10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 4, 2009

o 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: 000-51348

ev3 Inc.

(Exact name of registrant as specified in its charter)

Delaware	32-0138874
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

9600 54^th Avenue North, Suite 100
Plymouth, Minnesota 55442
(Address of principal executive offices)

(763) 398-7000
(Registrant’s telephone number, including area code)

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 þ     NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o      NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o       NO þ

As of October 29, 2009, there were 112,254,796 shares of common stock, par value $0.01 per share, of the registrant outstanding.

ev3 Inc.
FORM 10-Q
For the Quarterly Period Ended October 4, 2009

TABLE OF CONTENTS

Description		Page
PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Consolidated Balance Sheets as of October 4, 2009 and December 31, 2008 (unaudited)		1
	Consolidated Statements of Operations for the three and nine months ended October 4, 2009 and September 28, 2008 (unaudited)		2
	Consolidated Statements of Cash Flows for the nine months ended October 4, 2009 and September 28, 2008 (unaudited)		3
	Notes to the Consolidated Financial Statements		4
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		35
ITEM 4.	Controls and Procedures		36
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings		37
ITEM 1A.	Risk Factors		37
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		38
ITEM 3.	Defaults Upon Senior Securities		38
ITEM 4.	Submission of Matters to a Vote of Security Holders		38
ITEM 5.	Other Information		38
ITEM 6.	Exhibits		39
SIGNATURE PAGE			40
Exhibit Index			41
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

This report contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. We refer you to the information under the heading “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-Looking Statements.”

In this report, references to “ev3,” the “company,” “we,” “our” or “us” in this report, unless the context otherwise requires, refer to ev3 Inc. and its subsidiaries.

All trademarks or trade names referred to in this report are the property of their respective owners.

PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

ev3 Inc.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(unaudited)

	October 4,			December 31,
	2009			2008
Assets
Current assets
Cash and cash equivalents	$	80,504		$	59,652
Accounts receivable, less allowances of $8,585 and $8,098, respectively		79,320			72,814
Inventories, net		45,834			47,687
Prepaid expenses and other current assets		6,630			6,970
Total current assets		212,288			187,123
Restricted cash		3,581			1,531
Property and equipment, net		26,439			30,681
Goodwill		367,311			315,654
Intangible assets, net		261,710			185,292
Other assets		581			383
Total assets	$	871,910		$	720,664
Liabilities and stockholders’ equity
Current liabilities
Current portion of long-term debt	$	2,500		$	2,500
Accounts payable		18,590			15,657
Accrued compensation and benefits		28,657			29,547
Accrued liabilities		22,295			19,744
Total current liabilities		72,042			67,448
Long-term debt		4,583			6,458
Other long-term liabilities		58,083			6,217
Total liabilities		134,708			80,123
Stockholders’ equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding as of October 4, 2009 and December 31, 2008		—			—
Common stock, $0.01 par value, 300,000,000 shares authorized, shares issued and outstanding: 112,182,735 shares at October 4, 2009 and 105,822,444 at December 31, 2008		1,122			1,058
Additional paid-in capital		1,824,406			1,756,832
Accumulated deficit		(1,087,745	)		(1,116,661	)
Accumulated other comprehensive loss		(581	)		(688	)
Total stockholders’ equity		737,202			640,541
Total liabilities and stockholders’ equity	$	871,910		$	720,664

The accompanying notes are an integral part of these consolidated financial statements.

1

ev3 Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)

	Three Months Ended						Nine Months Ended
	October 4, 2009			September 28, 2008			October 4, 2009			September 28, 2008
Sales:
Net product sales	$	112,838		$	100,018		$	322,319		$	296,577
Research collaboration		—			7,011			—			19,426
Net sales		112,838			107,029			322,319			316,003
Operating expenses:
Product cost of goods sold		28,608			36,182			90,074			102,442
Research collaboration		—			2,100			—			5,647
Sales, general and administrative		55,030			53,121			165,639			178,885
Research and development		12,545			12,133			36,433			37,913
Amortization of intangible assets		6,802			8,101			18,444			24,285
Contingent consideration		2,271			—			2,467			—
Intangible asset impairment		—			—			—			10,459
Total operating expenses		105,256			111,637			313,057			359,631
Income (loss) from operations		7,582			(4,608	)		9,262			(43,628	)
Other expense (income):
Gain on investments, net		—			(142	)		(4,072	)		(542	)
Interest expense (income), net		140			49			575			(307	)
Other (income) expense, net		(143	)		2,279			1,354			192
Income (loss) before income taxes		7,585			(6,794	)		11,405			(42,971	)
Income tax expense (benefit)		849			516			(17,511	)		1,531
Net income (loss)	$	6,736		$	(7,310	)	$	28,916		$	(44,502	)
Earnings per share:
Net income (loss) per common share:
Basic	$	0.06		$	(0.07	)	$	0.27		$	(0.43	)
Diluted	$	0.06		$	(0.07	)	$	0.27		$	(0.43	)
Weighted average shares outstanding:
Basic		110,507,687			104,474,600			107,080,500			104,276,029
Diluted		112,277,954			104,474,600			107,719,897			104,276,029

The accompanying notes are an integral part of these consolidated financial statements.

2

ev3 Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)

	Nine Months Ended
	October 4, 2009			September 28, 2008
Operating activities
Net income (loss)	$	28,916		$	(44,502	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		26,873			33,016
Contingent consideration		2,467			—
Provision for bad debts and sales returns		268			1,840
Provision for inventory obsolescence		7,731			7,304
Gain on sale or disposal of investments and assets, net		(4,045	)		(426	)
Stock-based compensation expense		10,949			11,682
Intangible asset impairment		—			10,459
Deferred income taxes		(18,998	)		—
Change in operating assets and liabilities, net of acquired:
Accounts receivable		(5,852	)		(8,550	)
Inventories		(5,326	)		(832	)
Prepaid expenses and other assets		633			(194	)
Accounts payable		812			(3,431	)
Accrued expenses and other liabilities		2,939			(27,822	)
Deferred revenue		—			(9,043	)
Net cash provided by (used in) operating activities		47,367			(30,499	)
Investing activities
Proceeds from investments		4,118			9,744
Purchase of investments		(300	)		—
Purchase of property and equipment		(3,766	)		(9,032	)
Purchase of patents and licenses		(1,792	)		(2,250	)
Proceeds from sale of assets		—			1,061
Acquisitions, net of cash acquired		(24,735	)		(7,627	)
Change in restricted cash		(1,969	)		771
Net cash used in investing activities		(28,444	)		(7,333	)
Financing activities
Proceeds from issuance of debt		—			10,000
Payments on long-term debt and capital lease obligations		(2,008	)		(10,534	)
Debt issuance costs		—			180
Proceeds from exercise of stock options		1,470			1,272
Proceeds from employee stock purchase plan		2,099			1,903
Other		(9	)		(341	)
Net cash provided by financing activities		1,552			2,480
Effect of exchange rate changes on cash		377			239
Net increase (decrease) in cash and cash equivalents		20,852			(35,113	)
Cash and cash equivalents, beginning of period		59,652			81,060
Cash and cash equivalents, end of period	$	80,504		$	45,947

The accompanying notes are an integral part of these consolidated financial statements.

3

ev3 Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business

ev3 Inc. (the “Company,” “we,” “our” or “us”) is a global endovascular company focused on identifying and treating peripheral vascular disease, including, in particular, lower extremity arterial disease and neurovascular disease. We develop, manufacture and market a wide range of products that include stents, atherectomy plaque excision products, thrombectomy and embolic protection devices, percutaneous transluminal angioplasty (“PTA”) balloons and other procedural support products for the peripheral vascular market and embolic coils, liquid embolics, flow diversion devices, flow directed and other micro catheters, occlusion balloon systems and neuro stents for the neurovascular market. We market our products in the United States, Europe, Canada and other countries through a direct sales force and through distributors in certain other international markets.

2. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“U.S.”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). 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 adjustments) considered necessary for a fair presentation have been included. The results of operations for any interim period may not be indicative of results for the full year. These unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our annual report on Form 10-K for the year ended December 31, 2008.

Certain amounts reported in our consolidated financial statements for the previous reporting periods have been reclassified to conform to the current period presentation.

Our consolidated financial statements include the financial results of Chestnut Medical Technologies, Inc. (“Chestnut”) subsequent to the acquisition date of June 23, 2009.

We operate on a manufacturing calendar with our fiscal year ending on December 31. Each quarter is 13 weeks, consisting of one five-week and two four-week periods. Accordingly, the third quarters of 2009 and 2008 ended on October 4 and September 28, respectively.

We have evaluated all subsequent events through November 3, 2009, the date the financial statements were issued.

Critical Accounting Policies and Estimates

Except for the contingent consideration and forward foreign currency contracts policies as noted below, there have been no material changes to our critical accounting policies and estimates as described in Note 2 to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2008.

Contingent Consideration

Contingent consideration is recorded at the acquisition-date estimated fair value of the contingent milestone payment for all acquisitions subsequent to January 1, 2009. The fair value of the contingent milestone consideration is remeasured at the estimated fair value at each reporting period with the change in fair value included in our consolidated statements of operations.

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Forward Foreign Currency Contracts

We use forward foreign currency contracts to hedge the volatility of foreign currency rates for foreign cash balances and accounts receivable for which payment is settled in a currency other than our local operations’ functional currency. We did not have any forward foreign currency contracts outstanding at the end of the third quarter of 2009 or at the end of fiscal year 2008. During the three and nine months ended October 4, 2009, we recorded $1.5 million and $3.1 million of losses, respectively, as “Other (income) expense, net” in our consolidated statements of operations associated with the settlement of our foreign currency contracts.

New Accounting Pronouncements

In the third quarter of 2009, we adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 105 as the single official source of authoritative, nongovernmental generally accepted accounting principles in the United States. On the effective date, all then-existing non-SEC accounting literature and reporting standards were superseded and deemed nonauthoritative. The adoption of this pronouncement did not have a material impact on our consolidated financial statements; however, the ASC affected the way we reference authoritative guidance in our consolidated financial statements.

In December 2007, the FASB issued additional guidance on business combinations contained in ASC Topic 805 (“ASC Topic 805”) and additional guidance on noncontrolling interests in consolidated financial statements contained in ASC Topic 810, which are effective for fiscal years beginning after December 15, 2008. These new standards represent the completion of the FASB’s first major joint project with the International Accounting Standards Board and are intended to improve, simplify and converge internationally the accounting for business combinations and the reporting of noncontrolling interests (formerly minority interests) in consolidated financial statements.

ASC Topic 805 changes the method for applying the acquisition method in a number of significant respects, including the requirement to expense transaction fees and expected restructuring costs as incurred, rather than including these amounts in the allocated purchase price; the requirement to recognize the fair value of contingent consideration at the acquisition date, rather than the expected amount when the contingency is resolved; the requirement to recognize the fair value of acquired in-process research and development assets at the acquisition date, rather than immediately expensing; and the requirement to recognize a gain in relation to a bargain purchase price, rather than reducing the allocated basis of long-lived assets. We adopted these standards at the beginning of our 2009 fiscal year. The new presentation and disclosure requirements for pre-existing non-controlling interests are retrospectively applied to all prior period financial information presented. See Note 5 for further discussion of the impact the adoption of ASC Topic 805 had on our results of operations and financial conditions as a result of our Chestnut acquisition in the second quarter 2009.

In May 2009, the FASB issued additional guidance on management’s assessment of subsequent events. This guidance is contained in ASC Topic 855 (“ASC Topic 855”) and clarifies that management must evaluate, as of each reporting period, events or transactions that occur for potential recognition or disclosure in the financial statements and the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date through the date that the financial statements are issued or are available to be issued. ASC Topic 855 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This disclosure alerts all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. We adopted ASC Topic 855 for the three months ended July 5, 2009. The implementation of ASC Topic 855 did not have a material impact on our consolidated financial statements.

In April 2008, the FASB issued guidance on the determination of the useful life of intangible assets, (“ASC Topic 350-30-35-1”), which amended the factors considered in developing renewal or extension assumptions used to determine the useful life of recognized intangible assets. ASC Topic 350-30-35-1 requires a consistent approach between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of an asset. The ASC Topic 350-30-35-1 also requires enhanced disclosure when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. We adopted ASC Topic 350-30-35-1 as of January 1, 2009. The adoption did not have a significant impact on our consolidated financial statements.

5

3. Fair Value Measurements

The fair value of assets and liabilities is determined on the exchange price which would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The determination of fair value is based upon a three-tier fair value hierarchy, which prioritizes the inputs used in fair value measurements. The three-tier hierarchy for inputs used in measuring fair value is as follows:

• Level 1. Observable inputs such as quoted prices in active markets;

• Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

• Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of October 4, 2009 and December 31, 2008, we held approximately $51.9 million and $45.6 million, respectively, in money market accounts measured at fair value on a recurring basis using Level 1 inputs. Our money market accounts are reflected as “Cash and cash equivalents” in our consolidated balance sheets.

In the second quarter of 2009, in connection with our acquisition of Chestnut, we entered into an agreement to pay a contingent milestone-based payment of cash and equity upon the U.S. Food and Drug Administration (“FDA”) pre-market approval of the Pipeline Embolization Device (“Pipeline”). We have recorded the acquisition-date estimated fair value of the contingent milestone payment of $37.3 million as a component of the consideration transferred in exchange for the equity interests of Chestnut using Level 3 inputs. The acquisition-date fair value was measured based on the probability-adjusted present value of the amount expected to be paid. The probability adjusted contingent consideration amounts were discounted at 26%, the weighted average cost of capital for the Chestnut transaction. We remeasure the fair value of the contingent milestone payment at each reporting period using Level 3 inputs. The fair value of the contingent milestone payment was $39.7 million as of October 4, 2009 and is reflected in “Other long-term liabilities” in our consolidated balance sheets. The change in fair value of the contingent milestone payment for the three and nine months ended October 4, 2009 was $2.3 million and $2.5 million, respectively, and is reflected as “Contingent consideration” in our consolidated statements of operations.

The following table presents a summary of the contingent consideration long-term liability and activity (in thousands) for the periods presented:

	Three Months Ended		Nine Months Ended
Contingent Consideration:	October 4, 2009		October 4, 2009
Balance at Beginning of Period	$	37,471	$	—
Purchase price contingent consideration		—		37,275
Change in fair value of contingent consideration		2,271		2,467
Balance as of October 4, 2009	$	39,742	$	39,742

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4. Stock-Based Compensation

The following table presents the stock-based compensation expense (in thousands) recorded in our consolidated statements of operations for the periods presented:

Stock-Based Compensation Expense:	Three Months Ended				Nine Months Ended
	October 4, 2009		September 28, 2008		October 4, 2009		September 28, 2008
Product cost of goods sold	$	251	$	121	$	732	$	596
Sales, general and administrative		2,975		2,572		9,089		9,608
Research and development		400		366		1,128		1,478
Total stock-based compensation expense	$	3,626	$	3,059	$	10,949	$	11,682

In the nine months ended October 4, 2009, we granted options to purchase an aggregate of 1.9 million shares of our common stock, 756,000 shares of restricted stock and 91,000 restricted stock units at a weighted average fair value of $2.76, $6.73 and $5.93 per share, respectively, to be recognized on a straight-line basis over the requisite service period, which, for the substantial majority of these grants, is four years. As of October 4, 2009, we had outstanding options to purchase an aggregate of 9.7 million shares of our common stock, of which options to purchase an aggregate of 5.7 million shares were exercisable. In addition, we have 1.6 million shares of restricted stock and 292,000 restricted stock units outstanding as of October 4, 2009.

We had $31.2 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements granted to employees as of October 4, 2009. That cost is expected to be recognized over a weighted-average period of 2.52 years.

In the nine months ended October 4, 2009, we issued 205,000 shares of common stock upon exercise of options, 695,000 shares from restricted stock grants, net of cancellations and repurchases, and 401,000 shares under our employee stock purchase plan.

5. Chestnut Medical Acquisition

On June 23, 2009, we acquired Chestnut Medical Technologies, Inc., a privately held, California-based company focused on developing minimally invasive therapies for interventional neuroradiology. The transaction broadens our neurovascular product portfolio by adding the Pipeline Embolization Device for the treatment of cerebral aneurysms and the Alligator Retrieval Device for foreign body retrieval to our existing neurovascular embolic products and neuro access technologies.

We acquired 100 percent of the equity interests of Chestnut for total consideration valued at $116.7 million, consisting of upfront consideration of common stock and cash, as well as an additional milestone-based contingent payment of up to $75.0 million, payable in a combination of common stock and equity, upon FDA pre-market approval of the Pipeline device.

The transaction has been accounted for under the acquisition method. Our consolidated financial statements include the financial results of Chestnut subsequent to the acquisition date of June 23, 2009.

The following table presents the purchase price (in thousands) for the acquisition:

	Purchase Price Consideration
Equity consideration	$	53,186
Cash consideration		26,240
Total cash and equity	$	79,426
Contingent consideration		37,275
Total purchase price consideration	$	116,701

7

We issued 5,060,510 shares of our common stock, with an estimated fair value of $53.2 million. The estimated fair value per share of common stock of $10.51 was based on the closing price of our common stock on June 23, 2009, the date of the acquisition. The cash consideration, net of cash acquired, was approximately $24.7 million. We have also incurred $1.0 million in direct acquisition costs, all of which were expensed as incurred.

In addition, we have agreed to pay an additional milestone-based payment of cash and equity upon the FDA pre-market approval of the Pipeline device. This milestone-based contingent payment could range from: (1) $75 million upon FDA approval prior to October 1, 2011, (2) $75 million less $3.75 million per month upon FDA approval from October 1, 2011 through December 31, 2012 and (3) no payment required if FDA approval is not obtained by December 31, 2012. The milestone-based payment of up to $75.0 million will consist of cash and equity paid in the form of shares of our common stock ranging from 30% cash and 70% equity to 85% cash and 15% equity, of the total required payment. We have recorded the acquisition-date estimated fair value of the contingent milestone payment of $37.3 million as a component of the consideration transferred in exchange for the equity interests of Chestnut. The acquisition-date fair value was measured based on the probability-adjusted present value of the consideration expected to be transferred. The fair value of the contingent milestone payment was remeasured as of October 4, 2009 at $39.7 million and is reflected in “Other long-term liabilities” in our consolidated balance sheets. The change in fair value for the three and nine months ended October 4, 2009 of $2.3 million and $2.5 million, respectively, is reflected as “Contingent consideration” in our consolidated statements of operations.

