to the fulfillment of outstanding orders, which was completed in the fourth quarter of 2001, c) cease preparations for clinical trials for the radiation catheter in Japan, d) terminate 55 employees on an involuntary basis, which was completed in the first quarter of 2002, and e) search for additional commercial opportunities by evaluating technologies outside of radiation therapy. The involuntarily terminated employees consisted of 28 employees in manufacturing, 19 employees in research and development, 3 employees in sales and marketing and 5 employees in administration.

As a result of the restructuring plan, the Company recorded a $344 charge, comprised of manufacturing facility set up and sub-license fees and non-cancelable commitments under the agreements with Bebig, the Company’s former third-party European manufacturer for its radiation catheter products, $20 in other non-cancelable commitments, $601 for the write-off of inventory that will not be used to fulfill the outstanding product orders, $1,093 for employee termination benefits and $42 for other exit costs.

The Company concluded that no future cash flows were expected to be generated from the radiation catheter technology. As a result, the net carrying value of the Company’s equipment related to the technology and its intangible assets, consisting of acquired technology and employment contracts were written down to zero, resulting in a charge of $390 and $2,111, respectively, during 2001.

The Company also evaluated the estimated cash flows expected to be generated from equipment used in the production of its other discontinued products, including any possible cash flows associated with the equipment’s eventual disposition and recorded a charge of $40 based on estimated discounted cash flows, and revised the estimated useful life of the equipment.

16

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

The Company also wrote off $269 for the carrying value of furniture, computers, software and leasehold improvements that were no longer being used.

During the fourth quarter of 2001, the Company completed its evaluation of its facility needs and recorded a $309 restructuring charge for non-cancelable lease commitments, net of estimated sublease income of $256. During the fourth quarter of 2002, the Company reassessed its restructuring accrual for non-cancelable lease commitments in light of diminished opportunity for sublease arrangements prior to the lease term expirations in October 2003, and recorded an additional $168 restructuring charge.

The following is a summary of the restructuring-related liability payments during the six months ended June 30, 2003:

	Liability							Liability
	Balance							Balance
	December		Cash					June
	31, 2002		Payments			Adjustments		30, 2003
Non-cancelable commitments	$	248	$	(149	)	$	—	$	99

During the remainder of 2003, the Company will pay all of the remaining accrued liabilities recorded under the restructuring that are outstanding as of June 30, 2003.

11.     Treasury Stock

In July 2002, the board of directors authorized a program for repurchases of the Company’s outstanding common stock of up to $1,500 under certain parameters. During the six months ended June 30, 2003, the Company utilized $457 to repurchase 268 shares of its common stock at a weighted average share price of $1.71 per share.

12.     Subsequent Event

On July 21, 2003, the Company announced the completion of its private placement of 4,000 shares of its common stock at a purchase price of $2.25 per share. The Company received aggregate proceeds of $9,000 for the newly issued shares of common stock. The proceeds of the private placement, net of commissions, amounted to $8,489.

17

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

13.     Recent Accounting Pronouncement

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS 150”). SFAS 150 establishes standards for how an issue classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not believe that the adoption of SFAS 150 will have a material impact to its consolidated financial position, results of operations or cash flows.

18

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We caution stockholders that, in addition to the historical financial information included herein, this Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are based on management’s beliefs, as well as on assumptions made by and information currently available to management. All statements other than statements of historical fact included in this Report on Form 10-Q, including without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and statements located elsewhere herein regarding our financial position and business strategy, may constitute forward-looking statements. In addition, you generally can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “may,” “will,” “expects,” “intends,” “estimates,” “anticipates,” “plans,” “seeks,” or “continues,” or the negative thereof or variations thereon or similar terminology. Such forward-looking statements involve known and unknown risks, including, but not limited to, economic and market conditions, the regulatory environment in which we operate, the availability of third party payor medical reimbursements, competitive activities or other business conditions. We cannot assure you that our actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied from such forward-looking statements. Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2002 and our Form S-3/A filed September 30, 2003 including, but not limited to, those discussed in “Risk Factors.” All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these Cautionary Statements. We disclaim any obligation to update information contained in any forward-looking statement.

Overview

Organizational History

We were formed in 1992, and our common stock began trading publicly in 1996. The current Endologix, Inc. resulted from the May 2002 acquisition of all of the capital stock of a private company, Endologix, Inc., former Endologix, and the subsequent change of our company name from Radiance Medical Systems, Inc. to Endologix, Inc. The terms of the merger are described below under the caption “Merger with Endologix, Inc.” and also Note 8 to the unaudited Condensed Consolidated Financial Statements.

Our Business

Endologix is engaged in the development, manufacture, sales and marketing of minimally invasive therapies for the treatment of vascular disease. Our primary focus is the development of the PowerLink System, a catheter-based alternative treatment to surgery for abdominal aortic aneurysms, or AAA. AAA is a weakening of the wall of the aorta, the

19

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

largest artery of the body. Once AAA develops, it continues to enlarge and if left untreated becomes increasingly susceptible to rupture. The overall patient mortality rate for ruptured abdominal aortic aneurysms is approximately 75%. AAA is the 13th leading cause of death in the United States.

The PowerLink System is a catheter and endoluminal graft, or ELG system. The self-expanding stainless steel cage is covered by ePTFE, a common surgical graft material. The PowerLink ELG is implanted in the abdominal aorta by gaining access through the femoral artery. Once deployed into its proper position, the blood flow is shunted away from the weakened or “aneurismal” section of the aorta, reducing pressure and the potential for the aorta to rupture. We believe that implantation of the PowerLink System will reduce the mortality and morbidity rates associated with conventional AAA surgery.

We are currently selling the PowerLink System in Europe. We received Ministry of Health (“MOH”) approval to market the PowerLink System in France, which requires regulatory approval separate from the rest of Europe, in the first quarter of 2003. We completed Japanese clinical trials for our AAA technology in November 2001 and have submitted for Japanese MOH approval to commercialize the product. We believe that Japanese MOH review should be completed in the first half of 2004.

We completed enrollment in the first quarter of 2003 in the infrarenal arm of our two arm Phase II U.S. clinical trial and are currently enrolling patients in the other arm of the study for the suprarenal version of the PowerLink System. The trial supports a pre-market approval, or PMA, application with the FDA in order to market the PowerLink System in the United States. The difference between the infrarenal and suprarenal devices is that the wire stent in the suprarenal device is extended above the graft material in the aorta to allow the physician to anchor the top of the device above the renal arteries without obstructing them.

We believe that as of February 2003, we had enrolled a sufficient number of patients in the infrarenal device arm of the study and anticipate filing the final portion of our premarket approval application for the infrarenal device with the FDA in the fourth quarter of 2003. We anticipate that the enrollment for the suprarenal device should be completed in 2004.

Prior to the acquisition of former Endologix and the restructuring that occurred during the third and fourth quarters of 2001 (see below under the captions “Merger with Endologix, Inc.” and “Restructuring” and Notes 8 and 10 to the unaudited Condensed Consolidated Financial Statements), we were researching, developing and marketing a radiation therapy catheter for the treatment of blockages in arteries after angioplasty, or restenosis. Prior to that we developed, manufactured and marketed other catheter and stent products for treatment of cardiovascular disease.

20

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Over the past few years, our source of revenues has shifted gradually from direct sales of catheter and stent products to royalties from licenses of our stent delivery technology. In June 1998, we licensed Guidant Corporation rights to manufacture and distribute products using our Focus technology for the delivery of stents. In exchange, we received milestone payments based upon the transfer of know-how to Guidant, and continue to receive royalty payments based upon the sale of products by Guidant using the Focus technology. The payments under the Guidant license are the primary source of our existing revenues. See Note 6 to the unaudited Condensed Consolidated Financial Statements for more information on the Guidant agreement.

We have experienced an operating loss for each of the last five years and expect to continue to incur annual operating losses through at least December 31, 2004. Our results of operations have varied significantly from quarter to quarter, and we expect that our results of operations will continue to vary significantly in the future. Our quarterly operating results depend upon several factors, including:

• the timing and amount of expenses associated with clinical testing and development of the PowerLink system;

• the progress and success of clinical trials and regulatory approvals;

• varying product sales by Guidant Corporation, our licensee;

• our ability to penetrate the markets following regulatory approval; and,

• outcomes from future partnering or technology acquisition agreements, if any.

Company Restructuring

In late 2001, three companies published the first clinical study data for drug-coated stents, a competing technology to our radiation catheter system. While our RDX system uses beta radiation to treat restenosis resulting from angioplasty procedures, drug coated stents have drugs that inhibit cell proliferation to limit restenosis. Though drug coated stent feasibility trials were on a relatively small cohort of patients, all three companies reported restenosis rates near or at zero percent. Considering the efficacy, ease of use and probable cost effectiveness of drug-coated stents compared to the Company’s radiation catheter system, the Company determined that the market for the radiation based system likely will be limited.

As a result, in order to conserve cash and to position ourselves to take advantage of strategic alternatives, we restructured the Company and later decided not to file for PMA for the radiation catheter system but to still complete the clinical studies. We submitted the final reports for the coronary and saphenous vein graft feasibility trials to the FDA in the first quarter of 2003 and expect to submit the final reports for the remaining studies, the pivotal coronary and peripheral trials, in the third quarter of 2003.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Merger with former Endologix, Inc.

Reasons for the Merger

In September 2001, as part of a restructuring plan driven by the success of drug-coated stents, we began investigating other medical device technologies for commercialization. In the fourth quarter of 2001, we began discussions with Endologix, Inc. (“former Endologix”), a privately held developer and manufacturer of the PowerLink System, an endoluminal stent graft for minimally invasive treatment of abdominal aortic aneurysms. Based on its investigation of the PowerLink System, we believed that it was a novel device for treatment of abdominal aortic aneurysms, and that clinical results to date indicated that the PowerLink System had several features and benefits that may provide a better clinical outcome in comparison to devices currently on the market. We believed that the acquisition of former Endologix’s technology would provide us with a new and unique medical device technology for a promising and potentially lucrative market.

Merger Transaction

In May 2002, we acquired all of the capital stock of former Endologix. We paid stockholders of former Endologix $0.75 cash for each share of former Endologix common stock, for an aggregate of $8.4 million, and one share of our common stock for each share of former Endologix common stock, for an aggregate of 11,140,541 shares.

In addition, we agreed to pay contingent consideration in the amount of $5.6 million in the event pre-market approval, or PMA, is received in the U.S. for the PowerLink System on or before March 31, 2004, or $2.8 million if PMA approval is received by June 30, 2004. We may choose to pay the contingent consideration, if payable, in cash or common stock at our sole discretion. As of June 30, 2003, PMA approval has not yet been obtained and such contingent consideration has not been recorded in the consolidated financial statements.

In the course of negotiations of the merger, we agreed to forgive a loan of $100,000 and accrued interest of $37,000 owed by our former chief executive officer, as an incentive for Mr. Thiel to negotiate the best possible deal for our stockholders under the merger agreement between the Company and the former Endologix, and to assist with post-closing transition and integration issues given that he would no longer have an ongoing executive management position with us. As a result of this arrangement, we expensed $137,000 to administrative expenses.

The acquisition was accounted for as a purchase under SFAS No. 141, Business Combinations. In accordance with SFAS No. 141, we allocated the purchase price based on the fair value of the assets acquired and liabilities assumed. The Company employed valuation techniques reflecting recent guidelines from the AICPA on approaches and procedures for identifying and allocating the purchase price to assets to be used in research and development activities, including acquired in-process research and development, or IPR&D. To value IPR&D and developed technology, the Company estimated their future net cash flows and discounted them to their present value. To value trademarks and tradenames, the Company estimated the royalties that would have been paid for their use and discounted them to their net present value. As a result of the foregoing determinations, we expensed the portion of the purchase price allocated to in-process research and development of $4.5 million in the year ended December 31, 2002. We also determined the fair value of developed technology at the merger date to be $14.1 million, which represents the acquired, aggregate fair value of individually identified

22

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

technologies that were fully developed at the time of the merger. As with the in-process research and development, the developed technology was valued using the income approach and a discount rate of 30%, in context of the business enterprise value of the former Endologix. We determined a value of $2.7 million for trademarks and tradenames based upon the estimated royalty that would have to be paid for the right to use these assets if they had not been acquired by us, and a discount rate of 35%. The residual amount of $3.6 million was allocated to goodwill. The trademarks and trade names have an indefinite life and the developed technology is being amortized over ten years. See Note 8 to the unaudited Condensed Consolidated Financial Statements for further description of the accounting for the merger.

Results of Operations

Comparison of the Three Months Ended June 30, 2003 and 2002

      Product Revenue. Product revenue increased 111% to $295,000 in the three months ended June 30, 2003 from $140,000 in the three months ended June 30, 2002. Product revenue increased because it includes three months of PowerLink product sales in 2003 and only one month of PowerLink product sales in 2002.

      During the first quarter of 2003, we settled our dispute and restarted sales to our main European distributor. We are currently seeking new European distributors and have a small sales force in Europe. Because of limited reimbursement in Europe for AAA products, we are primarily spending our resources to complete the U.S. clinical trials, rather than for European sales and marketing. We anticipate that product revenue for the remaining six months of the year will be comparable with that for the prior year, unless a new, major European distributor is secured.

      License Revenue. License revenue decreased 61% to $694,000 in the three months ended June 30, 2003 from $1.8 million in the three months ended June 30, 2002. We believe that the reduction in license revenue is due primarily to the introduction of non-royalty bearing products by Guidant and sales of drug-coated stents, a competing technology, in the U.S. We also believe that license revenue will continue to decrease during 2003 compared with the comparable periods of 2002 due to increasing acceptance of drug-coated stents. The agreement with Guidant expires in 2008, unless terminated sooner, with minimum annual royalties of $250,000.

      Cost of Product Revenue. The cost of product revenue increased 30% to $108,000, or 37% of product revenue, in the three months ended June 30, 2003 from $83,000, in the three months ended June 30, 2002. Cost of product revenue increased due to higher PowerLink sales. As a percentage of revenue, cost of product revenue declined to 37% of product revenue in the second quarter of 2003 from 59% in the same period of 2002 due primarily to a $39,000 favorable inventory reserve adjustment. Without the reserve

23

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

adjustment, the cost of product revenue in the three months ended June 30, 2003 would have been 50% of product revenue.

      Research and Development. Research and development expenses, which include clinical expenses, were $1.7 million in the three months ended June 30, 2003 and June 30, 2002. A reduction of $1.1 million in expenditures for the development of the RDX System for 2003 was offset by an increase in expenditures for the development of the PowerLink System.

      We are currently conducting new product research and development and enrolling patients in one pivotal U.S. clinical trials for the PowerLink System, and we anticipate that total research and development expenses for the second half of 2003 will be comparable to the expenses for the same period of 2002.

      Marketing and Sales. Marketing and sales expenses increased 16% to $154,000 in the three months ended June 30, 2003 from $133,000 in the three months ended June 30, 2002. The increase in costs for 2003 marketing and sales expenses resulted because there were three months of PowerLink product marketing and sales expenses in 2003 and one month of PowerLink expenses in 2002. We anticipate that marketing and sales expenses over the remaining six month period of 2003 will be lower than those for the same period of 2002 as we plan to devote most of our resources to the continuation of our U.S. clinical studies.

      General and Administrative. General and administrative expenses totaled $697,000 in the three months ended June 30, 2003, compared to $693,000 in the three months ended June 30, 2002. A decrease in salary and benefit expenses of $146,000 for 2003, which primarily resulted from the severance pay and benefit expense for a former CEO and President recorded in 2002, was offset by increases in outside service expenses ($98,000), including strategic advisor fees, and insurance costs ($52,000). We anticipate that general and administrative expenses over the remaining six month period of 2003 will be higher than those for the same period of 2002.

      Other Income (Expense). Other income decreased 86% to $33,000 in the three months ended June 30, 2003, compared to $237,000 in the same period of 2002. The decrease in other income for the second quarter of 2003 compared with the same period of 2002 was primarily due to a decrease in interest income of $139,000 resulting from a 58% lower average cash balance and a lower average interest rate on investments. Secondarily, the decrease in other income was due to gains on sale of investments in the second quarter of 2002.

24

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Comparison of the Six Months Ended June 30, 2003 and 2002

      Product Revenue. Product revenue increased 461% to $785 in the six months ended June 30, 2003 from $140 in the six months ended June 30, 2002. Product revenue increased because it includes six months of PowerLink product sales in 2003 and one month of PowerLink product sales in 2002.

      License Revenue. License revenue decreased 62% to $1.4 million in the six months ended June 30, 2003 from $3.6 million in the six months ended June 30, 2002. We believe that the reduction in license revenue is due primarily to the introduction of non-royalty bearing products by Guidant and sales of drug-coated stents, a competing technology, in the U.S.

