10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 2, 2006

oTRANSITION REPORT UNDER 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	(IRS Employer Identification Number)
incorporation or organization)

9600 54th 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  x  NO  o

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

Large accelerated filer:   o   Accelerated filer:   o   Non-accelerated filer:   x

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

As of August 1, 2006, there were 56,892,058 shares of common stock, par value $0.01 per share, of the registrant outstanding.

ev3 Inc.

FORM 10-Q

For the Quarterly Period Ended July 2, 2006

TABLE OF CONTENTS

Description			Page
PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
		Consolidated Balance Sheets as of July 2, 2006 (unaudited) and December 31, 2005	1
		Consolidated Statements of Operations for the three and six months ended July 2, 2006 and July 3, 2005 (unaudited)	2
		Consolidated Statements of Cash Flows for the six months ended July 2, 2006 and July 3, 2005 (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		34
ITEM 4.	Controls and Procedures		35
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		39
ITEM 4.	Submission of Matters to a Vote of Security Holders		39
ITEM 5.	Other Information		39
ITEM 6.	Exhibits		39
SIGNATURE PAGE			41
Exhibit Index			42

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,” 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)

	July 2, 2006			December 31, 2005
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	28,783		$	69,592
Short-term investments	18,450			12,000
Accounts receivable, less allowance of $3,664 and $3,607, respectively	35,962			28,519
Inventories	33,982			32,987
Prepaid expenses and other assets	8,773			7,042
Other receivables	1,168			1,535
Total current assets	127,118			151,675
Restricted cash	3,232			3,102
Property and equipment, net	22,534			17,877
Goodwill	149,160			94,456
Other intangible assets, net	45,722			26,230
Other assets	3,060			3,488
Total assets	$	350,826		$	296,828
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	11,078		$	11,716
Accrued compensation and benefits	13,092			14,612
Accrued liabilities	13,058			11,343
Total current liabilities	37,228			37,671
Other long-term liabilities	615			852
Total liabilities	37,843			38,523
Minority interest	—			12,850
Stockholders’ equity
Common stock, $0.01 par value, 100,000,000 shares authorized, shares issued and outstanding: 56,813,670 shares at July 2, 2006 and 49,350,647 at December 31, 2005	568			493
Additional paid in capital	910,063			807,032
Accumulated deficit	(597,531		)	(562,207		)
Accumulated other comprehensive income (loss)	(117		)	137
Total stockholders’ equity	312,983			245,455
Total liabilities and stockholders’ equity	$	350,826		$	296,828

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						Six Months Ended
	July 2, 2006			July 3, 2005			July 2, 2006			July 3, 2005
Net sales	$	50,620		$	31,540		$	92,857		$	59,222
Operating expenses:
Cost of goods sold (a)	18,179			12,785			34,667			24,894
Sales, general and administrative (a)	35,808			32,297			73,669			64,157
Research and development (a)	6,047			11,891			12,821			22,217
Amortization of intangible assets	4,282			2,548			8,525			5,203
(Gain) loss on sale of assets, net	(46		)	111			124			164
Acquired in-process research and development	—			868			1,786			868
Total operating expenses	64,270			60,500			131,592			117,503
Loss from operations	(13,650		)	(28,960		)	(38,735		)	(58,281		)
Other (income) expense:
Gain on sale of investments, net	(1,063		)	(878		)	(1,063		)	(4,611		)
Interest (income) expense, net	(514		)	6,078			(1,213		)	11,786
Minority interest in loss of subsidiary	—			(705		)	—			(726		)
Other (income) expense, net	(1,327		)	1,828			(1,381		)	2,920
Loss before income taxes	(10,746		)	(35,283		)	(35,078		)	(67,650		)
Income tax expense (benefit)	77			(61		)	246			(59		)
Net loss	(10,823		)	(35,222		)	(35,324		)	(67,591		)
Accretion of preferred membership units to redemption value	—			5,635			—			12,061
Net loss attributable to common holders	$	(10,823	)	$	(40,857	)	$	(35,324	)	$	(79,652	)
Net loss per common share (basic and diluted)(b)	$	(0.19	)	(4.60		)	$	(0.63	)	(13.95		)
Weighted average shares outstanding(b)	56,698,043			8,877,898			56,319,427			5,711,852

(a) Includes stock based compensation charges of:
Cost of goods sold	$	155	$	135	$	369	$	247
Sales, general and administrative	1,799		591		3,165		1,045
Research and development	158		189		372		434
	$	2,112	$	915	$	3,906	$	1,726

(b)Net loss per common share attributable to common holders and the weighted average common shares outstanding reflect the June 21, 2005 one-for-six reverse stock split for all periods presented.

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

2

ev3 Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)

(unaudited)

	Six Months Ended
	July 2, 2006			July 3, 2005
Operating activities
Net loss	$	(35,324	)	$	(67,591	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	11,097			7,340
Provision for bad debts and sales returns	234			746
Provision for inventory obsolescence	1,739			1,156
Acquired in-process research and development	1,786			868
Loss on disposal of assets	124			157
Gain on sale of investments	(1,063		)	(4,611		)
Stock compensation expense	3,906			1,726
Minority interest in loss of subsidiary	—			(726		)
Change in operating assets and liabilities:
Accounts receivable	(7,435		)	(4,384		)
Inventories	(2,070		)	(6,980		)
Prepaids and other assets	(83		)	102
Accounts payable	(700		)	3,024
Accrued expenses and other liabilities	(3,654		)	2,509
Accrued interest on notes payable	—			(24,319		)
Net cash used in operating activities	(31,443		)	(90,983		)
Investing activities
Purchase of short-term investments	(6,750		)	—
Proceeds from sale of short-term investments	300			—
Purchase of property and equipment	(7,360		)	(6,119		)
Purchase of patents and licenses	(500		)	(982		)
Proceeds from sale of property and equipment	68			8
Proceeds from sale of minority investment	1,063			4,611
Acquisitions, net of cash acquired	(170		)	(1,626		)
Change in restricted cash	(108		)	(221		)
Other	—			894
Net cash used in investing activities	(13,457		)	(3,435		)
Financing activities
Issuance of demand notes payable	—			49,100
Payments on capital lease obligations	(60		)	—
Proceeds from exercise of stock options	3,890			660
Proceeds from issuance of subsidiary stock to minority shareholders	—			227
Proceeds from initial public offering	—			152,713
Net cash provided by financing activities	3,830			202,700
Effect of exchange rate changes on cash	261			(14		)
Net (decrease) increase in cash and cash equivalents	(40,809		)	108,268
Cash and cash equivalents, beginning of period	69,592			20,131
Cash and cash equivalents, end of period	$	28,783		$	128,399
Supplemental non-cash disclosure:
Net assets acquired in conjunction with MTI step acquisition (see Note 5)	$	95,438		$	7,536
Financed insurance policies (see Note 12)	$	3,500		—
Contribution of demand notes payable upon initial public offering	—			$	324,230
Preferred membership units converted to common stock upon initial public offering	—			$	266,089

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. (“we,” “our” or “us”) is a global medical device company focused on catheter-based, or endovascular, technologies for the minimally invasive treatment of vascular diseases and disorders.  We develop, manufacture and market a wide range of products that include stents, embolic protection devices, thrombectomy devices, balloon angioplasty catheters, foreign object retrieval devices, guidewires, embolic coils, liquid embolics, microcatheters and occlusion balloon systems.  We market our products in the United States, Europe, Canada and Japan through a direct sales force, and in certain other international markets through distributors.

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.  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, 2005.

We were formed as ev3 LLC in September 2003 to hold the ownership interests of two companies: ev3 Endovascular, Inc. (“Endovascular”) and Micro Investment, LLC (“MII”), a holding company that owned a controlling interest in Micro Therapeutics, Inc. (“MTI”) at the time of formation.    At the time of ev3 LLC’s formation, MTI was a publicly traded operating company. ev3 LLC’s majority equity holder, Warburg, Pincus Equity Partners, L.P. and certain of its affiliates (“Warburg Pincus”), owned a majority, controlling interest in both Endovascular and MII at the time of ev3 LLC’s formation. In accordance with Financial Accounting Standards Board Statement (“SFAS”) 141, Business Combinations and Financial Technical Bulletin (“FTB”) 85-5, Issues related to Accounting for Business Combinations, ev3 LLC accounted for the transaction as a combination of entities under common control. The combination was accounted for on a historical cost basis as the ownership interests in the combining companies were substantially the same before and after the transaction. On January 28, 2005, we were formed as a subsidiary of ev3 LLC. Immediately prior to the consummation of our initial public offering on June 21, 2005, ev3 LLC was merged with and into us, and we became the holding company for all of ev3 LLC’s subsidiaries. These consolidated financial statements present the combined operations of ev3 LLC for the period from September 1, 2003 until the merger on June 21, 2005, and our consolidated operations thereafter.