The assets acquired and liabilities assumed in the Chestnut acquisition were measured and recognized at their fair values, with limited exceptions, at the date of the acquisition. The excess of purchase price consideration over the net identifiable assets acquired and liabilities assumed was recognized as goodwill, and reflect the future cost benefit we expect from leveraging our commercial operations to market the acquired products. None of the goodwill or intangible assets resulting from our acquisition of Chestnut are deductible for tax purposes. The following table summarizes the preliminary value (in thousands) recognized related to the identifiable intangible assets; tangible assets, net of liabilities assumed; net deferred tax liabilities and the residual goodwill that were acquired as part of the acquisition of Chestnut:

	June 23,
	2009
Intangible assets	$	93,070
Tangible assets acquired, net of liabilities assumed		821
Deferred tax liabilities acquired, net		(29,147	)
Goodwill		51,957
Estimated value of identifiable tangible and intangible assets, net deferred tax liabilities and goodwill	$	116,701

In connection with the Chestnut acquisition, we recorded deferred tax liabilities of $29.1 million, which includes $19.0 million related to amortizable intangible assets and $10.1 million related to indefinite-lived acquired in-process research and development. For additional discussion regarding deferred tax liabilities, see Note 14.

The following table presents the preliminary allocation of the purchase consideration to identifiable intangible assets acquired, excluding goodwill and the weighted average amortization period in total and by major intangible asset class (in thousands):

			Weighted Average
	Fair Value		Amortization
Intangible Asset Description	Assigned		Period (in years)
Developed and core technology	$	64,130	12
Customer and distributor relationships		220	3
Trademarks and tradenames		960	5
Non-compete agreements		360	3
Total amortizable intangible assets acquired	$	65,670	11
Acquired in-process research and development		27,400	Indefinite
Total intangible assets acquired (excluding goodwill)	$	93,070

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The acquired in-process research and development asset relates to the Pipeline Embolization Device, which is a new class of embolization device that is designed to divert blood flow away from an aneurysm in order to provide a complete and durable aneurysm embolization while maintaining patency of the parent vessel. This asset is recognized and measured at the estimated fair value at the date of acquisition. As of the date of the acquisition, the in-process project had not yet reached technological feasibility in the United States and had no alternative use. The primary basis for determining technological feasibility of the project in the United States is obtaining FDA regulatory approval to market the device.

The income approach was used to determine the fair value of the acquired in-process research and development asset. This approach establishes fair value by estimating the after-tax cash flows attributable to the in-process project over its useful life and then discounting these after-tax cash flows back to the present value. The costs to complete each project were based on estimated direct project expenses as well as the remaining labor hours and related overhead costs. In arriving at the value of the acquired in-process research and development project, we considered the project’s stage of completion, the complexity of the work to be completed, the costs already incurred, the remaining costs to complete the project, the contribution of core technologies, the expected introduction date and the estimated useful life of the technology. We expect to incur approximately $8.0 million of development expense to obtain the regulatory approval required to commercialize the Pipeline device in the United States. The discount rate used to arrive at the present value of acquired in-process research and development as of the date of the acquisition was approximately 27% and was based on the time value of money and medical technology investment risk factors.

The value attributable to this project, which had not yet obtained regulatory approval in the United States, has been capitalized as an indefinite lived intangible asset. Development costs incurred on this project after the acquisition are charged to expense as incurred. If the project is not successful, or completed in a timely manner, we may not realize the financial benefit expected from this project. Upon completion of development and the obtaining of regulatory approval in the United States, this asset will be an amortizable intangible asset.

Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of the acquisition based on management’s assessment and include an inventory step-up.

6. Restructuring

On October 4, 2007, we acquired FoxHollow Technologies, Inc. (“FoxHollow”), a medical device company that designs, develops, manufactures and sells medical devices primarily for the treatment of peripheral artery disease. In conjunction with the acquisition of FoxHollow, our management began to assess and formulate a plan to restructure certain activities of FoxHollow and to terminate certain contractual agreements assumed in the acquisition. A significant portion of these costs related to management’s plan to reduce the workforce and included costs for severance and change of control provisions provided for under certain FoxHollow employment contracts. The workforce reductions began during the fourth quarter of 2007 and were completed as of the end of the third quarter of 2008. The unpaid portion of the workforce reductions represents salary continuance, which was paid over subsequent periods. We finalized our restructuring costs in conjunction with our plans to consolidate our manufacturing and other operations including the closure of our facilities located in Redwood City, California, which we acquired in connection with our acquisition of FoxHollow. We have completed the relocation of the sales, manufacturing and research and development activities performed in FoxHollow’s former Redwood City facilities to our existing facilities located in Irvine, California and Plymouth, Minnesota. During the first quarter of 2009, it was determined the estimated salary continuance costs to be incurred were $300,000 less than the amount previously estimated. An adjustment to the purchase price allocation was made to reduce the restructuring accrual and the amount allocated to goodwill. In addition, in the first quarter of 2009, in light of the current economic environment and continued downward pressures in the California real estate markets, we revised certain sub-lease rental assumptions related to our vacated leased FoxHollow facilities, which resulted in an increased liability related to future lease payments of $3.4 million. The changes in assumptions relate to the additional time it will likely take to find a sub-lessor and the rental rate of the sub-lessor. Since this adjustment was made as a result of changes in market conditions subsequent to the acquisition and was made outside of the purchase price allocation period, the adjustment was included in the determination of net income (loss) for the nine months ended October 4, 2009 and is reflected in “Sales, general, and administrative” expenses on the consolidated statement of operations.

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The following table represents a summary of activity (in thousands) associated with the FoxHollow restructuring accruals that occurred during the nine months ended October 4, 2009. The unpaid portion of these costs are included in “Accrued compensation and benefits,” “Accrued liabilities,” and “Other long-term liabilities” on the consolidated balance sheets for the periods presented:

						Adjustments
						Reflected in
	Balance at		Adjustments to			Consolidated						Balance at
	December 31,		Purchase Price			Statements of						October 4,
	2008		Allocation			Operations			Amounts Paid			2009
Workforce reductions	$	670	$	(300	)	$	(49	)	$	(321	)	$	—
Termination of contractual commitments		7,495		—			3,421			(2,563	)		8,353
Total	$	8,165	$	(300	)	$	3,372		$	(2,884	)	$	8,353

7. Inventories, Net

Inventories, net consist of the following (in thousands):

	October 4, 2009			December 31, 2008
Raw materials	$	11,376		$	10,472
Work in-progress		5,358			4,144
Finished goods		39,385			43,408
		56,119			58,024
Inventory reserve		(10,285	)		(10,337	)
Inventory, net	$	45,834		$	47,687

Our consigned inventory balance was $21.0 million and $20.9 million as of October 4, 2009 and December 31, 2008, respectively.

8. Property and Equipment, Net

Property and equipment, net consist of the following (in thousands):

	October 4, 2009			December 31, 2008
Machinery and equipment	$	31,191		$	29,550
Office furniture and equipment		19,649			18,466
Leasehold improvements		14,902			14,131
Construction in progress		4,290			5,670
		70,032			67,817
Less:
Accumulated depreciation		(43,593	)		(37,136	)
Property and equipment, net	$	26,439		$	30,681

Total depreciation expense for property and equipment was $2.8 million and $8.5 million for the three and nine months ended October 4, 2009, respectively, and $2.8 million and $8.7 million for the three and nine months ended September 28, 2008, respectively.

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9. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill by operating segment for the nine months ended October 4, 2009 are as follows (in thousands):

	Peripheral
	Vascular			Neurovascular		Total
Balance as of December 31, 2008	$	230,400		$	85,254	$	315,654
Adjustment to goodwill related to acquisition of FoxHollow (Note 6)		(300	)		—		(300	)
Goodwill related to acquisition of Chestnut (Note 5)		—			51,957		51,957
Balance as of October 4, 2009	$	230,100		$	137,211	$	367,311

Intangible assets, net consist of the following (in thousands):

	Weighted		October 4, 2009							December 31, 2008
	Average		Gross					Net		Gross					Net
	Useful Life		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	(in years)		Amount		Amortization			Amount		Amount		Amortization			Amount
Patents and licenses		5.0	$	16,945	$	(7,409	)	$	9,536	$	15,413	$	(6,264	)	$	9,149
Developed technology		11.0		260,147		(78,559	)		181,588		196,016		(66,312	)		129,704
Trademarks and tradenames		8.0		13,182		(5,263	)		7,919		12,222		(4,457	)		7,765
Customer relationships		10.0		56,314		(21,373	)		34,941		56,094		(17,967	)		38,127
Acquired in-process research and development		—		27,400		—			27,400		—		—			—
Distribution rights		2.5		—		—			—		7,966		(7,419	)		547
Other intangible assets		3.0		360		(34	)		326		—		—			—
Intangible assets, net			$	374,348	$	(112,638	)	$	261,710	$	287,711	$	(102,419	)	$	185,292

Intangible assets are amortized using methods which approximate the benefit provided by the utilization of the assets. Patents and licenses, developed technology and trademarks and tradenames are amortized on a straight-line basis. Customer relationships are amortized using both straight-line and accelerated methods that approximate the pattern of economic benefit. Acquired in-process research and development is an indefinite-lived intangible asset until it reaches technological feasibility, at which time it would become a finite-lived asset and be amortized over its estimated useful life.

Total amortization of other intangible assets was $6.8 million and $18.4 million for the three and nine months ended October 4, 2009, respectively, and $8.1 million and $24.3 million for the three and nine months ended September 28, 2008, respectively.

The estimated amortization expense, inclusive of amortization expense already recorded for the nine months ended October 4, 2009 and excluding any possible future amortization associated with acquired in-process research and development which has not reached technological feasibility, for the next five years ending December 31 is as follows (in thousands):

2009	$	24,714
2010		25,400
2011		23,841
2012		23,623
2013		23,278

10. Intangible Asset Impairment

In the second quarter of 2008, Merck & Co., Inc. (“Merck”) notified us that it was exercising its right to terminate the amended and restated collaboration and license agreement, dated September 26, 2006, between Merck and FoxHollow, effective July 22, 2008. Under the terms of the agreement, which was amended in July 2007 in connection with our acquisition of FoxHollow, Merck had the right to terminate the agreement if FoxHollow’s founder and former chief executive officer was no longer a director of our company other than in the event of his death or disability. As a result of

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this individual’s resignation from our board of directors in February 2008, Merck had the right to terminate the agreement at any time during the six-month period thereafter. Based upon the status of the ongoing negotiations with Merck, an impairment indicator existed at June 29, 2008. As a result of the termination of the Merck collaboration and license agreement, we recorded an asset impairment charge of $10.5 million during the second quarter of 2008 to write-off the remaining carrying value of the related Merck intangible asset that was established at the time of our acquisition of FoxHollow.

11. Long-Term Debt

Long-term debt consists of the following (in thousands):

	October 4, 2009			December 31, 2008
Term loan	$	7,083		$	8,958
Less: current portion		(2,500	)		(2,500	)
Total long-term debt	$	4,583		$	6,458

Our operating subsidiaries, ev3 Endovascular, Inc., ev3 International, Inc., Micro Therapeutics, Inc. and FoxHollow Technologies, Inc. which we collectively refer to as the “borrowers,” are parties to a loan and security agreement with Silicon Valley Bank, which was amended most recently in December 2008. The amended facility consists of a $50.0 million revolving line of credit and $10.0 million term loan. The revolving line of credit expires June 25, 2010 and the term loan matures on June 23, 2012. Pursuant to the terms of the loan agreement, and subject to specified reserves, we may borrow under the revolving line of credit up to $12.0 million without any borrowing base limitations. Aggregate borrowings under the revolving line of credit that exceed $12.0 million will subject the revolving line to borrowing base limitations. These limitations allow us to borrow, subject to specified reserves, up to 80% of eligible domestic and foreign accounts receivables plus up to 30% of eligible inventory. Additionally, borrowings against the eligible inventory may not exceed the lesser of 33% of the amount advanced against accounts receivable or $10.0 million. As of October 4, 2009, we had $7.1 million in outstanding borrowings under the term loan and no outstanding borrowings under the revolving line of credit; however, we had $1.1 million of outstanding letters of credit issued by Silicon Valley Bank, which reduced the maximum amount available under our revolving line of credit as of October 4, 2009 to $48.9 million.

Borrowings under the revolving line of credit bear interest at a variable annual rate equal to Silicon Valley Bank’s prime rate plus 0.5%. Borrowings under the term loan bear interest at a variable annual rate equal to Silicon Valley Bank’s prime rate plus 1.0%. Silicon Valley Bank’s prime rate at October 4, 2009 was 4.0%. Accrued interest on any outstanding balance under the revolving line and the term loan is payable monthly in arrears. Principal amounts outstanding under the term loan are payable in 48 consecutive equal monthly installments on the last day of each month. We incurred $150,000 of debt issuance costs which are being amortized over the term of the revolving line of credit.

Both the revolving line of credit and term loan are secured by a first priority security interest in substantially all of our assets, excluding intellectual property, which is subject to a negative pledge, and are guaranteed by ev3 Inc. and all of our domestic direct and indirect subsidiaries that are not borrowers. The loan agreement requires ev3 Inc. to maintain on a consolidated basis a minimum adjusted quick ratio of at least 0.75 to 1.00, measured as of the last day of each month, and to maintain minimum consolidated earnings before interest, taxes, depreciation and amortization, or EBITDA, as adjusted for certain non-cash items, of at least $7.5 million for the third quarter of 2009 and at least $10.0 million for the fourth quarter of 2009 and each fiscal quarter thereafter, each measured as of the last calendar day of each such fiscal quarter.

The loan agreement also imposes certain limitations on the borrowers, their subsidiaries and us, including without limitation, limitations on their ability to: (i) transfer all or any part of their business or properties; (ii) permit or suffer a change in control; (iii) merge or consolidate, or acquire any entity; (iv) engage in any material new line of business; (v) incur additional indebtedness or liens with respect to any of their properties; (vi) pay dividends or make any other distribution on or purchase of any of their capital stock; (vii) make investments in other companies; or (viii) engage in related party transactions, subject in each case to certain exceptions and limitations. The loan agreement requires us to maintain certain operating and investment accounts with Silicon Valley Bank or its affiliates. The borrowers are required to pay customary fees with respect to the facility, including a fee on the average unused portion of the revolving line.

The loan agreement contains customary events of default, including the failure to make required payment, the failure to comply with certain covenants or other agreements, the occurrence of a material adverse change, failure to pay certain other indebtedness and certain events of bankruptcy or insolvency. Upon the occurrence and during the continuation of an

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event of default, amounts due under the loan agreement may be accelerated. We were in compliance with required covenants at October 4, 2009 and expect to remain in compliance for the foreseeable future.

Annual maturities of our long-term debt are as follows (in thousands):

Remaining 2009	$	625
2010		2,500
2011		2,500
2012		1,458
Total	$	7,083

12. Other Long-term Liabilities

Other long-term liabilities consist of the following (in thousands):

	October 4, 2009		December 31, 2008
Contingent consideration (see Note 5)	$	39,742	$	—
Deferred tax liability (see Note 5 and 14)		10,149		—
Other long-term liabilities		8,192		6,217
Total other long-term liabilities	$	58,083	$	6,217

13. Gain on Investments, Net

Gain on investments, net of $4.1 million for the nine months ended October 4, 2009 was attributed to the divestiture of non-strategic investments.

14. Income Taxes

We use an estimated annual effective tax rate in determining our quarterly provision for income taxes. We have recorded income tax expense of $849,000 and an income tax benefit of $17.5 million for the three and nine months ended October 4, 2009, respectively. The income tax benefit for the nine months ended October 4, 2009 reflects a reduction in the valuation allowance of $19.0 million, which offsets anticipated foreign income taxes and U.S. alternative minimum tax.

In connection with the Chestnut acquisition, we recorded deferred tax liabilities of $29.1 million, which includes $19.0 million related to amortizable intangible assets and $10.1 million related to indefinite-lived acquired in-process research and development. The deferred tax liabilities of $19.0 million related to the amortizable intangibles reduces our net deferred tax assets by a similar amount and in a manner that will provide predictable future taxable income over the asset amortization period. As a result, we reduced our pre-acquisition valuation allowance against deferred tax assets by $19.0 million, which has been reflected as an income tax benefit in our consolidated statements of operations. Although the deferred tax liability of $10.1 million related to acquired in-process research and development also reduces our net deferred tax assets by a comparable amount, it does so in a manner that does not provide predictable future taxable income because the related asset is indefinite-lived. Therefore, the valuation allowance against deferred tax assets was not reduced as a result of this item, and we have reported the net $10.1 million deferred tax liability under the caption “Other long-term liabilities” in our consolidated balance sheet.

We have assessed all available evidence to determine the necessity of maintaining a valuation allowance for our deferred tax assets. A full valuation allowance has been recorded against our remaining net deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be utilized. If it is determined in a future period that it is more likely than not that the deferred tax assets will be utilized, we will reverse all or part of the valuation allowance for our deferred tax assets.

For the three and nine months ended September 28, 2008, we recorded income tax expense of $516,000 and $1.5 million, respectively, related to operations in certain foreign jurisdictions.

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15. Other Comprehensive Income (Loss)

The following table provides a reconciliation of net income (loss) to comprehensive income (loss) (in thousands):

	Three Months Ended						Nine Months Ended
	October 4, 2009			September 28, 2008			October 4, 2009		September 28, 2008
Net income (loss)	$	6,736		$	(7,310	)	$	28,916	$	(44,502	)
Changes in foreign currency translation		(161	)		137			107		115
Total comprehensive income (loss)	$	6,575		$	(7,173	)	$	29,023	$	(44,387	)

16. Commitments and Contingencies

Operating Leases

We lease various manufacturing and office facilities and certain equipment under operating leases, which include standard terms of renewal and rent escalation clauses that we account for on a straight-line basis over the term of the operating lease.

On April 2, 2009, we entered into a lease agreement to rent approximately 75,000 square feet of space in Plymouth, Minnesota, for an initial term of 80 months beginning on November 1, 2009. Subject to certain conditions, we may extend the term of the lease for up to two additional terms of five years at the then market rate for rent. Pursuant to the lease agreement, the monthly rental payment will be approximately $95,000, subject to annual increases. In addition to base rent, we will pay a certain percentage of the annual real estate taxes and operating expenses of the building. We intend to use the new location for our corporate and U.S. peripheral vascular business headquarters. Our current corporate and U.S. peripheral vascular business headquarters are located in a 50,000 square foot building in Plymouth, Minnesota and are subject to a lease that extends to February 28, 2010.