      Cost of Product Revenue. The cost of product revenue increased 140% to $365,000, or 46% of product revenue, in the six months ended June 30, 2003 from $152,000, in the six months ended June 30, 2002. Cost of product revenue increased primarily because there were six months of PowerLink sales during the first half of 2003 and one month of PowerLink sales in the same period of 2002. The cost of product revenue for the six months ended June 30, 2002 included a $69,000 write-off of obsolete inventory.

      Research and Development. Research and development expenses, which include clinical expenses, increased 31% to $3.6 million in the six months ended June 30, 2003 from $2.7 million in the six months ended June 30, 2002. The increase resulted primarily from an increase in PowerLink research and development expenses of $2.6 million, partially offset by lower research and development expenses of $1.7 million for our radiation catheter technology as we are nearing the completion of the related clinical studies.

      Marketing and Sales. Marketing and sales expenses increased 229% to $437,000 in the six months ended June 30, 2003 from $133,000 in the six months ended June 30, 2002. The increase resulted because we incurred six months of expenses in 2003 for marketing and sales of PowerLink products, whereas we only incurred one month of expenses in the first six months of 2002.

General and Administrative. General and administrative expenses decreased 23% to $835,000 in the six months ended June 30, 2003 from $1.1 million in the six months ended June 30, 2002. The decrease in expenses for the first six months of 2003, compared with the same period of 2002, was due primarily to a reimbursement of $468,000 for legal and other expenses as part of a legal settlement in the first quarter of 2003 with Jomed-Endsonics, which is described in Note 9 to the unaudited Condensed Consolidated Financial Statements. The decrease in the first six months of 2003 was partially offset by an increase in consulting costs ($114,000), including strategic advisor fees, and an increase in payroll costs ($77,000) from the addition of general and administrative staff upon the merger with the former Endologix in May 2002.

25

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

      Other Income (Expense). Other income decreased 62% to $188,000 in the six months ended June 30, 2003, compared to $493,000 in the same period of 2002. The decrease in other income for the first quarter of 2003 compared with the same period of 2002 was primarily due to a decrease in interest income of $211,000 resulting from a 56% lower average cash balance and a lower average interest rate on investments, partially offset by interest income of $94,000 from the legal settlement with Jomed-Endosonics. See Note 9 to the unaudited Condensed Consolidated Financial Statements for a description of the legal settlement.

Liquidity and Capital Resources

      At June 30, 2003, we had cash, cash equivalents and marketable securities available for sale of $7.2 million. We expect to continue to incur substantial costs and cash outlays in 2003 to support PowerLink research and development.

      In July 2002, the board of directors authorized a program for repurchases of our outstanding common stock of up to $l.5 million under certain parameters. As of June 30, 2003, we have repurchased an aggregate of 495,000 shares for $661,000.

      In February 1999, the former Endologix agreed to purchase a key component for its PowerLink product from Impra, Inc., a subsidiary of C.R. Bard, Inc. and then a related party, under a supplier agreement that expires in December 2007, and which then automatically renews, on a year by year basis, for additional one year periods without notice, unless a party provides notice not to renew within thirty days from the expiration of the renewal period. Under the terms of the agreement, we have agreed to purchase certain unit quantities of the component, with built in annual quantity increases, or the agreement may be canceled. In January 2002, the agreement was amended, increasing the minimum quantity purchase requirements for 2002 and thereafter and increasing the prices each year after 2002 according to the general increase in the Consumer Price Index. In 2003, because the mix of product we will purchase is currently uncertain, we anticipate buying between approximately $816,000 and $1.1 million in materials. If we receive FDA approval to commercially distribute devices using the component, the price that we will pay Impra for the component will materially increase. We believe that U.S. commercialization could occur during 2004. We are economically dependent on this vendor as it is the sole source for the key component.

      For the six months ended June 30, 2003, we incurred a net loss of $2.8 million. As of June 30, 2003, we had an accumulated deficit of approximately $70.8 million. We believe that current cash and cash equivalents, marketable securities and cash generated by operations will be sufficient to meet anticipated cash needs for operating and capital expenditures through at least December 31, 2004. Unanticipated reductions in royalty revenue, failure of the market to accept our products, or failure to reduce certain discretionary expenditures, if necessary, could have a material adverse effect on our ability to achieve our intended business objectives.

26

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Our future capital requirements will depend on many factors, including:

• our research and development programs

• the scope and results of clinical trials;

• the regulatory approval process;

• the costs involved in intellectual property rights enforcement or litigation;

• competitive products;

• the establishment of manufacturing capacity;

• the emphasis on sales and marketing capabilities;

• the establishment of collaborative relationships with other parties; and,

• the ability to develop technology and to commercialize products.

      On July 18, 2003, we closed a private placement of 4,000 shares of our common stock at $2.25 per share. We received aggregate proceeds of $9,000 for the newly issued shares of common stock. The proceeds of the private placement, net of commissions, amounted to $8,489.

      We may raise additional funds in 2004 in order to prepare for a 2004 U.S. market launch of the PowerLink product and to fund operations through additional financings, including debt, private or public equity offerings and collaborative arrangements with existing or new corporate partners. We cannot assure you that we will be able to raise funds on favorable terms, or at all. Equity financings may dilute the interests of the existing shareholders. If we obtain funds through arrangements with collaborative partners or others, we may be required to grant rights to certain technologies or products that we would not otherwise grant.

      Accounts Receivable. Trade accounts receivable, net, decreased 69% to $193,000 at June 30, 2003 from $622,000 at December 31, 2002. The decrease is due primarily to the settlement of a legal action with our European distributor and their payment of cash of $320,000, returns allowed of $47,000 and a credit for expenses incurred of $17,000, reducing their outstanding receivables that had been outstanding at December 31, 2002.

      Other Receivables. Other receivables decreased 28% to $726,000 at June 30, 2003 from $1.0 million at December 31, 2002 due primarily to a $259,000 decrease of the royalty receivable from Guidant. See Comparisons of Quarters Ended June 30, 2002 and 2003 in subsections License Revenue , regarding Guidant royalty revenues, above.

      Accounts Payable and Accrued Expenses. Accounts payable and accrued expenses decreased 26% to $1.7 million at June 30, 2003 from $2.3 million at December 31, 2002. The decrease is primarily attributable to payments, which decreased accounts payable by

27

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

$61,000, accrued payroll, primarily consisting of 2002 bonuses, by $299,000, non-cancelable lease commitments payable, accrued as part of the 2001 restructuring charges by $149,000 and, clinical study-related payables by $107,000.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      Our financial instruments include cash and short-term investment grade debt securities. At June 30, 2003 the carrying values of our financial instruments approximated their fair values based on current market prices and rates. It is our policy not to enter into derivative financial instruments. We do not currently have material foreign currency exposure as the majority of our assets are denominated in U.S. currency and our foreign-currency based transactions are not material. Accordingly, we do not have a significant currency exposure at June 30, 2003.

Item 4. DISCLOSURE CONTROLS AND PROCEDURES

      The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s “disclosure controls and procedures” as of the end of the period covered by this report, pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings. There has been no change in the Company’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

28

Part II.
OTHER INFORMATION

Items 1. Not applicable

Item 2. Changes in Securities and Use of Proceeds

      Subsequent to the end of the period covered by this report, on July 18, 2003, the Company issued 4,000,000 shares of Common Stock to certain investors in a private placement. The Company received aggregate proceeds of $9,000,000 for the newly issued shares of common stock. The proceeds of the private placement, net of commissions, amounted to $8,489,000. Exemption from the registration requirement of the Securities Act of 1933 (the “Act”) for the private placement is claimed under Section 4(2) of the Act, among others, on the basis that such transaction did not involve any public offering and the purchasers were sophisticated with access to the kind of information registration would provide.

      On July 24, 2003, the Company announced that it had filed a registration statement covering resales of the shares issued in the private placement. The registration statement relating to these securities has not yet become effective, and the securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. The Company will not receive any proceeds if and when sales of the shares are made under the registration statement.

Items 3 – 5. Not applicable

Item 6. Exhibits and Reports on Form 8-K

(a)  The following exhibits are filed herewith:

Exhibit 10.1*	License Agreement with confidential portions omitted, dated June 19, 1998, by and between the Company and Guidant Corporation.
Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Portions of this exhibit are omitted and were filed separately with the Securities and Exchange Commission pursuant to the Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

29

Item 6. Exhibits and Reports on Form 8-K (continued)

(b)  Reports on Form 8-K

Subsequent to the end of the period covered by this report, the Company filed a Report on Form 8-K as of July 21, 2003 announcing the completion of a private placement of Common Stock.

30

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by undersigned thereunto duly authorized.

	ENDOLOGIX, INC.
Date: September 26, 2003	/s/ Paul McCormick
	Chief Executive Officer and Director
	(Principal Executive Officer)
Date: September 26, 2003	/s/ David M. Richards
	Chief Financial Officer and Secretary
	(Principal Financial and Accounting
	Officer)

31

EXHIBIT INDEX

The following exhibits are filed herewith:

Exhibit 10.1*	License Agreement with confidential portions omitted, dated June 19, 1998, by and between the Company and Guidant Corporation.
Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2	Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*  Portions of this exhibit are omitted and were filed separately with the Securities and Exchange Commission pursuant to the Company’s
    application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