Prior to the consummation of our initial public offering on June 21, 2005, we amended and restated our certificate of incorporation to authorize 100,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share. On June 21, 2005, immediately prior to our initial public offering, we completed a one-for-six reverse stock split of our outstanding common stock. All share and per share amounts for all periods presented in these consolidated financial statements reflect this split.

On May 26, 2005, Warburg Pincus and The Vertical Group, L.P. and certain of its affiliates (“Vertical”) contributed shares of MTI’s common stock to ev3 LLC in exchange for common membership units. In accordance with SFAS 141, the contribution of the shares by Warburg Pincus has been accounted for as a transfer of assets between entities under common control, resulting in the retention of historical based accounting. These consolidated financial statements give effect to the contribution of MTI shares owned by Warburg Pincus as though such contribution occurred in 2003 and 2004 when Warburg Pincus acquired its interest in MTI. The contribution of the MTI shares by Vertical has been accounted for under the purchase method of accounting on the contribution date.

4

At July 3, 2005 and December 31, 2005, there was a minority interest of 30% in MTI. As described in Note 5, on January 6, 2006, we acquired the outstanding shares of MTI that we did not already own through a merger of MII with and into MTI. MTI was the surviving entity and, as a result of this merger, became our wholly owned subsidiary.  MTI is now known as ev3 Neurovascular.  All significant intercompany accounts and transactions have been eliminated in consolidation.

On January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 151, “Inventory Costs an amendment of ARB No. 43, Chapter 4”.  This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  During first quarter 2006, we began production of a new product line.  We incurred approximately $300 thousand of abnormal scrap related to this new product line in the three months ended April 2, 2006, which was required to be charged to expense in that period and is included in our reported cost of goods sold for the six months ended July 2, 2006.

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 second fiscal quarters of 2006 and 2005 ended on July 2 and July 3, respectively.

3.Stock-Based Compensation

We have several stock-based compensation plans under which stock options and other equity incentive awards have been granted.  Under the ev3 Inc. Amended and Restated 2005 Incentive Stock Plan, eligible employees, outside directors and consultants may be awarded options, stock grants, stock units or stock appreciation rights.  The terms and conditions of an option, stock grant, stock unit or stock appreciation right (including any vesting or forfeiture conditions) are set forth in the certificate evidencing the grant.  Subject to adjustment as provided in the plan, 6,000,000 shares of our common stock are available for issuance under the plan.  During the six months ended July 2, 2006, a restricted stock grant of 5,000 shares, unrestricted stock grants of 28,341 shares and options to purchase an aggregate of 1,041,768 shares of our common stock were granted under the plan.

Options, other than those granted to outside consultants, generally vest over a four-year period and expire within a period of not more than ten years from the date of grant. Vested options generally expire ninety days after termination of employment. Options granted to outside consultants generally vest over the term of their consulting contract and generally expire 90 days after termination of the consulting relationship. The exercise price per share for each option is set by the board of directors or the compensation committee at the time of grant and pursuant to the terms of the plan may not be less than the fair market value per share on the grant date.

Upon consummation of our initial public offering, the ev3 LLC 2003 Incentive Plan was terminated with respect to options available for grant that were not granted prior to the offering.  Prior to our January 6, 2006 acquisition of the remaining outstanding shares of MTI that we did not already own, MTI had a 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan and a 1996 Stock Incentive Plan.  As a result of the merger of MII with and into MTI, the outstanding options issued under these MTI plans were converted into options to purchase an aggregate of 2,449,905 shares of our common stock.  MTI also had an Employee Stock Purchase Plan, which was terminated effective December 31, 2005 (See Note 5).

In addition to our 2005 Incentive Stock Plan, we maintain the ev3 Inc. Employee Stock Purchase Plan (“ESPP”).  The maximum number of shares of our common stock available for issuance under the ESPP is 750,000 shares, subject to adjustment as provided in the ESPP. The ESPP provides for six-month offering periods beginning on January 1 and July 1 of each year; provided, however, that the compensation committee of the board of directors may decide in its sole discretion when to commence the first offering period so long as such offering period is commenced within 12 months of the date the ESPP was first approved by the board of directors, which was on February 13, 2006.   An offering period has not yet been commenced under the ESPP.  The purchase price of the shares will be 85% of the lower of the fair market value of our common stock at the beginning or end of the offering period. This discount may not exceed the maximum discount rate permitted for plans of this type under Section 423 of the Internal Revenue Code of 1986, as amended.   We expect the ESPP to be compensatory for financial reporting purposes.

5

On January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (SFAS 123(R)) using the modified prospective method.  SFAS 123(R) requires companies to measure and recognize the cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards.  Compensation cost under SFAS 123(R) is recognized ratably using the straight-line attribution method over the expected vesting period.  In addition, pursuant to SFAS 123(R), we are required to estimate the amount of expected forfeitures when calculating the compensation costs, instead of accounting for forfeitures as incurred, which was our previous method.  All of our options previously awarded were classified as equity instruments and continue to maintain their equity classification under SFAS 123(R).

Prior to January 1, 2006 and since the beginning of 2003, we accounted for share-based awards under the recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation” using the modified prospective method of adoption described in SFAS 148.  We used the minimum value pricing model for measuring the fair value of our options granted through the first quarter 2005, which does not take into consideration volatility. In accordance with SFAS 123, subsequent to April 5, 2005, the date of our initial filing of the registration statement relating to our initial public offering with the Securities and Exchange Commission, we used the Black-Scholes method, including an estimated volatility assumption, to estimate the fair value of all option grants. Expense previously recognized related to options that were cancelled or forfeited prior to vesting was reversed in the period of the cancellation or forfeiture, as allowed under SFAS 123.

The fair value of options are estimated at the date of grant using the Black-Scholes option pricing model with the assumptions listed below.  Risk free interest rate is based on U.S. Treasury rates appropriate for the expected term.  Expected volatility and forfeiture rates are based on historical factors related to our common stock since our June 2005 initial public offering which are substantially equivalent to volatility rates as measured against a set of guideline companies.  The guideline companies consist of public and recently public medical technology companies.  Dividend yield is zero as we do not expect to declare any dividends in the foreseeable future.  The expected term is based on the weighted average time between grant and employee exercise.  The fair value of stock granted to employees is based upon the closing market value of our common stock on the date of grant.

	July 2, 2006		July 3, 2005		July 3, 2005
Three Months Ended	ev3 Inc.		ev3 Inc.		MTI
Risk free interest rate	4.9	%	3.8	%	3.6	%
Forfeiture rate	4.5	%	—		—
Expected dividend yield	0.0	%	0.0	%	0.0	%
Expected volatility	51.2	%	50.0	%	44.9	%
Expected option term	4 years		4 years		4 years

	July 2, 2006		July 3, 2005		July 3, 2005
Six Months Ended	ev3 Inc.		ev3 Inc.		MTI
Risk free interest rate	4.5	%	3.8	%	3.9	%
Forfeiture rate	4.5	%	—		—
Expected dividend yield	0.0	%	0.0	%	0.0	%
Expected volatility	50.0	%	50.0	%	56.9	%
Expected option term	4 years		4 years		4 years

In November 2005, the FASB issued FASB Staff Position No. 123(R)-3 (FSP 123(R)-3), “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards”.  FSP 123(R)-3 provides an elective alternative transition method for calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123(R).  Companies may take up to one year from the effective date of FSP 123(R)-3 to evaluate the available transition alternatives and make a one-time election as to which method to adopt.  We are currently in the process of evaluating the alternative methods.

In accordance with the provisions of SFAS 123(R) and Emerging Issues Task Force Issue 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”, we account for non-employee equity-based awards, in which goods or services are the consideration received for the equity instruments issued, at their fair value.

6

As of July 2, 2006, the total compensation cost for nonvested awards not yet recognized in our statements of operations was $16.8 million, net of estimated forfeitures.  This amount is expected to be recognized over a weighted average period of 2.7 years.

A summary of activity for all plans (dollars in thousands, except per share amounts) during the three and six months ended July 2, 2006 is as follows:

	Awarded Shares Outstanding		Weighted-Average Exercise Price Per Share		Aggregate Intrinsic Value
Balance at January 1, 2006	3,823,309		$	11.41
MTI options converted to ev3 options as a result of the merger	2,449,905		$	9.75
Granted:
Restricted stock	5,000		—
Exercise price equal to market price at date of grant(1)	761,664		$	16.18
Exercised	(135,818	)	$	8.71
Cancelled/Forfeited	(313,774	)	$	11.95
Balance at April 2, 2006	6,590,286		$	11.45	$	41,071
Granted:
Unrestricted stock grant, net of shares repurchased	19,073		—
Exercise price equal to market price at date of grant(2)	280,104		$	16.15
Exercised	(323,213	)	$	8.70
Cancelled/Forfeited	(311,634	)	$	11.87
Balance at July 2, 2006	6,254,616		$	11.86	$	21,617
Options exercisable at April 2, 2006	2,739,238		$	10.10	$	21,818
Options exercisable at July 2, 2006	2,915,697		$	10.49	$	14,421

(1)The weighted average fair value for options granted at market was $7.05.