Total non-cancelable minimum lease commitments, including rent expense related to operating leases for the nine months ended October 4, 2009, are as follows (in thousands):

Years ending December 31:
2009	$	7,762
2010		6,955
2011		4,716
2012		3,317
2013		2,912
Thereafter		8,423
	$	34,085

Rent expense related to non-cancelable operating leases was $1.5 million and $4.1 million for the three and nine months ended October 4, 2009, respectively, and $1.6 million and $4.8 million for the three and nine months ended September 28, 2008, respectively.

During the first quarter of 2009, we recorded an adjustment to our lease termination reserve associated with three FoxHollow leased facilities located in California which we effectively abandoned during fiscal year 2008 as part of our consolidation strategy. Future rental expense for these facilities will be offset by the amortization of the lease termination reserve and sublease payments received. For additional discussion regarding the termination of these contractual commitments see Note 6.

Portions of our payments for operating leases are denominated in foreign currencies and were translated in the table above based on their respective U.S. dollar exchange rates at October 4, 2009. These future payments are subject to foreign currency exchange rate risk.

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Letters of Credit

As of October 4, 2009, we had outstanding commitments of $4.7 million which are supported by irrevocable standby letters of credit and restricted cash. The letters of credit and restricted cash support various obligations, such as operating leases, tender arrangements with customers and automobile leases.

Contingent Consideration

Under the terms of the acquisition agreement relating to our acquisition of Chestnut, we may be obligated to make an additional milestone-based payment of cash and equity totaling up to $75 million upon the FDA pre-market approval of the Pipeline device. For additional discussion regarding the contingent consideration, see Note 5.

Other Contingencies

We are from time to time subject to, and are presently involved in, various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of our business. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. We record a liability in our consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where we have assessed that a loss is probable and an amount can be reasonably estimated. Our significant legal proceedings are discussed below. While it is not possible to predict the outcome for most of the legal proceedings discussed below, the costs associated with such proceedings could have a material adverse effect on our consolidated results of operations, financial position or cash flows of a future period.

The acquisition agreement relating to our acquisition of Appriva Medical, Inc. contains four milestones to which payments relate. The first milestone was required by its terms to be achieved by January 1, 2005 in order to trigger a payment equal to $50 million. The other milestones were required by their terms to be achieved by either January 1, 2008 or January 1, 2009, and, if achieved, triggered payments totaling $125 million. We believe that the milestones were not achieved by the applicable dates and that none of the milestones are payable. On May 20, 2005, Michael Lesh, as an individual seller of Appriva stock and purporting to represent certain other sellers of Appriva stock, filed a complaint in the Superior Court of the State of Delaware with individually specified damages aggregating $70 million and other unspecified damages for several claims, including breach of the acquisition agreement and the implied covenant of good faith and fair dealing, fraud, negligent misrepresentation and violation of state securities laws in connection with the negotiation of the acquisition agreement. On or about November 21, 2005, a second lawsuit was filed in Delaware Superior Court relating to the acquisition of Appriva Medical, Inc. The named plaintiff of that action was Appriva Shareholder Litigation Company, LLC, which according to the complaint was formed for the purpose of pursuing claims against us. That complaint alleged specified damages in the form of the second milestone payment ($25 million), which was claimed to be due and payable, and further alleged unspecified damages for several claims, including misrepresentation, breach of contract, breach of the implied covenant of good faith and fair dealing and declaratory relief. On November 26, 2008, in a consolidated proceeding, the trial court granted our motion for summary judgment on the issue of standing and dismissed both complaints without prejudice. On April 7, 2009, Michael Lesh and Erik Van Der Burg, acting jointly as the Shareholder Representatives for the former shareholders of Appriva Medical, Inc., filed a motion to amend their complaints in Superior Court of the State of Delaware. The proposed amended complaint seeks the recovery of all of the milestone payments and punitive damages. The plaintiffs assert several claims, including breach of contract, fraudulent inducement and violation of California securities law. We filed a motion to dismiss the entire amended complaint, but the trial court has yet to rule on the motion. Because this matter is in the early stages, we cannot estimate the possible loss or range of loss, if any, associated with its resolution. However, there can be no assurance that the ultimate resolution of this matter will not result in a material adverse effect on our business, financial condition, results of operations or cash flows of a future period.

In July 2006, August 2006 and February 2007, three separate shareholder class action complaints were filed against FoxHollow and two of its officers in the U.S. District Court for the Northern District of California. These cases were subsequently consolidated into a single matter. The plaintiffs are seeking to represent a class of purchasers of FoxHollow’s common stock from May 13, 2005 to January 26, 2006. The complaints generally allege that false or misleading statements were made concerning FoxHollow’s management and seek unspecified monetary damages. On May 27, 2008, the U.S. District Court dismissed the consolidated case without leave to amend the complaint and judgment was enforced that day against the plaintiffs. The plaintiffs subsequently filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit on June 20, 2008. The appeal is still pending. Because these matters are in early stages and because of the complexity of the cases, we cannot estimate the possible loss or range of loss, if any, associated with

15

their resolution. However, there can be no assurance that the ultimate resolution of these matters will not result in a material adverse effect on our business, financial condition, results of operations or cash flows of a future period.

In February 2007, David Martin, FoxHollow’s former chief operating officer, filed a wrongful termination and defamation suit against FoxHollow and one of its officers in the Superior Court of the State of California, San Mateo County. In March 2007, the Superior Court granted Martin’s petition to compel arbitration of his claims and arbitration is currently in its initial stages. The complaint is based on substantially similar facts and circumstances as the class action complaints and derivative actions described above. Martin generally alleges that he was terminated from his employment in violation of the covenant of good faith and fair dealing and in retaliation for actions he had the legal right to take. Martin seeks economic damages in excess of $10 million, plus non-economic and exemplary damages. On May 1, 2007, the Court granted Martin’s petition to compel arbitration. In the third quarter of 2009, the parties have agreed in principle to settle this dispute and are currently documenting that settlement. Based on such settlement agreement, the amount of the settlement is probable and estimable and we have made the appropriate provision in our consolidated financial statements during the third quarter of 2009, which did not have a material adverse effect on our business, financial condition, results of operations or cash flows.

17. Segment and Geographic Information

Our management, including our chief executive officer who is our chief operating decision maker, report and manage our operations in two reportable business segments based on similarities in the products sold, customer base and distribution system. Our peripheral vascular operating segment contains products that are used primarily in peripheral vascular procedures by radiologists, vascular surgeons and cardiologists. Our neurovascular operating segment contains products that are used primarily by neuroradiologists, interventional neurosurgeons and neurosurgeons.

Management measures segment profitability on the basis of gross profit calculated as net sales less cost of goods sold excluding amortization of intangible assets. Other operating expenses are not allocated to individual operating segments for internal decision making activities.

We sell our products through a direct sales force in the United States, Europe, Canada and other countries as well as through distributors in certain other international markets. Our customers include a broad physician base consisting of vascular surgeons, neurosurgeons, other endovascular specialists, radiologists, neuroradiologists and cardiologists.

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Certain prior year assets have been reclassified to conform to the current year presentation. The following table presents segment information (in thousands):

	Three Months Ended					Nine Months Ended
	October 4,		September 28,			October 4,		September 28,
	2009		2008			2009		2008
Net sales
Net product sales:
Peripheral vascular:
Atherectomy	$	19,607	$	20,992		$	60,024	$	68,624
Stents		28,787		26,772			86,620		77,932
Thrombectomy and embolic protection		7,319		6,938			23,280		19,990
Procedural support and other		11,898		12,184			35,902		35,243
Total peripheral vascular		67,611		66,886			205,826		201,789
Neurovascular:
Embolic products		28,408		18,174			69,599		53,469
Neuro access and delivery products and other		16,819		14,958			46,894		41,319
Total neurovascular		45,227		33,132			116,493		94,788
Total net product sales		112,838		100,018			322,319		296,577
Research collaboration		—		7,011			—		19,426
Total net sales	$	112,838	$	107,029		$	322,319	$	316,003
Gross profit:
Peripheral vascular	$	49,830	$	39,480		$	143,961	$	124,442
Neurovascular		34,400		24,356			88,284		69,693
Research collaboration		—		4,911			—		13,779
Total gross profit (1)	$	84,230	$	68,747		$	232,245	$	207,914
Operating expense		76,648		73,355			222,983		251,542
Income (loss) from operations	$	7,582	$	(4,608	)	$	9,262	$	(43,628	)

	October 4,		December 31,
	2009		2008
Total assets:
Peripheral vascular	$	539,618	$	545,588
Neurovascular		332,292		175,076
Total	$	871,910	$	720,664

(1) Gross profit for internal measurement purposes is defined as net sales less cost of goods sold excluding amortization of intangible assets.

The following table presents net sales and long-lived assets by geographic area (in thousands):

	Three Months Ended				Nine Months Ended
	October 4,		September 28,		October 4,		September 28,
	2009		2008		2009		2008
Geographic Data
Net Sales:
United States	$	68,430	$	70,452	$	197,779	$	208,773
International		44,408		36,577		124,540		107,230
Total net sales	$	112,838	$	107,029	$	322,319	$	316,003

	October 4,		December 31,
	2009		2008
Long-lived Assets:
United States	$	25,229	$	29,603
International		1,210		1,078
Total long-lived assets	$	26,439	$	30,681

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18. Related Party Transaction

During the second quarter 2007, we entered into a distribution agreement with Beijing Lepu Medical Device, Inc. (“Lepu”), a Chinese domiciled manufacturer and distributor of interventional cardiology and peripheral products. The two-year agreement allows Lepu to sell certain of our embolic protection devices and stents in China. We believe that having access to Lepu and its sub-distributor network is a strategic way for us to quickly gain access and market share in these strategic markets. Warburg Pincus Equity Partners, L.P. and certain of its affiliates (“Warburg Pincus”), who collectively owned over 50% of our outstanding common stock at the time we entered into the distribution agreement with Lepu, and together with Vertical Group, L.P. (“Vertical”), have two designees on our board of directors, owns an approximate 20% ownership interest in Lepu and has a designee on Lepu’s board of directors. Lepu purchased peripheral vascular products from us that we recognized as net product sales totaling approximately $160,000 and $2.6 million for the three and nine months ended October 4, 2009, respectively, and $260,000 and $1.7 million for three and nine months ended September 28, 2008, respectively. As of October 4, 2009 and December 31, 2008, Lepu owed us approximately $77,000 and $364,000, respectively, recorded as “Accounts receivable” on the consolidated balance sheets.

19. Net Income (Loss) Per Common Share

Basic net earnings (loss) per share is computed based on the weighted average number of common shares outstanding. Diluted net earnings (loss) per share is computed based on the weighted average number of common shares outstanding adjusted, to the extent dilutive, by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued and reduced by the number of shares we could have repurchased with the proceeds from the potentially dilutive shares. Potentially dilutive shares include options to purchase shares of our common stock and other share-based awards granted under our share-based compensation plans.

The weighted average number of common shares outstanding for basic and diluted earnings per share purposes is as follows:

	Three Months Ended				Nine Months Ended
	October 4,		September 28,		October 4,		September 28,
	2009		2008		2009		2008
Weighted average number of shares outstanding, basic		110,507,687		104,474,600		107,080,500		104,276,029
Common stock equivalents:
Stock options		1,024,527		—		257,253		—
Stock awards		745,740		—		382,144		—
Weighted average number of shares outstanding, diluted		112,277,954		104,474,600		107,719,897		104,276,029

In connection with our Chestnut acquisition, we may be obligated to make an additional milestone-based payment of cash and equity totaling up to $75 million upon the FDA pre-market approval of the Pipeline device. The contingently issuable shares of common stock associated with the equity portion of the milestone-based contingent payment are not included in our basic or diluted shares outstanding. For additional discussion regarding our potential milestone-based contingent payment, see Note 5.

The following potential common shares were excluded from common stock equivalents as their effect would have been anti-dilutive:

	Three Months Ended				Nine Months Ended
	October 4,		September 28,		October 4,		September 28,
	2009		2008		2009		2008
Stock options		5,633,569		9,255,611		7,267,777		9,543,725
Restricted stock awards and restricted stock units		167,618		1,011,779		495,285		1,093,897

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

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the heading “Forward-Looking Statements” below. The following discussion of our results of operations and financial condition should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this report.

Business Overview

We are a leading global endovascular company focused on identifying and treating peripheral vascular disease, including, in particular, lower extremity arterial disease, and neurovascular disease. Since our founding in 2000, we have been dedicated to developing innovative, breakthrough and clinically proven technologies and solutions for the treatment of peripheral vascular and neurovascular diseases, a strategy that we believe is uncommon in the medical device industry. We believe our unique approach of focusing on emerging and under-innovated opportunities, which treat peripheral vascular and neurovascular disease, allows us to compete with smaller companies that have narrow product lines and lack an international sales force and infrastructure, yet also compete with larger companies that do not have our focus and agility.

We believe the overall market for endovascular devices will grow as the demand for minimally invasive treatment of vascular diseases and disorders continues to increase. We intend to capitalize on this market opportunity by the continued sales execution and introduction of new products. We expect to originate new products primarily through our internal research and development and clinical efforts, but we may supplement them with targeted acquisitions or other external collaborations. Most recently, in June 2009, we acquired Chestnut Medical Technologies, Inc., a then privately held, California-based company focused on developing minimally invasive therapies for interventional neuroradiology. This transaction broadened our neurovascular product portfolio by adding the Pipeline Embolization Device for the treatment of cerebral aneurysms and the Alligator Retrieval Device for foreign body retrieval to our existing embolic product and neuro access technologies. In October 2007, we acquired FoxHollow Technologies, Inc. FoxHollow’s principal product is the SilverHawk Plaque Excision System, which is a minimally invasive catheter system that treats peripheral artery disease by removing plaque in order to reopen narrowed or blocked arteries. Additionally, our growth has been, and will continue to be, impacted by our expansion and penetration into new geographic markets, the expansion and penetration of our direct sales organization in existing geographic markets, and our continuing focus to increase the efficiency of our existing direct sales organization.

Our product portfolio includes a broad spectrum of approximately 100 products consisting of over 1,500 SKUs, including stents, atherectomy plaque excision products, embolic protection and thrombectomy products, percutaneous transluminal angioplasty, or PTA balloons, and other procedural support products for the peripheral vascular market and embolic coils, liquid embolics, flow diversion devices, flow directed and other micro catheters, occlusion balloon systems and neuro stents for the neurovascular market. As a result of our FoxHollow acquisition, we were engaged in research collaboration with Merck & Co., Inc. for the analysis of atherosclerotic plaque removed from patient arteries with the goal of identifying new biomarkers for atherosclerotic disease progression and new therapies for atherosclerotic disease. Merck terminated our collaboration and license agreement effective July 22, 2008. We subsequently reached an arrangement with Merck to accomplish an orderly wind-down of our research collaboration activities during the remainder of 2008.

Our management, including our chief executive officer, who is our chief operating decision maker, report and manage our operations in two reportable business segments based on similarities in the products sold, customer base and distribution system. Our peripheral vascular segment contains products that are used primarily in peripheral vascular procedures by interventional radiologists, vascular surgeons and interventional cardiologists. Our neurovascular segment contains products that are used primarily by neuroradiologists, interventional neurologists and neurosurgeons. Our sales activities and operations are aligned closely with our business segments. We generally have dedicated peripheral vascular sales teams in the United States, Europe, Canada and other international countries that target customers who perform primarily peripheral vascular procedures and separate, dedicated neurovascular sales teams in such countries that are specifically focused on our neurovascular business customer base.

We have direct sales capabilities in the U.S., Europe, Canada and other countries and have established distribution relationships in selected international markets. We sell our products through a direct sales force and independent distributors in over 65 countries. Our sales and marketing infrastructure included 349 professionals as of October 4, 2009 which consisted of 294 sales professionals in the U.S., Europe, Canada and other countries. Our direct sales

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representatives accounted for approximately 85% and 86% of our net product sales during the third fiscal quarter and first nine months of 2009, respectively, with the balance generated by independent distributors. In the third fiscal quarter of 2009, we began to sell our neurovascular products in Australia through our direct sales force instead of through a distributor.

Our corporate headquarters is located in Plymouth, Minnesota and the sales, manufacturing, and research and development activities of our peripheral vascular business are primarily located in Plymouth and to a lesser extent, in Irvine, California. The sales, manufacturing and research and development activities of our neurovascular business are primarily located in Irvine, although as a result of our recent acquisition of Chestnut, we now have a facility in Menlo Park, California for a portion of our neurovascular business. Outside of the U.S., our primary office is in Paris, France and we have sales offices in most countries in which we have a direct sales force.

In order to drive sales growth, we have invested heavily throughout our history in not only the expansion of our global distribution system, but also new product development and clinical trials to obtain regulatory approvals. A significant portion of our net sales historically has been, and we expect to continue to be, attributable to new and enhanced products.

During the third quarter of 2009, we launched new products in our neurovascular and peripheral vascular businesses. In neurovascular, we initiated a controlled launch of our new Pipeline Embolization Device in Europe and other international markets. Building on the success we have experienced to date with our Axium coils, we began conducting physician preference testing for two new versions of the Axium coil, the Axium PGLA and Axium Nylon microfilament coil. We launched our new Marksman delivery catheter and Alligator Retrieval Device in the U.S. and Europe. We also introduced access product line extensions, including the HyperGlide 5.0 balloon in the U.S. and Europe and the HyperGlide 3.0 balloon in the U.S. Since receiving the CE Mark for our Solitaire FR, or flow restoration, device to treat ischemic stroke in July 2009, we have completed the first cases in our European physician preference testing. We expect to launch this product in the first quarter of 2010. In our peripheral vascular business, we launched our new TurboHawk atherectomy system, which contains a SuperCutter blade designed to treat moderately to severely calcified lesions in various vessel diameters. We are planning to expand availability for the TurboHawk Super Cutter to international markets and pursue regulatory clearance in the U.S. for an endovascular indication. We also plan to launch a Smooth Cutter version of the TurboHawk for above-the-knee use in treating soft plaque in the first half of 2010. During the third quarter of 2009, we conducted physician preference testing for our TrailBlazer Support Catheters and plan to launch a full release of the TrailBlazer during the fourth quarter of 2009. We are also preparing for the launch of our PowerCross 0.018 PTA balloon platform, which we expect to release in the first quarter of 2010.