32

EX-10.1 3 a93382a1exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 CONFIDENTIAL PORTIONS OMITTED LICENSE AGREEMENT THIS LICENSE AGREEMENT ("Agreement") is made and entered into effective as of June 19, 1998 (the "Effective Date") by and between CARDIOVASCULAR DYNAMICS, INC., a Delaware corporation having a place of business at 13700 Alton Parkway, Irvine, CA 92618 ("CVD"), and GUIDANT CORPORATION, an Indiana corporation having a place of business at 3200 Lakeside Drive, Santa Clara, CA 95052-8167 and its Affiliates ("Guidant"). RECITALS: A. CVD is engaged in the discovery, development, manufacture and sale of medical devices for the treatment of vascular disease. B. CVD has developed or acquired and is the owner of all right, title and interest in the CVD Patents, including the inventions covered thereby, as well as CVD Know-How (each as defined below), relating to balloons with an adjustable, larger center diameter and smaller, fixed distal and proximal diameters for balloon catheters known as the Focus Technology balloon catheters, including, without limitation, methods for constructing such balloon catheters (the "CVD Technology"). C. Guidant is and has been engaged in the discovery, development, manufacture and sale of medical devices for the diagnosis and treatment of vascular disease, and continues to be active in this area. D. Both parties desire that Guidant license from CVD the CVD Technology, including certain exclusive distribution rights with respect to Licensed Products as defined below, under the terms and conditions of this Agreement. AGREEMENT The parties hereby agree as follows: 1. DEFINITIONS (a) "Affiliate" means any company or entity which controls, is controlled by, or is under common control with, an entity. For purposes of this definition, "control" means: (a) in the case of corporate entities, direct or indirect ownership of more than fifty percent (50%) of the stock or shares entitled to vote for the election of directors; and (b) in the case of non-corporate entities, direct or indirect ownership of more than fifty percent (50%) of the equity interest with the power to direct the management and policies of such non-corporate entities. (b) "Effective Date" means the date first written above. (c) "Foreign Counterparts" means all foreign patent applications and issued foreign patents, which claim priority from, or share common priority with, an identified United States patent or patent application, or which claim and disclose substantially similar inventions that are the subject matter of such identified U. S. patent or patent applications. (d) "Improvements" means modifications of or enhancements to CVD Technology, including, but not limited to, each version of a balloon with an adjustable, larger center diameter and smaller, fixed distal and proximal diameters for balloon catheters, made by or for CVD during the term of this Agreement. (e) "CVD Know-How" means information regarding CVD Technology now existing or hereafter developed which is either confidential or not known or used by others who do not have licenses for such use, including, but not limited to, devices, specifications, methods of use, technical, business, design, manufacturing, bench, animal, clinical and the like information. CVD Know-How shall include any and all unpatented Improvements. (f) "CVD Patents" means (i) the patent rights owned or controlled by CVD in the patents and patent applications identified on Exhibit A attached hereto and incorporated into this Agreement by reference, and the inventions covered by those applications and patents, and Foreign Counterparts thereof, (ii) any additional patent rights CVD now owns, controls or has access to, or may own, control or have access to in the future which are continuations, continuations-in-part, divisionals or substitutes of the original applications upon which the aforementioned patent rights are based, and the inventions covered thereby, or Foreign Counterparts thereof, and upon any reexaminations, reissues, renewals or extensions thereof, and (iii) any patent rights which CVD, either now or in the future, owns, controls or has access to necessary to exploit the CVD Technology. CVD Patents shall include any and all patented Improvements. (g) "Licensed Product" means a balloon catheter or other inflatable Stent delivery system having a balloon with an adjustable, larger center diameter and smaller, fixed distal and proximal diameters which: (i) if made, used, or sold in the absence of the license under the CVD Patents would infringe one or more Valid Claims included in the CVD Patents, or (ii) is made or sold in a country where CVD has a pending patent application (which has not been disallowed without possibility of appeal or abandoned) with respect to the CVD Technology, if, had the manufacture or sale been effected in the United States, such manufacture or sale would infringe one or more Valid Claims of a CVD Patent issued in the United States; or (iii) incorporates, embodies, uses or is designed or produced with CVD Know-How or CVD Technology. (h) "Licensed Product Bundle" or "Bundle" means a bundle, system or kit that is marketed as a single product that either: (i) includes a Licensed Product on which a Stent is mounted; or (ii) is shipped to hospital customers in a single, end-user, sterile package that includes a Licensed Product together with a Stent, and which package may also include other ancillary products directly related to the Stent that is included in the package, such as a Stent crimping tool. (i) "CVD Technology" has the meaning provided in the recitals of this Agreement. (j) "Market Release" means Guidant's first sale of a Licensed Product Bundle to a non-Affiliate; provided, however, that sales in connection with a clinical trial or physician preference test will not constitute a "Market Release" for purposes of this Agreement. (k) "Net Sales" means the gross amounts recorded by Guidant on the accrual method for sales of Licensed Product Bundles by Guidant or its Affiliates, as applicable, less all actual bad debt incurred in connection with sales of Licensed Product Bundles and any discounts, rebates and credit for returned goods and cancellations, to the extent related to the Licensed Product Bundle, freight charges, insurance and other costs of shipping and handling, sales or use taxes and duties. (l) "Region" means a region listed in Exhibit B of this Agreement. 2 (m) "Royalty Bearing Licensed Product" means a Licensed Product as defined in Subsections (g)(i) or (g)(ii) above. Royalty Bearing Licensed Product does not include a Licensed Product as defined in Subsection (g)(iii) above; provided that neither of Subsections (g)(i) or (g)(ii) also applies to such Licensed Product. (n) "Stent" means any coronary or vascular stent, without regard to the material from which the stent is made, including, but not limited to, balloon expandable stents, self-expanding stents, covered and uncovered stents, and coated and uncoated stents. (o) "Successful Completion of Technology Transfer " means that Guidant has acquired an understanding of the CVD Technology sufficient to enable Guidant to carry out its licensed rights as set forth in Section 2 below as to Licensed Products and Licensed Product Bundles and to market the same to its customers. The Joint Committee, as defined in Section 3 of this Agreement, shall determine when Successful Completion of Technology Transfer has occurred, in its reasonable discretion, and in accordance with Exhibit D. (p) "Valid Claim" means a claim of an issued patent that has not been held or declared invalid, unpatentable or unenforceable by the United States Patent and Trademark Office, a foreign patent office, or a court of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable. 2. GRANT OF LICENSES TO GUIDANT (a) Exclusive License. (i) Grant of Exclusive License. CVD hereby grants to Guidant an exclusive right and license under CVD Technology, CVD Know How and CVD Patents to use, sell, offer for sale, import and otherwise dispose of, Licensed Products solely as part of a Licensed Product Bundle in the United States and Canada and in each other Region (or part of a Region) that becomes subject to this exclusive license as set forth in subsection (ii) below. (ii) Addition of Exclusive License in other Regions. As of the execution of this Agreement, CVD has appointed various distributors of products covered by the CVD Patents or which otherwise use or incorporate the CVD Technology in Regions other than in the United States and Canada (the "Grandfathered Distributors"). CVD represents and warrants to Guidant that no Grandfathered Distributor is also a manufacturer or developer of coronary and peripheral balloon expandable Stents or of inflatable Stent delivery systems (collectively, a "Stent Manufacturer"). Upon any expiration or termination of any such distributor agreement during the term of this Agreement, the Region (or any portion thereof) covered by such expired or terminated distributor agreement shall become "Available Territory" as set forth in this Subsection. Upon expiration of the Grandfathered Distributor Agreement for Mexico, which expiration CVD represents and warrants will occur on December 30, 1999, or any earlier termination of such Agreement, Mexico shall automatically become subject to the exclusive license granted under Subsection (i) above. (A) Prior to such time as Guidant has obtained exclusive licenses for each of the Key Countries in a Region, as identified on Exhibit B to this Agreement, then as to such Region, if CVD proposes to enter into a distribution agreement, sales representative agreement or similar license agreement that would give either a third party or the Grandfathered Distributor rights in any Available Territory within such Region to make, have made, use, sell, offer for sale, import and otherwise dispose of Licensed Products as part of a Licensed Product Bundle, prior to entering into discussion regarding such distribution, sales representative or similar license agreement, CVD shall notify Guidant in writing of such intention, including the material terms and provisions upon which CVD would be 3 willing to enter into such an agreement (the "CVD Notice"). At CVD's option CVD may provide the CVD Notice at any time from six (6) months prior to the termination or expiration of the Grandfathered Distributor agreement up to the date of such termination or expiration. For a period of forty-five (45) days after Guidant's receipt of CVD's Notice, CVD shall negotiate exclusively with Guidant, and CVD and Guidant shall negotiate in good faith the expansion of Guidant's exclusive license as set forth in Subsection (i) above to include the Available Territory. If the parties agree, then Guidant's exclusive license under Subsection (i) above shall be expanded to include the Available Territory. If the parties do not agree, then CVD shall be free to enter into an agreement with any third party who is not a Stent Manufacturer with respect to Licensed Products as part of a Licensed Product Bundle in the Available Territory, subject to Guidant's co-exclusive rights under Subsection 2(b) below. If upon the addition of the Available Territory to the territories already subject to Guidant's exclusive license all of the Key Countries identified in Exhibit B for a particular Region becomes subject to the exclusive license granted pursuant to Subsection (i) above, then Guidant shall become obligated to pay to CVD the applicable amount specified in Section 6(a)(iv) below. (B) After such time as Guidant has obtained exclusive licenses for each of the Key Countries in a Region, as identified on Exhibit B to this Agreement, and Guidant has paid the applicable amount specified in Section 6(a)(iv) below, each other country included in such Region shall become subject to the exclusive license granted pursuant to Subsection (i) above. If there are Grandfathered Distributors in any of the countries included in such Region, then upon termination or expiration of the applicable Grandfathered Distributor agreement, such country shall automatically become subject to the exclusive license granted under Subsection (i) above. (b) Co-Exclusive License. (i) World-Wide. CVD hereby grants to Guidant a co-exclusive, world-wide, right and license under the CVD Technology, CVD Know-How and CVD Patents to make and have made Licensed Products and to practice processes and methods under the CVD Technology to make and have made Licensed Products solely for inclusion in Licensed Product Bundles. (ii) Where Guidant's License is Not Exclusive. In all areas of the world where Guidant's exclusive license, as set forth in Subsection (a)(i) above, does not apply, CVD hereby grants to Guidant a co-exclusive right and license under the CVD Technology, CVD Know-How and CVD Patents to use, sell, offer for sale and import or otherwise dispose of Licensed Products solely as part of a Licensed Product Bundle. (iii) Meaning of Co-Exclusive. As used in this Agreement, "co-exclusive" means that only CVD and Guidant shall have the co-exclusive rights and that neither CVD nor Guidant may assign or sublicense such rights except that either party may assign such rights in connection with any transfer of substantially all the business to which this Agreement relates, or upon a sale of a majority of the voting stock or of all or substantially all of the assets of the assigning party; provided, that upon such permitted assignment the assignee agrees in writing to be subject to all of the terms and conditions of this Agreement. In addition, CVD's co-exclusive rights with respect to the license granted under Subsection (b)(ii) above, apply solely to the sale of such Licensed Product Bundles to "Grandfathered Distributors," as described in Subsection (a)(ii) above and to such additional parties as CVD is permitted to appoint in Available Territories solely in accordance with Subsection (a)(ii) above. (c) Covenant Not to Sell. Guidant agrees and covenants not to sell, market, make or have made, directly or indirectly, any Licensed Products except pursuant to the licenses granted in Section 2(a) and Section 2(b) above. 4 (d) Limitation on License. Nothing in this Agreement shall be construed as CVD granting a license with respect to any of its technology that pertains solely to Stents, as distinct from Stent delivery systems. 3. TECHNOLOGY TRANSFER (a) Commencing upon execution of this Agreement, CVD shall transfer to Guidant all CVD Technology, including but not limited to copies of all relevant patent and patent applications, CVD Know-How, design, manufacturing and quality assurance data, processes and the like. In this regard, every reasonable effort will be made to accomplish Successful Completion of Technology Transfer within six (6) months from the Effective Date of this Agreement. Such transfer shall be accomplished by means that include, but are not limited to, completion of the tasks outlined in Exhibit D to this Agreement, hands on support by CVD experts in the field of Focus Technology, visits by Guidant personnel to CVD's facilities; and meetings at which CVD shall present and explain detailed aspects of CVD Technology and answer Guidant's questions about CVD Technology. In order to facilitate such technology transfer, the parties shall form a joint committee (the "Joint Committee"), comprised of two (2) executives of each of CVD and Guidant (or Guidant's Vascular Intervention Group). The Joint Committee shall meet, in person or by telephone or video conference, as needed, during the transfer of such technology to review the progress of the tasks described in Exhibit D to this Agreement. Such meetings shall be at such times and at such places as the Joint Committee may agree. The Joint Committee shall monitor the progress of the transfer of technology and disputes or disagreements regarding such transfer shall be first referred to such committee prior to becoming subject to Section 25 below. (b) Commencing after the Successful Completion of Technology Transfer and continuing throughout the term of the Agreement, CVD will transfer promptly to Guidant all CVD Technology that becomes known to CVD during the term of the Agreement, including but not limited to CVD Know-How, design, manufacturing and quality assurance data, process and the like. 4. FUTURE DEVELOPMENT (a) As between the parties, inventions, know-how or other information developed during the term of this Agreement solely by one party shall be owned exclusively by that party, subject to all obligations of disclosure and licensing set forth herein. (b) Inventions, know-how or other information relating to CVD Technology developed during the term of this Agreement jointly by the parties shall be jointly owned by the parties, and will be included in the CVD Patents or CVD Know-How and licensed to Guidant without change in the royalty rate set forth herein, and provided that such Invention constitutes an Improvement, at no additional expense to Guidant. 5. DISCLOSURE OF IMPROVEMENTS AND RIGHTS THERETO If CVD conceives, creates, reduces to practice, develops, acquires, or otherwise obtains rights to any Improvements, CVD shall immediately notify Guidant and disclose each such Improvement to Guidant in writing, including all information relating to, or necessary to practice the Improvement. Any such Improvements will be included in the licenses to Guidant under Section 2 at no additional expense to Guidant and without change in the royalty rate set forth herein. 6. ROYALTIES AND OTHER PAYMENTS (a) Up Front and Milestone Payments. Subject to the terms and conditions of this Agreement, Guidant shall make the following payments: 5 (i) Up Front Payment. Within ten (10) business days of the execution and delivery of this Agreement by both parties, Guidant shall pay to CVD the amount of Two Million Dollars (U.S. $2,000,000). (ii) Technology Transfer. Within ten (10) business days after the date of such Successful Completion of Technology Transfer, Guidant shall pay to CVD the amount of One Million Dollars ($1,000,000) (the "Initial Technology Transfer Fee") for the transfer of CVD Technology as provided herein. Notwithstanding the foregoing, if, for reasons other than CVD's acts or omissions, Successful Completion of Technology Transfer has not occurred by the date that is the later of (a) six (6) months after the Effective Date; or (b) December 31, 1998, then Guidant shall pay the Initial Technology Transfer Fee to CVD within ten (10) days of such date. (iii) Quarterly Payments. On the first day of each of the succeeding two (2) calendar quarters following the date on which Successful Completion of Technology Transfer has occurred, Guidant shall pay to CVD the amount of One Million Dollars (U.S. $1,000,000). Notwithstanding the foregoing, if for reasons other than CVD's acts or omissions, Successful Completion of Technology Transfer has not occurred by the date that is the later of (a) six (6) months after the Effective Date; or (b) December 31, 1998, then the payment specified in the prior sentence shall be due within ten (10) days of such later date. (iv) Exercise of Option to Add Regions to Exclusive License. If Guidant obtains exclusive licenses under Subsection 2(a)(ii) above to each of the Key Countries in the European /Middle East Region then Guidant shall pay to CVD the amount of [*]Dollars ($[*]) within ten (10) business days after the date on which Guidant's exclusive license to each of the Key Countries becomes effective. If Guidant obtains an exclusive license under Subsection 2(a)(ii) above to the Key Country for the Asia Pacific Region, then Guidant shall pay to CVD the amount of [*] Dollars ($[*]) within ten (10) business days after the date on which Guidant's exclusive license to such Key Country becomes effective. (b) Royalties. (i) Royalty Rates for Licensed Products Sold Under an Exclusive License. Guidant shall pay a royalty of [*] percent ([*]%) of Net Sales from Licensed Product Bundles that include one or more Royalty Bearing Licensed Products and that are sold in Regions (or in specific parts of Regions added pursuant to Section 2(a)(ii)) where Guidant holds an exclusive license as set forth in Section 2(a)(i) above. (ii) Royalty Rates for Licensed Products Sold Under a Co-Exclusive License. Guidant shall pay a royalty of [*] percent ([*]%) of Net Sales from Licensed Product Bundles that include one or more Royalty Bearing Licensed Products and that are sold in Regions (or in parts of Regions) where Guidant holds a co-exclusive license as set forth in Section 2(b)(ii) above. (iii) Single Royalty. For each Licensed Product Bundle that includes one or more Royalty Bearing Licensed Products, Guidant shall be required to pay only one royalty, on the first sale of such Licensed Product Bundle calculated at the highest applicable rate, no matter how many CVD Patents cover such Royalty Bearing Licensed Product or Licensed Product Bundle. (iv) Minimum Royalties. Notwithstanding the foregoing, commencing upon the date that is the earlier of Market Release or January 1, 1999, in order to maintain Guidant's exclusive license under Section 2(a) above, Guidant shall pay a minimum annual royalty of Two Hundred Fifty Thousand Dollars ($250,000) ("Minimum Royalty Commitment") to CVD each calendar year, for a period of one hundred eight (108) months during the term of this Agreement. Subject to subsection (v) below, if total royalties paid by Guidant for the applicable calendar year are less than the Minimum Royalty Commitment, then Guidant shall 6 pay to CVD the difference between actual royalties paid and the Minimum Royalty Commitment within one hundred (100) days after the end of each applicable calendar year during which such royalties accrue. Otherwise, any such payment shall be made pursuant to Section 7 of this Agreement. If Market Release occurs on or prior to December 31, 1998, then the Minimum Royalty Commitment shall be reduced proportionately for that year and for the last year of the 108 month period. (v) Option to Terminate License. Guidant's obligations under the preceding paragraph shall be subject to the following: Commencing with the second calendar year in which the Minimum Royalty Commitment is in effect, CVD shall, by written notice within ten (10) days after receipt of the last royalty report applicable to such year, advise Guidant whether the total of Guidant's royalty payments during that year were less than the Minimum Royalty Commitment and request payment for the difference (the "Shortfall"). If Guidant does not elect to pay such Shortfall sixty (60) days from receipt of the Shortfall notice from CVD, then CVD may terminate this Agreement, and Guidant shall have no liability with respect to its nonpayment of the Shortfall. (vi) Certain Transfers. No royalty shall be payable for transfers (by sale or otherwise) of Royalty Bearing Licensed Products by Guidant or any of its Affiliates, provided such transferred Royalty Bearing Licensed Products are subsequently resold in a royalty-bearing transaction or is used for clinical trials by Guidant or its Affiliates in an experimental or other like setting where no Net Sales are generated. If Guidant or any of its Affiliates transfers Royalty Bearing Licensed Products as part of a Licensed Product Bundle for consideration other than cash, such Licensed Product Bundle shall be deemed to have been sold for an amount equal to the Average Selling Price for such Licensed Product Bundle during the prior calendar quarter. The Average Selling Price shall be calculated by dividing total net revenues generated from worldwide sales of the Licensed Product Bundle by Guidant and its Affiliates during the prior calendar quarter, divided by the total number of such Licensed Products Bundle sold by Guidant and its Affiliates during such calendar quarter. (vii) No Royalties. No royalties shall be due with respect to sales or other transfers of Licensed Products that are not Royalty Bearing Licensed Products or of Licensed Product Bundles that do not include any Royalty Bearing Licensed Products. 7. PAYMENT TERMS (a) Royalty payments shall be made by check or wire transfer, at CVD's election, to CVD within [*] ([*]) days after the end of each calendar quarter during which royalties accrue. Each payment shall be accompanied by a report that reflects at least (i) the quantity of Licensed Products subject to reporting by virtue of activities of Guidant, and its Affiliates; (ii) Net Sales amounts; (iii) the applicable royalty rate, and (iv) the royalties computed and due to CVD. No report shall be required for any calendar quarter prior to a quarter during which royalties first accrue. Thereafter, a report shall be rendered for each calendar quarter during the remaining term of this Agreement. (b) All amounts stated in this Agreement, and all payments made by Guidant shall be in United States dollars. Any payments owed to CVD under this Agreement that are not paid when due shall bear interest at [*] percent ([*]%) per annum, or the maximum amount permitted by law, whichever is lower, calculated on the number of days such payment is delinquent. Royalties accruing on sales outside the United States shall be converted to United States dollars, with conversion of foreign currency where appropriate based on the exchange rate on the last day of the calendar quarter to which such payment related as published in the Wall Street Journal. CVD shall hold in confidence all information reported with respect to royalty payments, and shall refrain from 7 disclosing such information to others, except as may be required internally for management purposes and except as may be required by Federal and State law or by governmental agencies. 