(2)The weighted average fair value for options granted at market was $7.27.

As of July 2, 2006, we had 190,000 shares of restricted stock outstanding.  The value of these shares of restricted stock was measured at the closing market price of our common stock on the grant date.  The unamortized compensation expense for these awards was $2.4 million as of July 2, 2006, which will be recognized over the remaining vesting period of approximately 3.4 years.

During the quarter ended July 2, 2006, we issued 28,341 shares of unrestricted stock to key employees in the form of unrestricted stock grants.  Of the 28,341 shares of common stock issued to these employees as stock grants, we immediately repurchased 9,268 shares to pay the employees’ withholding or employment-related tax obligations due in connection with the issuance of the stock grants.  The value of these stock grants was measured at the closing market price of our common stock on the date of grant.  The resulting compensation expense of $393 thousand was recorded during the quarter.

The intrinsic value of a stock option award is the amount by which the fair market value of the underlying stock exceeds the exercise price of the award.  The total intrinsic value of options exercised was $2.3 million and $3.3 million during the three and six months ended July 2, 2006, respectively, and $9 thousand and $441 thousand during the three and six months ended July 3, 2005, respectively.

7

For options outstanding and exercisable at July 2, 2006, the exercise price ranges and average remaining lives were as follows:

	Options Outstanding				Options Exercisable
Exercise Price Per Share	Number Outstanding	Weighted- Average Per Share Exercise Price		Weighted- Average Remaining Contractual Life	Number Exercisable	Weighted- Average Exercise Price Per Share
$0.36-$8.81	1,188,742	$	6.91	7.3 years	796,663	$	6.50
$8.82	1,561,349	$	8.82	7.4 years	1,064,010	$	8.82
$8.94-$14.70	2,143,619	$	13.47	8.4 years	764,789	$	12.95
$14.93-$17.32	813,331	$	16.16	8.7 years	114,233	$	16.09
$17.30-$229.02	338,502	$	21.15	6.1 years	176,002	$	24.39
	6,045,543	$	11.77	7.9 years	2,915,697	$	10.49

During 2000 and 2001, Warburg Pincus and certain of our employees and directors entered into loan agreements in order for certain employees and directors to buy ownership interests in us. These outstanding loans are considered to be a part of a stock compensation arrangement. Modifications are measured for compensation expense. Additional compensation expense, if any, is recognized over the remaining life of the loan. The total outstanding principal balance and accrued interest on the notes held by Warburg Pincus and issued by certain of our employees and directors at July 2, 2006 and December 31, 2005 was $5.3 million and $5.2 million, respectively.

4.Liquidity and Capital Resources

Since inception, we have generated significant operating losses. Historically, our liquidity needs have been met through a series of preferred investments and by demand notes payable issued to Warburg Pincus and Vertical.  On June 21, 2005, we completed an initial public offering in which we sold 11,765,000 shares of our common stock at $14.00 per share for net cash proceeds of $152.7 million, net of underwriting discounts and other offering costs.  Immediately prior to the consummation of the offering, ev3 LLC merged with and into ev3 Inc. and 24,040,718 Class A preferred membership units, 41,077,336 Class B preferred membership units, and 18,799,962 common membership units of ev3 LLC were converted into 83,918,016 shares of common stock of ev3 Inc. (on a pre-split basis).  Immediately thereafter, we completed a one-for-six reverse stock split whereby the 83,918,016 shares of common stock were converted into 13,986,350 shares of common stock.  Prior to the consummation of the offering, and subsequent to the reverse stock split, we also issued 21,964,815 and 1,194,489 shares of common stock to Warburg Pincus and Vertical, respectively, in exchange for their contribution of $324.2 million aggregate principal amount of demand notes and accrued and unpaid interest thereon.  The remaining balance of the accrued and unpaid interest on the demand notes, totaling $36.5 million, was repaid using proceeds from the offering.  On July 20, 2005, we sold an additional 205,800 shares of common stock pursuant to the over-allotment option granted to the underwriters in connection with the initial public offering.  Our net proceeds from this sale totaled $2.2 million, after deducting underwriting discounts and other offering expenses. The total net cash proceeds we received from our initial public offering were $154.9 million.

On June 28, 2006, our operating subsidiaries, ev3 Endovascular, Inc., ev3 International, Inc. and Micro Therapeutics, Inc. (collectively, the “Borrowers”), entered into a Loan and Security Agreement (“Loan Agreement”) with Silicon Valley Bank (“SVB”), consisting of a two-year $30.0 million revolving line of credit and a 48-month $7.5 million equipment financing line.  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 million without any borrowing base limitations. Aggregate borrowings under the revolving line of credit that exceed $12 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 $7.5 million.  Borrowings under the revolving line bear interest at a variable rate equal to SVB’s prime rate.  Borrowings under the equipment line bear interest at a variable rate equal to SVB’s prime rate plus 1.0%.  Accrued interest on any outstanding balance under the revolving line is payable monthly in arrears.  Amounts outstanding under the equipment line as of December 31, 2006 will be payable in 42 consecutive equal monthly installments of principal, beginning on January 31, 2007.

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Both the revolving line of credit and equipment financing 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. The Loan Agreement requires the Borrowers to maintain a specified liquidity ratio and a tangible net worth level.  The Loan Agreement imposes certain limitations on the Borrowers, their subsidiaries and ev3, including without limitation, 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 on deposit or invested with SVB or its affiliates the lesser of $15.0 million or 50% of our aggregate cash and cash equivalents.  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 payments, the failure to comply wither 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 continuation of an event of default, amounts due under the Loan Agreement may be accelerated.

Our future liquidity and capital requirements will be influenced by numerous factors, including clinical 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 and the acceptance of our products in the marketplace.  We believe that our current resources, together with funds available under our revolving credit facility, are sufficient to cover our liquidity requirements through at least the next twelve months.  However, there is no assurance that additional funding will not be needed. Further, if additional funding were needed, there is no assurance that such funding will be available to us or our subsidiaries on acceptable terms, or at all.  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.

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The following summarizes the changes in stockholders’ equity (dollars in thousands) since December 31, 2005:

	Common Stock				Additional Paid in			Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital			Deficit			Income (Loss)			Equity
Balance December 31, 2005	49,350,647		$	493	$	807,032		$	(562,207	)	$	137		$	245,455
Compensation expense on options and restricted stock	—		—		1,794			—			—			1,794
Exercise of options	176,876		2		1,183			—			—			1,185
MTI acquisition	6,997,354		70		95,368			—			—			95,438
Comprehensive income (loss):
Net loss								(24,501		)	—			(24,501		)
Cumulative translation adjustment								—			92			92
Comprehensive income	—		—		—			(24,501		)	92			(24,409		)
Balance April 2, 2006	56,524,877		$	565	$	905,377		$	(586,708	)	$	229		$	319,463
Compensation expense on options and restricted stock	—		—		1,719			—			—			1,719
Exercise of options	269,720		3		2,702			—			—			2,705
Unrestricted stock grants	28,341		—		393			—			—			393
Shares Repurchased	(9,268	)	—		(128		)	—			—			(128		)
Comprehensive income (loss):
Net loss								(10,823		)	—			(10,823		)
Cumulative translation Adjustment								—			(346		)	(346		)
Comprehensive (loss)	—		—		—			(10,823		)	(346		)	(11,169		)
Balance July 2, 2006	56,813,670		$	568	$	910,063		$	(597,531	)	$	(117	)	$	312,983

5.MTI Step Acquisition

On January 6, 2006, we completed the acquisition of the outstanding shares of MTI that we did not already own through the merger of MII with and into MTI, with MTI continuing as the surviving corporation and a wholly owned subsidiary of ev3 Inc. As a result of the merger, each share of common stock of MTI outstanding at the effective time of the merger was automatically converted into the right to receive 0.476289 of a share of our common stock (the “Exchange Ratio”) and cash in lieu of any fractional share of our common stock. We issued approximately 7.0 million new shares of our common stock to MTI’s public stockholders in the merger.  Fair value of the shares issued was measured as the average closing price per share of our stock on the NASDAQ National Market System for the five day trading period centered around the date that the terms of the acquisition were agreed to and announced.  In addition, each outstanding option to purchase shares of MTI common stock was converted into an option to purchase shares of our common stock on the same terms and conditions (including vesting) as were applicable under such MTI option. The exercise price and number of shares for which each such MTI option is (or will become) exercisable was adjusted based on the Exchange Ratio.   The fair value of the replacement stock options was estimated at the closing date.  The unvested portion of the replacement stock options will be recognized as compensation expense over the remaining service period.