We expect to continue to further validate the clinical and competitive benefits of our technology platforms to drive utilization of our current products and the development of new and enhanced products. To accomplish this, we have a number of clinical trials underway and others that are currently in development, including our DURABILITY II trial in the U.S. with the objective of expanding our EverFlex stent’s U.S. indication to include treatment of peripheral artery disease; and our DEFINITIVE trial series designed to expand the clinical evidence supporting the value of our plaque excision systems to drive increased procedure adoption, expand clinical indications and support the use of atherectomy as a front-line therapy. In our neurovascular business, we are planning our Solitaire with Immediate Flow Restoration, or SWIFT, study under a U.S. investigational device exemption, or IDE, to obtain FDA clearance for our Solitaire neuro stent.

It is our understanding that certain biliary stent manufacturers have received subpoenas from the U.S. Department of Justice. Based on publicly available information, we believe that these subpoenas requested information regarding the sales and marketing activities of these manufacturers’ biliary stent products and that the Department of Justice is seeking to determine whether any of these activities violated civil and/or criminal laws, including the Federal False Claims Act, the Food and Drug Cosmetic Act and the Anti-Kickback Statute in connection with Medicare and/or Medicaid reimbursement paid to third parties. As of the date of this report, we have not received a subpoena from the U.S. Department of Justice relating to this investigation. No assurance can be provided, however, that we will not receive such a subpoena or become the subject of such an investigation, which could adversely affect our business and stock price.

Summary of Third Fiscal Quarter 2009 Financial Results and Outlook

During our third fiscal quarter 2009, we achieved another quarter of profitability and cash generation. Our operating results reflect sales growth in both our peripheral vascular and neurovascular segments, continued expansion of our international business, improvement in our gross margins and continued expense control. During the remainder of 2009, we intend to remain focused on attaining our goals of achieving revenue growth equal to or slightly above the growth in

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the markets we compete, sustaining profitability, generating cash and expanding our global position in the peripheral vascular and neurovascular markets.

Our third fiscal quarter 2009 results and financial condition included the following items of significance, some of which we expect also may affect our results and financial condition during the remainder of 2009:

• Net sales of our peripheral vascular products increased 1% to $67.6 million in the third fiscal quarter 2009 compared to the third fiscal quarter 2008 primarily as a result of increased market penetration of our EverFlex family of stents, embolic protection devices and balloon expandable stents, partially offset by a decline in sales of our atherectomy products and sales declines in older generation products. We expect continued penetration with our EverFlex family of stents during the remainder of 2009, although we remain cautious of the current regulatory environment regarding the off-label utilization of devices and increased competition we may experience. During the third fiscal quarter 2009, although our atherectomy sales decreased compared to the third fiscal quarter 2008, we expect the recent launch of our new TurboHawk atherectomy system to have a positive impact on our atherectomy sales going forward.

• Net sales of our neurovascular products increased 37% to $45.2 million in the third fiscal quarter 2009 compared to the third fiscal quarter 2008 primarily as a result of continued market penetration of our Axium coil and Onyx Liquid Embolic System and the launch of our Pipeline Embolization Device in Europe and other international markets. We began conducting physician preference testing for our Axium PGLA and Nylon microfilament coils. We also launched our Marksman delivery catheter and Alligator Retrieval Device in the U.S. and Europe during the third fiscal quarter 2009. We believe our neurovascular business should benefit from the continued market penetration of the Axium coil and Onyx Liquid Embolic System during the remainder of 2009 and from new product introductions, including our Pipeline and Alligator devices, expanded geographic presence and improved pricing.

• On a geographic basis, 61% of our net sales for the third fiscal quarter 2009 were generated in the U.S. and 39% were generated outside the U.S. Our international net sales increased 21% to $44.4 million in the third fiscal quarter 2009 compared to the third fiscal quarter 2008 driven by market penetration of the Axium coil and neuro stents, as well as the launch of our Pipeline device. We expect our international business to continue to benefit from our ability to sell our EverCross and NanoCross PTA balloon catheters outside the United States, the recent launch of our Pipeline Embolization Device in Europe and other international markets, and the launch of our Axium PGLA and Nylon microfilament coils, Marksman delivery catheter and Alligator Retrieval Device in Europe. Changes in foreign currency exchange rates had a negative impact on our net sales for the third fiscal quarter 2009 of approximately $1.7 million compared to the third fiscal quarter 2008, principally resulting from the relationship of the U.S. dollar as compared to the euro. We expect foreign currency exchange rates to have a positive impact on our net sales during the fourth fiscal quarter 2009 compared to our net sales during the same period during 2008.

• Product gross margin increased to 75% in the third fiscal quarter 2009 compared to 64% in the third fiscal quarter 2008 primarily attributable to manufacturing efficiencies, including synergies related to the consolidation of our FoxHollow manufacturing operations, margin improvement associated with selling our own line of PTA balloons, product mix and volume growth. We expect to continue to increase our product gross margins through our focus on manufacturing efficiencies. Product gross margin for internal measurement purposes is defined as net product sales less product cost of goods sold, excluding amortization of intangible assets, divided by net product sales.

• Sales, general and administrative expenses declined to 49% of net product sales in the third fiscal quarter 2009 compared to 53% in the third fiscal quarter 2008 primarily due to continued expense leverage. We expect our sales, general and administrative expenses as a percentage of net product sales to continue to decline during the remainder of 2009 compared to 2008 primarily as a result of our anticipated continued leverage of our cost structure. We expect to continue to focus on our vital few programs and implement systems and processes to improve our sales execution.

• Our net income for the third fiscal quarter 2009 was $6.7 million, or $0.06 per basic and diluted common share, compared to a net loss of $7.3 million, or $0.07 per share, in the third fiscal quarter of 2008.

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• Our cash and cash equivalents were $80.5 million at October 4, 2009, an increase of $20.1 million compared to the end of the second fiscal quarter 2009. This increase was primarily a result of cash provided by operating activities, totaling $20.9 million in the third fiscal quarter 2009. We plan to continue to focus on generating positive cash flow from operations during the remainder of 2009.

Results of Operations

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts (dollars in thousands, except per share amounts), and the changes between the specified periods expressed as percent increases or decreases or “NM” if such increases or decreases are not material or applicable:

	Three Months Ended									Nine Months Ended
	October 4,			September 28,			Percent			October 4,			September 28,			Percent
	2009			2008			Change			2009			2008			Change
Results of Operations:
Sales:
Net product sales	$	112,838		$	100,018			12.8	%	$	322,319		$	296,577			8.7	%
Research collaboration		—			7,011			(100.0	)%		—			19,426			(100.0	)%
Net sales		112,838			107,029			5.4	%		322,319			316,003			2.0	%
Operating expenses:
Product cost of goods sold (a)		28,608			36,182			(20.9	)%		90,074			102,442			(12.1	)%
Research collaboration		—			2,100			(100.0	)%		—			5,647			(100.0	)%
Sales, general and administrative (a)		55,030			53,121			3.6	%		165,639			178,885			(7.4	)%
Research and development (a)		12,545			12,133			3.4	%		36,433			37,913			(3.9	)%
Amortization of intangible assets		6,802			8,101			(16.0	)%		18,444			24,285			(24.1	)%
Contingent consideration		2,271			—			100.0	%		2,467			—			100.0	%
Intangible asset impairment		—			—		NM				—			10,459			(100.0	)%
Total operating expenses		105,256			111,637			(5.7	)%		313,057			359,631			(13.0	)%
Income (loss) from operations		7,582			(4,608	)	NM				9,262			(43,628	)	NM
Other expense (income):
Gain on investments, net		—			(142	)	NM				(4,072	)		(542	)	NM
Interest expense (income), net		140			49		NM				575			(307	)	NM
Other (income) expense, net		(143	)		2,279		NM				1,354			192		NM
Income (loss) before income taxes		7,585			(6,794	)	NM				11,405			(42,971	)	NM
Income tax expense (benefit)		849			516			64.5	%		(17,511	)		1,531		NM
Net income (loss)	$	6,736		$	(7,310	)	NM			$	28,916		$	(44,502	)	NM
Earnings per share:
Net income (loss) per common share:
Basic	$	0.06		$	(0.07	)				$	0.27		$	(0.43	)
Diluted	$	0.06		$	(0.07	)				$	0.27		$	(0.43	)
Weighted average shares outstanding:
Basic		110,507,687			104,474,600						107,080,500			104,276,029
Diluted		112,277,954			104,474,600						107,719,897			104,276,029

(a) Includes stock-based compensation expenses of:

	Three Months Ended				Nine Months Ended
	October 4,		September 28,		October 4,		September 28,
	2009		2008		2009		2008
Product cost of goods sold	$	251	$	121	$	732	$	596
Sales, general and administrative		2,975		2,572		9,089		9,608
Research and development		400		366		1,128		1,478
	$	3,626	$	3,059	$	10,949	$	11,682

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The following tables set forth, for the periods indicated, our net sales by segment and geography expressed as dollar amounts (in thousands) and the changes in net sales between the specified periods expressed as percentages:

	Three Months Ended							Nine Months Ended
	October 4,		September 28,		Percent			October 4,		September 28,		Percent
	2009		2008		Change			2009		2008		Change
NET SALES BY SEGMENT:
Net product sales:
Peripheral vascular:
Atherectomy	$	19,607	$	20,992		(6.6	)%	$	60,024	$	68,624		(12.5	)%
Stents		28,787		26,772		7.5	%		86,620		77,932		11.1	%
Thrombectomy and embolic protection		7,319		6,938		5.5	%		23,280		19,990		16.5	%
Procedural support and other		11,898		12,184		(2.3	)%		35,902		35,243		1.9	%
Total peripheral vascular		67,611		66,886		1.1	%		205,826		201,789		2.0	%
Neurovascular:
Embolic products		28,408		18,174		56.3	%		69,599		53,469		30.2	%
Neuro access and delivery products and other		16,819		14,958		12.4	%		46,894		41,319		13.5	%
Total neurovascular		45,227		33,132		36.5	%		116,493		94,788		22.9	%
Total net product sales		112,838		100,018		12.8	%		322,319		296,577		8.7	%
Research collaboration		—		7,011		(100.0	)%		—		19,426		(100.0	)%
Total net sales	$	112,838	$	107,029		5.4	%	$	322,319	$	316,003		2.0	%

	Three Months Ended								Nine Months Ended
	October 4,			September 28,		Percent			October 4,			September 28,		Percent
	2009			2008		Change			2009			2008		Change
NET SALES BY GEOGRAPHY:
United States	$	68,430		$	70,452		(2.9	)%	$	197,779		$	208,773		(5.3	)%
International:
Before foreign exchange impact		46,129			36,577		26.1	%		135,104			107,230		26.0	%
Foreign exchange impact		(1,721	)		—		—			(10,564	)		—		—
Total international		44,408			36,577		21.4	%		124,540			107,230		16.1	%
Total net sales	$	112,838		$	107,029		5.4	%	$	322,319		$	316,003		2.0	%

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Comparison of the Three Months Ended October 4, 2009 to the Three Months Ended September 28, 2008

Net sales. Net sales increased 5% to $112.8 million in the three months ended October 4, 2009 compared to $107.0 million in the three months ended September 28, 2008. Our net sales in the three months ended October 4, 2009 did not include any research collaboration revenue compared with $7.0 million of research collaboration revenue for the three months ended September 28, 2008. Net product sales increased 13% to $112.8 million in the three months ended October 4, 2009 compared to $100.0 million in the three months ended September 28, 2008 driven by strong growth of our neurovascular products and in our international markets.

Net sales of peripheral vascular products. Net sales of our peripheral vascular products increased 1% to $67.6 million in the three months ended October 4, 2009 compared to $66.9 million in the three months ended September 28, 2008. Net sales in our stent product line increased 8% to $28.8 million in the three months ended October 4, 2009 compared to $26.8 million in the three months ended September 28, 2008. This increase was attributable to increased market penetration of our EverFlex family of stents and balloon expandable stents. Net sales of our thrombectomy and embolic protection devices increased 5% to $7.3 million in the three months ended October 4, 2009 compared to $6.9 million in the three months ended September 28, 2008 largely due to increases in sales of our embolic protection devices. Net sales of our procedural support and other products declined 2% to $11.9 million in the three months ended October 4, 2009 compared to $12.2 million in the three months ended September 28, 2008 largely due to the transition from selling Invatec PTA balloons to selling our own EverCross and NanoCross PTA balloons. With regard to our atherectomy business, we continued to face competition and recorded an estimate of $1.0 million for sales returns resulting from product transitions to our next generation plaque excision devices. Atherectomy sales declined 7% to $19.6 million in the three months ended October 4, 2009 compared to $21.0 million in the three months ended September 28, 2008.

Net sales of neurovascular products. Net sales of our neurovascular products increased 37% to $45.2 million in the three months ended October 4, 2009 compared to $33.1 million in the three months ended September 28, 2008, driven by increases in all product categories. Net sales of our embolic products increased 56% to $28.4 million in the three months ended October 4, 2009 compared to $18.2 million in the three months ended September 28, 2008 primarily due to the continued market penetration of the Axium coil and the Onyx Liquid Embolic System as well as the launch of our Pipeline Embolization Device in Europe and other international markets. Sales of our neuro access and delivery products and other increased 12% to $16.8 million in the three months ended October 4, 2009 compared to $14.9 million in the three months ended September 28, 2008 largely as a result of volume growth across multiple product lines including our catheters, neuro balloons and guidewires.

Research collaboration (revenue). Revenue from our former research collaboration with Merck was $7.0 million for the three months ended September 28, 2008.

Net sales by geography. Net sales in the U.S. were $68.4 million in the three months ended October 4, 2009 compared to $70.4 million in the three months ended September 28, 2008. Net sales in the U.S. in the three months ended September 28, 2008 included $7.0 million in research collaboration revenue from Merck. Net product sales in the U.S. increased in the three months ended October 4, 2009 compared to the three months ended September 28, 2008 primarily as a result of increased market penetration of our Onyx Liquid Embolic System, embolic protection devices, EverFlex family of stents and Axium coils. International net sales increased 21% to $44.4 million in the three months ended October 4, 2009 compared to $36.6 million in the three months ended September 28, 2008 and represented 39% and 37% of our total net product sales during the three months ended October 4, 2009 and September 28, 2008, respectively. International sales growth was driven by an increase in market penetration of Axium coils and neuro stents and launch of our Pipeline Embolization Device and PTA balloons. Our international net sales in the three months ended October 4, 2009 included an unfavorable foreign currency exchange rate impact of approximately $1.7 million principally resulting from the relationship of the U.S. dollar to the euro in comparison with the prior year.

Product cost of goods sold. As a percentage of net product sales, product cost of goods sold declined to 25% of net product sales in the three months ended October 4, 2009 compared to 36% of net product sales in the three months ended September 28, 2008. The improvement in our product cost of goods sold were driven mainly by improvements in our peripheral vascular business segment as well the mix of neurovascular products, which generally have lower product cost of goods sold.

In our peripheral vascular segment, product cost of goods sold as a percent of net product sales declined to 26% in the three months ended October 4, 2009 compared to 41% in the three months ended September 28, 2008 primarily as a result of improved manufacturing efficiencies, including synergies related to the consolidation of our FoxHollow manufacturing

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operations, margin improvement associated with selling our own line of PTA balloons and volume growth. Also contributing to the decline of product cost of goods sold as a percentage of net product sales in our peripheral vascular segment were additional costs incurred in the three months ended September 28, 2008 related to the consolidation of our FoxHollow manufacturing operations that did not recur in the three months ended October 4, 2009. The decrease was partially offset by an increase in excess and obsolete inventory expense due to product transitions of our plaque excision systems.

In our neurovascular segment, product cost of goods sold as a percent of net product sales decreased to 24% in the three months ended October 4, 2009 compared to 26% in the three months ended September 28, 2008 as a result of cost leverage due to volume growth. The decrease was partially offset by an increase in excess and obsolete inventory expense as a result of recording additional reserves due to product transitions of our coil products.

Research collaboration (expense). Expense incurred as a result of our former research collaboration with Merck was $2.1 million for the three months ended September 28, 2008.

Sales, general and administrative. Sales, general and administrative expense increased 4% to $55.0 million in the three months ended October 4, 2009 compared to $53.1 million in the three months ended September 28, 2008. Sales, general and administrative expense as a percentage of net product sales declined to 49% of net product sales in the three months ended October 4, 2009 compared to 53% of net product sales in the three months ended September 28, 2008 primarily due to increased net product sales and continued sales productivity improvement and expense leverage.

Research and development. Research and development expense increased 3% to $12.5 million in the three months ended October 4, 2009 compared to $12.1 million in the three months ended September 28, 2008. Research and development expense was 11% of net sales in the three months ended October 4, 2009 and September 28, 2008.

Amortization of intangible assets. Amortization of intangible assets declined 16% to $6.8 million in the three months ended October 4, 2009 compared to $8.1 million in the three months ended September 28, 2008 primarily due to certain intangible assets becoming fully amortized and lower gross intangible balances for certain intangible assets resulting from the impairment charges we recognized in 2008, partly offset by the amortization of intangible assets purchased in connection with our acquisition of Chestnut.

Contingent consideration. Under the terms of the agreement and plan of merger with Chestnut, we may be obligated to make a milestone payment of up to $75 million upon the FDA pre-market approval of the Pipeline device. The change in fair value of the contingent consideration for the three months ended October 4, 2009 was $2.3 million. We anticipate we likely will incur significant charges or recognize significant benefits associated with future changes in fair value of the contingent consideration. For additional discussion, see Note 3 and Note 5 of our consolidated financial statements contained elsewhere in this report.

Interest expense (income), net. Interest expense, net was $140,000 in the three months ended October 4, 2009 compared to $49,000 in the three months ended September 28, 2008. This increase was due primarily to lower levels of interest income on invested cash balances due to lower interest rates in the third fiscal quarter 2009 compared to the third fiscal quarter 2008. Interest expense for the third fiscal quarter 2009 was $267,000 and interest income was $127,000. Interest expense for the third fiscal quarter 2008 was $311,000 and interest income was $262,000.