8. RECORDS Guidant shall keep or cause the responsible Affiliate to keep true and accurate books and records with respect to all sales of Royalty Bearing Licensed Products under this Agreement in accordance with customary accounting principles and in a manner consistent with the accounting methods employed throughout its business. CVD shall have the right, at its own expense, through an established and reputable independent representative selected by CVD and agreed to in writing byGuidant, to examine the relevant books and records of Guidant, or the responsible Affiliate, at any reasonable time during business hours within thirty (30) days after notifying Guidant of its desire to do so. This examination shall take place no more than once each year and shall cover no more than the preceding two (2) calendar years. The examination shall be solely for the purpose of determining the accuracy of the reports and payments required to be made by Guidant and its Affiliates. The independent representative shall report only on the accuracy of such records and shall not disclose specific entries except to the extent otherwise disclosed in reports rendered as provided hereunder. If such examination results in a determination of an underpayment of royalties to CVD, such underpayment shall be promptly remitted to CVD with interest, as provided in Section 7(b) above, on any amounts due with respect to the twelve (12) month period prior to the audit date. In addition, if such examination determines that Guidant's royalty payments based on Net Sales are more than 105% of the royalties on Net Sales reported by Guidant for the period under examination, Guidant shall pay all reasonable costs of such examination. If such examination results in a determination of an overpayment of royalties to CVD, CVD shall promptly remit such overpaid amount to Guidant. In addition, Guidant may elect to deduct such overpaid amount from royalty payments otherwise due under this Agreement. 9. TAXES All taxes levied on account of payments made by Guidant to CVD and royalties accruing under this Agreement (other than taxes with respect to Guidant's net income) shall be paid by CVD. If laws or regulations require the withholding of taxes, the taxes will be deducted by Guidant from remittable royalty and shall be paid to the proper taxing authority. Proof of payment shall be sent to CVD within sixty (60) days following payment. 10. PROSECUTION OF PATENTS (a) CVD shall have control of the preparation, prosecution and maintenance of CVD Patents. The cost of such preparation, prosecution and maintenance of CVD Patents shall be paid by CVD. If CVD determines that it does not wish to continue the cost of preparation, prosecution or maintenance of such CVD Patents in any individual case, it shall notify Guidant at least ninety (90) days prior to taking, or not taking, any action which would result in the abandonment, withdrawal, or lapse of any CVD Patent. In such circumstance, Guidant shall have the right to control the preparation, prosecution or maintenance thereof, as the case may be, at its own expense, but any such change in control shall not affect the ownership thereof or the license to CVD Patents hereunder. (b) The provisions of Subsection 10(a) above will also apply to Foreign Counterparts. The parties shall consult about the countries, if any, where additional Foreign Counterparts will be filed, prosecuted and maintained. The parties shall keep each other reasonably informed of the status of all CVD Patents thereof for which they have responsibility as defined hereunder. If CVD determines that it does not wish to prepare, prosecute or maintain certain Foreign Counterparts, it shall notify Guidant of such decision, and, in any event shall give Guidant at least ninety (90) days 8 notice prior to taking, or not taking, any action which would result in the abandonment, withdrawal, or lapse of any Foreign Counterpart. In such circumstance, Guidant shall have the right to control the preparation, prosecution or maintenance thereof, as the case may be, at its own expense, but any such change in control shall not affect the ownership thereof or the license to CVD Patents, including Foreign Counterparts, hereunder. (c) Each party shall cooperate with the other party, as reasonably requested, to execute all lawful papers and instruments and to make all rightful oaths and declarations as may be necessary in the preparation, prosecution and maintenance of any and all such patents and patent applications contained within CVD Patents. The party that is controlling such preparation, prosecution and maintenance shall also pay the reasonable out-of-pocket costs of such cooperation by the other party. 11. INFRINGEMENT BY THIRD PARTIES (a) Each party will promptly notify the other of any infringement, misappropriation, or possible infringement or misappropriation, of the CVD Patents and CVD Know-How by any third party. (i) Infringement Where Guidant's License is Exclusive. If the infringement or misappropriation relates to a Stent delivery system and occurs in a Region or part of a Region where Guidant has an exclusive license under this Agreement, then Guidant shall have the sole right, but not the obligation, to enforce CVD Patents and CVD Know-How against such third parties at its own expense. CVD shall cooperate as reasonably requested in such enforcement, and Guidant shall bear the reasonable costs that Guidant incurs in providing such cooperation. If Guidant elects, in its sole discretion, not to enforce any such infringement or misappropriation, then Guidant shall so notify CVD within one hundred eighty (180) days after receiving written notice of such infringement, and CVD shall then have the right, but not the obligation, to enforce such infringement or misappropriation at its own expense. Guidant shall cooperate as reasonably requested in such enforcement, and CVD shall bear the reasonable costs that Guidant incurs in providing such cooperation. (ii) Infringement Where Guidant's License is Co-Exclusive. If the infringement or misappropriation either does not relate to a Stent delivery system or relates to a Stent delivery system but occurs only in a Region or part of a Region where Guidant has a co-exclusive license under this Agreement, then CVD shall have the first right, but not the obligation, to enforce CVD Patents and CVD Know-How against such third parties at its own expense. Guidant shall cooperate as reasonably requested in such enforcement, and CVD shall bear the reasonable costs that Guidant incurs in providing such cooperation. If CVD fails to enforce any such infringement or misappropriation within one hundred eighty (180) days after receiving notice thereof, then Guidant shall then have the right, but not the obligation, to enforce such infringement or misappropriation at its own expense. CVD shall cooperate as reasonably requested in such enforcement, and Guidant shall bear the reasonable costs that CVD incurs in providing such cooperation. (b) Any net recovery obtained by the enforcing party as a result of such enforcement as defined herein, by settlement or otherwise, shall be retained exclusively by the enforcing party. 12. CONFIDENTIALITY (a) The parties contemplate that information may be disclosed to one another or generated under this Agreement which is confidential in nature. In this regard, each party will maintain the confidential information of the other party or generated under this Agreement in 9 confidence and shall not make use thereof, in whole or in part, except as expressly authorized in this Agreement. (b) Except as specifically provided, and as may be necessary to develop and sell Licensed Products and to enable Affiliates to make, have made, use, sell, offer for sale and import Licensed Products and to practice processes and methods as contemplated herein, each of the parties shall refrain from communicating (for example, whether by disclosure or by providing access) any portion of the confidential information of the other party to any third person, firm, corporation or entity without first obtaining prior written permission from the other party to this Agreement. (c) In recognition of the proprietary nature and value of the confidential information and the likelihood of loss of business by the other party in the event of unauthorized disclosure of its confidential information, the parties agree that the obligations of this Section shall continue unabated regardless of expiration or termination of this Agreement for any reason, for a period of not less than five (5) years from the effective date of such expiration or termination. Neither party shall be obligated or required to maintain in confidence any information which it can demonstrate with written records: (i) is at the time in question in the public domain, or is known to the receiving party prior to disclosure by the disclosing party; or (ii) is or has been furnished to the receiving party by a third party not under a duty of confidentiality to the disclosing party; (iii) is required to be disclosed by Federal or State Law, by a court of competent jurisdiction or by a governmental agency; or (iv) is independently developed without the use of confidential information disclosed by the other party or generated under this Agreement. 13. NO DISCLOSURE WITHOUT CONSENT OR LEGAL REQUIREMENT (a) Neither party shall release any information to any third party with respect to the terms or existence of this Agreement without the prior written consent of the other party (which consent shall not be unreasonably withheld). This prohibition includes, but is not limited to, press releases, educational and scientific conferences, promotional materials, and disclosures to (or discussions with) the media. It is understood, however that the parties shall have the right to provide required information (but which, with respect to patent applications and the information contained therein, shall only be provided to legal counsel) concerning this Agreement to investors and potential investors, and to Affiliates in order to enable them to carry out the activities contemplated hereunder and as each may determine, in its reasonable judgment, to be required by law. Each party agrees to notify the other party of its intention to disclose such information to a third party (but not the identity of the third party). Notwithstanding the foregoing, Guidant acknowledges that CVD may file a copy of this Agreement as an exhibit to its public filings with the Securities and Exchange Commission and describe this Agreement in such filings; provided, however, that CVD shall use best efforts to redact the royalty rates and payment terms from such copy of this Agreement before filing it. In addition, CVD agrees that it will provide Guidant with an opportunity to review and comment upon the proposed redacted version of this Agreement before it is filed with the Securities and Exchange Commission. (b) Neither party shall use the name of the other party in any publication or promotional material or in any form for public distribution without the prior written consent of the other party Notwithstanding the foregoing in Section 13(a), CVD may issue a press release describing the substance of this transaction, substantially in the form of the press release that is attached to this 10 Agreement as Exhibit C, which Exhibit is incorporated by reference. After the dissemination of such press release, either party may, without the consent of the other party, make additional public disclosures to the extent such information already was disclosed by such press release. 14. TERM This Agreement shall become effective on the Effective Date and shall remain in effect, subject to earlier termination in accordance with other terms of this Agreement, until it expires, on a country-by-country basis on the later of the expiration of the last CVD Patent right to expire in such country or ten (10) years from the Effective Date. Upon such expiration of this Agreement, Guidant shall be deemed to have a fully paid-up license to the CVD Technology, CVD Know-How and the CVD Patents 15. TERMINATION (a) If either party breaches any of the material terms or conditions of this Agreement, the other party may terminate this Agreement by giving at least sixty (60) days advance written notice to the breaching party, specifying the act or omission on which such termination is based. Should the breach be remedied within sixty (60) days of such notice, this Agreement shall remain in full force and effect, subject to continued compliance with all of the terms, conditions and limitations of this Agreement. Otherwise, this Agreement shall automatically terminate at the end of such notice period. (b) Guidant shall have the right to terminate this Agreement or its licenses under this Agreement, with or without cause, by giving thirty (30) days advance notice to CVD of its intent to so terminate; provided, however, that Guidant shall not have the right to terminate this Agreement or the licenses under this Agreement without cause until such time as it has paid to CVD an aggregate of U.S. $[*] under Section 6 hereof. (c) Termination or expiration of any license granted under this Agreement shall not deprive either party of any accrued rights it may have, including CVD's right to collect royalties on sales made prior to such termination or expiration. Upon termination of this Agreement, Guidant shall have the right to sell Licensed Product Bundles for which it has binding orders, or that are in the process of being manufactured or that are in inventory. Such sales shall be subject to the obligations to pay royalty provided for hereunder. All other rights and obligations of the parties shall terminate upon termination of this Agreement, except for the rights and obligations set forth in Sections 12, 14, 15(c), 17, 24, and 25 hereof, which shall survive such termination. 16. REPRESENTATIONS AND WARRANTIES CVD represents and warrants to Guidant that (i) it has the right to grant the licenses and rights granted herein and has full right and title to the CVD Patents, (ii) other than the Grandfathered Distributors identified in Schedule 16.ii to this Agreement, CVD has not granted any other person or entity any claim or right to any aspect or part of the CVD Patents, (iii) Exhibit A is a complete list of all CVD patents owned or controlled by CVD and relating to the CVD Technology; (iv) it has the unencumbered right to grant the licenses and rights granted in this Agreement, and (v) no other license, assignment, sale, agreement or encumbrance has, or will, be made or entered into which would conflict with this Agreement. CVD further represents and warrants that (i) to its current, actual knowledge the CVD Patents are valid and enforceable, and (ii) to its current, actual knowledge, without investigation, no rights of any third party related to balloon catheters and/or Focus Technology for Stent delivery will be infringed by the manufacture, use or sale of the Licensed Products; and (iii) it has not received written notice of any claims or threatened claims by any third 11 party with respect to the manufacture, use or sale of Licensed Products, and to its current, actual knowledge, is not aware of any such claims or threatened claims. 17. INDEMNITY (a) Except as set forth in Subsection 17(b), each of the parties shall be responsible for its own errors and omissions and indemnifies, and agrees to defend and hold harmless, the other party and its officers, directors, professional staff, employees, and agents, and any of their respective Affiliates, respective successors, heirs and assigns (the "Indemnitees"), against any claim, demand, liability, damage, loss, judgment or expense (including reasonable attorneys fees and expenses and out-of-pocket litigation expense) incurred by or imposed upon the Indemnitees arising out of the indemnifying party's own activities hereunder (including actions in tort, warranty or strict liability), except to the extent due to negligence, willful misconduct or omissions or recklessness of the other party. Each party shall notify the other promptly of any claim, demand, suit or action arising out of any activity hereunder, whether or not the subject of the indemnity herein, and each shall cooperate as reasonably required in the defense of the matter, and the other shall bear the reasonable out-of-pocket cost of such cooperation. The indemnifying party shall have sole control over any litigation or settlement thereof for which it is responsible under this paragraph, and it shall not be required to pay any amount of any settlement to which it has not given its prior written consent. (b) CVD shall defend, indemnify, and hold Guidant harmless from and CVD shall defend or settle, any claim, demand, action, proceeding or suit ("Claim") against Guidant or its customers arising out of any breach of CVD's representations and warranties under Section 16 above. CVD shall have sole right to control any action or settlement, and shall pay any final judgment entered against Guidant or its customers on such issue in any Claim defended by CVD. Guidant shall provide CVD full information and assistance to defend or settle such Claim at CVD's expense. (c) NEITHER PARTY SHALL BE LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR ANY LOST PROFITS, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE PARTIES AGREE, HOWEVER, THAT THE FOREGOING LIMITATION DOES NOT APPLY TO ANY AMOUNTS PAID OR PAYABLE TO A THIRD PARTY RELATED TO ANY CLAIM, DEMAND, PROCEEDING, SUIT OR ACTION FOR WHICH A PARTY IS OBLIGATED TO INDEMNIFY THE OTHER PARTY PURSUANT TO SUBSECTIONS 17(a) AND/OR 17(b) ABOVE; AND ANY SUCH AMOUNTS WILL BE CONSIDERED COMPENSATORY OR DIRECT DAMAGES. 18. RELATIONSHIP OF THE PARTIES It is understood that the parties hereto are independent contractors engaged in the conduct of their own respective endeavors. Neither Guidant nor CVD are to be considered the agent or employee of the other for any purpose, and neither party has the right or authority to enter into any contract or assume any obligation for the other or give any warranty or make any representation on behalf of the other party except where and to the extent specifically authorized in writing to do so. 19. ASSIGNMENT This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns. Neither party may assign this Agreement without the prior written consent of the other party, except in connection with the transfer of substantially all of the business to 12 which this Agreement relates or to a purchaser of all or substantially all of the assigning party's assets, provided that prior to the effective date of such assignment the assignee delivers to the non-assigning party a written undertaking by which the assignee agrees to be bound by all of the terms and conditions of this Agreement. Any attempted assignment that fails to comply with the requirements of this Section 19 shall be deemed to be null and void. 20. FORCE MAJEURE In the event any party hereto is prevented or is otherwise unable to perform any of its obligations under this Agreement due to fire, flood, earthquake, war, strikes, lockouts, labor troubles, failure of public utilities, injunctions, or other events beyond the reasonable control of the party affected, the affected party shall give notice promptly to the other party in writing and, thereupon, the affected party's nonperformance shall be excused and the time for performance of this Agreement shall be extended for the period of delay or inability due to such Force Majeure. 21. AMENDMENT Except as otherwise provided herein, this Agreement may not be amended, supplemented, or otherwise modified except by an instrument in writing signed by authorized representatives of CVD and Guidant. 22. NO WAIVER No waiver of any term, provision, or condition of this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be construed as a further or continuing waiver of such term, provision or condition of this Agreement. 23. COUNTERPARTS This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 24. GOVERNING LAW, VENUE AND JURISDICTION This Agreement shall be construed in accordance with the laws of the State of California without reference to choice of law principles, as to all matters, including, but not limited to, matters of validity, construction, effect or performance. The exclusive venue and jurisdiction for resolution of all matters arising out of or relating to this Agreement shall be as follows: (a) If Guidant commences the action, then the exclusive venue and jurisdiction shall be the courts located in Orange County, California, or, if applicable, the Federal Courts in the Central District of California; and (b) if CVD commences the action, then the exclusive venue and jurisdiction shall be the courts located in Santa Clara County, California, or, if applicable, the Federal Courts in the Northern District of California. 25. INFORMAL DISPUTE RESOLUTION. In an effort to resolve informally and amicably any claim, controversy, or dispute arising out of or related to the interpretation, performance, or breach of this Agreement (a "Dispute") without resorting to litigation, each party shall notify the other party to the Dispute in writing of any Dispute hereunder that requires resolution. Such notice shall set forth the nature of the Dispute, the amount involved, if any, and the remedy sought. Each party shall promptly designate an executive-level employee to investigate, discuss and seek to settle the matter between them. If the two designated representatives are unable to settle the matter within thirty (30) days after such notification, the matter shall be submitted to CVD's Chief Executive Officer and to the President of Guidant's Vascular Intervention Group for consideration. If settlement cannot be reached through their efforts 13 within an additional thirty (30) days (or such longer time period as they shall agree on in writing), then either party may commence litigation in accordance with Section 24 above 26. ATTORNEYS FEES. Except as otherwise provided herein, each party shall bear its own legal fees incurred in connection with the transactions contemplated hereby, provided, however, that if any party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings or otherwise, subject to Section 25 above, the non-prevailing party shall pay all costs and expenses incurred by the prevailing party, including, without limitation, all reasonable attorneys' fees. 27. NOTICE (a) Any notice, report or statement to either party required or permitted under this Agreement shall be in writing and shall be sent by certified mail, return receipt requested, postage prepaid, or facsimile transmission with confirmation sent by certified mail as above, or by courier, such as Federal Express, DHL, or the like, with confirmation of receipt by signature requested, directed to the other party at its mailing address first set forth above or facsimile number set forth below and to the attention of the individual indicated below, or to such other mailing address as the respective parties may from time to time designate by prior notice in compliance with this Section. Guidant: Guidant, Vascular Intervention Fax: (408) 235-3987 Attn.: General Counsel CVD: CVD Fax: (949) 457-9561 Attn.: President and Chief Executive Officer (b) Any such notice, report or statement sent in accordance with the requirements of Subsection 27(a) above shall be deemed to be fully given upon dispatch, subject to proof of receipt. 28. SEVERABILITY If any term or provision of this Agreement, or the application thereof to any person or circumstance, shall to any extent be held invalid or unenforceable under any controlling law, that provision shall be considered severable and its invalidity shall not affect the remainder of this Agreement, which shall continue in full force and effect. 29. CAPTIONS Captions are inserted herein only as a matter of convenience and for reference, and in no way define, limit, or describe the scope of this Agreement or the intent of any provision herein. 30. SOLE UNDERSTANDING This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof, and supersedes, integrates and merges all prior discussions, correspondence, negotiations, understandings or agreements. The parties each represent and warrant that there are no conditions, definitions, warranties, promises, agreements, understandings or representations, or remaining obligations, written or oral, with respect to the subject matter of this Agreement, other than as expressly provided in this Agreement. 14 31. JOINT PREPARATION OF AGREEMENT This Agreement has been prepared jointly by the parties and shall not be strictly construed against either party, it being agreed that each party has had an opportunity to consult with counsel of its on choosing regarding the terms and conditions of this Agreement. IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed in duplicate originals effective as of the day and year first written above. CARDIOVASCULAR GUIDANT CORPORATION DYNAMICS, INC. By: By: ---------------------------------------- ---------------------------------------- Print Name: Print Name: -------------------------------- -------------------------------- Title: Title: ------------------------------------- ------------------------------------ 15 EXHIBIT A LICENSE AGREEMENT BETWEEN CARDIOVASCULAR DYNAMICS, INC. AND GUIDANT CORPORATION RELEVANT CVD PATENTS AND APPLICATIONS