The investment was accounted for using the step acquisition method prescribed by ARB 51, Consolidated Financial Statements. Step acquisition accounting requires the allocation of the excess purchase price to the fair value of net assets acquired. The excess purchase price is determined as the difference between the cash paid and the historical book value of the interest in net assets acquired.  The effects of the acquisition do not materially change our results of operations.  Therefore, pro forma disclosures are not included.

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The following table presents the purchase price for the acquisition (in thousands) on January 6, 2006:

	2006
Fair value of shares/options issued	$	95,438
Interest acquired in historical book value of MTI	(12,850		)
Excess purchase price over historical book values	$	82,588

The following summarizes the allocation of the excess purchase price over historical book values (in thousands) arising from the acquisition:

	2006
Inventory	$	668
Developed technology	15,548
Customer relationships	9,964
Trademarks and tradenames	2,029
Acquired in-process research and development	1,787
Goodwill	54,704
Accrued liabilities	(2,112		)
Total	$	82,588

The weighted average life of the acquired intangibles, excluding goodwill, was seven years.  The acquired in-process research and development charge was estimated considering an appraisal and represents the estimated fair value of the in-process projects at the date of acquisition of the MTI shares.  As of the acquisition date, the in-process projects had not yet reached technological feasibility and had no alternative use.  The primary basis for determining technological feasibility of these projects is obtaining regulatory approval to market the products.  Accordingly, the value attributable to these projects, which had yet to obtain regulatory approval, was expensed in conjunction with the acquisition.  If the projects are not successful, or completed in a timely manner, we may not realize the financial benefits expected from these projects.

The income approach was used to determine the fair value of the acquired in-process research and development.  This approach establishes fair value by estimating the after-tax cash flows attributable to any 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 acquired in-process research and development projects, 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.  The discount rate used to arrive at the present value of acquired in-process research and development as of the acquisition date was based on the time value of money and medical technology investment risk factors.  The discount rate used was approximately 14%.  We believe that the estimated acquired in-process research and development amount determined represents the fair value at the date of acquisition and does not exceed the amount a third party would pay for the project.

6.Short-Term Investments

Short-term investments consist of debt securities, which have investment grade credit ratings.  The debt securities are classified and accounted for as available-for-sale and are reported at fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income.  Management determines the appropriate classification of its investments in securities at the time of purchase and reevaluates such determination at each balance sheet date.  The short-term investments consist of floating rate taxable municipal bonds with maturities from 2019 to 2036.  We have the option to put the bonds to the remarketing agent who is obligated to repurchase the bonds at par.  As of July 2, 2006, our cost approximated fair value related to these investments.

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7.Inventories

Inventory consists of the following (in thousands):

	July 2, 2006			December 31, 2005
Raw materials	$	6,184		$	5,823
Work in-progress	1,781			1,944
Finished goods	30,268			29,195
	38,233			36,962
Inventory reserve	(4,251		)	(3,975		)
Inventory, net	$	33,982		$	32,987

8.Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by operating segment for the six months ended July 2, 2006 were as follows (in thousands):   

	Cardio Peripheral		Neurovascular		Total
Balance as of January 1, 2006	$	71,307	$	23,149	$	94,456
Goodwill related to acquisition of MTI common stock	—		54,704		54,704
Balance as of July 2, 2006	$	71,307	$	77,853	$	149,160

Other intangible assets consist of the following (in thousands):

	Weighted	July 2, 2006							December 31, 2005
	Average Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patents and licenses	5.0	$	8,744	$	(3,534	)	$	5,210	$	8,390	$	(3,300	)	$	5,090
Developed technology	6.0	63,616		(35,156		)	28,460		48,068		(29,951		)	18,117
Trademarks and tradenames	7.0	5,122		(2,178		)	2,944		3,093		(1,721		)	1,372
Customer relationships	5.0	16,094		(6,986		)	9,108		6,131		(4,480		)	1,651
Other intangible assets		$	93,576	$	(47,854	)	$	45,722	$	65,682	$	(39,452	)	$	26,230

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 accelerated methods.  We continually evaluate the amortization period and carrying basis of intangible assets to determine whether events and circumstances warrant a revised estimated useful life or reduction in value.

Total amortization of other intangible assets was $4.3 million and $8.5 million for the three and six months ended July 2, 2006, respectively, and $2.5 million and $5.2 million for the three and six months ended July 3, 2005, respectively.  The estimated amortization expense (inclusive of amortization expense already recorded for the six months ended July 2, 2006) for the five years ending December 31 is as follows (in thousands):

2006	$	16,551
2007	11,088
2008	7,348
2009	4,628
2010	3,491

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9.Investments

We had a licensing agreement and an approximate 14% interest in Genyx Medical, Inc. (“Genyx”).  The carrying value of our investment in Genyx was fully written off and reduced to $0 as of December 31, 2004, and we had no obligation to fund Genyx’s operations.  In January 2005, we sold our interest in Genyx and recorded a gain of $3.7 million.  During the second quarter of 2006, we received a $153 thousand milestone payment related to the sale of our investment in Genyx Medical, Inc.  During the second quarter of 2006 we also received a  milestone payment of $910 thousand related to the 2002 sale of our investment in Enteric Medical Technologies, Inc. (“Enteric”)  This is the final milestone payment related to the sale of our investment in Enteric.. During the second quarter of 2005, we received a $878 thousand milestone payment related to the 2002 sale of our investment in Enteric.

10.Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	July 2, 2006		December 31, 2005
Accrued professional services	$	2,515	$	1,043
Financed insurance policies	3,285		368
Accrued clinical studies	417		3,633
Office closure	380		391
Accrued other	6,461		5,908
Total accrued liabilities	$	13,058	$	11,343

11.Interest (Income) Expense

Interest (income) expense consists of the following (in thousands):   

	Three Months Ended						Six Months Ended
	July 2, 2006			July 3, 2005			July 2, 2006			July 3, 2005
Interest expense	$	67		$	6,346		$	101		$	12,191
Interest (income)	(581		)	(268		)	(1,314		)	(405		)
Total interest (income) expense, net	$	(514	)	$	6,078		$	(1,213	)	$	11,786

12.Commitments and Contingencies

Letters of Credit

As of July 2, 2006, we had $3.2 million of outstanding letters of credit.  These outstanding commitments are fully collateralized by restricted cash.

Financed Insurance Policies

We routinely enter into agreements to finance insurance premiums for periods not to exceed the terms of the related insurance policies.  In the three months ended July 2, 2006, we entered into an agreement to finance $3.5 million in insurance-related premiums associated with the annual renewal of certain of our insurance policies.  The amount financed accrues interest at a 6.4% annual rate and is payable in monthly installments over an 11 month period.  As of July 2, 2006, the outstanding balance under the agreement was $3.3 million and is included in accrued liabilities on our consolidated balance sheet.

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Earn-Out Contingencies

Under the terms of the stock purchase agreement we entered into in connection with our acquisition of Dendron in September 2000, we may be required to make additional payments which are contingent upon Dendron products achieving certain revenue targets between 2003 and 2008. In 2003, the $4.0 million revenue target for sales of Dendron products during 2003 was met. Accordingly, an additional payment to the former Dendron stockholders of $3.75 million was made in 2004. In 2004, the $5.0 million revenue target for sales of Dendron products during 2004 was met. Accordingly, a payment to the former Dendron stockholders of $3.75 million was accrued in 2004 and was paid during the second quarter of 2005. We may be required to make a final payment of $7.5 million, which is contingent upon Dendron products achieving annual revenues of $25 million in any year during the period between 2003 and 2008. Any such final payment would be due in the year following the year of target achievement.

Contingencies

We are from time to time subject to, and are presently involved in, litigation or other legal proceedings.

In September 2000, Dendron, which was acquired by MTI in 2002, was named as the defendant in three patent infringement lawsuits brought by the Regents of the University of California, as the plaintiff, in the District Court (Landgericht) in Dusseldorf, Germany.  The complaints requested a judgment that Dendron’s EDC I coil device infringed three European patents held by the plaintiff and asked for relief in the form of an injunction that would prevent Dendron from producing and selling the devices, as well as an award of damages caused by Dendron’s alleged infringement, and other costs, disbursements and attorneys’ fees.  In August 2001, the court issued a written decision that EDC I coil devices did infringe the plaintiff’s patents, enjoined Dendron from producing and selling the devices, and requested that Dendron disclose the individual products’ costs as the basis for awarding damages.  In September 2001, Dendron appealed the decision.  In addition, Dendron instituted challenges to the validity of each of these patents by filing opposition proceedings with the European Patent Office, or EPO, against one of the patents (MTI joined Dendron in this action in connection with its acquisition of Dendron), and by filing nullity proceedings with the German Federal Patents Court against the German component of the other two patents.  The opposition proceedings with the EPO on the one patent are complete, and the EPO has rejected the opposition and has upheld the validity of the one patent.  Dendron retains the right to file a nullity action in Germany against the patent.  All three appeal proceedings are currently stayed on the basis of the validity challenges brought by Dendron.