Other (income) expense, net. Other income, net was $143,000 in the three months ended October 4, 2009 compared to other expense, net of $2.3 million in the three months ended September 28, 2008. The other (income) expense, net in each of the three months ended October 4, 2009 and September 28, 2008 was primarily due to net foreign currency exchange rate gains and losses. The volatility of the U.S. dollar compared to the euro and other currencies positively impacted our foreign currency-designated accounts receivable in the third fiscal quarter 2009. This impact was reduced by the loss of $1.5 million incurred on a forward exchange contract we entered into during the third fiscal quarter 2009 to partially offset our exposure to foreign currency exchange rate fluctuations. The forward contract was settled prior to the end of the third fiscal quarter 2009. There were no outstanding forward foreign exchange contracts as of October 4, 2009.

Income tax expense (benefit). We recorded income tax expense of $849,000 for the three months ended October 4, 2009 compared to income tax expense of $516,000 for the three months ended September 28, 2008. The 2009 tax expense includes anticipated alternative minimum tax in the U.S., income tax in foreign jurisdictions, and income tax in several states. For the three months ended September 28, 2008, we incurred income tax expense related to certain of our European sales offices.

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Comparison of the Nine Months Ended October 4, 2009 to the Nine Months Ended September 28, 2008

Net sales. Net sales increased to $322.3 million in the nine months ended October 4, 2009 compared to $316.0 million in the nine months ended September 28, 2008. Our net sales in the nine months ended October 4, 2009 did not include any research collaboration revenue compared with $19.4 million of research collaboration revenue for the nine months ended September 28, 2008. Net product sales increased 9% to $322.3 million in the nine months ended October 4, 2009 compared to $296.6 million in the nine months ended September 28, 2008 driven by strong results across all product categories, with the exception of our atherectomy products, which declined as a result of continued competition.

Net sales of peripheral vascular products. Net sales of our peripheral vascular products increased 2% to $205.8 million in the nine months ended October 4, 2009 compared to $201.8 million in the nine months ended September 28, 2008. Net sales in our stent product line increased 11% to $86.6 million in the nine months ended October 4, 2009 compared to $77.9 million in the nine months ended September 28, 2008. This increase was attributable to increased market penetration of our EverFlex family of stents and balloon expandable stents. Net sales of our atherectomy products decreased 13% to $60.0 million in the nine months ended October 4, 2009 compared to $68.6 million in the nine months ended September 28, 2008 due to continued competition. Net sales of our thrombectomy and embolic protection devices increased 16% to $23.3 million in the nine months ended October 4, 2009 compared to $20.0 million in the nine months ended September 28, 2008 largely due to increases in sales of our embolic protection devices. Net sales of our procedural support and other products increased 2% to $35.9 million in the nine months ended October 4, 2009 compared to $35.3 million in the nine months ended September 28, 2008.

Net sales of neurovascular products. Net sales of our neurovascular products increased 23% to $116.5 million in the nine months ended October 4, 2009 compared to $94.8 million in the nine months ended September 28, 2008, driven by increases in all product categories. Net sales of our embolic products increased 30% to $69.6 million in the nine months ended October 4, 2009 compared to $53.5 million in the nine months ended September 28, 2008 primarily due to the continued market penetration of the Onyx Liquid Embolic System, Axium coil and neuro stents and the launch of our Pipeline Embolization Device in Europe and other international markets. Sales of our neuro access and delivery products and other increased 13% to $46.9 million in the nine months ended October 4, 2009 compared to $41.3 million in the nine months ended September 28, 2008 largely as a result of volume growth across multiple product lines including our catheters, neuro balloons and guidewires.

Research collaboration (revenue). Revenue from our former research collaboration with Merck was $19.4 million for the nine months ended September 28, 2008.

Net sales by geography. Net sales in the U.S. were $197.8 million in the nine months ended October 4, 2009 compared to $208.8 million in the nine months ended September 28, 2008. Net sales in the U.S. in the nine months ended September 28, 2008 included $19.4 million in research collaboration revenue from Merck. Net product sales in the U.S. increased primarily as a result of increased market penetration of our Onyx Liquid Embolic System, EverFlex family of stents, and embolic protection devices. International net sales increased 16% to $124.5 million in the nine months ended October 4, 2009 compared to $107.2 million in the nine months ended September 28, 2008 and represented 39% and 36% of our total net product sales during the nine months ended October 4, 2009 and September 28, 2008, respectively. International growth was driven by an increase across all product categories including market penetration of our Axium coil and neuro stents and launch of our Pipeline Embolization Device and PTA balloons. Our international net sales in the nine months ended October 4, 2009 included an unfavorable foreign currency exchange rate impact of approximately $10.6 million principally resulting from the relationship of the U.S. dollar to the euro compared to the prior year.

Product cost of goods sold. As a percentage of net product sales, product cost of goods sold declined to 28% of net product sales in the nine months ended October 4, 2009 compared to 35% of net product sales in the nine months ended September 28, 2008. The improvement in our product cost of goods sold was driven mainly by improvements in our peripheral vascular business segment as well as the mix of neurovascular products sold, which generally have lower product cost of goods sold.

In our peripheral vascular segment, product cost of goods sold as a percent of net product sales declined to 30% the nine months ended October 4, 2009 compared to 38% in the nine months ended September 28, 2008 as a result of improved

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manufacturing efficiencies including synergies related to the consolidation of our FoxHollow manufacturing operations, margin improvement associated with selling our own line of PTA balloons and volume growth. During the nine months ended September 28, 2008 we also incurred costs related to the consolidation of our FoxHollow manufacturing operations that did not recur in the nine months ended October 4, 2009.

In our neurovascular segment, product cost of goods sold as a percent of net product sales declined to 24% in the nine months ended October 4, 2009 compared to 26% in the nine months ended September 28, 2008 as a result of leverage due to volume growth.

Research collaboration (expense). Expense incurred as a result of our former research collaboration with Merck was $5.6 million for the nine months ended September 28, 2008.

Sales, general and administrative. Sales, general and administrative expense declined 7% to $165.6 million in the nine months ended October 4, 2009 compared to $178.9 million in the nine months ended September 28, 2008 primarily as a result of $7.1 million of synergies related to the consolidation of our FoxHollow facilities and cost management efforts, including a decrease of marketing costs of $2.2 million and personnel costs of $1.9 million, slightly offset by $3.4 million of expense recorded in the first quarter 2009 to increase reserves on our vacated FoxHollow leased facilities. In connection with the resignation of our former chairman, president and chief executive officer, we made and expensed a lump sum cash payment of $1.3 million and incurred $1.5 million of non-cash stock-based compensation expense in the second fiscal quarter 2008. Sales, general and administrative expense as a percentage of net product sales declined to 51% of net product sales in the nine months ended October 4, 2009 compared to 60% of net product sales in the nine months ended September 28, 2008 primarily due to higher net product sales, improved sales productivity and continued expense leverage.

Research and development. Research and development expense decreased 4% to $36.4 million in the nine months ended October 4, 2009 compared to $37.9 million in the nine months ended September 28, 2008. Research and development expense decreased to 11% of net sales in the nine months ended October 4, 2009 compared to 12% of net sales in the nine months ended September 28, 2008.

Amortization of intangible assets. Amortization of intangible assets decreased to $18.4 million in the nine months ended October 4, 2009 compared to $24.3 million in the nine months ended September 28, 2008, primarily as a result of lower gross intangible balances for certain intangible assets as a result of the impairment charges we recognized in 2008 and the full amortization of certain intangible assets, partially offset by the amortization of intangible assets purchased in connection with our acquisition of Chestnut.

Contingent consideration. The change in fair value of contingent consideration in connection with our acquisition of Chestnut was $2.5 million for the nine months ended October 4, 2009. For additional discussion, see Note 3 and Note 5 of our consolidated financial statements.

Intangible asset impairment. Intangible asset impairment was $10.5 million in the nine months ended September 28, 2008 as a result of the termination of the Merck collaboration and license agreement. See Note 10 to our consolidated financial statements.

Gain on investments, net. Gain on investments, net was $4.1 million in the nine months ended October 4, 2009 and was attributed to a $4.1 million realized gain on the sale of non-strategic investment assets in the first fiscal quarter 2009.

Interest expense (income), net. Interest expense, net was $575,000 in the nine months ended October 4, 2009 compared to interest income, net of $307,000 in the nine months ended September 28, 2008. This change was due primarily to lower interest rates on invested cash balances in the nine months ended October 4, 2009 compared to the same period in the prior year. Interest expense for the nine months ended October 4, 2009 was $818,000 and interest income was $243,000. Interest expense for the nine months ended September 28, 2008 was $891,000 and interest income was $1.2 million.

Other (income) expense, net. Other expense, net was $1.4 million in the nine months ended October 4, 2009 compared to $192,000 in the nine months ended September 28, 2008. Other expense, net in each of the nine months ended October 4, 2009 and September 28, 2008 was primarily due to net foreign currency exchange rate gains and losses. The volatility of the U.S. dollar compared to the euro and other currencies negatively impacted our accounts receivable denominated in foreign currencies during the first fiscal quarter 2009 and positively impacted our foreign currency-designated accounts receivable during the second and third fiscal quarters 2009. Other expense, net for the nine months ended October 4, 2009 includes losses of $3.1 million on forward foreign exchange contracts we entered into during the second and third fiscal

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quarters 2009 to partially offset our exposure to foreign currency exchange rate fluctuations. The forward contracts were settled prior to the end of the second and third fiscal quarters 2009, and there were no outstanding forward exchange contracts as of October 4, 2009.

Income tax expense (benefit). We recorded an income tax benefit of $17.5 million for the nine months ended October 4, 2009 compared to an expense of $1.5 million for the nine months ended September 28, 2008. In connection with our acquisition of Chestnut, we have established net deferred tax liabilities which resulted in the reversal of $19.0 million of existing deferred tax valuation allowance. The reversal of our deferred tax valuation allowance is recorded as a tax benefit on our consolidated statements of operations. For the nine months ended October 4, 2009, the tax expense amount also includes anticipated alternative minimum tax, income tax in foreign jurisdictions, state income tax in several states and income tax expense related to certain of our European sales offices. For the nine months ended September 28, 2008, we incurred income tax expense related to certain of our European sales offices.

Liquidity and Capital Resources

	October 4,		December 31,
Balance Sheet Data	2009		2008
	(in thousands)
Cash and cash equivalents	$	80,504	$	59,652
Total current assets		212,288		187,123
Total assets		871,910		720,664
Total current liabilities		72,042		67,448
Long-term debt		4,583		6,458
Total liabilities		134,708		80,123
Total stockholders’ equity		737,202		640,541

Cash and cash equivalents. Our cash and cash equivalents available to fund our current operations were $80.5 million and $59.7 million at October 4, 2009 and December 31, 2008, respectively. We believe our cash and cash equivalents and current and anticipated financing arrangements will be sufficient to meet our liquidity requirements through at least the next 12 months. Our cash is primarily invested in highly liquid prime or treasury money market funds.

Letters of credit and restricted cash. As of October 4, 2009, we had outstanding commitments of $4.7 million which are supported by irrevocable standby letters of credit and restricted cash. The letters of credit and restricted cash support various obligations, such as operating leases, tender arrangements with customers and automobile leases.

Operating activities. Net cash provided by operations during the nine months ended October 4, 2009 was $47.4 million compared to $30.5 million used in operations during the nine months ended September 28, 2008. We generated cash from operations during the first nine months of 2009 as a result of our improved operating results and continued working capital management. During the nine months ended October 4, 2009, our net income included a non-cash income tax benefit of $19.0 million recorded in connection with our acquisition of Chestnut (see Note 5 of our consolidated financial statements). Our net income also included approximately $37.8 million of non-cash charges for depreciation and amortization and non-cash stock-based compensation expense as compared with $44.7 million during the first nine months of 2008. In the nine months ended September 28, 2008, cash used in operations was primarily a result of our net loss and increased working capital requirements during the prior periods, which contained certain non-recurring items. These non-recurring items included a reduction of deferred revenue of $9.0 million associated with our former research collaboration with Merck, an increase in accrued litigation of $15.4 million as a result of our coil litigation settlement, and $10.5 million related to the Merck asset impairment. We expect to continue to focus on generating cash from operations during the remainder of 2009.

Investing activities. Cash used in investing activities was $28.4 million during the nine months ended October 4, 2009 compared to $7.3 million used in investing activities during the nine months ended September 28, 2008. During the nine months ended October 4, 2009 in connection with the acquisition of Chestnut, we paid $24.7 million, net of cash received, for the cash portion of the acquisition consideration to Chestnut’s stockholders. During the nine months ended October 4, 2009, we also received $4.1 million in proceeds from the sale of non-strategic investment assets, increased our restricted cash by $2.0 million and purchased $3.8 million of property and equipment and $1.8 million of patents and licenses. Cash used in investing activities during the nine months ended September 28, 2008 was primarily due to purchases of $9.0 million of property and equipment, $7.5 million paid in connection with an earn-out contingency of a previous acquisition and $2.3 million of payments for patents and licenses, partially offset by $9.7 million in proceeds from the sale of short-term investments.

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Financing activities. Cash provided by financing activities was $1.6 million during the nine months ended October 4, 2009 compared to cash provided by financing activities of $2.5 million during the nine months ended September 28, 2008. During the nine months ended October 4, 2009, cash provided by financing activities was generated primarily from proceeds of employee stock purchase plan purchases and exercise of stock options, partially offset by payments on our term loan with Silicon Valley Bank. Cash provided by financing activities during the nine months ended September 28, 2008 reflects proceeds from stock option exercises and employee stock purchase plan purchases.

Contractual cash obligations. Except as noted below, there were no material changes to our contractual cash obligations as set forth in our annual report on Form 10-K for the year ended December 31, 2008.

Under the terms of the Chestnut acquisition agreement, we may be obligated to make an additional milestone-based payment of cash and equity totaling up to $75 million upon the FDA pre-market approval of the Pipeline device. This milestone-based contingent payment could range from: (1) $75 million upon FDA approval prior to October 1, 2011, (2) $75 million less $3.75 million per month upon FDA approval from October 1, 2011 through December 31, 2012 and (3) no payment required if FDA approval is not obtained by December 31, 2012. The milestone-based payment of up to $75 million, at our election, will consist of cash and equity ranging from 30% cash and 70% equity to 85% cash and 15% equity, of the total required payment.

On April 2, 2009, we entered into a lease agreement to rent approximately 75,000 square feet of office space in Plymouth, Minnesota, for our corporate and U.S. peripheral vascular business headquarters, for an initial term of 80 months which began on November 1, 2009. Subject to certain conditions, we may extend the term of the lease for up to two additional terms of five years at the then market rate for rent. Pursuant to the lease agreement, the monthly rental payment will be approximately $95,000, subject to annual increases. In addition to base rent, we will pay a certain percentage of the annual real estate taxes and operating expenses of the building.

Financing history. Although we recognized net income during the second and third fiscal quarters of 2009, prior to such time, we generated significant operating losses including cumulative non-cash charges of $199.4 million for acquired in-process research and development that have resulted in an accumulated deficit of $1.1 billion as of October 4, 2009. Historically, our liquidity needs have been met through public and private offerings, our bank financing with Silicon Valley Bank, our acquisition of FoxHollow, and more recently, from cash generated from operations.

Credit facility. Our operating subsidiaries, ev3 Endovascular, Inc., ev3 International, Inc., Micro Therapeutics, Inc. and FoxHollow Technologies, Inc., which we collectively refer to as the “borrowers,” are parties to a loan and security agreement, with Silicon Valley Bank, which was amended most recently in December 2008. The amended facility consists of a $50.0 million revolving line of credit and a $10.0 million term loan. The revolving line of credit expires on June 25, 2010 and the term loan matures on June 23, 2012. As of October 4, 2009, we had $7.1 million outstanding under the term loan and no outstanding borrowings under the revolving line of credit; however, we had $1.1 million of outstanding letters of credit issued by Silicon Valley Bank, which reduced the maximum amount available under our revolving line of credit to $48.9 million. We refer you to the information contained in Note 11 to our consolidated financial statements for further discussion of our existing financing arrangements.

Other liquidity information. We refer you to the information contained in Note 16 to our consolidated financial statements and our annual report on Form 10-K for our fiscal year ended December 31, 2008 for further discussion of earn-out contingencies and pending and threatened litigation related thereto as a result of one of our previous acquisitions and a previous acquisition by FoxHollow.

Our future liquidity and capital requirements will be influenced by numerous factors, including any future operating losses, the level and timing of future sales and expenditures, the results and scope of ongoing research and product development programs, working capital to support our sales growth, receipt of and time required to obtain regulatory clearances and approvals, sales and marketing programs, acceptance of our products in the marketplace, competing technologies, market and regulatory developments, acquisitions and the future course of pending and threatened litigation. We believe our cash and cash equivalents and current and anticipated financing arrangements will be sufficient to meet our liquidity requirements through at least the next 12 months. However, there is no assurance that additional funding will not be needed or sought prior to such time. In the event that we require additional working capital to fund future operations and any future acquisitions, we may sell shares of our common stock or other equity securities, sell debt securities, or enter into additional credit and financing arrangements with one or more independent institutional lenders. There is no assurance that any financing transaction will be available on terms acceptable to us, or at all, or that any financing transaction will

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not be dilutive to our current stockholders. If we require additional working capital, but are not able to raise additional funds, we may be required to significantly curtail or cease ongoing operations.

Credit risk. At October 4, 2009, our accounts receivable balance was $79.3 million, compared to $72.8 million at December 31, 2008. We monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. We believe that concentrations of credit risk with respect to our accounts receivable are limited due to the large number of customers and their dispersion across many geographic areas. However, a significant amount of our accounts receivable are with national healthcare systems in many countries. Although we do not currently foresee a credit risk associated with these receivables, repayment depends upon the financial stability of the economies of those countries. As of October 4, 2009, no customer represented more than 10% of our outstanding accounts receivable. From time to time, we offer certain distributors in foreign markets who meet our credit standards extended payment terms, which may result in a longer collection period and reduce our cash flow from operations. We have not experienced significant losses with respect to the collection of accounts receivable from groups of customers or any particular geographic area nor experienced any material cash flow reductions as a result of offering extended payment terms.

Related Party Transactions

We refer you to the information contained in Note 18 to our consolidated financial statements.