Issued Patent No. Title ---------- ------ 5,470,313 Variable Diameter Balloon Dilatation Catheter 5,645,560 Fixed Focal Balloon for Interactive Angioplasty and Stent Implantation

U.S. Allowed Serial No. Title ---------- ------------ 08/742,437 Focalized Intraluminal Balloons

U.S. Pending Serial No. Title ---------- ------------ 08/670,683 Interactive Angioplasty 5,645,560 Stent Implantation Catheter with Focalized Balloon

Foreign Pending Application No. Title County --------------- ---------------- ------ 94119841.8 Variable Diameter Balloon Dilatation Catheter Europe 5575.1995 Balloon Catheter, Multiple Zone Balloon Catheter, and Method of Use Japan Thereof PCTUS97/07422 Focalized Intraluminal Balloons PCT

16 CONFIDENTIAL - EXECUTION COPY EXHIBIT B LICENSE AGREEMENT BETWEEN CARDIOVASCULAR DYNAMICS, INC. AND GUIDANT CORPORATION REGIONS 1. NORTH AMERICA REGION: Canada United States Mexico 2. EUROPEAN / MIDDLE EAST REGION: KEY COUNTRIES: - France - Germany - UK - Spain - Italy Other countries: All countries in Europe, the Mediterranean and the Middle East, including, but not limited to the following:

REGION COUNTRY Europe AUSTRIA Europe BELGIUM Europe CZECHREP Europe DENMARK Europe FINLAND Europe ICELAND Europe IRELAND Europe NEDERLAND Europe NORWAY Europe POLAND Europe PORTUGAL Europe RUSSIA Europe SLOVENIA Europe SWEDEN Europe SWITZERLAND Europe YUGOSLAVIA Europe SLOVAK Europe HUNGARY M/EAST CYPRUS M/EAST EGYPT M/EAST JORDAN M/EAST KUWAIT M/EAST LEBANON

CONFIDENTIAL - EXECUTION COPY M/EAST MALTA M/EAST OMAN M/EAST S/ARABIA M/EAST SYRIA M/EAST UNITED ARAB EMIRATES MEDITER GREECE MEDITER ISRAEL MEDITER TURKEY 3. ASIA PACIFIC REGION: KEY COUNTRY: - Japan Other countries: All countries in Asia, the Pacific Islands, Oceana and South America, including, but not limited to the following:

REGION COUNTRY NEASIA CHINA NEASIA HONGKONG NEASIA KOREA NEASIA JAPAN NEASIA INDONESIA NEASIA MALAYSIA NEASIA PHILIPPINES NEASIA SINGAPORE NEASIA TAIWAN NEASIA THAILAND NEASIA AUSTRALIA NEASIA N/ZEALAND

CONFIDENTIAL - EXECUTION COPY EXHIBIT C LICENSE AGREEMENT BETWEEN CARDIOVASCULAR DYNAMICS, INC. AND GUIDANT CORPORATION FORM OF PRESS RELEASE June 22, 1998--CardioVascular Dynamics Inc. (Nasdaq: CCVD) Monday announced that they have signed an agreement with Guidant Corp.'s (NYSE:GDT) Vascular Intervention Group to develop and market CVD's patented Focus Technology in products designed to deliver Guidant coronary and peripheral vascular stents. In the United States and Canada, Guidant has exclusive rights to use Focus Technology for stent delivery. In the remainder of the world, Guidant's rights to use Focus Technology for stent delivery are co-exclusive with CVD. CVD will continue to sell Focus Technology for balloon dilatation procedures in the United States and for all applications in overseas markets. In return for granting Guidant these license rights, Guidant will pay CVD a series of payments linked to CVD's transfer of manufacturing technology and know-how to Guidant. CVD will also receive royalties on the sales by Guidant of products combining Focus Technology with Guidant's stent. Internationally, CVD's Focus Technology provides a unique method of performing coronary stent delivery using both low and high balloon inflation pressures on a single catheter. During conventional stent delivery, the dilatation force required to deliver the stent is distributed over the entire length of the stent, directing the dilatation force not only at the diseased site but also upon the adjacent vessel wall. In contrast, CVD's Focus Technology is designed to "focalize" the majority of the dilatation force required to deliver the stent more directly to the lesion site so as to spare the surrounding arterial wall from potentially damaging balloon dilatation force. Jeffrey O'Donnell, CVD chief executive officer and president commented: "Guidant is the worldwide leader in coronary stenting. CVD's partnership with Guidant will significantly broaden the utilization of Focus Technology for stent delivery. In addition, this Agreement maintains CVD's ability to continue selling Focus Technology products for current clinical applications in both the United States and international markets. We look forward to a long and prosperous relationship." CVD develops peripheral and coronary stents, coronary stent delivery systems, balloon dilatation catheters for coronary and peripheral vascular use, site-specific drug delivery catheters, and vascular access products. Except for historical information contained herein, this news release contains forward looking statements, the accuracy of which are necessarily subject to risks and uncertainties. Actual results may be affected by, among other things, risks and uncertainties related to new product development and introduction cycles, research and development activities, including failure to demonstrate clinical efficacy, delays by regulatory authorities, scientific and technical advances by CVD or third parties, introduction of competitive products, third party reimbursement and physician training, and other risk factors and matters set forth in the company's Form 10-K for the year ended Dec. 31, 1997 and the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. CONTACT: CardioVascular Dynamics, Irvine Stephen R. Kroll, 949/457-9546 EXHIBIT D LICENSE AGREEMENT BETWEEN CARDIOVASCULAR DYNAMICS, INC. AND GUIDANT CORPORATION TECHNOLOGY TRANSFER PLAN In order to accomplish the "Successful Completion of Technology Transfer" each party will be responsible for completing the tasks and milestones identified below:

TASK RESPONSIBLE PARTY COMPLETION DATE ---- ----------------- --------------- 1. Identify the materials currently CVD 3 weeks after the Effective Date used to manufacture Focus Technology balloon catheters. 2. Identify current suppliers for each CVD 3 weeks after the Effective Date of the materials identified in Item 1 above. 3. Identify any known limitations on CVD 3 weeks after the Effective Date access to the materials identified in response to Item 1 above and other known special access requirements that Guidant will need assistance with. 4. Identify all materials (other than CVD 4 weeks after the Effective Date those listed in response to Item 1 above) that, CVD and, to CVD's knowledge, its suppliers tried to use in connection with the manufacture of Focus Technology balloon catheters. 5. Identify all known limitations of CVD 4 weeks after the Effective Date the manufacturing process with respect to the materials identified in response to Items 1 and 4 above.

6. Identify all equipment that CVD CVD 6 weeks after the Effective Date and, to CVD's knowledge, its suppliers use in the manufacturing process for Focus Technology balloon catheters. 7. Identify the suppliers of the CVD 6 weeks after the Effective Date equipment identified in response to Item 6 above known by CVD. 8. Identify all equipment (and terms CVD 6 weeks after the Effective Date of use or sale) that CVD has available to loan or sell to Guidant that would be useful or necessary to manufacture Focus Technology balloon catheters. 9. Provide a full description of the CVD 8 weeks after the Effective Date manufacturing process for Focus Technology balloons used by CVD, including all pre-processing such as extrusions or cross linking. Give Guidant access to process qualifications and validations for all Focus Technology balloon catheters manufactured by or for CVD. 10. Make available to Guidant the CVD 8 weeks after the Effective Date design-of-experiments ("DOEs") and other experiments that describe limitations or issues with the processes used and attempted for use in the manufacture of Focus Technology balloon catheters by CVD 11. Provide Guidant with access to CVD CVD On-going, throughout technology engineers and technicians who are transfer (6 months) familiar with the Focus Technology and related manufacturing processes to answer Guidant's questions. 12. Knowledgeable CVD engineers and CVD On-going, throughout technology technicians to meet with Guidant in transfer (6 months) California to transfer know-how and plans relating to improvements to the manufacturing process and/or technology for Focus Technology catheter balloons. 13. Deliver all available technical CVD 12 weeks after the Effective Date information to Guidant (by means of documentation and meetings with knowledgeable CVD engineers and technicians) pertaining to performance capability, design limitations, and design tradeoffs associated with the Focus Technology. 14. Guidant to notify CVD in writing Guidant 30 days after completion of all whether CVD manufacturing processes for tasks (other than "on-going") Focus Technology balloon catheters are described above. suitable for Guidant products. If, under item 14 above, Guidant determines that CVD's manufacturing processes for Focus Technology balloon catheters would be unsuitable for Guidant products, then Successful Completion of Technology Transfer will be deemed to have occurred on the earlier of the date (a) when Guidant delivers written notice of such determination to CVD; or (b) that is thirty (30) days after completion of all tasks (other than on-going tasks) described in Items 1-13 above. If, under item 14 above, Guidant determines that CVD's manufacturing processes for Focus Technology balloon catheters would be suitable for Guidant products, then the technology transfer also will include the following tasks, and Successful Completion of Technology Transfer will be deemed to have occurred on the date when Guidant completes its validation and testing of the manufacturing process, as determined by the date on which Guidant has made ten clinical uses of a Focus Technology balloon catheter.

TASK RESPONSIBLE PARTY COMPLETION DATE ---- ----------------- --------------- 15. Guidant to manufacture Focus Technology balloon catheter using Guidant and CVD manufacturing processes provided by CVD under Items 1 through 13 above. CVD to assist with validation and testing as requested by Guidant.

EX-31.1 4 a93382a1exv31w1.htm EXHIBIT 31.1

Exhibit 31.1

Certifications

Certification Pursuant to Rule 15D-14 of the Securities Exchange Act of 1934, as Amended as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Paul McCormick, Chief Executive Officer of Endologix, Inc. (the “Company”), certify that:

1.	I have reviewed this quarterly report on Form 10-Q/A of the Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
	a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]
	c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 26, 2003	By:	/s/ Paul McCormick
		Paul McCormick
		Chief Executive Officer

EX-31.2 5 a93382a1exv31w2.htm EXHIBIT 31.2

Exhibit 31.2

Certification Pursuant to Rule 15D-14 of the Securities Exchange Act of 1934, as Amended as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David M. Richards, Chief Financial Officer of Endologix, Inc. (the “Company”), certify that:

1.	I have reviewed this quarterly report on Form 10-Q/A of the Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
	a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]
	c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.

Date: September 26, 2003	By:	/s/ David M. Richards
		David M. Richards
		Chief Financial Officer

EX-32.1 6 a93382a1exv32w1.htm EXHIBIT 32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Paul McCormick, Chief Executive Officer of Endologix, Inc. (the “Company”), certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1)	the Quarterly Report on Form 10-Q/A of the Company for the quarterly period ended June 30, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)); and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: September 26, 2003	By:	/s/ Paul McCormick
		Paul McCormick
		Chief Executive Officer

EX-32.2 7 a93382a1exv32w2.htm EXHIBIT 32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, David M. Richards, Chief Financial Officer of Endologix, Inc. (the “Company”), certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(3)	the Quarterly Report on Form 10-Q/A of the Company for the quarterly period ended June 30, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)); and
(4)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: September 26, 2003	By:	/s/ David M. Richards
		David M. Richards
		Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1

                          CONFIDENTIAL PORTIONS OMITTED

                                LICENSE AGREEMENT

         THIS LICENSE AGREEMENT ("Agreement") is made and entered into effective
as of June 19, 1998 (the "Effective Date") by and between CARDIOVASCULAR
DYNAMICS, INC., a Delaware corporation having a place of business at 13700 Alton
Parkway, Irvine, CA 92618 ("CVD"), and GUIDANT CORPORATION, an Indiana
corporation having a place of business at 3200 Lakeside Drive, Santa Clara, CA
95052-8167 and its Affiliates ("Guidant").

         RECITALS:

         A. CVD is engaged in the discovery, development, manufacture and sale
of medical devices for the treatment of vascular disease.

         B. CVD has developed or acquired and is the owner of all right, title
and interest in the CVD Patents, including the inventions covered thereby, as
well as CVD Know-How (each as defined below), relating to balloons with an
adjustable, larger center diameter and smaller, fixed distal and proximal
diameters for balloon catheters known as the Focus Technology balloon catheters,
including, without limitation, methods for constructing such balloon catheters
(the "CVD Technology").

         C. Guidant is and has been engaged in the discovery, development,
manufacture and sale of medical devices for the diagnosis and treatment of
vascular disease, and continues to be active in this area.

         D. Both parties desire that Guidant license from CVD the CVD
Technology, including certain exclusive distribution rights with respect to
Licensed Products as defined below, under the terms and conditions of this
Agreement.

                                    AGREEMENT

         The parties hereby agree as follows:

1.       DEFINITIONS

         (a) "Affiliate" means any company or entity which controls, is
controlled by, or is under common control with, an entity. For purposes of this
definition, "control" means: (a) in the case of corporate entities, direct or
indirect ownership of more than fifty percent (50%) of the stock or shares
entitled to vote for the election of directors; and (b) in the case of
non-corporate entities, direct or indirect ownership of more than fifty percent
(50%) of the equity interest with the power to direct the management and
policies of such non-corporate entities.

         (b) "Effective Date" means the date first written above.

         (c) "Foreign Counterparts" means all foreign patent applications and
issued foreign patents, which claim priority from, or share common priority
with, an identified United States patent or patent application, or which claim
and disclose substantially similar inventions that are the subject matter of
such identified U. S. patent or patent applications.

         (d) "Improvements" means modifications of or enhancements to CVD
Technology, including, but not limited to, each version of a balloon with an
adjustable, larger center diameter and

smaller, fixed distal and proximal diameters for balloon catheters, made by or
for CVD during the term of this Agreement.

         (e) "CVD Know-How" means information regarding CVD Technology now
existing or hereafter developed which is either confidential or not known or
used by others who do not have licenses for such use, including, but not limited
to, devices, specifications, methods of use, technical, business, design,
manufacturing, bench, animal, clinical and the like information. CVD Know-How
shall include any and all unpatented Improvements.

         (f) "CVD Patents" means (i) the patent rights owned or controlled by
CVD in the patents and patent applications identified on Exhibit A attached
hereto and incorporated into this Agreement by reference, and the inventions
covered by those applications and patents, and Foreign Counterparts thereof,
(ii) any additional patent rights CVD now owns, controls or has access to, or
may own, control or have access to in the future which are continuations,
continuations-in-part, divisionals or substitutes of the original applications
upon which the aforementioned patent rights are based, and the inventions
covered thereby, or Foreign Counterparts thereof, and upon any reexaminations,
reissues, renewals or extensions thereof, and (iii) any patent rights which CVD,
either now or in the future, owns, controls or has access to necessary to
exploit the CVD Technology. CVD Patents shall include any and all patented
Improvements.

         (g) "Licensed Product" means a balloon catheter or other inflatable
Stent delivery system having a balloon with an adjustable, larger center
diameter and smaller, fixed distal and proximal diameters which: (i) if made,
used, or sold in the absence of the license under the CVD Patents would infringe
one or more Valid Claims included in the CVD Patents, or (ii) is made or sold in
a country where CVD has a pending patent application (which has not been
disallowed without possibility of appeal or abandoned) with respect to the CVD
Technology, if, had the manufacture or sale been effected in the United States,
such manufacture or sale would infringe one or more Valid Claims of a CVD Patent
issued in the United States; or (iii) incorporates, embodies, uses or is
designed or produced with CVD Know-How or CVD Technology.

         (h) "Licensed Product Bundle" or "Bundle" means a bundle, system or kit
that is marketed as a single product that either: (i) includes a Licensed
Product on which a Stent is mounted; or (ii) is shipped to hospital customers in
a single, end-user, sterile package that includes a Licensed Product together
with a Stent, and which package may also include other ancillary products
directly related to the Stent that is included in the package, such as a Stent
crimping tool.

         (i) "CVD Technology" has the meaning provided in the recitals of this
Agreement.

         (j) "Market Release" means Guidant's first sale of a Licensed Product
Bundle to a non-Affiliate; provided, however, that sales in connection with a
clinical trial or physician preference test will not constitute a "Market
Release" for purposes of this Agreement.