On July 4, 2001, the University of California filed another suit against Dendron alleging that the EDC I coil device infringed another European patent held by the plaintiff.  The complaint was filed in the District Court of Dusseldorf, Germany seeking additional monetary and injunctive relief.  In April 2002, the court found that EDC I coil devices did infringe the plaintiff’s patent.  The patent involved is the same patent that was involved in the case before the English Patents Court discussed below and that was ruled by a Dutch court to be invalid, also as discussed below.  The opposition proceedings on the patent are complete, and the EPO has rejected the opposition and has upheld the validity of the patent.  Dendron has now filed a domestic German nullity action against that patent.  The infringement case is under appeal.  The appeal has been stayed pending the outcome of the nullity action filed against the patent.

An accrual for the matters discussed above was included in the balance sheet of Dendron as of the date of its acquisition by MTI.  As of July 2, 2006, approximately $826 thousand was recorded in accrued liabilities in our consolidated financial statements included in this report.  Dendron ceased all activities with respect to the EDC I coil device prior to MTI’s October 2002 acquisition of Dendron.

Concurrent with MTI’s acquisition of Dendron, MTI initiated a series of legal actions related to our Sapphire coils in the Netherlands and the United Kingdom, which included a cross-border action that was heard by a Dutch court, as further described below.  The primary purpose of these actions was to assert both invalidity and non-infringement by MTI of certain patents held by others.  The range of patents at issue are held by the Regents of the University of California, with Boston Scientific Corporation subsidiaries named as exclusive licensees, collectively referred to as the “patent holders,” related to detachable coils and certain delivery catheters.

In October 2003, the Dutch court ruled the three patents at issue related to detachable coils are valid and that our Sapphire coils do infringe such patents.  The Dutch court also ruled that the patent holders’ patent at issue related to

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the delivery catheter was invalid.  Pursuant to the court’s ruling, we have been enjoined by the patent holders from engaging in infringing activities related to our Sapphire coils in most countries within the European Union, and may be liable for then-unspecified monetary damages for our activities since September 27, 2002.  In February 2005, we received an initial claim from the patent holders with respect to monetary damages, amounting to €3.6 million, or approximately $4.5 million as of July 2, 2006, with which we disagree.  Court hearings will be held regarding these claims and are currently scheduled for June 2007.  We have filed an appeal with the Dutch court, and believe that since the date of injunction in each separate country we are in compliance with the Dutch court’s injunction and we intend to continue such compliance.  Because we believe that we have valid legal grounds for appeal, we have determined that a loss is not probable at this time as defined by SFAS 5, “Accounting for Contingencies”.  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 or results of operations.

In January 2003, we initiated a legal action in the English Patents Court seeking a declaration that a patent held by the patent holders related to delivery catheters was invalid, and that our products did not infringe this patent.  The patent in question was the U.K. designation of the same patent that was found by the Dutch court in October 2003 to be invalid, as discussed above.  The patent holders counterclaimed for alleged infringement by us.  In February 2005, the court approved an interim settlement between the parties under which the patent holders were required to surrender such patent to the U.K. Comptroller of Patents, and to pay our costs associated with the legal action, including interest.  As a result, the patent was surrendered and we received interim payments from the patent holders aggregating £500 thousand (equivalent to approximately $900 thousand based on the dates of receipt), which we recorded as a reduction of litigation expense upon receipt of such funds during the first quarter of 2005.  The parties are now in proceedings before a costs judge regarding payment by the patent holders of the remaining costs incurred by us in such litigation, with a hearing expected later this year.  As a result of the interim settlement, we anticipate that we will no longer be involved in litigation on this matter in the United Kingdom, although no assurance can be given that no other litigation involving us may arise in the United Kingdom.

In the United States, concurrent with the FDA’s marketing clearance of our Sapphire line of embolic coils received in July 2003, we, through our subsidiary MTI, initiated a declaratory judgment action against the patent holders in the United States District Court for the Western District of Wisconsin.  The action included assertions of non-infringement by us and invalidity of a range of patents held by the patent holders related to detachable coils and certain delivery catheters.  In October 2003, the court dismissed our actions for procedural reasons without prejudice and without decision as to the merits of the parties’ positions.  In December 2003, the University of California filed an action against us in the United States District Court for the Northern District of California alleging infringement by us with respect to a range of patents held by the University of California related to detachable coils and certain delivery systems.  We filed a counterclaim against the University of California asserting non-infringement by us, invalidity of the patents and inequitable conduct in the procurement of certain patents.  In addition, we filed a claim against the University of California and Boston Scientific Corporation for violation of federal antitrust laws, with the result that the court has subsequently decided to add Boston Scientific as a party to the litigation.  Motions for summary judgment made by all parties, have been denied by the court.  A trial date has been set for June 2007.  In addition, there are various related actions, such as requests for re-examination and reissues, pending from time to time in the U.S. Patent and Trademark Office that may or may not have a material effect on these actions.  We cannot estimate the possible loss or range of loss, if any, associated with the resolution of these matters.  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 or results of operations.

In March 2005, Medtronic, Inc. contacted us to express its view that our Protégé stents infringe on one or more of its patents.  We informed Medtronic that we disagreed with Medtronic’s assertions, and subsequently had several discussions with Medtronic.  No lawsuit with respect to this matter has been filed.

On March 30, 2005, we were served with a complaint by Boston Scientific Corporation and one of its affiliates which claims that some of our products, including our SpideRX Embolic Protection Device, infringe certain of Boston Scientific’s patents.  This action was brought in the United States District Court for the District of Minnesota.  Subsequently, we added counterclaims for infringement of three of our patents, Boston Scientific has added two patents into its claims, as well as a claim against us for misappropriation of trade secrets.  We intend to vigorously defend and prosecute respectively the claims in this action.  Because these matters are in early stages, we cannot estimate the possible loss or range of loss, if any, associated with their resolution.  However, there can be no

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assurance that the ultimate resolution of these matters will not result in a material adverse effect on our business, financial condition or results of operations.

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.  We have determined that the first milestone was not achieved by January 1, 2005 and that the first milestone is not 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 allegations, including that we, along with other defendants, breached the acquisition agreement and an implied covenant of good faith and fair dealing by willfully failing to take the steps necessary to meet the first milestone under the agreement, and thereby also failing to meet certain other milestones, and further that one milestone was actually met.  The complaint also alleges fraud, negligent misrepresentation and violation of state securities laws in connection with the negotiation of the acquisition agreement.  We believe these allegations are without merit and intend to vigorously defend this action.  The parties have not engaged in any discovery. We filed a motion to dismiss the complaint, which the court granted in June 2006 on standing grounds.  The plaintiff filed a petition for reargument, which is pending before the trial court. In addition, the plaintiff filed an appeal of the court’s dismissal ruling, which appeal was subsequently voluntarily dismissed by the plaintiff since it was procedurally premature in light of the previously filed petition for reargument.

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 is Appriva Shareholder Litigation Company, LLC, which according to the complaint was formed for the purpose of pursuing claims against us.  The complaint alleges that Erik van der Burg and three unidentified institutional investors have assigned their claims as former shareholders of Appriva to Appriva Shareholder Litigation Company, LLC.  The complaint alleges specified damages in the form of the second milestone payment ($25 million), which is claimed to be due and payable, and further alleges unspecified damages to be proven at trial.  The complaint alleges the following claims:  misrepresentation, breach of contract, breach of the implied covenant of good faith and fair dealing and declaratory relief.  We believe these allegations and claims are without merit and intend to vigorously defend this action.  We have filed a motion to dismiss the complaint.    The motion is still pending before the court.  The plaintiff has served us an initial set of written discovery, and we filed a motion to stay discovery which motion has been granted, pending the resolution of our motion to dismiss.

Because both of these Appriva acquisition related matters are in early stages, we cannot estimate the possible loss or range of loss, if any, associated with 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 or results of operations.

On October 11, 2005, a purported stockholder class action lawsuit purportedly on behalf of MTI’s minority shareholders was filed in the Delaware Court of Chancery against MTI, MTI’s directors and us challenging our previously announced exchange offer with MTI.  The complaint alleged the then-proposed transaction constituted a breach of defendants’ fiduciary duties.  The complaint sought an injunction preventing the completion of the transaction with MTI or, if the transaction were to be completed, rescission of the transaction or rescissory damages, unspecified damages, costs and attorneys’ fees and expenses.  On January 6, 2006, we completed the transaction with MTI.  We believe this lawsuit is without merit and plan to defend it vigorously.  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 or results of operations.

13.    Segment and Geographic Information

We report and manage our operations in two reportable business segments based on similarities in the products sold, customer base and distribution system. The cardio peripheral operating segment includes cardiovascular products which are used to treat coronary artery disease, atrial fibrillation and other disorders in the heart and peripheral vascular products which are used to treat vascular disease in the legs, kidney (or renal), neck (or carotid), and generally all vascular diseases other than in the brain or the heart. The neurovascular operating segment includes products that are used to treat vascular disease and disorders in the brain, including aneurysms and arterial-venous malformations. Management measures segment profitability on the basis of gross profit calculated as net sales less

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cost of goods sold excluding amortization of intangible assets. Other operating expenses are not allocated to individual operating segments for internal decision making activities.