Critical Accounting Policies and Estimates

Except for the additional policies noted below, there have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our annual report on Form 10-K for the year ended December 31, 2008.

Contingent Consideration

Contingent consideration is recorded at the acquisition-date estimated fair value of the contingent milestone payment for all acquisitions subsequent to January 1, 2009. The fair value of the contingent milestone consideration is remeasured at the estimated fair value at each reporting period with the change in fair value included in our consolidated statements of operations.

Forward Foreign Currency Contracts

We use forward foreign currency contracts to hedge the volatility of foreign currency rates for foreign cash balances and accounts receivable for which payment is settled in a currency other than our local operations’ functional currency. We did not have any forward foreign currency contracts outstanding at the end of the third quarter of 2009 or at the end of fiscal year 2008. During the three and nine months ended October 4, 2009, we recorded $1.5 million and $3.1 million of losses, respectively, as “Other (income) expense, net” in our consolidated statements of operations associated with the settlement of our foreign currency contracts.

Seasonality and Quarterly Fluctuations

Our business is seasonal in nature. Historically, demand for our products has been the highest in our fourth fiscal quarter. We traditionally experience lower sales volumes in our third fiscal quarter than throughout the rest of the year as a result of the European holiday schedule during the summer months.

We have experienced and expect to continue to experience meaningful variability in our net sales and gross profit among quarters, as well as within each quarter, as a result of a number of factors, including, among other things, the number and mix of products sold in the quarter; the demand for, and pricing of, our products and the products of our competitors; the timing of or failure to obtain regulatory approvals for products; costs, benefits and timing of new product introductions; increased competition; the timing and extent of promotional pricing or volume discounts; the timing of larger orders by customers and the timing of shipment of such orders; changes in average selling prices; the availability and cost of components and materials; fluctuations in foreign currency exchange rates; and restructuring, impairment and other special charges. In addition, as a result of our recent acquisition of Chestnut, the potential $75 million milestone payment in connection with such acquisition will be included as a component of consideration transferred at the acquisition date fair value and will be classified as a liability on our consolidated balance sheet which will be remeasured at fair value at each reporting date with changes in fair value recognized as income or expense. Therefore, any change in the fair value will

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impact our earnings in such reporting period thereby resulting in potential variability in our earnings until the contingent consideration is resolved. Assuming that we continue to expect to achieve the regulatory milestone, the accounting impact of the future milestone payment will likely negatively impact our future quarterly operating results.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the Securities and Exchange Commission, that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

Recently Issued Accounting Pronouncements

In the third quarter of 2009, we adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 105 as the single official source of authoritative, nongovernmental generally accepted accounting principles in the United States. On the effective date, all then-existing non-SEC accounting literature and reporting standards were superseded and deemed nonauthoritative. The adoption of this pronouncement did not have a material impact on our consolidated financial statements; however, the ASC affected the way we reference authoritative guidance in our consolidated financial statements.

In December 2007, the FASB issued additional guidance on business combinations contained in ASC Topic 805 (“ASC Topic 805”) and additional guidance on noncontrolling interests in consolidated financial statements contained in ASC Topic 810, which are effective for fiscal years beginning after December 15, 2008. These new standards represent the completion of the FASB’s first major joint project with the International Accounting Standards Board and are intended to improve, simplify and converge internationally the accounting for business combinations and the reporting of noncontrolling interests (formerly minority interests) in consolidated financial statements.

ASC Topic 805 changes the method for applying the acquisition method in a number of significant respects, including the requirement to expense transaction fees and expected restructuring costs as incurred, rather than including these amounts in the allocated purchase price; the requirement to recognize the fair value of contingent consideration at the acquisition date, rather than the expected amount when the contingency is resolved; the requirement to recognize the fair value of acquired in-process research and development assets at the acquisition date, rather than immediately expensing; and the requirement to recognize a gain in relation to a bargain purchase price, rather than reducing the allocated basis of long-lived assets. We adopted these standards at the beginning of our 2009 fiscal year. The new presentation and disclosure requirements for pre-existing non-controlling interests are retrospectively applied to all prior period financial information presented. See Note 5 for further discussion of the impact the adoption of ASC Topic 805 had on our results of operations and financial conditions as a result of our Chestnut acquisition in the second quarter of 2009.

In May 2009, the FASB issued additional guidance on management’s assessment of subsequent events. This guidance is contained in ASC Topic 855 (“ASC Topic 855”) and clarifies that management must evaluate, as of each reporting period, events or transactions that occur for potential recognition or disclosure in the financial statements and the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date through the date that the financial statements are issued or are available to be issued. ASC Topic 855 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This disclosure alerts all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. We adopted ASC Topic 855 in the second quarter of 2009. The implementation of ASC Topic 855 did not have a material impact on our consolidated financial statements.

In April 2008, the FASB issued guidance on the determination of the useful life of intangible assets, (“ASC Topic 350-30-35-1”), which amended the factors considered in developing renewal or extension assumptions used to determine the useful life of recognized intangible assets. ASC Topic 350-30-35-1 requires a consistent approach between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of an asset. The ASC Topic 350-30-35-1 also requires enhanced disclosure when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. We adopted ASC Topic 350-30-35-1 as of January 1, 2009. The adoption did not have a significant impact on our consolidated financial statements.

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Forward-Looking Statements

This quarterly report on Form 10-Q contains not only historical information, but also 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 and are subject to the safe harbor created by those sections. In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in press releases or reports, on our Internet web site or otherwise. All statements other than statements of historical facts included in this report or expressed by us orally from time to time that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies, the outcome of contingencies such as legal proceedings, and prospects regarding, among other things, our financial condition, results of operations and business. We have identified some of these forward-looking statements in this report with words like “believe,” “may,” “could,” “would,” “might,” “forecast,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate,” “outlook” or “continue” or the negative of these words or other words and terms of similar meaning. These forward-looking statements may be contained in the notes to our consolidated financial statements and elsewhere in this report, including under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors that affect all businesses operating in a global market as well as matters specific to us. These uncertainties and factors are difficult to predict and many of them are beyond our control. The following are some of the uncertainties and factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements:

• The effect of current worldwide economic conditions on our business, operating results and financial condition, including reduced demand for procedures using our products, the volatility and uncertainty in the capital markets and the availability of credit to our distributors, customers and suppliers;

• Recent history of operating losses, negative cash flow and failure to achieve our goal of sustained profitability;

• Failure of our business strategy, which relies on assumptions about the market for our products;

• Failure to obtain and maintain required regulatory approvals for our products in a cost-effective manner or at all or to comply with other applicable laws and regulations, including without limitation the Federal Anti-Kickback Statute and similar healthcare fraud and abuse laws, the Foreign Corrupt Practices Act and regulations prohibiting the promotion of off-label uses and products for which marketing clearance has not been obtained;

• Fluctuations in foreign currency exchange rates, especially the effect of a stronger U.S. dollar against the euro, and interest rates;

• Lack of market acceptance of new products;

• Lack of demand for our atherectomy products, due in part to increased competition and lack of long-term clinical data regarding their safety and efficacy;

• Failure of our customers or patients to obtain third party reimbursement for their purchases of our products;

• Dependence upon our stents and atherectomy products for a significant portion of our product sales;

• Risk of technological obsolescence, failure to develop innovative and successful new products and technologies and delays in product introduction;

• Risks associated with clinical trials;

• Risks inherent in operating internationally and selling and shipping our products and purchasing our products and components internationally;

• Future additional charges associated with the impairment in the value of our goodwill and other intangible assets;

• Exposure to assertions of intellectual property claims and failure to protect our intellectual property;

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• Disruption in our ability to manufacture our products;

• Ability of our key suppliers to provide us products or components or raw materials for products resulting in our inability to supply market demand for our products;

• Increases in prices for raw materials;

• Significant and unexpected claims under our EverFlex self-expanding stent worldwide fracture-free guarantee program in excess of our reserves;

• Risks associated with previous and future acquisitions, including the incurrence of additional debt, contingent liabilities and expenses and obligations to make significant milestone payments not currently reflected in our financial statements and the effect of contingent consideration on our operating results;

• Consolidation in the healthcare industry, which could lead to demands for price concessions or to the exclusion of some suppliers from certain of our markets;

• Exposure to adverse side effects from our products and product liability claims;

• Failure to obtain additional capital when needed or on acceptable terms;

• Fluctuations in quarterly operating results as a result of seasonality and other items, such as the number and mix of products sold in the quarter; competition; regulatory actions; the timing of new product introductions; the timing and extent of promotional pricing or volume discounts; the timing of larger orders by customers and the timing of shipment of such orders; field inventory levels; changes in average selling prices; the availability and cost of components and materials; foreign currency exchange rate fluctuations; effect of revenue recognition policies; timing of operating expenses in anticipation of sales; unanticipated expenses; costs related to acquisitions; special charges and fluctuations in investment returns on cash balances;

• Reliance on independent sales distributors and sales associates to market and sell our products in certain countries, their reliance on credit to purchase our products and their recent tendency to reduce their inventories of our products in light of the tightened credit markets;

• Highly competitive nature of the markets in which we sell our products and the introduction of competing products;

• Reliance on our management information systems for inventory management, distribution and other functions and to maintain our research and development and clinical data;

• Failure to comply with our covenants under our loan and security agreement with Silicon Valley Bank or inability to access funds under our revolving line of credit due to borrowing base limitations;

• Changes in and failure to retain or replace senior management or other key employees and the avoidance of business disruption and employee distraction as we continue to execute restructuring activities;

• Adverse changes in applicable laws or regulations, including in particular healthcare and tax laws and regulations;

• Inability to use net operating losses to reduce tax liability if we become profitable;

• Changes in generally accepted accounting principles;

• Effects of pending and threatened litigation;

• Conflicts of interests due to our ownership structure; or

• Ineffectiveness of our internal controls.

For more information regarding these and other uncertainties and factors that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements or otherwise could materially adversely affect our business, financial condition or operating results, see our annual report on Form 10-K for the fiscal year ended December 31, 2008 under the heading “Part I — Item 1A. Risk Factors” on pages 31 through 55 of such report and “Part II — Item 1A. Risk Factors” contained in our subsequent quarterly reports on Form 10-Q, including this report.

All forward-looking statements included in this report are expressly qualified in their entirety by the foregoing cautionary statements. We wish to caution readers not to place undue reliance on any forward-looking statement that speaks only as

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of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the uncertainties and factors described above, as well as others that we may consider immaterial or do not anticipate at this time. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. Our expectations reflected in our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown uncertainties and factors, including those described above. The risks and uncertainties described above are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time. We assume no obligation to update, amend or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K we file with or furnish to the Securities and Exchange Commission.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, which are potential losses arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rate fluctuations. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We believe we are not exposed to a material market risk with respect to our invested cash and cash equivalents.

Interest Rate Risk

Borrowings under our revolving line of credit with Silicon Valley Bank bear interest at a variable annual rate equal to Silicon Valley Bank’s prime rate plus 0.5%. Borrowings under the term loan bear interest at a variable annual rate equal to Silicon Valley Bank’s prime rate plus 1.0%. We currently do not use interest rate swaps to mitigate the impact of fluctuations in interest rates. As of October 4, 2009, we had no borrowings under our revolving line of credit and had $7.1 million in borrowings under the term loan. Based upon this debt level, a 10% increase in the interest rate on such borrowings would cause us to incur an increase in interest expense of approximately $35,000 on an annual basis.

At October 4, 2009, our cash and cash equivalents were $80.5 million. Based on our annualized average interest rate, a 10% decrease in the interest rate on such balances would result in a reduction in interest income of approximately $10,000 on an annual basis.

Foreign Currency Exchange Rate Risk

Fluctuations in the exchange rate between the U.S. dollar and foreign currencies in which we transact business could adversely affect our financial results. Approximately 26% of our net sales were denominated in foreign currencies in both the three and nine months ended October 4, 2009. Selling, marketing and administrative costs related to these sales are largely denominated in the same respective currency, thereby limiting our transaction risk exposure. However, for sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases and when we price our products in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our price not being competitive in a market where business is transacted in the local currency.

Approximately 73% and 76% of our net sales denominated in foreign currencies in the three and nine months ended October 4, 2009, respectively, were derived from European Union countries and were denominated in the euro. Our principal foreign currency exchange rate risks exist between the U.S. dollar and the euro. Fluctuations from the beginning to the end of any given reporting period result in the remeasurement of our foreign currency-denominated cash, receivables and payables, generating currency transaction gains or losses that impact our non-operating income/expense levels in the respective period and are reported in other (income) expense, net in our consolidated financial statements. During the third fiscal quarter of 2009, we entered into a forward exchange contract to partially hedge our exposure to foreign currency exchange rate fluctuations associated with our euro-denominated accounts receivable. Net of hedging activities, we recorded a foreign currency transaction gain of $143,000 and a foreign currency transaction loss of $1.4 million in the three and nine months ended October 4, 2009, respectively, compared to foreign currency transaction losses of $2.3 million and $192,000 in the three and nine months ended September 28, 2008, respectively, primarily related to the translation of our foreign currency-denominated net receivables into U.S. dollars. Our third fiscal quarter 2009 forward contract was settled prior to the end of the quarter and there were no outstanding forward exchange contracts as of October 4, 2009. We will continue to assess the use of hedging contracts in the future and entered into three hedges at the beginning of the fourth quarter of 2009 to hedge our balance sheet risk of the euro, British pound and Canadian dollar. At October 4, 2009, we had euro-denominated accounts receivable and cash of €22.0 million and €962,000, respectively. A 10% increase in the foreign exchange rate between the U.S. dollar and the euro as a result of a weakening dollar would have the effect of approximately a $3.4 million foreign currency transaction gain. A 10% decrease in the foreign currency exchange rate between the U.S. dollar and the euro as a result of a strengthening dollar would have the effect of approximately a $3.4 million foreign currency transaction loss.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to reasonably ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives.

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered in this quarterly report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that material information relating to our company and our consolidated subsidiaries is made known to management, including our Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are being prepared.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our fiscal quarter ended October 4, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

A description of our legal proceedings in Note 16 of our consolidated financial statements included within this report is incorporated herein by reference.

ITEM 1A. RISK FACTORS

We are affected by risks specific to us as well as factors that affect all businesses operating in a global market. In addition to the other information set forth in this report, careful consideration should be taken of the factors described in our annual report on Form 10-K for the fiscal year ended December 31, 2008 under the heading “Part I — Item 1A. Risk Factors” and the additional and revised risk factors described in our quarterly report on Form 10-Q for the fiscal quarter ended July 5, 2009 under the heading “Part II — Item 1A. Risk Factors” and below, any or all of which could materially adversely affect our business, financial condition or operating results.

Our business, financial condition, results of operations and cash flows could be significantly and adversely affected if certain types of healthcare reform programs are adopted in our key markets and other administration and legislative proposals are enacted into law.

Recently, President Obama and members of Congress have proposed significant reforms to the U.S. healthcare system. Both the U.S. Senate and House of Representatives have conducted hearings about healthcare reform. The Obama administration’s fiscal year 2010 budget included proposals to limit Medicare payments, reduce drug spending and increase taxes. In addition, members of Congress have proposed a single-payer healthcare system, a government health insurance option to compete with private plans and other expanded public healthcare measures. Most recently, in September 2009, Max Baucus, the Chairman of the U.S. Senate Finance Committee released a draft of the committee’s healthcare reform bill, a bill which included an excise tax on all medical devices, requiring the medical device industry to contribute $4 billion to healthcare reform each year for a period of 10 years. Various healthcare reform proposals also have emerged at the state level. We cannot predict what healthcare initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on us. However, an expansion in government’s role in the U.S. healthcare industry may lower reimbursements for our products, reduce medical procedure volumes and adversely affect our business and results of operations, possibly materially. In addition, if the excise tax contained in the proposed legislation from the U.S. Senate Finance Committee is enacted into law, our operating results could be materially and adversely affected.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Equity Securities

During the third fiscal quarter ended October 4, 2009, we did not issue any shares of our common stock or other equity securities of our company that were not registered under the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

The following table sets forth the information with respect to purchases made by or on behalf of ev3 or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of shares of our common stock during the third fiscal quarter ended October 4, 2009.

	Total				Total Number of Shares		Maximum Number of
	Number of		Average		Purchased as Part of		Shares that May Yet Be
	Shares		Price Paid		Publicly Announced Plans or		Purchased Under the
Period	Purchased (1)		Per Share		Programs (2)		Plans or Programs (2)
Month # 1		812	$	10.73		N/A		N/A
(July 6, 2009 — August 9, 2009)
Month # 2		—		—		N/A		N/A
(August 10, 2009 — September 6, 2009)
Month # 3		—		—		N/A		N/A
September 7, 2009 — October 4, 2009)
Total:		812	$	10.73		N/A		N/A

(1)

Consists of shares repurchased from employees in connection with the required payment of withholding or employment-related tax obligations due in connection with the vesting of restricted stock awards.

(2)

Our Board of Directors has not authorized any repurchase plan or program for purchase of our shares of common stock or other equity securities on the open market or otherwise, other than an indefinite number of shares in connection with the cashless exercise of outstanding stock options and the surrender of shares of common stock upon the issuance or vesting of stock grants to satisfy any required withholding or employment-related tax obligations.

Except as set forth in the table above, we did not purchase any shares of our common stock or other equity securities of ours registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the third fiscal quarter ended October 4, 2009.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

The following exhibits are being filed or furnished with this quarterly report on Form 10-Q:

Exhibit No.		Description
	10.1	Employment Agreement dated June 11, 2003 between ev3 Europe SAS and Pascal E.R. Girin, as amended on September 17, 2009 (Filed herewith)
	31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14(a) (Filed herewith)
	31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14(a) (Filed herewith)
	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 (Furnished herewith)
	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 (Furnished herewith)

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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 the undersigned, hereunto duly authorized.