         (k) "Net Sales" means the gross amounts recorded by Guidant on the
accrual method for sales of Licensed Product Bundles by Guidant or its
Affiliates, as applicable, less all actual bad debt incurred in connection with
sales of Licensed Product Bundles and any discounts, rebates and credit for
returned goods and cancellations, to the extent related to the Licensed Product
Bundle, freight charges, insurance and other costs of shipping and handling,
sales or use taxes and duties.

         (l) "Region" means a region listed in Exhibit B of this Agreement.

                                       2

         (m) "Royalty Bearing Licensed Product" means a Licensed Product as
defined in Subsections (g)(i) or (g)(ii) above. Royalty Bearing Licensed Product
does not include a Licensed Product as defined in Subsection (g)(iii) above;
provided that neither of Subsections (g)(i) or (g)(ii) also applies to such
Licensed Product.

         (n) "Stent" means any coronary or vascular stent, without regard to the
material from which the stent is made, including, but not limited to, balloon
expandable stents, self-expanding stents, covered and uncovered stents, and
coated and uncoated stents.

         (o) "Successful Completion of Technology Transfer " means that Guidant
has acquired an understanding of the CVD Technology sufficient to enable Guidant
to carry out its licensed rights as set forth in Section 2 below as to Licensed
Products and Licensed Product Bundles and to market the same to its customers.
The Joint Committee, as defined in Section 3 of this Agreement, shall determine
when Successful Completion of Technology Transfer has occurred, in its
reasonable discretion, and in accordance with Exhibit D.

         (p) "Valid Claim" means a claim of an issued patent that has not been
held or declared invalid, unpatentable or unenforceable by the United States
Patent and Trademark Office, a foreign patent office, or a court of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal, and
which has not been admitted to be invalid or unenforceable.

2.       GRANT OF LICENSES TO GUIDANT

         (a) Exclusive License.

                  (i) Grant of Exclusive License. CVD hereby grants to Guidant
         an exclusive right and license under CVD Technology, CVD Know How and
         CVD Patents to use, sell, offer for sale, import and otherwise dispose
         of, Licensed Products solely as part of a Licensed Product Bundle in
         the United States and Canada and in each other Region (or part of a
         Region) that becomes subject to this exclusive license as set forth in
         subsection (ii) below.

                  (ii) Addition of Exclusive License in other Regions. As of the
         execution of this Agreement, CVD has appointed various distributors of
         products covered by the CVD Patents or which otherwise use or
         incorporate the CVD Technology in Regions other than in the United
         States and Canada (the "Grandfathered Distributors"). CVD represents
         and warrants to Guidant that no Grandfathered Distributor is also a
         manufacturer or developer of coronary and peripheral balloon expandable
         Stents or of inflatable Stent delivery systems (collectively, a "Stent
         Manufacturer"). Upon any expiration or termination of any such
         distributor agreement during the term of this Agreement, the Region (or
         any portion thereof) covered by such expired or terminated distributor
         agreement shall become "Available Territory" as set forth in this
         Subsection. Upon expiration of the Grandfathered Distributor Agreement
         for Mexico, which expiration CVD represents and warrants will occur on
         December 30, 1999, or any earlier termination of such Agreement, Mexico
         shall automatically become subject to the exclusive license granted
         under Subsection (i) above.

(A) Prior to such time as Guidant has obtained exclusive licenses for each of
the Key Countries in a Region, as identified on Exhibit B to this Agreement,
then as to such Region, if CVD proposes to enter into a distribution agreement,
sales representative agreement or similar license agreement that would give
either a third party or the Grandfathered Distributor rights in any Available
Territory within such Region to make, have made, use, sell, offer for sale,
import and otherwise dispose of Licensed Products as part of a Licensed Product
Bundle, prior to entering into discussion regarding such distribution, sales
representative or similar license agreement, CVD shall notify Guidant in writing
of such intention, including the material terms and provisions upon which CVD
would be

                                       3

willing to enter into such an agreement (the "CVD Notice"). At CVD's option CVD
may provide the CVD Notice at any time from six (6) months prior to the
termination or expiration of the Grandfathered Distributor agreement up to the
date of such termination or expiration. For a period of forty-five (45) days
after Guidant's receipt of CVD's Notice, CVD shall negotiate exclusively with
Guidant, and CVD and Guidant shall negotiate in good faith the expansion of
Guidant's exclusive license as set forth in Subsection (i) above to include the
Available Territory. If the parties agree, then Guidant's exclusive license
under Subsection (i) above shall be expanded to include the Available Territory.
If the parties do not agree, then CVD shall be free to enter into an agreement
with any third party who is not a Stent Manufacturer with respect to Licensed
Products as part of a Licensed Product Bundle in the Available Territory,
subject to Guidant's co-exclusive rights under Subsection 2(b) below. If upon
the addition of the Available Territory to the territories already subject to
Guidant's exclusive license all of the Key Countries identified in Exhibit B for
a particular Region becomes subject to the exclusive license granted pursuant to
Subsection (i) above, then Guidant shall become obligated to pay to CVD the
applicable amount specified in Section 6(a)(iv) below.

         (B) After such time as Guidant has obtained exclusive licenses for each
of the Key Countries in a Region, as identified on Exhibit B to this Agreement,
and Guidant has paid the applicable amount specified in Section 6(a)(iv) below,
each other country included in such Region shall become subject to the exclusive
license granted pursuant to Subsection (i) above. If there are Grandfathered
Distributors in any of the countries included in such Region, then upon
termination or expiration of the applicable Grandfathered Distributor agreement,
such country shall automatically become subject to the exclusive license granted
under Subsection (i) above.

         (b) Co-Exclusive License.

                  (i) World-Wide. CVD hereby grants to Guidant a co-exclusive,
         world-wide, right and license under the CVD Technology, CVD Know-How
         and CVD Patents to make and have made Licensed Products and to practice
         processes and methods under the CVD Technology to make and have made
         Licensed Products solely for inclusion in Licensed Product Bundles.

                  (ii) Where Guidant's License is Not Exclusive. In all areas of
         the world where Guidant's exclusive license, as set forth in Subsection
         (a)(i) above, does not apply, CVD hereby grants to Guidant a
         co-exclusive right and license under the CVD Technology, CVD Know-How
         and CVD Patents to use, sell, offer for sale and import or otherwise
         dispose of Licensed Products solely as part of a Licensed Product
         Bundle.

                  (iii) Meaning of Co-Exclusive. As used in this Agreement,
         "co-exclusive" means that only CVD and Guidant shall have the
         co-exclusive rights and that neither CVD nor Guidant may assign or
         sublicense such rights except that either party may assign such rights
         in connection with any transfer of substantially all the business to
         which this Agreement relates, or upon a sale of a majority of the
         voting stock or of all or substantially all of the assets of the
         assigning party; provided, that upon such permitted assignment the
         assignee agrees in writing to be subject to all of the terms and
         conditions of this Agreement. In addition, CVD's co-exclusive rights
         with respect to the license granted under Subsection (b)(ii) above,
         apply solely to the sale of such Licensed Product Bundles to
         "Grandfathered Distributors," as described in Subsection (a)(ii) above
         and to such additional parties as CVD is permitted to appoint in
         Available Territories solely in accordance with Subsection (a)(ii)
         above.

         (c) Covenant Not to Sell. Guidant agrees and covenants not to sell,
market, make or have made, directly or indirectly, any Licensed Products except
pursuant to the licenses granted in Section 2(a) and Section 2(b) above.

                                       4

         (d) Limitation on License. Nothing in this Agreement shall be construed
as CVD granting a license with respect to any of its technology that pertains
solely to Stents, as distinct from Stent delivery systems.

3.       TECHNOLOGY TRANSFER

         (a) Commencing upon execution of this Agreement, CVD shall transfer to
Guidant all CVD Technology, including but not limited to copies of all relevant
patent and patent applications, CVD Know-How, design, manufacturing and quality
assurance data, processes and the like. In this regard, every reasonable effort
will be made to accomplish Successful Completion of Technology Transfer within
six (6) months from the Effective Date of this Agreement. Such transfer shall be
accomplished by means that include, but are not limited to, completion of the
tasks outlined in Exhibit D to this Agreement, hands on support by CVD experts
in the field of Focus Technology, visits by Guidant personnel to CVD's
facilities; and meetings at which CVD shall present and explain detailed aspects
of CVD Technology and answer Guidant's questions about CVD Technology. In order
to facilitate such technology transfer, the parties shall form a joint committee
(the "Joint Committee"), comprised of two (2) executives of each of CVD and
Guidant (or Guidant's Vascular Intervention Group). The Joint Committee shall
meet, in person or by telephone or video conference, as needed, during the
transfer of such technology to review the progress of the tasks described in
Exhibit D to this Agreement. Such meetings shall be at such times and at such
places as the Joint Committee may agree. The Joint Committee shall monitor the
progress of the transfer of technology and disputes or disagreements regarding
such transfer shall be first referred to such committee prior to becoming
subject to Section 25 below.

         (b) Commencing after the Successful Completion of Technology Transfer
and continuing throughout the term of the Agreement, CVD will transfer promptly
to Guidant all CVD Technology that becomes known to CVD during the term of the
Agreement, including but not limited to CVD Know-How, design, manufacturing and
quality assurance data, process and the like.

4.       FUTURE DEVELOPMENT

         (a) As between the parties, inventions, know-how or other information
developed during the term of this Agreement solely by one party shall be owned
exclusively by that party, subject to all obligations of disclosure and
licensing set forth herein.

         (b) Inventions, know-how or other information relating to CVD
Technology developed during the term of this Agreement jointly by the parties
shall be jointly owned by the parties, and will be included in the CVD Patents
or CVD Know-How and licensed to Guidant without change in the royalty rate set
forth herein, and provided that such Invention constitutes an Improvement, at no
additional expense to Guidant.

5.       DISCLOSURE OF IMPROVEMENTS AND RIGHTS THERETO

         If CVD conceives, creates, reduces to practice, develops, acquires, or
otherwise obtains rights to any Improvements, CVD shall immediately notify
Guidant and disclose each such Improvement to Guidant in writing, including all
information relating to, or necessary to practice the Improvement. Any such
Improvements will be included in the licenses to Guidant under Section 2 at no
additional expense to Guidant and without change in the royalty rate set forth
herein.

6.       ROYALTIES AND OTHER PAYMENTS

         (a) Up Front and Milestone Payments. Subject to the terms and
conditions of this Agreement, Guidant shall make the following payments:

                                       5

                  (i) Up Front Payment. Within ten (10) business days of the
         execution and delivery of this Agreement by both parties, Guidant shall
         pay to CVD the amount of Two Million Dollars (U.S. $2,000,000).

                  (ii) Technology Transfer. Within ten (10) business days after
         the date of such Successful Completion of Technology Transfer, Guidant
         shall pay to CVD the amount of One Million Dollars ($1,000,000) (the
         "Initial Technology Transfer Fee") for the transfer of CVD Technology
         as provided herein. Notwithstanding the foregoing, if, for reasons
         other than CVD's acts or omissions, Successful Completion of Technology
         Transfer has not occurred by the date that is the later of (a) six (6)
         months after the Effective Date; or (b) December 31, 1998, then Guidant
         shall pay the Initial Technology Transfer Fee to CVD within ten (10)
         days of such date.

                  (iii) Quarterly Payments. On the first day of each of the
         succeeding two (2) calendar quarters following the date on which
         Successful Completion of Technology Transfer has occurred, Guidant
         shall pay to CVD the amount of One Million Dollars (U.S. $1,000,000).
         Notwithstanding the foregoing, if for reasons other than CVD's acts or
         omissions, Successful Completion of Technology Transfer has not
         occurred by the date that is the later of (a) six (6) months after the
         Effective Date; or (b) December 31, 1998, then the payment specified in
         the prior sentence shall be due within ten (10) days of such later
         date.

                  (iv) Exercise of Option to Add Regions to Exclusive License.
         If Guidant obtains exclusive licenses under Subsection 2(a)(ii) above
         to each of the Key Countries in the European /Middle East Region then
         Guidant shall pay to CVD the amount of [*]Dollars ($[*]) within ten
         (10) business days after the date on which Guidant's exclusive license
         to each of the Key Countries becomes effective. If Guidant obtains an
         exclusive license under Subsection 2(a)(ii) above to the Key Country
         for the Asia Pacific Region, then Guidant shall pay to CVD the amount
         of [*] Dollars ($[*]) within ten (10) business days after the date on
         which Guidant's exclusive license to such Key Country becomes
         effective.

         (b) Royalties.

                  (i) Royalty Rates for Licensed Products Sold Under an
         Exclusive License. Guidant shall pay a royalty of [*] percent ([*]%) of
         Net Sales from Licensed Product Bundles that include one or more
         Royalty Bearing Licensed Products and that are sold in Regions (or in
         specific parts of Regions added pursuant to Section 2(a)(ii)) where
         Guidant holds an exclusive license as set forth in Section 2(a)(i)
         above.

                  (ii) Royalty Rates for Licensed Products Sold Under a
         Co-Exclusive License. Guidant shall pay a royalty of [*] percent ([*]%)
         of Net Sales from Licensed Product Bundles that include one or more
         Royalty Bearing Licensed Products and that are sold in Regions (or in
         parts of Regions) where Guidant holds a co-exclusive license as set
         forth in Section 2(b)(ii) above.

                  (iii) Single Royalty. For each Licensed Product Bundle that
         includes one or more Royalty Bearing Licensed Products, Guidant shall
         be required to pay only one royalty, on the first sale of such Licensed
         Product Bundle calculated at the highest applicable rate, no matter how
         many CVD Patents cover such Royalty Bearing Licensed Product or
         Licensed Product Bundle.

                  (iv) Minimum Royalties. Notwithstanding the foregoing,
         commencing upon the date that is the earlier of Market Release or
         January 1, 1999, in order to maintain Guidant's exclusive license under
         Section 2(a) above, Guidant shall pay a minimum annual royalty of Two
         Hundred Fifty Thousand Dollars ($250,000) ("Minimum Royalty
         Commitment") to CVD each calendar year, for a period of one hundred
         eight (108) months during the term of this Agreement. Subject to
         subsection (v) below, if total royalties paid by Guidant for the
         applicable calendar year are less than the Minimum Royalty Commitment,
         then Guidant shall

                                       6

         pay to CVD the difference between actual royalties paid and the Minimum
         Royalty Commitment within one hundred (100) days after the end of each
         applicable calendar year during which such royalties accrue. Otherwise,
         any such payment shall be made pursuant to Section 7 of this Agreement.
         If Market Release occurs on or prior to December 31, 1998, then the
         Minimum Royalty Commitment shall be reduced proportionately for that
         year and for the last year of the 108 month period.

                  (v) Option to Terminate License. Guidant's obligations under
         the preceding paragraph shall be subject to the following: Commencing
         with the second calendar year in which the Minimum Royalty Commitment
         is in effect, CVD shall, by written notice within ten (10) days after
         receipt of the last royalty report applicable to such year, advise
         Guidant whether the total of Guidant's royalty payments during that
         year were less than the Minimum Royalty Commitment and request payment
         for the difference (the "Shortfall"). If Guidant does not elect to pay
         such Shortfall sixty (60) days from receipt of the Shortfall notice
         from CVD, then CVD may terminate this Agreement, and Guidant shall have
         no liability with respect to its nonpayment of the Shortfall.

                  (vi) Certain Transfers. No royalty shall be payable for
         transfers (by sale or otherwise) of Royalty Bearing Licensed Products
         by Guidant or any of its Affiliates, provided such transferred Royalty
         Bearing Licensed Products are subsequently resold in a royalty-bearing
         transaction or is used for clinical trials by Guidant or its Affiliates
         in an experimental or other like setting where no Net Sales are
         generated. If Guidant or any of its Affiliates transfers Royalty
         Bearing Licensed Products as part of a Licensed Product Bundle for
         consideration other than cash, such Licensed Product Bundle shall be
         deemed to have been sold for an amount equal to the Average Selling
         Price for such Licensed Product Bundle during the prior calendar
         quarter. The Average Selling Price shall be calculated by dividing
         total net revenues generated from worldwide sales of the Licensed
         Product Bundle by Guidant and its Affiliates during the prior calendar
         quarter, divided by the total number of such Licensed Products Bundle
         sold by Guidant and its Affiliates during such calendar quarter.

                  (vii) No Royalties. No royalties shall be due with respect to
         sales or other transfers of Licensed Products that are not Royalty
         Bearing Licensed Products or of Licensed Product Bundles that do not
         include any Royalty Bearing Licensed Products.