The following is segment information (in thousands):

	Three Months Ended						Six Months Ended
	July 2, 2006			July 3, 2005			July 2, 2006			July 3, 2005
Net sales
Cardio Peripheral:
Stents	$	16,020		$	8,781		$	29,066		$	15,879
Thrombectomy and embolic protection	5,642			3,223			9,679			6,461
Procedural support and other	$	8,919		7,204			$	17,168		13,709
Total Cardio Peripheral	$	30,581		$	19,208		$	55,913		$	36,049
Neurovascular:
Embolic products	9,412			4,219			16,795			8,197
Neuro access and delivery products	10,627			8,113			20,149			14,976
Total Neurovascular	$	20,039		$	12,332		$	36,944		$	23,173
Total net sales	$	50,620		$	31,540		$	92,857		$	59,222
Gross profit
Cardio Peripheral	$	17,208		$	10,314		$	30,135		$	19,001
Neurovascular	15,233			8,441			28,055			15,327
Total	$	32,441		$	18,755		$	58,190		$	34,328
Gross profit	$	32,441		$	18,755		$	58,190		$	34,328
Operating expense	46,091			47,715			96,925			92,609
Loss from operations	$	(13,650	)	$	(28,960	)	$	(38,735	)	$	(58,281	)

	July 2, 2006		Dec. 31, 2005
Total assets
Cardio Peripheral	$	223,404	$	239,255
Neurovascular	127,422		57,573
Total	$	350,826	$	296,828

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The following table presents net sales and long-lived assets by geographic area as of and  for the three and six months ended July 2, 2006 and July 3, 2005 (dollars in thousands):

	Three Months Ended				Six Months Ended
	July 2, 2006		July 3, 2005		July 2, 2006		July 3, 2005
Geographic Data
Net Sales
United States	$	30,689	$	15,939	$	55,463	$	30,060
International	19,931		15,601		37,394		29,162
Total net sales	$	50,620	$	31,540	$	92,857	$	59,222

	July 2, 2006		Dec. 31, 2005
Long-lived Assets
United States	$	21,883	$	17,198
International	651		679
Total long-lived assets	$	22,534	$	17,877

14.Net Loss Per Share

The following outstanding options were excluded from the computation of diluted net loss per share as they had an antidilutive effect. 

	Three Months Ended		Six Months Ended
	July 2, 2006	July 3, 2005	July 2, 2006	July 3, 2005
Options	6,045,543	3,493,961	6,045,543	3,493,961

15.Subsequent Event

As described in note 4, on June 28, 2006, our operating subsidiaries, ev3 Endovascular, Inc., ev3 International, Inc. and Micro Therapeutics, Inc., entered into a Loan and Security Agreement with Silicon Valley Bank, consisting of a two-year $30.0 million revolving line of credit and a 48-month $7.5 million equipment financing line.  As of July 2, 2006, we had no borrowings outstanding under the revolving line of credit or the equipment line.  However, on July 7, 2006, subsequent to the end of the second fiscal quarter, we borrowed $7.5 million under the equipment line.

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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 results of operations and financial condition. 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 related notes thereto included elsewhere in this report.

Overview

We are a global medical device company focused on catheter-based, or endovascular, technologies for the minimally invasive treatment of vascular diseases and disorders.  Our broad product portfolio is focused on applications in each of the three sub-markets of the endovascular device market: peripheral vascular, cardiovascular and neurovascular.  We sell over 100 products consisting of over 1,000 SKUs in these markets.  From 2000 to 2002, our investor group acquired certain of the assets in our cardio peripheral division to build the foundation of our current peripheral and cardiovascular product portfolios.  During this period, our investor group also purchased certain neurovascular assets to expand our neurovascular product portfolio and, through a series of investments, obtained a controlling investment in Micro Therapeutics, Inc., or MTI.  MTI was previously our majority owned subsidiary, with the remaining shares being publicly held. In January 2006, we acquired the remaining shares of MTI’s common stock not owned by us, as a result of which MTI became our wholly owned subsidiary.  We have dedicated significant capital and management effort to advance our acquired technologies and broaden our product lines in order to execute our strategies.

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 introduction of new products.  We expect to originate these new products primarily through our internal research and development and clinical efforts, but we may supplement them with acquisitions or other external collaborations.  Additionally, our growth has been, and will continue to be, impacted by our expansion into new geographic markets and the expansion of our direct sales organization in existing geographic markets.

We were formed on January 28, 2005 as a subsidiary of ev3 LLC.  Immediately prior to the consummation of our initial public offering on June 21, 2005, ev3 LLC was merged with and into us and we completed a one-for-six reverse stock split of our outstanding common stock.  For additional information regarding our formation and the related transactions, see Note 2 to our consolidated financial statements included elsewhere in this report.  All share and per share amounts for all periods presented in this report reflect the reverse stock split of our common stock.

We report and manage our operations in two reportable business segments based on similarities in the products sold, customer base and distribution system.  Our cardio peripheral segment contains products that are used in both cardiovascular and peripheral vascular procedures by cardiologists, radiologists and vascular surgeons.  Our neurovascular segment contains products that are used primarily by neuroradiologists and neuro surgeons.  Our sales activities and operations are aligned closely with our business segments.  We generally have dedicated cardio peripheral sales teams in the United States and Europe that target customers who often perform procedures in both anatomic areas (cardiovascular and peripheral vascular).  We generally have separate, dedicated neurovascular sales teams in the United States and Europe that are specifically focused on our neurovascular business customer base.

We have corporate infrastructure and direct sales capabilities in the United States, Canada, Europe and Japan and have established distribution relationships in other international markets.  Our corporate headquarters and our manufacturing, research and development, and U.S. sales operations for our peripheral vascular and cardiovascular product lines are located in Plymouth, Minnesota.  Our manufacturing, research and development, and U.S. sales operations for our neurovascular product lines are located in Irvine, California.  Outside of the United States, our primary offices are in Paris, France and Tokyo, Japan.  During the three and six months ended July 2, 2006, approximately 39.4% and 40.3% of our net sales, respectively, were generated outside of the United States, as a result of which we are sensitive to risks related to fluctuation in exchange rates and other risks associated with international operations, which could affect our business results.  Changes in foreign currency exchange rates had  a negligible impact on second quarter 2006 net sales compared to the second quarter of 2005.

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Since our inception, we have focused on building our U.S. and international direct sales and marketing infrastructure that includes a worldwide sales force of approximately 210 representatives as of July 2, 2006 in the United States, Canada, Europe and Japan.  Our direct sales representatives accounted for approximately 89% of our net sales during each of the three and six months ended July 2, 2006, with the balance generated by independent distributors.  In order to drive sales growth, we have invested heavily throughout our history in new product development, clinical trials to obtain regulatory approvals and the expansion of our global distribution system.  As a result, our costs and expenses have significantly exceeded our net sales, resulting in an accumulated deficit of $597.5 million at July 2, 2006. Consequently, we have financed our operations through debt and equity offerings.  We expect to continue to generate operating losses for at least the next twelve months.

Our cash, cash equivalents and short-term investments available to fund our current operations were $47.2 million at July 2, 2006.  We completed an initial public offering of our common stock on June 21, 2005 in which we sold 11,765,000 shares of our common stock at $14.00 per share, resulting in net proceeds to us of approximately $152.7 million, after deducting underwriting discounts and commissions and offering expenses.  We used $36.5 million of these net proceeds to repay a portion of the accrued and unpaid interest on certain demand notes held by Warburg, Pincus Equity Partners, L.P. and certain of its affiliates, which we refer to collectively as Warburg Pincus, and The Vertical Group L.P. and certain of its affiliates, which we refer to collectively as Vertical. In addition, on July 20, 2005, we sold 205,800 shares of common stock pursuant to an over-allotment option granted to the underwriters which resulted in net proceeds to us of $2.2 million, after deducting underwriting discounts and commissions and offering expenses.  We invested the remaining portion of the net proceeds in short-term, investment-grade, interest bearing securities.  We have used these funds for general corporate purposes since our initial public offering, and expect to continue to do so.  We expect our cash balances to decrease as we continue to use cash to fund our operations.

On June 28, 2006, our operating subsidiaries, ev3 Endovascular, Inc., ev3 International, Inc. and Micro Therapeutics, Inc., entered into a Loan and Security Agreement with Silicon Valley Bank, consisting of a two-year $30.0 million revolving line of credit and a 48-month $7.5 million equipment financing line.  As of July 2, 2006, we had no borrowings under the revolving line of credit or the equipment line.  However, on July 7, 2006, subsequent to the end of the second fiscal quarter, we borrowed $7.5 million under the equipment line for planned equipment purchases related to the expansion of our manufacturing capabilities.