November 3, 2009	ev3 Inc.
	By:	/s/ Robert J. Palmisano
		Robert J. Palmisano
		President and Chief Executive Officer (principal executive officer)
	By:	/s/ Shawn McCormick
		Shawn McCormick
		Senior Vice President and Chief Financial Officer (principal financial and accounting officer)

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ev3 Inc.
QUARTERLY REPORT ON FORM 10-Q

EXHIBIT INDEX

Exhibit No.	Description	Method of Filing
10.1	Employment Agreement dated June 11, 2003 between ev3 Europe SAS and Pascal E.R. Girin, as amended on September 17, 2009	Filed herewith
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14(a)	Filed herewith
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14(a)	Filed herewith
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	Furnished herewith
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	Furnished herewith

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EX-10.1

Exhibit 10.1

TRANSLATION FOR INFORMATION PURPOSES ONLY

EMPLOYMENT AGREEMENT

BETWEEN THE UNDERSIGNED:

The company ev3 EUROPE SAS,
a simplified corporation with a share capital of Euros 38,200,
whose registered office is located at 9, rue des trois soeurs, 93420 Villepinte,
registered with the Commerce registry of Bobigny under number B 442 431 599,

Represented by Mr. James Corbett, Chairman,

(hereinafter referred to as the “Company”)

OF THE FIRST PART

AND

Mr. Pascal GIRIN,
whose residence is Zürichbergstrasse 42, Zürich (8044), Switzerland,

     (hereinafter referred to as “Mr. Girin”)

OF THE SECOND PART

IT HAS BEEN AGREED AS FOLLOWS:

The Company hereby employs Mr. Girin, who accepts, under the general terms and conditions of the National Collective Bargaining Agreement of Consulting Firms (“Convention Collective Nationale des Bureaux d’Etudes Techniques, Cabinets d’Ingénieurs-Conseils, Sociétés de Conseils”), (hereafter referred to as «the Collective Bargaining Agreement»), in effect within the Company, and under the special conditions defined hereinafter, subject to the result of the pre-hiring medical exam.

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ARTICLE 1 — JOB DESCRIPTION

Mr. Girin is employed by the Company in the capacity of Operational Director for Europe, with an executive status (“cadre”), position III.3, coefficient 270 according to the Collective Bargaining Agreement.

Mr. Girin shall assume his functions in order to achieve all operating goals established by the Company for the European Operations, in particular, but not limited to the following:

• achieve annual sales plan;

• achieve annual operating expense goals;

• achieve accounts receivable and inventory objectives;

• constantly review and modify sales and marketing processes and execution to achieve the optimal results

• develop and manage culture of the business and interaction with the worldwide operations to ensure a productive business relationships;

• maintain and achieve monthly reporting requirements as defined by the Company;

• other requirements that may be defined by the Company.

In the framework of his functions, Mr. Girin shall regularly report to the Management of the Company, and in particular the Company’s Chairman, who is currently Mr. James Corbett.

ARTICLE 2 — FREEDOM OF EMPLOYMENT

Mr. Girin hereby formally declares that, at the time of his hiring date, he is not bound to any other company or business (entreprise) whatsoever, that he left his previous employment free from any undertaking whatsoever, and that he is not currently subject to any non-competition obligation whatsoever.

Any false statement in such respect would make Mr. Girin liable for the payment of damages, namely in accordance with the provisions of article L. 122-15 of the French Labor Code.

ARTICLE 3 — DURATION OF AGREEMENT

This contract is entered into for an indefinite duration as from September 1, 2003, the parties having agreed that Mr. Girin’s joining will not be later than September 1, 2003.

The first three (3) months of actual work shall be considered a trial period, during which either of the parties may terminate the contract without indemnity, with the prior notice provided for in the applicable Collective Bargaining Agreement. This period can be renewed once by agreement between the parties.

Except in case of gross misconduct («faute grave») or «force majeure», the party who wishes to terminate the contract must notify the other party by registered letter with return receipt requested, subject to a prior notice in accordance with the provisions of article L. 122-6 of the French Labor Code and the Collective Bargaining Agreement.

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ARTICLE 4 — REMUNERATION

4.1.	Mr. Girin shall be paid, in remuneration for his activity, a total gross annual salary of Two Hundred Twenty Seven Thousand Four Hundred Sixteen Euros (€227,416), which shall be paid to him in twelve installments by bank check, bank wire or postal transfer upon the expiration of each monthly period, after deduction of the social contributions provided for by law.
4.2.	Mr. Girin may also receive an annual performance bonus paid at the sole discretion of the Company, based, in particular, on the results obtained in the European area assigned to him and on the Global Worldwide achievement of the fixed goals. The maximum gross annual amount of this bonus is fixed, in any case at Eighty Seven Thousand Five Hundred Euros (€87,500). The objectives of Mr. Girin will be defined in a document which will be further provided to him.
4.3.	Due to both the conditions in which his functions will be performed and the activities of the Company, Mr. Girin shall have to undertake frequent travels also outside France, on behalf of the Company, which can have a cumulative duration of several weeks in a given year.
	In consideration of business travels made outside France for the needs of and in the interests of the Company, and given the particular constraints deriving from these travels and from their frequency, Mr. Girin shall be paid an additional amount, qualifying as an expatriation bonus (hereinafter “the Bonus”) calculated as a percentage of his daily base salary. The percentage rates shall be determined as follows:

Number of days worked abroad per year	Rate
From 0 to 9 days		15	%
10 to 25 days		20	%
26 to 45 days		30	%
46 to 60 days		40	%
In excess of 60 days		50	%

This bonus shall be paid in advance by month and adjustment should be made at the end of each year. At the end of each calendar year to which the Bonus relates, the exact number of days spent abroad by Mr. Girin during the year shall be determined. In the case where the number of days spent abroad by Mr. Girin would be lower than the number expected, the excess amount of the Bonus shall be treated as an ordinary bonus, subject to personal income tax at the normal rate. A specific adjustment shall be made on the pay slip of December or on an amended payslip, in order to take into account the exact number of days spent abroad and giving right to a Bonus.

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In any case, this bonus shall be capped at 10% of Mr. Girin’s annual base salary. The term “day” refers to any day, whether a working day or not, except for those included in paid vacation periods. It is considered that a “day is spent abroad” if:

• it is spent entirely abroad, or

• the outward journey from France to the foreign country begins in the morning, or

• the return journey from the foreign country to France begins in the afternoon.

	The term “foreign” refers to all places outside metropolitan France.
	The Bonus shall be paid in the same manner as the base salary, after deduction of the employee’s share of contributions, especially of social security contributions. The amount of the Bonus shall be clearly stated distinctive from the «base salary» on Mr. Girin’s pay slips as “Advance on expatriation Bonus” or “Balance expatriation Bonus”.
	It is expressly agreed that Mr. Girin shall record and justify his business travels in an internal document and keep copies of all receipts of his business trips (expense receipt, plane tickets, reports, hotels, etc.) in order to prove, from a tax standpoint, the number of days spent outside France, and the purposes of these travels. Otherwise, Mr. Girin shall be liable for all taxes, expenses, penalties, fees which could become due based on a personal income tax reassessment in connection with the payment of the Bonus, as defined above.
4.4.	All the elements of remuneration cited above shall be subject to deduction of the employee’s share of social security, supplemental retirement, invalidity and death, unemployment insurance contributions, and CSG and CRDS.
4.5.	It is expressly agreed that any premium or extra compensation (excepting the bonuses set forth above in Article 4.3) granted by the Company shall not be part of the remuneration and shall always remain a revocable grant.
4.6.	All the bonuses or incentives, that may be paid during the year in any respect whatsoever and whatever their nature, shall be considered as a vacation bonus provided, however, that they are at least equal to the vacation bonus provided by the Collective Bargaining Agreement and that a portion thereof is paid during the period May 1st — October 31st.

ARTICLE 5 — SIGNING BONUS

Mr. Girin will receive an exceptional bonus amounting at Ten Thousand Euros (€10,000) gross, after deduction of the employee’s share of social security, supplemental retirement, invalidity and death, unemployment insurance contributions, and CSG and CRDS, for executing the present employment contract. Mr. Girin acknowledges expressly that this exceptional bonus shall not be part of his remuneration. This exceptional bonus will be paid to Mr. Girin with his first payment and will be clearly distinguished from the base salary in his pay slip as “exceptional bonus”.

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ARTICLE 6 — WORKING HOURS — GLOBAL REMUNERATION

It is expressly understood and agreed that Mr. Girin’s remuneration, as defined in Article 4 above, which was agreed upon in light of both the special nature of the functions assigned to him and the importance of his responsibilities, will remain independent of the time that Mr. Girin, which benefits from the largest autonomy in the organization of his work time, will devote to the performance of his functions.

In light of both his compensation and the importance of his responsibilities, Mr. Girin will be considered as a “Key Manager” (“Cadre Dirigeant”) as defined in Article L. 212-15-1 of the Labor Code and will not therefore be submitted to the major part of the provisions ruling the employees’ working time.

ARTICLE 7 — PLACE OF WORK

Mr. Girin’s place of work shall be the registered office. However, it is expressly understood and agreed that this place of work may be modified and transferred to any other place within or outside of France.

Mr. Girin has been clearly informed that one condition of his employment was that he establishes his residence in the same department of the Company’s registered office within the three months of his hiring date.

In addition, it is expressly understood and agreed that Mr. Girin shall be required, in the framework of the duties assigned to him, to frequently travel in France and abroad.

ARTICLE 8 — REIMBURSEMENT OF EXPENSES

Travel expenses, hotel expenses, as well as all other reasonable professional expenses related to Mr. Girin’s activity, on behalf of the Company, shall be reimbursed to him in conformity with the Company’s expenses reimbursement policy. The reimbursement of such expenses shall be made within thirty (30) days following submission of an expense report substantiated by receipts and approval by management in accordance with the Company’s expenses reimbursement policy.

ARTICLE 9 — REIMBURSEMENT OF MOVING EXPENSES

The Company will reimburse to Mr. Girin the moving expenses born by the latter, upon submission of an expense report substantiated by receipts, within a maximum limit of Twenty Thousand Euros (€20,000). These expenses cover the moving expenses themselves as well as the potential travel and hotel expenses of Mr. Girin and the other persons occupying the residence during the moving between the previous and the new residence; the travel expenses necessary for finding a new accommodation (within the limit of three travels including the stay and air plane tickets of Mr. Girin and of a second accompanying person); the potential furniture storehouse expenses.

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ARTICLE 10 — VEHICLE

Mr. Girin shall have the benefit of a company car of the type BMW 525i or equivalent for professional uses, which he undertakes not to use for personal uses and to return to the Company upon the latter’s first request in the event of suspension, termination or non-performance this contract. Mr. Girin undertakes to maintain this vehicle in good working order and state of repair, to comply with the Driving Code, to personally bear the cost of violations of which he is responsible, and to notify the Company of any incident or accident within 24 hours.

The Company reserves the right, insofar as it may wish to abandon the granting of company cars, to adopt a system of reimbursing automobile expenses on the basis of the reimbursement rates established by the tax administration as a function of the personal vehicle used.

ARTICLE 11 — PAID VACATION

Mr. Girin shall be entitled to vacation as provided by law and by the Collective Bargaining Agreement, the period of which shall be determined by agreement with the Management, taking business requirements into account.

All earned and accrued vacation shall be taken no later than the year following the reference year in which it is accrued.

ARTICLE 12 — EXCLUSIVITY

Mr. Girin undertakes to devote all his work time and effort for the exclusive benefit of the Company and he may, therefore, not exercise any other professional activity throughout the duration of this Employment Agreement without the prior written express approval of a legal representative of the Company.

ARTICLE 13 — CONFIDENTIALITY / NON-SOLICITATION

Mr. Girin is bound by the provisions of the Confidentiality and Non-solicitation Agreement which is attached as Annex 1 hereto. This Confidentiality and Non-solicitation Agreement shall form an integral part of this Agreement.

ARTICLE 14 — GOVERNING LAW — COMPETENT COURTS

The present Agreement is governed by French law, both with respect to its performance and its termination. Any dispute relating hereto shall be subject to the exclusive jurisdiction of the French courts.

ARTICLE 15 — ENTIRE AGREEMENT

This Agreement sets forth the entire Agreement between the Company and Mr. Girin regarding Mr. Girin’s employment within the Company and annuls and replaces all written or oral contracts or agreements between the Company and/or any other company of the group and Mr. Girin, which may previously have existed before the date of the present Agreement. Changes to the present Agreement must be in a written document signed by both parties.

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Signed in duplicate,

June 11, 2003

/s/ James Corbett	/s/ Pascal Girin
For the Company	Pascal Girin
James Corbett,
Chairman

(the above signatures must be preceded by the following hand-written words:
“read and approved. Valid for an agreement” and each page must be initialled.)

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ANNEX 1

CONFIDENTIALITY / NON-SOLICITATION AGREEMENT

This Agreement covers the obligations of Pascal Girin (hereafter the “Employee”) vis-à-vis ev3 S.A.S. (hereafter “EV3”).

WHEREAS, EV3 has expended considerable time, effort and resources in the development of certain confidential proprietary information, which must be maintained as confidential in order to ensure the success of EV3’s business;

WHEREAS, by virtue of Employee’s employment with EV3, Employee has access to such information; and

WHEREAS, Employee represents that there is no agreement with any other party which would conflict with Employee’s obligations under this Agreement.

NOW THEREFORE, in consideration of the covenants and promises contained herein, and the access given Employee to EV3’s Confidential and Proprietary Information, which the Employee acknowledges are good and valuable consideration for Employee entering into this Agreement, the parties hereto agree as follows:

1. DEFINITION OF “CONFIDENTIAL AND PROPRIETY INFORMATION”

As used herein, the term “Confidential and Proprietary Information” means any and all information, oral or written, that is not generally known by persons not employed by or parties to contracts with EV3, including but not limited to:

(a)	inventions, designs, discoveries, works of authorship, improvements or ideas, whether or not patentable or copyrightable, methods, processes, techniques, shop practices, formulae, compounds, compositions developed or otherwise possessed by EV3;
(b)	the subject matter of EV3’s patents, design patents, copyrights, trade secrets, trademarks, service marks, trade names, trade dress, manuals, operating instructions and other industrial property to the extent that such information is unavailable to the public and/or is in incomplete stages of design or research and development;
(c)	EV3’s information, knowledge or data concerning costs, purchasing, profits, markets, sales, organization structures, clinical trials, employees, customers or patients, including but not limited to surveys, customer lists, lists of prospective customers, customer research, proposal preparation and presentation, relational data models, contracting, customer meetings, customer account records, sales records, training and servicing materials, programs and techniques, company manuals and policies, computer programs, software and disks, source code, systems architecture, blue prints, flow charts, financial statements and projections, business plans, marketing plans, products and services under development, licensing agreements, budgets, supplier lists, contracts, compensation schedules, and pricing information, any document marked “Confidential,” or any

8

	information which Employee has been told is “Confidential” or which Employee might reasonably expect EV3 would regard as “Confidential,” or any information which has been given EV3 in confidence by customers, suppliers or other persons.
2.	OWNERSHIP OF CONFIDENTIAL AND PROPRIETARY INFORMATION
(a)	The Employee acknowledges that EV3 is the owner of the Confidential and Proprietary Information and agrees not to contest any such ownership rights of EV3, either during or after Employee’s employment with EV3.
(b)	The Employee agrees to make prompt full written disclosure to EV3 and to hold in trust for the sole right, benefit, and use of EV3, any inventions, discoveries, developments and improvements (“Inventions”), whether or not patentable, and works of authorship, whether or not copyrightable, whether or not protected by a French droit d’auteur which are conceived, developed, or reduced to practice, or caused to be conceived, developed, or reduced to practice, during the term of employment.
(c)	The Employee agrees to assign and does hereby assign to EV3 all right, title, and interest in and to all such Inventions and works of authorship in accordance with the provisions hereto, and further agrees, during the term of employment and thereafter, at EV3’s request and expense, to review, execute, acknowledge and deliver all documents necessary or appropriate to effect such assignments and in connection with carrying out the terms of this Agreement.
	Author’s rights: The Employee hereby assigns to EV3 (i) his rights of reproduction on any analogical or digital media (including cederom, CDI, DVD, hard disk, site’s servers), interactive or not, in any forms and formats (whether known at the execution date of this Agreement or to be discovered in the future), (ii) including but not limited to, public performance, in whole or in part, televisual, satellites, computer and networks (such as Internet, Intranet or Extranets) processes and any process of cable distribution, in any language, (iii) of distribution including the right to sell, loan, rent, download, by any means, in any language and (iv) of adaptation, including by adding new material and translating in any language on their works. The assignment occurs as soon as the works are created and is valid for the entire world and for the duration of the author’s rights, including any legal prorogation for whatever reason. Employee acknowledges that 10% of his salary paid to Employee in accordance with the employment contract is in consideration of the assignment of Employee’s author’s rights subsisting in the works mentioned in article 2 c) and article 2 d).
	Patentable Inventions (specific provisions): Pursuant to article L. 611-7 of the Intellectual Property Code, Employee acknowledges that the inventions made within the context of employment contract which provides for an “inventive mission” which corresponds to Employee’s actual duties, or, as part of studies or research which have been specifically entrusted to the Employee, belong to EV3.
	The Employee further acknowledges that for all the other inventions, created either (i) in the performance of his duties, or (ii) in the field of activity of EV3, or (iii) by using

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	knowledge or technologies or specific methods of EV3 or information acquired by EV3, EV3 is entitled to be assigned the ownership of, or obtain a license to, all or parts of the rights in the patent protecting the invention.
(d)	The Employee acknowledges that, in accordance with article L 113-9 of the Intellectual Property Code, any computer programs and documentation relating to those programs created by Employee pursuant to his employment or guidelines given by EV3, shall be EV3’s property and shall become part of the Confidential and Proprietary Information. The Employee acknowledges that any Inventions and works of authorship mentioned hereto shall become part of the Confidential and Proprietary Information.
3.	NON DISCLOSURE OF CONFIDENTIAL AND PROPRIETARY INFORMATION

The Employee agrees to hold the Confidential and Proprietary Information in the strictest confidence, during Employee’s employment relationship with EV3 and for a period of five years, after Employee’s employment relationship with EV3 is terminated (whether by dismissal or resignation). To this end, The Employee shall:

(a)	not make, or permit or cause to be made copies of the Confidential and Proprietary Information, except as necessary to carry out Employee’s duties as prescribed by EV3;
(b)	not disclose or reveal the Confidential and Proprietary Information, or any portion thereof, to any person except other EV3 employees who have signed nondisclosure agreements with EV3;
(c)	take all reasonable precautions to prevent the inadvertent disclosure of the Confidential and Proprietary Information to any unauthorised person;
(d)	not use for the benefit of, or divulge to, EV3 or its personnel, any proprietary information of another party without the prior written authorisation of said other party;
(e)	upon termination of employment with EV3, Employee shall deliver promptly to EV3 any Confidential and Proprietary Information, regardless of form, including all information of a business nature, and other materials, including personal Rolodexes or similar information collections and shall not thereafter use them for his own benefit or the benefit of others, without the prior express written authorization of EV3. Employee further agrees he will not disparage or denigrate EV3 to third parties at any time; and
4.	DUTY OF LOYALTY

In all aspects of the Employee’s employment with EV3, the Employee shall act in the utmost good faith, deal fairly with EV3, and fully disclose to EV3 all information which EV3 might reasonably consider to be important or relevant to EV3’s business. While still employed at EV3, the Employee shall not establish, operate, participate in, advise, or assist to establish in any manner whatsoever any business, which could or would be in competition with EV3’s business, and the Employee shall not take any preliminary or preparatory steps toward establishing or operating such a business.