7.       PAYMENT TERMS

         (a) Royalty payments shall be made by check or wire transfer, at CVD's
election, to CVD within [*] ([*]) days after the end of each calendar quarter
during which royalties accrue. Each payment shall be accompanied by a report
that reflects at least (i) the quantity of Licensed Products subject to
reporting by virtue of activities of Guidant, and its Affiliates; (ii) Net Sales
amounts; (iii) the applicable royalty rate, and (iv) the royalties computed and
due to CVD. No report shall be required for any calendar quarter prior to a
quarter during which royalties first accrue. Thereafter, a report shall be
rendered for each calendar quarter during the remaining term of this Agreement.

         (b) All amounts stated in this Agreement, and all payments made by
Guidant shall be in United States dollars. Any payments owed to CVD under this
Agreement that are not paid when due shall bear interest at [*] percent ([*]%)
per annum, or the maximum amount permitted by law, whichever is lower,
calculated on the number of days such payment is delinquent. Royalties accruing
on sales outside the United States shall be converted to United States dollars,
with conversion of foreign currency where appropriate based on the exchange rate
on the last day of the calendar quarter to which such payment related as
published in the Wall Street Journal. CVD shall hold in confidence all
information reported with respect to royalty payments, and shall refrain from

                                       7

disclosing such information to others, except as may be required internally for
management purposes and except as may be required by Federal and State law or by
governmental agencies.

8.       RECORDS

         Guidant shall keep or cause the responsible Affiliate to keep true and
accurate books and records with respect to all sales of Royalty Bearing Licensed
Products under this Agreement in accordance with customary accounting principles
and in a manner consistent with the accounting methods employed throughout its
business. CVD shall have the right, at its own expense, through an established
and reputable independent representative selected by CVD and agreed to in
writing byGuidant, to examine the relevant books and records of Guidant, or the
responsible Affiliate, at any reasonable time during business hours within
thirty (30) days after notifying Guidant of its desire to do so. This
examination shall take place no more than once each year and shall cover no more
than the preceding two (2) calendar years. The examination shall be solely for
the purpose of determining the accuracy of the reports and payments required to
be made by Guidant and its Affiliates. The independent representative shall
report only on the accuracy of such records and shall not disclose specific
entries except to the extent otherwise disclosed in reports rendered as provided
hereunder. If such examination results in a determination of an underpayment of
royalties to CVD, such underpayment shall be promptly remitted to CVD with
interest, as provided in Section 7(b) above, on any amounts due with respect to
the twelve (12) month period prior to the audit date. In addition, if such
examination determines that Guidant's royalty payments based on Net Sales are
more than 105% of the royalties on Net Sales reported by Guidant for the period
under examination, Guidant shall pay all reasonable costs of such examination.
If such examination results in a determination of an overpayment of royalties to
CVD, CVD shall promptly remit such overpaid amount to Guidant. In addition,
Guidant may elect to deduct such overpaid amount from royalty payments otherwise
due under this Agreement.

9.       TAXES

         All taxes levied on account of payments made by Guidant to CVD and
royalties accruing under this Agreement (other than taxes with respect to
Guidant's net income) shall be paid by CVD. If laws or regulations require the
withholding of taxes, the taxes will be deducted by Guidant from remittable
royalty and shall be paid to the proper taxing authority. Proof of payment shall
be sent to CVD within sixty (60) days following payment.

10.      PROSECUTION OF PATENTS

         (a) CVD shall have control of the preparation, prosecution and
maintenance of CVD Patents. The cost of such preparation, prosecution and
maintenance of CVD Patents shall be paid by CVD. If CVD determines that it does
not wish to continue the cost of preparation, prosecution or maintenance of such
CVD Patents in any individual case, it shall notify Guidant at least ninety (90)
days prior to taking, or not taking, any action which would result in the
abandonment, withdrawal, or lapse of any CVD Patent. In such circumstance,
Guidant shall have the right to control the preparation, prosecution or
maintenance thereof, as the case may be, at its own expense, but any such change
in control shall not affect the ownership thereof or the license to CVD Patents
hereunder.

         (b) The provisions of Subsection 10(a) above will also apply to Foreign
Counterparts. The parties shall consult about the countries, if any, where
additional Foreign Counterparts will be filed, prosecuted and maintained. The
parties shall keep each other reasonably informed of the status of all CVD
Patents thereof for which they have responsibility as defined hereunder. If CVD
determines that it does not wish to prepare, prosecute or maintain certain
Foreign Counterparts, it shall notify Guidant of such decision, and, in any
event shall give Guidant at least ninety (90) days

                                       8

notice prior to taking, or not taking, any action which would result in the
abandonment, withdrawal, or lapse of any Foreign Counterpart. In such
circumstance, Guidant shall have the right to control the preparation,
prosecution or maintenance thereof, as the case may be, at its own expense, but
any such change in control shall not affect the ownership thereof or the license
to CVD Patents, including Foreign Counterparts, hereunder.

         (c) Each party shall cooperate with the other party, as reasonably
requested, to execute all lawful papers and instruments and to make all rightful
oaths and declarations as may be necessary in the preparation, prosecution and
maintenance of any and all such patents and patent applications contained within
CVD Patents. The party that is controlling such preparation, prosecution and
maintenance shall also pay the reasonable out-of-pocket costs of such
cooperation by the other party.

11.      INFRINGEMENT BY THIRD PARTIES

         (a) Each party will promptly notify the other of any infringement,
misappropriation, or possible infringement or misappropriation, of the CVD
Patents and CVD Know-How by any third party.

                  (i) Infringement Where Guidant's License is Exclusive. If the
         infringement or misappropriation relates to a Stent delivery system and
         occurs in a Region or part of a Region where Guidant has an exclusive
         license under this Agreement, then Guidant shall have the sole right,
         but not the obligation, to enforce CVD Patents and CVD Know-How against
         such third parties at its own expense. CVD shall cooperate as
         reasonably requested in such enforcement, and Guidant shall bear the
         reasonable costs that Guidant incurs in providing such cooperation. If
         Guidant elects, in its sole discretion, not to enforce any such
         infringement or misappropriation, then Guidant shall so notify CVD
         within one hundred eighty (180) days after receiving written notice of
         such infringement, and CVD shall then have the right, but not the
         obligation, to enforce such infringement or misappropriation at its own
         expense. Guidant shall cooperate as reasonably requested in such
         enforcement, and CVD shall bear the reasonable costs that Guidant
         incurs in providing such cooperation.

                  (ii) Infringement Where Guidant's License is Co-Exclusive. If
         the infringement or misappropriation either does not relate to a Stent
         delivery system or relates to a Stent delivery system but occurs only
         in a Region or part of a Region where Guidant has a co-exclusive
         license under this Agreement, then CVD shall have the first right, but
         not the obligation, to enforce CVD Patents and CVD Know-How against
         such third parties at its own expense. Guidant shall cooperate as
         reasonably requested in such enforcement, and CVD shall bear the
         reasonable costs that Guidant incurs in providing such cooperation. If
         CVD fails to enforce any such infringement or misappropriation within
         one hundred eighty (180) days after receiving notice thereof, then
         Guidant shall then have the right, but not the obligation, to enforce
         such infringement or misappropriation at its own expense. CVD shall
         cooperate as reasonably requested in such enforcement, and Guidant
         shall bear the reasonable costs that CVD incurs in providing such
         cooperation.

         (b) Any net recovery obtained by the enforcing party as a result of
such enforcement as defined herein, by settlement or otherwise, shall be
retained exclusively by the enforcing party.

12.      CONFIDENTIALITY

         (a) The parties contemplate that information may be disclosed to one
another or generated under this Agreement which is confidential in nature. In
this regard, each party will maintain the confidential information of the other
party or generated under this Agreement in

                                       9

confidence and shall not make use thereof, in whole or in part, except as
expressly authorized in this Agreement.

         (b) Except as specifically provided, and as may be necessary to develop
and sell Licensed Products and to enable Affiliates to make, have made, use,
sell, offer for sale and import Licensed Products and to practice processes and
methods as contemplated herein, each of the parties shall refrain from
communicating (for example, whether by disclosure or by providing access) any
portion of the confidential information of the other party to any third person,
firm, corporation or entity without first obtaining prior written permission
from the other party to this Agreement.

         (c) In recognition of the proprietary nature and value of the
confidential information and the likelihood of loss of business by the other
party in the event of unauthorized disclosure of its confidential information,
the parties agree that the obligations of this Section shall continue unabated
regardless of expiration or termination of this Agreement for any reason, for a
period of not less than five (5) years from the effective date of such
expiration or termination. Neither party shall be obligated or required to
maintain in confidence any information which it can demonstrate with written
records:

                  (i) is at the time in question in the public domain, or is
         known to the receiving party prior to disclosure by the disclosing
         party; or

                  (ii) is or has been furnished to the receiving party by a
         third party not under a duty of confidentiality to the disclosing
         party;

                  (iii) is required to be disclosed by Federal or State Law, by
         a court of competent jurisdiction or by a governmental agency; or

                  (iv) is independently developed without the use of
         confidential information disclosed by the other party or generated
         under this Agreement.

13.      NO DISCLOSURE WITHOUT CONSENT OR LEGAL REQUIREMENT

         (a) Neither party shall release any information to any third party with
respect to the terms or existence of this Agreement without the prior written
consent of the other party (which consent shall not be unreasonably withheld).
This prohibition includes, but is not limited to, press releases, educational
and scientific conferences, promotional materials, and disclosures to (or
discussions with) the media. It is understood, however that the parties shall
have the right to provide required information (but which, with respect to
patent applications and the information contained therein, shall only be
provided to legal counsel) concerning this Agreement to investors and potential
investors, and to Affiliates in order to enable them to carry out the activities
contemplated hereunder and as each may determine, in its reasonable judgment, to
be required by law. Each party agrees to notify the other party of its intention
to disclose such information to a third party (but not the identity of the third
party). Notwithstanding the foregoing, Guidant acknowledges that CVD may file a
copy of this Agreement as an exhibit to its public filings with the Securities
and Exchange Commission and describe this Agreement in such filings; provided,
however, that CVD shall use best efforts to redact the royalty rates and payment
terms from such copy of this Agreement before filing it. In addition, CVD agrees
that it will provide Guidant with an opportunity to review and comment upon the
proposed redacted version of this Agreement before it is filed with the
Securities and Exchange Commission.

         (b) Neither party shall use the name of the other party in any
publication or promotional material or in any form for public distribution
without the prior written consent of the other party Notwithstanding the
foregoing in Section 13(a), CVD may issue a press release describing the
substance of this transaction, substantially in the form of the press release
that is attached to this

                                       10

Agreement as Exhibit C, which Exhibit is incorporated by reference. After the
dissemination of such press release, either party may, without the consent of
the other party, make additional public disclosures to the extent such
information already was disclosed by such press release.

14.      TERM

         This Agreement shall become effective on the Effective Date and shall
remain in effect, subject to earlier termination in accordance with other terms
of this Agreement, until it expires, on a country-by-country basis on the later
of the expiration of the last CVD Patent right to expire in such country or ten
(10) years from the Effective Date. Upon such expiration of this Agreement,
Guidant shall be deemed to have a fully paid-up license to the CVD Technology,
CVD Know-How and the CVD Patents

15.      TERMINATION

         (a) If either party breaches any of the material terms or conditions of
this Agreement, the other party may terminate this Agreement by giving at least
sixty (60) days advance written notice to the breaching party, specifying the
act or omission on which such termination is based. Should the breach be
remedied within sixty (60) days of such notice, this Agreement shall remain in
full force and effect, subject to continued compliance with all of the terms,
conditions and limitations of this Agreement. Otherwise, this Agreement shall
automatically terminate at the end of such notice period.

         (b) Guidant shall have the right to terminate this Agreement or its
licenses under this Agreement, with or without cause, by giving thirty (30) days
advance notice to CVD of its intent to so terminate; provided, however, that
Guidant shall not have the right to terminate this Agreement or the licenses
under this Agreement without cause until such time as it has paid to CVD an
aggregate of U.S. $[*] under Section 6 hereof.

         (c) Termination or expiration of any license granted under this
Agreement shall not deprive either party of any accrued rights it may have,
including CVD's right to collect royalties on sales made prior to such
termination or expiration. Upon termination of this Agreement, Guidant shall
have the right to sell Licensed Product Bundles for which it has binding orders,
or that are in the process of being manufactured or that are in inventory. Such
sales shall be subject to the obligations to pay royalty provided for hereunder.
All other rights and obligations of the parties shall terminate upon termination
of this Agreement, except for the rights and obligations set forth in Sections
12, 14, 15(c), 17, 24, and 25 hereof, which shall survive such termination.

16.      REPRESENTATIONS AND WARRANTIES

         CVD represents and warrants to Guidant that (i) it has the right to
grant the licenses and rights granted herein and has full right and title to the
CVD Patents, (ii) other than the Grandfathered Distributors identified in
Schedule 16.ii to this Agreement, CVD has not granted any other person or entity
any claim or right to any aspect or part of the CVD Patents, (iii) Exhibit A is
a complete list of all CVD patents owned or controlled by CVD and relating to
the CVD Technology; (iv) it has the unencumbered right to grant the licenses and
rights granted in this Agreement, and (v) no other license, assignment, sale,
agreement or encumbrance has, or will, be made or entered into which would
conflict with this Agreement. CVD further represents and warrants that (i) to
its current, actual knowledge the CVD Patents are valid and enforceable, and
(ii) to its current, actual knowledge, without investigation, no rights of any
third party related to balloon catheters and/or Focus Technology for Stent
delivery will be infringed by the manufacture, use or sale of the Licensed
Products; and (iii) it has not received written notice of any claims or
threatened claims by any third

                                       11

party with respect to the manufacture, use or sale of Licensed Products, and to
its current, actual knowledge, is not aware of any such claims or threatened
claims.

17.      INDEMNITY

         (a) Except as set forth in Subsection 17(b), each of the parties shall
be responsible for its own errors and omissions and indemnifies, and agrees to
defend and hold harmless, the other party and its officers, directors,
professional staff, employees, and agents, and any of their respective
Affiliates, respective successors, heirs and assigns (the "Indemnitees"),
against any claim, demand, liability, damage, loss, judgment or expense
(including reasonable attorneys fees and expenses and out-of-pocket litigation
expense) incurred by or imposed upon the Indemnitees arising out of the
indemnifying party's own activities hereunder (including actions in tort,
warranty or strict liability), except to the extent due to negligence, willful
misconduct or omissions or recklessness of the other party. Each party shall
notify the other promptly of any claim, demand, suit or action arising out of
any activity hereunder, whether or not the subject of the indemnity herein, and
each shall cooperate as reasonably required in the defense of the matter, and
the other shall bear the reasonable out-of-pocket cost of such cooperation. The
indemnifying party shall have sole control over any litigation or settlement
thereof for which it is responsible under this paragraph, and it shall not be
required to pay any amount of any settlement to which it has not given its prior
written consent.

         (b) CVD shall defend, indemnify, and hold Guidant harmless from and CVD
shall defend or settle, any claim, demand, action, proceeding or suit ("Claim")
against Guidant or its customers arising out of any breach of CVD's
representations and warranties under Section 16 above. CVD shall have sole right
to control any action or settlement, and shall pay any final judgment entered
against Guidant or its customers on such issue in any Claim defended by CVD.
Guidant shall provide CVD full information and assistance to defend or settle
such Claim at CVD's expense.

         (c) NEITHER PARTY SHALL BE LIABLE TO THE OTHER WITH RESPECT TO ANY
SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER THEORY FOR ANY LOST PROFITS, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THE PARTIES AGREE, HOWEVER, THAT THE FOREGOING LIMITATION DOES NOT APPLY TO ANY
AMOUNTS PAID OR PAYABLE TO A THIRD PARTY RELATED TO ANY CLAIM, DEMAND,
PROCEEDING, SUIT OR ACTION FOR WHICH A PARTY IS OBLIGATED TO INDEMNIFY THE OTHER
PARTY PURSUANT TO SUBSECTIONS 17(a) AND/OR 17(b) ABOVE; AND ANY SUCH AMOUNTS
WILL BE CONSIDERED COMPENSATORY OR DIRECT DAMAGES.

18.      RELATIONSHIP OF THE PARTIES

         It is understood that the parties hereto are independent contractors
engaged in the conduct of their own respective endeavors. Neither Guidant nor
CVD are to be considered the agent or employee of the other for any purpose, and
neither party has the right or authority to enter into any contract or assume
any obligation for the other or give any warranty or make any representation on
behalf of the other party except where and to the extent specifically authorized
in writing to do so.

19.      ASSIGNMENT

         This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns. Neither party may
assign this Agreement without the prior written consent of the other party,
except in connection with the transfer of substantially all of the business to

                                       12

which this Agreement relates or to a purchaser of all or substantially all of
the assigning party's assets, provided that prior to the effective date of such
assignment the assignee delivers to the non-assigning party a written
undertaking by which the assignee agrees to be bound by all of the terms and
conditions of this Agreement. Any attempted assignment that fails to comply with
the requirements of this Section 19 shall be deemed to be null and void.