We believe our cash, cash equivalents, short-term investments and funds available under our revolving credit facility will be sufficient to meet our liquidity requirements through at least the next twelve months.

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Results of Operations

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts (in thousands), and the changes between the specified periods expressed as percent increases or decreases:

	Three Months Ended						Percent		Six Months Ended						Percent
Results of Operations:	July 2, 2006			July 3, 2005			Change		July 2, 2006			July 3, 2005			Change
Net sales	$	50,620		$	31,540		60.5	%	$	92,857		$	59,222		56.8	%
Operating expenses:
Cost of goods sold (a)	18,179			12,785			(42.2	)%	34,667			24,894			(39.3	)%
Sales, general and administrative (a)	35,808			32,297			(10.9	)%	73,669			64,157			(14.8	)%
Research and development (a)	6,047			11,891			49.1	%	12,821			22,217			42.3	%
Amortization of intangible assets	4,282			2,548			(68.1	)%	8,525			5,203			(63.8	)%
(Gain) loss on sale of assets, net	(46		)	111			141.4	%	124			164			24.4	%
Acquired in-process research and development	—			868			NM		1,786			868			(105.8	)%
Total operating expenses	64,270			60,500			(6.2	)%	131,592			117,503			(12.0	)%
Loss from operations	(13,650		)	(28,960		)	52.9	%	(38,735		)	(58,281		)	33.5	%
Other (income) expense:
Gain on sale of investments, net	(1,063		)	(878		)	21.1	%	(1,063		)	(4,611		)	(76.9	)%
Interest (income) expense, net	(514		)	6,078			108.5	%	(1,213		)	11,786			110.3	%
Minority interest in loss of subsidiary	—			(705		)	NM		—			(726		)	NM
Other (income) expense, net	(1,327		)	1,828			172.6	%	(1,381		)	2,920			147.3	%
Loss before income taxes	(10,746		)	(35,283		)	69.5	%	(35,078		)	(67,650		)	48.1	%
Income tax expense (benefit)	77			(61		)	NM		246			(59		)	NM
Net loss	(10,823		)	(35,222		)	69.3	%	(35,324		)	(67,591		)	47.7	%
Accretion of preferred membership units to redemption value	—			5,635			NM		—			12,061			NM
Net loss attributable to common holders	$	(10,823	)	$	(40,857	)	73.5	%	$	(35,324	)	$	(79,652	)	55.7	%
Net loss per common share (basic and diluted) (b)	$	(0.19	)	$	(4.60	)			$	(0.63	)	$	(13.95	)
Weighted average shares outstanding (b)	56,698,043			8,877,898					56,319,427			5,711,852

(a)   Includes stock-based compensation charges of:

Cost of goods sold	$	155	$	135	$	369	$	247
Sales, general and administrative	1,799		591		3,165		1,045
Research and development	158		189		372		434
	$	2,112	$	915	$	3,906	$	1,726

(b)Net loss per common share attributable to common holders and the weighted average common shares outstanding reflect the June 21, 2005 one-for-six reverse stock split for all periods presented.

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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				Percent		Six Months Ended				Percent
NET SALES BY SEGMENT:	July 2, 2006		July 3, 2005		Change		July 2, 2006		July 3,2005		Change
Cardio Peripheral:
Stents	$	16,020	$	8,781	82.4	%	$	29,066	$	15,879	83.0	%
Thrombectomy and embolic protection	5,642		3,223		75.1	%	9,679		6,461		49.8	%
Procedural support	8,919		7,204		23.8	%	17,168		13,709		25.2	%
Total Cardio Peripheral	$	30,581	$	19,208	59.2	%	$	55,913	$	36,049	55.1	%
Neurovascular:
Embolic products	9,412		4,219		123.1	%	16,795		8,197		104.9	%
Neuro access and delivery products	10,627		8,113		31.0	%	20,149		14,976		34.5	%
Total Neurovascular	$	20,039	$	12,332	62.5	%	$	36,944	$	23,173	59.4	%
Total	$	50,620	$	31,540	60.5	%	$	92,857	$	59,222	56.8	%

	Three Months Ended				Percent		Six Months Ended					Percent
NET SALES BY GEOGRAPHY:	July 2, 2006		July 3, 2005		Change		July 2, 2006			July 3, 2005		Change
United States	$	30,689	$	15,939	92.5	%	$	55,463		$	30,060	84.5	%
International
Before foreign exchange impact	19,912		15,601		27.6	%	38,550			29,162		32.2	%
Foreign exchange impact	19		—		—		(1,156		)	—		—
Total	19,931		15,601		27.8	%	37,394			29,162		28.2	%
Total	$	50,620	$	31,540	60.5	%	$	92,857		$	59,222	56.8	%

Comparison of the Three Months Ended July 2, 2006 to the Three Months Ended July 3, 2005

Net sales.  Net sales increased 60.5% to $50.6 million in the three months ended July 2, 2006 compared to $31.5 million in the three months ended July 3, 2005, primarily as a result of continued improvements in sales force productivity and increased market penetration of products introduced during the past 18 months.  We introduced two new products in the first quarter 2006 and one new product in the second quarter 2006.  We expect to introduce additional new products during the remainder of the year.

Net sales of cardio peripheral products.  Net sales of cardio peripheral products increased 59.2% to $30.6 million in the three months ended July 2, 2006 compared to $19.2 million in the three months ended July 3, 2005.  This sales growth was primarily the result of sales growth in our stent products and sales of our SpideRX Embolic Protection Device.  Net sales in our stent product line increased 82.4% to $16.0 million in the three months ended July 2, 2006 compared to $8.8 million in the three months ended July 3, 2005.  This increase is attributable to increased market penetration of the Protégé, Primus and ParaMount Mini families of stents, partially offset by sales declines in older generation products.  Net sales of our thrombectomy and embolic protection devices increased 75.1%, or $2.4 million, to $5.6 million in the three months ended July 2, 2006 compared to the same period in 2005, largely due to increased market penetration of the SpideRX internationally and the launch of SpideRX in the United States, partially offset by sales declines in older generation products.  Net sales of our procedural support and other products increased 23.8% to $8.9 million in the three months ended July 2, 2006 compared to $7.2 million in the three months ended July 3, 2005, largely due to the increased market penetration of PTA balloon catheters in the United States.  We expect cardio peripheral net sales to increase during the remainder of 2006 as a result of new product introductions and continued market penetration of products released during the past 18 months.

Net sales of neurovascular products.  Net sales of our neurovascular products increased 62.5% to $20.0 million in the three months ended July 2, 2006 compared to $12.3 million in the three months ended July 3, 2005, primarily as a result of increased penetration of existing products and sales growth in virtually all of our neurovascular access and delivery products. Net sales of our embolic products increased 123.1%, or $5.2 million, to $9.4 million in the three months ended July 2, 2006 compared to the same period in 2005, primarily due to increased market penetration of our Nexus coil and Onyx Liquid Embolic System for the treatment of brain arterial-venous malformations, partially offset by sales declines in older generation products.  Sales of our neuro access and delivery products increased 31.0%, or $2.5 million, to $10.6 million in the three months ended July 2, 2006 compared to the

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same period in 2005, largely as a result of volume increases across most product lines, including the Echelon microcatheters, the Marathon microcatheter and the HyperForm and HyperGlide occlusion balloon systems.

Net sales by geography.  Net sales in the United States increased 92.5% to $30.7 million in the three months ended July 2, 2006 compared to $15.9 million in the three months ended July 3, 2005. International net sales increased 27.8% to $19.9 million in the three months ended July 2, 2006 compared to $15.6 million in the three months ended July 3, 2005 and represented 39.4% and 49.5% of our total net sales during the three months ended July 2, 2006 and July 3, 2005, respectively.

Cost of goods sold.  As a percentage of net sales, cost of goods sold decreased to 35.9% of net sales in the three months ended July 2, 2006 compared to 40.5% of net sales in the three months ended July 3, 2005.  This decrease was primarily attributable to our continued growth in sales volume, the consolidation of  manufacturing facilities during the second quarter of 2005 and on going investments in in-house manufacturing capabilities.  In our cardio peripheral segment, cost of goods sold as a percent of net sales decreased to 43.7% in the three months ended July 2, 2006 compared to 46.3% in the three months ended July 3, 2005 primarily attributable to increased sales volume.  In our neurovascular segment, cost of goods sold as a percent of net sales decreased to 24.0% in the three months ended July 2, 2006 compared to 31.6% in the three months ended July 3, 2005 due in part to  the consolidation of our neurovascular manufacturing operations into our Irvine, California facility during the second quarter of 2005.  Our increased production volumes and ongoing cost savings programs also contributed to the decrease. We expect cost of goods sold as a percentage of net sales to show modest improvement during the remainder of 2006 due to higher volume in our manufacturing facilities and efficiency improvements from manufacturing initiatives, offset in part by anticipated conversion costs associated with new product launches occurring during 2006.