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5.	PROTECTIBLE INTERESTS REQUIRING RESTRICTIONS
(a)	The Employee acknowledges that EV3 has many near-permanent and other customers throughout the world to which the Employee has access. These include customers of EV3 developed as a result of many years of effort by EV3, customers of EV3 acquired after significant financial investment by EV3.
(b)	The Employee also acknowledges that EV3 has expended considerable time and effort in recruiting and training its employees, many of whom are accomplished professionals.
6.	NON-SOLICITATION OF EMPLOYEES

The Employee hereby agrees that, during Employee’s employment by EV3 pursuant to this Agreement and for a period of one (1) year immediately following the termination or separation from employment with EV3, however arising, either on his own account or in conjunction with or on behalf of any other person, company, business entity, or other organization whatsoever directly or indirectly:

(i)	induce, solicit, entice or procure, any person who is a key EV3 employee to leave such employment;
(ii)	accept into employment or otherwise engage or use the services of any person who: (aa) is a key EV3 employee on the termination date; or (bb) had been a key EV3 employee in any part of the one (1) year immediately preceding the termination date.

As used in this Section, “key EV3 employee” shall mean any signatory to a restrictive and/or non-solicitation covenant with EV3, any professional employee, any senior administrator, and other employee who has a written employment agreement with EV3.

7. INJUNCTIVE RELIEF

The Employee acknowledges and agrees that in the event of any breach or threatened breach by Employee of any of the provisions of this Agreement, damages shall be an inadequate remedy and EV3 shall be entitled to injunctive and otherwise equitable relief. EV3’s rights under this provision are in addition to all rights otherwise available to it at law or in equity.

8. SEVERABILITY

In the event that any provision hereof is found invalid or unenforceable pursuant to a judicial decree or decision, the invalidity and enforceability of such provision shall not affect the other provisions of this Agreement and all such other provisions shall remain in full force and effect. If any restriction in this agreement is greater than allowable under applicable law, the Court shall have the authority to edit such restriction(s) to make it enforceable to the fullest possible extent under applicable law.

9. WAIVER

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No waiver of any provision of this Agreement or any rights or obligations of either party hereunder shall be effective unless pursuant to a written instrument signed by the party or parties making such a waiver, and such waiver shall be effective only in the specific instance and for the specific purpose stated therein.

10. GOVERNING LAW

This Agreement shall be governed by, and construed and interpreted in accordance with the laws of France. Any suit, action or other legal proceeding arising out of or relating to the performance or the interpretation of this Agreement shall be brought exclusively before the French courts.

The Employee states that he has freely and voluntarily entered into this Agreement, and that he has read and understood each and every provision hereof. Employee acknowledges receiving a fully executed copy of this Agreement.

/s/ James Corbett	/s/ Pascal Girin
Ev3 SAS	The EMPLOYEE
James Corbett	Pascal Girin

Chairman

(the above signatures must be preceded by the following handwritten words:
“read and approved, valid for an agreement.”)

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AMENDMENT TO CONTRACT OF EMPLOYMENT

BETWEEN:

ev3 Europe SAS, a company governed by French law, registered office address 106/108, rue La Boétie, 75008 Paris, Paris Companies’ Register Number B 442 431 599,

hereafter, the “Company”,

On one hand,

AND:

Mr. Pascal GIRIN, a French national, residing at 10, allée Camille Saint-Saens, 78670 Villennes sur Seine, France

hereafter the « Employee »,

On the other hand,

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ARTICLE 1 — OBJECT OF THE CURRENT AMENDMENT

The Employee currently exercises the function of Director of International Operations in the Company.

The Employee accepts the proposal to be assigned temporarily, on secondment to ev3 Neurovascular., to fill the post of « Executive Vice President and President, Worldwide Neurovascular and International » based in Irvine in the United States, for a maximum period of five (5) years.

The purpose of this amendment is to set out the consequences of the Employee’s assignment to the United States on his contractual relations.

ARTICLE 2 — EFFECTS OF THE AMENDMENT

The provisions of the initial employment contract and any amendments thereto which have the same object and/or are incompatible with the provisions of the current amendment are suspended for the period of the secondment to the United States.

The provisions of the current amendment replace those of the initial contract and its amendment which have the same object and/or are incompatible with this amendment for the duration of the secondment.

Notwithstanding the above, the initial employment contract currently in force will continue to apply for the duration of the secondment to the United States, as will all the other agreements relating to the initial employment contract.

The Company will ensure for ev3 Inc that the provisions of the contract are upheld, vis-à-vis the Employee.

ARTICLE 3 — COMPETENT JURISDICTION AND APPLICABLE LAW

The provisions of the current amendment are governed by French law, unless the public order provisions of the law in the United States provide otherwise, in which case, these provisions will apply in priority. The Employee will not be able to benefit from the advantages and guarantees offered by both jurisdictions.

Any dispute concerning the performance or the termination of this amendment arising between the parties shall be referred to a French court of competent jurisdiction.

ARTICLE 4 — EFFECTIVE DATE

The current amendment will take force on the date that the Employee takes up his position in the United States, after the required administrative authorizations from the local authorities are obtained, and at the earliest August 1^st, 2009.

The current amendment will take force only if the required administrative authorizations are obtained.

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ARTICLE 5 — PLACE OF WORK

For information, the Employee’s place of work will be ev3 Neurovascular, 9775 Toledo Way, Irvine, CA 92618, USA.

ARTICLE 6 — LENGTH OF SECONDMENT

The secondment of the Employee is envisaged for a maximum period of five (5) years.

Given the rapid changes in the Company’s environment and development, the professional and geographical mobility of its managers is a necessity.

In consequence, the Company reserves the right to end the Employee’s secondment to the United States at any moment, notably for reasons related to the organisation of its activity and those of other group member companies, with the proviso that a minimum three (3) months’ notice be provided.

The secondment will also be ended in advance if any of the events outlined in article 11.5 hereafter occur.

ARTICLE 7 — FUNCTIONS

For his secondment, i.e. on August 1^st, 2009 at the earliest, the Employee will exercise the functions of « Executive Vice President and President, Worldwide Neurovascular and International », position III.3 and coefficient 270 of the “Bureaux d’Etudes Techniques, Cabinets d’Ingénieurs Conseils, Companys de Conseils” Collective Bargaining Agreement.

During the assignment, the Employee will continue to report hierarchically to the Chief Executive Officer of ev3 Inc. and the President of the Company, or any other person who could replace them.

ARTICLE 8 — REMUNERATION

In recognition of the functions assigned to him, the Employee will receive (i) an annual gross reference salary of three hundred and fifty-eight thousand, seven hundred and eighty-five euros ( 358 785 €), which will be paid in accordance with the Company’s normal payroll procedures, by check or wire transfer, to which shall be added (ii) a performance bonus of 65 % of his annual gross reference salary based on the objectives requested under the Company rules being met as well as (iii) the benefits-in-kind and indemnities outlined in article 11 of the current amendment, the “Benefits”.

ARTICLE 9 — TAX AND SOCIAL SECURITY EQUALIZATION

For the duration of his secondment to the United States, it is agreed that the employee should bear income tax and social security charges on his Professional Income (i.e., annual gross reference salary and performance bonus as defined in (i) and (ii) in article 8, but excluding any professional income relating to any equity-based compensation) which are no higher and no lower than the income tax and social security that he would have paid had he remained in France.

Consequently, for the duration of the secondment, the Company will bear the United States Federal and California State income taxes due on his Professional Income as well as on the Benefits. The Company will also bear any French social security contributions due on such Benefits. For the

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avoidance of doubt, the Company will not bear any United States Federal, California State or French income or social security taxes or contributions on any equity-based compensation before, during or after his secondment to the United States.

In exchange for the payment of his United States federal and California state income taxes by the company, an amount corresponding to the income tax that the Employee would have paid in France will be calculated on the Professional Income as defined in the first paragraph above, excluding all taxable Benefits other professional or personal income. This amount will be withheld on a monthly basis from the Employee’s compensation (the “Hypothetical Tax”). In addition to the Hypothetical Tax, the Employee acknowledges that the Company may be required to withhold United States Federal and California State income and social security taxes on any equity-based compensation earned during the secondment to the United States

An annual reconciliation will be calculated based on the actual Professional Income received on the actual Benefits received during the year. If the amount of income tax and social security calculated on said actual Professional Income is greater than the amount of Hypothetical Tax withheld by the Company under the tax equalization agreement defined herein, the Employee will owe the difference calculated to the Company and collection will be made for the difference. Should the calculation result, on the contrary, in tax and social contributions slower than the amount withheld, the Company will reimburse the Employee the difference.

The Employee is personally responsible for his tax return filing obligations. In accordance with article 11.6, the Employee is eligible for tax return preparation assistance for the duration of his secondment.

ARTICLE 10 — WORKING HOURS

Given the US public order provisions mentioned in article 3 of the current amendment and given the Employee’s responsibilities and independence in the organisation of his work, his autonomy in making decisions and given his salary level, and in application of article L.3111-2 of the French Labor Code, the Employee is not subject to the French legal provisions on working hours.

ARTICLE 11 — ASSIGNMENT-RELATED COMPENSATION AND MEASURES

11.1 Housing

During such period that Employee is assigned to the United States, ev3 Inc. for the Company will provide a monthly housing allowance in an amount up to $11,500 through August 15, 2011 (the “Monthly Housing Allowance”), provided, however, that in no event will the Monthly Housing Allowance exceed the actual monthly rent for the residence occupied by the Employee and his family. No Monthly Housing Allowance will be paid thereafter. The Employee will be responsible for all costs associated with the maintenance and insurance of such residence. In the event the Employee is unable to lease a residence in his name (due to his residency status), the Company may, in lieu of a Monthly Housing Allowance payment, obtain a residence in its name for the sole and exclusive use of Employee and his family (a “Company Leased Residence”). Should the Company elect to make arrangements for a Company Leased Residence, the Employee will reimburse the Company for any monthly rent amount in excess of the Monthly Housing Allowance for such month (the “Monthly Reimbursement Amount”). The Monthly Reimbursement Amount shall be paid by the Employee to the Company at least one business day before the due date of the rent payment on the Company Leased Residence. In addition, (i) the Employee shall directly pay directly all costs associated with maintaining and insuring the Company Leased Residence and hereby agrees to indemnify and hold the Company harmless from and against any such costs or expenses; and (ii) the Employee shall obtain, and name the Company as an additional insured, liability insurance covering any loss, liability or damages resulting from occupancy of the Company Leased Premises (including, without limitation, any liability associated with the maintenance of a pool on the Company Leased Premises). If during the term of the lease of any Company Leased

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Residence the Employee voluntarily terminates his employment with the Company, the Employee will immediately become liable for and will begin reimbursing the Company for all amounts associated with the Company Leased Premises (including, without limitation, rent, maintenance costs and insurance) for the remaining term of the lease. Under such circumstances, so long as the Employee is current with its reimbursement obligations hereunder, Employee shall be permitted to continue to occupy the Company Leased Premises (but in no event beyond the original term of the lease). This shall not prevent the Company from seeking an early termination of the lease with respect to the Company Leased Premises and Employee shall be responsible for and will reimburse the Company for any early termination fee. In the event the Company terminates the employment of the Employee during the term of the lease of the Company Leased Premises, the Employee’s right to continue to occupy such Company Leased Premises shall immediately cease and Employee and his family shall vacate such premises within thirty (30) days of such termination. Under such circumstances the Employee shall have no obligation to reimburse the Company for any expenses associated with the Company Leased Premises after the premises have been vacated. In the event Employee does not vacate such premises in accordance with this provision, the Employee shall reimburse the Company for all expenses associated with the Company Leased Premises (including, without limitation, rent, maintenance costs and insurance) for the period from the date of termination until the date that Employee’s occupancy is terminated. Employee specifically grants to the Company the right (but not the obligation) to offset any amount due from Employee hereunder against any amount owed by the Company (or any affiliates of the Company) to Employee. In the event the Employee is repatriated pursuant to section 11.5, the Employee shall have no obligation to reimburse the Company for any expenses associated with the Company Leased Premises after such repatriation.

11.2 Moving costs

The Company will pay the Employee’s moving costs from France to the US based on the Company’s upfront agreement on the costs quoted.

The Company will also pay the Employee’s moving costs from the US to France based on the Company’s upfront agreement on the costs quoted.

Any furniture storage costs will be paid by the company up to a limit of 30m3.

The Company will pay a relocation allowance of sixty thousand euros (60 000 €)

11.3 Travel costs and repatriation

The Company will pay the travel costs, in particular the airfare of the Employee (and if required the business class airfares of the family members accompanying him) on departure to the US at the beginning of the assignment and on return to France at the end of the assignment.

11.4 Annual return trip to France

The Employee and his family members (his wife and two dependents living in the US), will benefit from two (2) return trips per calendar year each between the US and France paid for by the Company at standard business class rates.

11.5 Repatriation

During the secondment, the Employee, and if required the family members accompanying him, will be repatriated at Company cost if any of the following events occurs:

11.5.1	death or health problems of the Employee (or family members) requiring return to France;
11.5.2	political, social, climatic or sanitary events, endangering the Employee (or family members) making impossible the continuation of the secondment to the US;

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11.5.3	a decision by the authorities to withdraw residence or work permits, provided not motivated by the Employee’s actions;
11.5.4	dismissal or a decision, based on work performance, by the Company;
11.5.5	dismissal or resignation of the Employee in the six (6) months following a change in control of the Company

11.6 Tax assistance

The host company, ev3 Neurovascular, will pay for the preparation of the Employee’s income tax returns (France and United States) by Taj/Deloitte (or another firm selected by the Company of equal quality) each year of the secondment.

11.7 School fees

The host company, ev3 Neurovascular, will pay the school fees in secondary education for Clémence Girin, the Employee’s daughter in the United States.

11.8 Company cars

The host company, ev3 Neurovascular, will provide the leasing of two cars for the Employee’s personal use.

ARTICLE 12 — SOCIAL SECURITY COVERAGE

The Employee is seconded to the United States. In consequence, provided a certificate of coverage is obtained, he will remain subject to the French social security regime and will pay the related social security contributions, in line with article L. 761-2 of the Social Security Code, as well as unemployment, complementary retirement and death insurance contributions.

The Company will apply for a certificate of coverage allowing the Employee to remain subject to the French social security regime during his assignment to the United States.

The Employee and his family will be affiliated to the complementary health, temporary invalidity, invalidity and repatriation coverage provided by Malakoff and BUPA. The associated costs will be
borne by the Company.

ARTICLE 13 — PAID HOLIDAYS AND PUBLIC HOLIDAYS

The Employee has the right to twenty-five (25) days paid leave per year.

The dates and organisation of paid leave will be subject to the approval of his hierarchical superior and may be modified in function of work constraints.

During the secondment, French public holidays no longer apply.

ARTICLE 14 — END OF THE ASSIGNMENT

At the end of the assignment or further to any event outlined in article 11.5, the Company will cover the reasonable costs of the repatriation of the Employee (and if required any accompanying family members) and any reasonable moving costs.

If the Company initiates the end of the assignment, because it reaches its term or by anticipation, the Employee will be reintegrated into the Company, at an equivalent position to that they held

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before the assignment at a gross remuneration level equivalent to the level at the end of the assignment, excluding any assignment-related items.

If the Employee cannot be reintegrated, the Company shall start the necessary dismissal procedures under French law and the applicable Collective Bargaining Agreement.

Article 15 — CHANGE IN CONTROL

The Company hereby acknowledges and adheres to the change of control agreement entered into on 15 December 2008 between ev3 Inc. and ev3 Endovascular Inc., on the one hand, and, the Employee, on the other hand, attached hereto (the “Convention”). In this respect, the Company endorses the entirety of the commitments made by the Subsidiary (as defined in the Convention) jointly with the Parent Company (as defined in the Convention) vis-à-vis the Employee under the terms and conditions provided by the Convention.

On September 17, 2009

in two original and equally valid copies,

For the Company	The Employee
/s/ Shawn McCormick	/s/ Pascal E.R. Girin
Executive Vice President and Chief Financial Officer

NB : sign each page, and write the comment « lu et approuvé » on the last page

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EX-31.1

Exhibit 31.1

Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 and SEC Rule 13a-14(a)

I, Robert J. Palmisano, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ev3 Inc.;

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 officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          (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 officer(s) 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 the registrant’s board of directors (or persons performing the equivalent functions):

          (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: November 3, 2009	/s/ Robert J. Palmisano
	Robert J. Palmisano
	President and Chief Executive Officer (principal executive officer)

EX-31.2

Exhibit 31.2

Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 and SEC Rule 13a-14(a)

I, Shawn McCormick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ev3 Inc.;

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 officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          (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 officer(s) 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 the registrant’s board of directors (or persons performing the equivalent functions):

          (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: November 3, 2009	/s/ Shawn McCormick
	Shawn McCormick
	Senior Vice President and Chief Financial Officer (principal financial officer)

EX-32.1

Exhibit 32.1

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

In connection with the Quarterly Report of ev3 Inc. (the “Company”) on Form 10-Q for the quarterly period ended October 4, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Palmisano, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; 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: November 3, 2009	/s/ Robert J. Palmisano
	Robert J. Palmisano
	President and Chief Executive Officer (principal executive officer)

EX-32.2

Exhibit 32.2

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

In connection with the Quarterly Report of ev3 Inc. (the “Company”) on Form 10-Q for the quarterly period ended October 4, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shawn McCormick, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; 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: November 3, 2009	/s/ Shawn McCormick
	Shawn McCormick
	Senior Vice President and Chief Financial Officer (principal financial officer)