20.      FORCE MAJEURE

         In the event any party hereto is prevented or is otherwise unable to
perform any of its obligations under this Agreement due to fire, flood,
earthquake, war, strikes, lockouts, labor troubles, failure of public utilities,
injunctions, or other events beyond the reasonable control of the party
affected, the affected party shall give notice promptly to the other party in
writing and, thereupon, the affected party's nonperformance shall be excused and
the time for performance of this Agreement shall be extended for the period of
delay or inability due to such Force Majeure.

21.      AMENDMENT

         Except as otherwise provided herein, this Agreement may not be amended,
supplemented, or otherwise modified except by an instrument in writing signed by
authorized representatives of CVD and Guidant.

22.      NO WAIVER

         No waiver of any term, provision, or condition of this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be construed as a further or continuing waiver of such term, provision or
condition of this Agreement.

23.      COUNTERPARTS

         This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.

24.      GOVERNING LAW, VENUE AND JURISDICTION

         This Agreement shall be construed in accordance with the laws of the
State of California without reference to choice of law principles, as to all
matters, including, but not limited to, matters of validity, construction,
effect or performance. The exclusive venue and jurisdiction for resolution of
all matters arising out of or relating to this Agreement shall be as follows:
(a) If Guidant commences the action, then the exclusive venue and jurisdiction
shall be the courts located in Orange County, California, or, if applicable, the
Federal Courts in the Central District of California; and (b) if CVD commences
the action, then the exclusive venue and jurisdiction shall be the courts
located in Santa Clara County, California, or, if applicable, the Federal Courts
in the Northern District of California.

25.      INFORMAL DISPUTE RESOLUTION.

         In an effort to resolve informally and amicably any claim, controversy,
or dispute arising out of or related to the interpretation, performance, or
breach of this Agreement (a "Dispute") without resorting to litigation, each
party shall notify the other party to the Dispute in writing of any Dispute
hereunder that requires resolution. Such notice shall set forth the nature of
the Dispute, the amount involved, if any, and the remedy sought. Each party
shall promptly designate an executive-level employee to investigate, discuss and
seek to settle the matter between them. If the two designated representatives
are unable to settle the matter within thirty (30) days after such notification,
the matter shall be submitted to CVD's Chief Executive Officer and to the
President of Guidant's Vascular Intervention Group for consideration. If
settlement cannot be reached through their efforts

                                       13

within an additional thirty (30) days (or such longer time period as they shall
agree on in writing), then either party may commence litigation in accordance
with Section 24 above

26.      ATTORNEYS FEES.

         Except as otherwise provided herein, each party shall bear its own
legal fees incurred in connection with the transactions contemplated hereby,
provided, however, that if any party to this Agreement seeks to enforce its
rights under this Agreement by legal proceedings or otherwise, subject to
Section 25 above, the non-prevailing party shall pay all costs and expenses
incurred by the prevailing party, including, without limitation, all reasonable
attorneys' fees.

27.      NOTICE

         (a) Any notice, report or statement to either party required or
permitted under this Agreement shall be in writing and shall be sent by
certified mail, return receipt requested, postage prepaid, or facsimile
transmission with confirmation sent by certified mail as above, or by courier,
such as Federal Express, DHL, or the like, with confirmation of receipt by
signature requested, directed to the other party at its mailing address first
set forth above or facsimile number set forth below and to the attention of the
individual indicated below, or to such other mailing address as the respective
parties may from time to time designate by prior notice in compliance with this
Section.

         Guidant:  Guidant, Vascular Intervention
                   Fax:  (408) 235-3987
                   Attn.:  General Counsel

         CVD:      CVD
                   Fax:  (949) 457-9561
                   Attn.:  President and Chief Executive Officer

         (b) Any such notice, report or statement sent in accordance with the
requirements of Subsection 27(a) above shall be deemed to be fully given upon
dispatch, subject to proof of receipt.

28.      SEVERABILITY

         If any term or provision of this Agreement, or the application thereof
to any person or circumstance, shall to any extent be held invalid or
unenforceable under any controlling law, that provision shall be considered
severable and its invalidity shall not affect the remainder of this Agreement,
which shall continue in full force and effect.

29.      CAPTIONS

         Captions are inserted herein only as a matter of convenience and for
reference, and in no way define, limit, or describe the scope of this Agreement
or the intent of any provision herein.

30.      SOLE UNDERSTANDING

         This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof, and supersedes, integrates
and merges all prior discussions, correspondence, negotiations, understandings
or agreements. The parties each represent and warrant that there are no
conditions, definitions, warranties, promises, agreements, understandings or
representations, or remaining obligations, written or oral, with respect to the
subject matter of this Agreement, other than as expressly provided in this
Agreement.

                                       14

31.      JOINT PREPARATION OF AGREEMENT

         This Agreement has been prepared jointly by the parties and shall not
be strictly construed against either party, it being agreed that each party has
had an opportunity to consult with counsel of its on choosing regarding the
terms and conditions of this Agreement.

         IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in duplicate originals effective as of the day and year first written
above.

                                                  
CARDIOVASCULAR                                       GUIDANT CORPORATION
DYNAMICS, INC.


By:                                                  By:
    ----------------------------------------             ----------------------------------------

Print Name:                                          Print Name:
            --------------------------------                     --------------------------------

Title:                                               Title:
       -------------------------------------                 ------------------------------------



                                       15

                                    EXHIBIT A
                            LICENSE AGREEMENT BETWEEN
                          CARDIOVASCULAR DYNAMICS, INC.
                                       AND
                               GUIDANT CORPORATION

RELEVANT CVD PATENTS AND APPLICATIONS



                                                                                Issued
         Patent No.                                                             Title
         ----------                                                             ------
                            
          5,470,313            Variable Diameter Balloon Dilatation Catheter
          5,645,560            Fixed Focal Balloon for Interactive Angioplasty and Stent Implantation




                                                      U.S. Allowed
         Serial No.                                     Title
         ----------                                   ------------
                            
         08/742,437            Focalized Intraluminal Balloons




                                                                             U.S. Pending
         Serial No.                                                             Title
         ----------                                                          ------------
                            
         08/670,683            Interactive Angioplasty
          5,645,560            Stent Implantation Catheter with Focalized Balloon




                                                                  Foreign Pending
       Application No.                                                 Title                              County
       ---------------                                            ----------------                        ------
                                                                                                    
         94119841.8            Variable Diameter Balloon Dilatation Catheter                              Europe
          5575.1995            Balloon Catheter, Multiple Zone Balloon Catheter, and Method of Use        Japan
                               Thereof
        PCTUS97/07422          Focalized Intraluminal Balloons                                             PCT


                                       16

                                                   CONFIDENTIAL - EXECUTION COPY




                                    EXHIBIT B
                            LICENSE AGREEMENT BETWEEN
                          CARDIOVASCULAR DYNAMICS, INC.
                                       AND
                               GUIDANT CORPORATION
                                     REGIONS

1.       NORTH AMERICA REGION:

                  Canada
                  United States
                  Mexico

2.       EUROPEAN / MIDDLE EAST REGION:
                  KEY COUNTRIES:
                           -    France
                           -    Germany
                           -    UK
                           -    Spain
                           -    Italy

         Other countries: All countries in Europe, the Mediterranean and the
Middle East, including, but not limited to the following:



REGION                          COUNTRY
                             
Europe                          AUSTRIA
Europe                          BELGIUM
Europe                          CZECHREP
Europe                          DENMARK
Europe                          FINLAND
Europe                          ICELAND
Europe                          IRELAND
Europe                          NEDERLAND
Europe                          NORWAY
Europe                          POLAND
Europe                          PORTUGAL
Europe                          RUSSIA
Europe                          SLOVENIA
Europe                          SWEDEN
Europe                          SWITZERLAND
Europe                          YUGOSLAVIA
Europe                          SLOVAK
Europe                          HUNGARY
M/EAST                          CYPRUS
M/EAST                          EGYPT
M/EAST                          JORDAN
M/EAST                          KUWAIT
M/EAST                          LEBANON


                                                   CONFIDENTIAL - EXECUTION COPY


                             
M/EAST                          MALTA
M/EAST                          OMAN
M/EAST                          S/ARABIA
M/EAST                          SYRIA
M/EAST                          UNITED ARAB EMIRATES

MEDITER                         GREECE
MEDITER                         ISRAEL
MEDITER                         TURKEY



3.       ASIA PACIFIC REGION:
                  KEY COUNTRY:
                           -    Japan

         Other countries: All countries in Asia, the Pacific Islands, Oceana and
South America, including, but not limited to the following:



REGION                          COUNTRY
                             
NEASIA                          CHINA
NEASIA                          HONGKONG
NEASIA                          KOREA
NEASIA                          JAPAN
NEASIA                          INDONESIA
NEASIA                          MALAYSIA
NEASIA                          PHILIPPINES
NEASIA                          SINGAPORE
NEASIA                          TAIWAN
NEASIA                          THAILAND
NEASIA                          AUSTRALIA
NEASIA                          N/ZEALAND


                                                   CONFIDENTIAL - EXECUTION COPY




                                    EXHIBIT C
                            LICENSE AGREEMENT BETWEEN
                          CARDIOVASCULAR DYNAMICS, INC.
                                       AND
                               GUIDANT CORPORATION
                              FORM OF PRESS RELEASE

June 22, 1998--CardioVascular Dynamics Inc. (Nasdaq: CCVD) Monday announced that
they have signed an agreement with Guidant Corp.'s (NYSE:GDT) Vascular
Intervention Group to develop and market CVD's patented Focus Technology in
products designed to deliver Guidant coronary and peripheral vascular stents. In
the United States and Canada, Guidant has exclusive rights to use Focus
Technology for stent delivery. In the remainder of the world, Guidant's rights
to use Focus Technology for stent delivery are co-exclusive with CVD. CVD will
continue to sell Focus Technology for balloon dilatation procedures in the
United States and for all applications in overseas markets. In return for
granting Guidant these license rights, Guidant will pay CVD a series of payments
linked to CVD's transfer of manufacturing technology and know-how to Guidant.
CVD will also receive royalties on the sales by Guidant of products combining
Focus Technology with Guidant's stent. Internationally, CVD's Focus Technology
provides a unique method of performing coronary stent delivery using both low
and high balloon inflation pressures on a single catheter. During conventional
stent delivery, the dilatation force required to deliver the stent is
distributed over the entire length of the stent, directing the dilatation force
not only at the diseased site but also upon the adjacent vessel wall. In
contrast, CVD's Focus Technology is designed to "focalize" the majority of the
dilatation force required to deliver the stent more directly to the lesion site
so as to spare the surrounding arterial wall from potentially damaging balloon
dilatation force. Jeffrey O'Donnell, CVD chief executive officer and president
commented: "Guidant is the worldwide leader in coronary stenting. CVD's
partnership with Guidant will significantly broaden the utilization of Focus
Technology for stent delivery. In addition, this Agreement maintains CVD's
ability to continue selling Focus Technology products for current clinical
applications in both the United States and international markets. We look
forward to a long and prosperous relationship." CVD develops peripheral and
coronary stents, coronary stent delivery systems, balloon dilatation catheters
for coronary and peripheral vascular use, site-specific drug delivery catheters,
and vascular access products.

Except for historical information contained herein, this news release contains
forward looking statements, the accuracy of which are necessarily subject to
risks and uncertainties. Actual results may be affected by, among other things,
risks and uncertainties related to new product development and introduction
cycles, research and development activities, including failure to demonstrate
clinical efficacy, delays by regulatory authorities, scientific and technical
advances by CVD or third parties, introduction of competitive products, third
party reimbursement and physician training, and other risk factors and matters
set forth in the company's Form 10-K for the year ended Dec. 31, 1997 and the
company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.

CONTACT: CardioVascular Dynamics, Irvine

Stephen R. Kroll, 949/457-9546


                                    EXHIBIT D
                            LICENSE AGREEMENT BETWEEN
                          CARDIOVASCULAR DYNAMICS, INC.
                                       AND
                               GUIDANT CORPORATION
                            TECHNOLOGY TRANSFER PLAN

         In order to accomplish the "Successful Completion of Technology
Transfer" each party will be responsible for completing the tasks and milestones
identified below:



                  TASK                              RESPONSIBLE PARTY                      COMPLETION DATE
                  ----                              -----------------                      ---------------
                                                                          
1.   Identify the materials currently                      CVD                  3 weeks after the Effective Date
used to manufacture Focus Technology
balloon catheters.

2.   Identify current suppliers for each                   CVD                  3 weeks after the Effective Date
of the materials identified in Item 1
above.

3.   Identify any known limitations on                     CVD                  3 weeks after the Effective Date
access to the materials identified in
response to Item 1 above and other known
special access requirements that Guidant
will need assistance with.

4.   Identify all materials (other than                    CVD                  4 weeks after the Effective Date
those listed in response to Item 1
above) that, CVD and, to CVD's
knowledge, its suppliers tried to use in
connection with the manufacture of Focus
Technology balloon catheters.

5.   Identify all known limitations of                     CVD                  4 weeks after the Effective Date
the manufacturing process with respect
to the materials identified in response
to Items 1 and 4 above.


                                                                          
6.   Identify all equipment that CVD                       CVD                  6 weeks after the Effective Date
and, to CVD's knowledge, its suppliers
use in the manufacturing process for
Focus Technology balloon catheters.

7.   Identify the suppliers of the                         CVD                  6 weeks after the Effective Date
equipment identified in response to Item
6 above known by CVD.

8.   Identify all equipment (and terms                     CVD                  6 weeks after the Effective Date
of use or sale) that CVD has available
to loan or sell to Guidant that would be
useful or necessary to manufacture Focus
Technology balloon catheters.

9.   Provide a full description of the                     CVD                  8 weeks after the Effective Date
manufacturing process for Focus
Technology balloons used by CVD,
including all pre-processing such as
extrusions or cross linking.  Give
Guidant access to process qualifications
and validations for all Focus Technology
balloon catheters manufactured by or for
CVD.

10.  Make available to Guidant the                         CVD                  8 weeks after the Effective Date
design-of-experiments ("DOEs") and other
experiments that describe limitations or
issues with the processes used and
attempted for use in the manufacture of
Focus Technology balloon catheters by CVD

11.  Provide Guidant with access to CVD                    CVD                  On-going, throughout technology
engineers and technicians who are                                               transfer (6 months)
familiar with the Focus Technology and
related manufacturing processes to
answer Guidant's questions.



                                                                          
12.  Knowledgeable CVD engineers and                       CVD                  On-going, throughout technology
technicians to meet with Guidant in                                             transfer (6 months)
California to transfer know-how and
plans relating to improvements to the
manufacturing process and/or technology
for Focus Technology catheter balloons.

13.  Deliver all available technical                       CVD                  12 weeks after the Effective Date
information to Guidant (by means of
documentation and meetings with
knowledgeable CVD engineers and
technicians) pertaining to performance
capability, design limitations, and
design tradeoffs associated with the
Focus Technology.

14.  Guidant to notify CVD in writing                    Guidant                30 days after completion of all
whether CVD manufacturing processes for                                         tasks (other than "on-going")
Focus Technology balloon catheters are                                          described above.
suitable for Guidant products.




If, under item 14 above, Guidant determines that CVD's manufacturing processes
for Focus Technology balloon catheters would be unsuitable for Guidant products,
then Successful Completion of Technology Transfer will be deemed to have
occurred on the earlier of the date (a) when Guidant delivers written notice of
such determination to CVD; or (b) that is thirty (30) days after completion of
all tasks (other than on-going tasks) described in Items 1-13 above.

If, under item 14 above, Guidant determines that CVD's manufacturing processes
for Focus Technology balloon catheters would be suitable for Guidant products,
then the technology transfer also will include the following tasks, and
Successful Completion of Technology Transfer will be deemed to have occurred on
the date when Guidant completes its validation and testing of the manufacturing
process, as determined by the date on which Guidant has made ten clinical uses
of a Focus Technology balloon catheter.



                              TASK                                                RESPONSIBLE PARTY              COMPLETION DATE
                              ----                                                -----------------              ---------------
                                                                                                           
15. Guidant to manufacture Focus Technology balloon catheter using                Guidant and CVD
manufacturing processes provided by CVD under Items 1 through 13 above.
CVD to assist with validation and testing as requested by Guidant.

EX-31.1

Exhibit 31.1

EX-31.2

Exhibit 31.2

EX-32.1

Exhibit 32.1

EX-32.2

Exhibit 32.2