Sales, general and administrative expense.  Sales, general and administrative expenses increased 10.9% to $35.8 million in the three months ended July 2, 2006 compared to $32.3 million in the three months ended July 3, 2005.  The increase was partially due to higher selling expenses related to new product introductions, a $1.2 million increase in non-cash stock-based compensation costs and a $585 thousand increase in severance related costs.  We expect sales, general and administrative expenses, excluding litigation related charges, for each of the remaining quarters of 2006 to remain consistent or to decline slightly as compared to second quarter 2006.

Research and development.  Research and development expense decreased 49.1% to $6.0 million in the three months ended July 2, 2006 compared to $11.9 million in the three months ended July 3, 2005.  This reduction was due to a decreases in clinical study expenses related to the completion of certain clinical trials in 2005, which was partially offset by increased spending on certain internal development efforts.  We expect research and development expense as a percentage of net sales to increase as compared to second quarter 2006.

Amortization of intangible assets.  Amortization of intangible assets increased 68.1% to $4.3 million in the three months ended July 2, 2006 compared to $2.5 million in the three months ended July 3, 2005 primarily due to increases in intangible assets recorded as part of our acquisition of the remaining minority shares of MTI in January 2006.   We expect amortization of intangible assets for the remaining quarters of 2006 to remain consistent with first and second quarter 2006 levels.

Acquired in-process research and development.  We did not incur charges for acquired in-process research and development during the three months ended July 2, 2006.  During the three months ended July 3, 2005, we incurred a charge of $868 thousand for acquired in-process research and development as a result of the May 2005 contribution of MTI shares to us by Vertical.

Gain on sale of investments, net.  Gain on sale of investments, net was $1.1 million in the three months ended July 2, 2006.  We received a final milestone payment of $910 thousand related to the 2002 sale of our investment in Enteric Medical Technologies, Inc. and a $153 thousand milestone payment related to the 2005 sale of our investment in Genyx Medical, Inc.  Gain on sale of investments, net was $878 thousand in the three months ended July 3, 2005 and was the result of our receipt of an earlier milestone payment relating to the 2002 sale of our investment in Enteric Medical Technologies, Inc.

Interest (income) expense, net.  Net interest income was $514 thousand in the three months ended July 2, 2006 compared to net interest expense of $6.1 million in the three months ended July 3, 2005.   A portion of the proceeds

23

from our initial public offering in June 2005 was invested in short-term, investment-grade, interest-bearing securities contributing interest income during the full second quarter of 2006 versus only a portion of the second quarter of 2005.  We also used a portion of the proceeds to reduce our financing balance to zero resulting in the reduction of interest expense.

Other (income) expense, net.  Other income was $1.3 million in the three months ended July 2, 2006 compared to other expense of $1.8 million in the three months ended July 3, 2005.  The other (income) expense in the three months ended July 2, 2006 and July 3, 2005 was primarily due to foreign exchange gains and losses.

Income tax expense(benefit).  We incurred modest levels of income tax expense in the three months ended July 2, 2006 and modest levels of income tax benefit in the three months ended July 3, 2005 related to certain European sales offices.  We recorded no provision for U.S. income taxes in either the three months ended July 2, 2006 or July 3, 2005 due to our history of operating losses.

Accretion of preferred membership units to redemption value.  Accretion of preferred membership units to redemption value was recorded up to the date of our initial public offering in June 2005 at which time all preferred units were converted into common shares.

Comparison of the Six Months Ended July 2, 2006 to the Six Months Ended July 3, 2005

Net sales.  Net sales increased 56.8% to $92.9 million in the six months ended July 2, 2006 compared to $59.2 million in the six months ended July 3, 2005, primarily as a result of continued improvements in sales force productivity and increased market penetration of products introduced during the past 18 months.  We introduced two new products in the first quarter 2006 and one new product in the second quarter 2006.

Net sales of cardio peripheral products.  Net sales of cardio peripheral products increased 55.1% to $55.9 million in the six months ended July 2, 2006 compared to $36.0 million in the six months ended July 3, 2005.  This sales growth was primarily the result of sales growth in our stent products and sales of our PTA balloon catheters in the United States.  Net sales in our stent product line increased 83.0% to $29.1 million in the six months ended July 2, 2006 compared to $15.9 million in the six months ended July 3, 2005.  This increase is attributable to increased market penetration of the Protégé, Primus and ParaMount Mini families of stents, partially offset by sales declines in older generation products.  Net sales of our thrombectomy and embolic protection devices increased 49.8%, or $3.2 million, in the six months ended July 2, 2006 compared to the same period in 2005, largely due to increased market penetration of the SpideRX internationally and the launch of SpideRX in the United States, partially offset by sales declines in older generation products.  Net sales of our procedural support and other products increased 25.2% to $17.2 million in the six months ended July 2, 2006 compared to $13.7 million in the six months ended July 3, 2005, largely due to the increased market penetration of PTA balloon catheters in the United States.

Net sales of neurovascular products.  Net sales of our neurovascular products increased 59.4% to $36.9 million in the six months ended July 2, 2006 compared to $23.2 million in the six months ended July 3, 2005, primarily as a result of increased penetration of existing products and sales growth in virtually all of our neurovascular access and delivery products. Net sales of our embolic products increased 104.9%, or $8.6 million, to $16.8 million in the six months ended July 2, 2006 compared to the same period in 2005, primarily due to increased market penetration of our Nexus coil and Onyx Liquid Embolic System for the treatment of brain arterial-venous malformations, partially offset by sales declines in older generation products. Sales of our neuro access and delivery products increased 34.5%, or $5.2 million, to $20.1 million in the six months ended July 2, 2006 compared to the same period in 2005, largely as a result of volume increases across multiple product lines, including the Echelon microcatheters, the Marathon microcatheter and the HyperForm and HyperGlide occlusion balloon systems.

Net sales by geography.  Net sales in the United States increased 84.5% to $55.5 million in the six months ended July 2, 2006 compared to $30.1 million in the six months ended July 3, 2005. International net sales also increased 28.2% to $37.4 million in the six months ended July 2, 2006 compared to $29.2 million in the six months ended July 3, 2005 and represented 40.3% and 49.2% of our total net sales during the six months ended July 2, 2006 and July 3, 2005, respectively.

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Cost of goods sold.  As a percentage of net sales, cost of goods sold decreased to 37.3% of net sales in the six months ended July 2, 2006 compared to 42.0% of net sales in the six months ended July 3, 2005.  This decrease was primarily attributable to our continued growth in sales volume, the consolidation of  manufacturing facilities during the second quarter of 2005 and on going investments in in-house manufacturing capabilities.  In our cardio peripheral segment, cost of goods sold as a percent of net sales decreased to 46.1% in the six months ended July 2, 2006 compared to 47.3% in the six months ended July 3, 2005 primarily attributable to increased production volumes. In our neurovascular segment, cost of goods sold as a percent of sales decreased to 24.1% in the six months ended July 2, 2006 compared to 33.9% in the six months ended July 3, 2005 due in part to the  consolidation of our neurovascular manufacturing operations into our Irvine, California facility during the second quarter of 2005.  Our increased production volumes and ongoing cost savings programs also contributed to the decrease.

Sales, general and administrative expense.  Sales, general and administrative expenses increased 14.8% to $73.7 million in the six months ended July 2, 2006 compared to $64.2 million in the six months ended July 3, 2005.  The increase was partially due to $4.1 million of charges incurred during the first six months of 2006 related to litigation and business development activities that represents a higher level than our historical level.  Higher selling expenses related to new product introductions and a $2.1 million increase in non-cash stock-based compensation costs also contributed to the increase in the six months ended July 2, 2006.

Research and development.  Research and development expense decreased 42.3% to $12.8 million in the six months ended July 2, 2006 compared to $22.2 million in the six months ended July 3, 2005.  This reduction was due to a $7.8 million decrease in clinical study expenses related to the completion of certain clinical trials in 2005, which was partially offset by increased spending on certain internal development efforts.

Amortization of intangible assets.  Amortization of intangible assets increased 63.8% to $8.5 million in the six months ended July 2, 2006 compared to $5.2 million in the six months ended July 3, 2005 primarily due to increases in intangible assets recorded as part of the May 2005 contribution of MTI shares and due to our acquisition of the remaining minority shares of MTI in January 2006.

Acquired in-process research and development.  During the six months ended July 2, 2006, we incurred a charge of $1.8 million for acquired in-process research and development as a result of our acquisition of the outstanding shares of MTI that we did not already own.  We incurred a charge of $868 thousand for acquired in-process research and development during the six months ended July 3, 2005 related to the May 2005 contribution of MTI shares.

Gain on sale of investments, net.  Gain on sale of investments, net was $1.1 million in the six months ended July 2, 2006. We received a final $910 thousand milestone payment related to the 2002 sale of our investment in Enteric Medical Technologies, Inc. and a $153 thousand milestone payment related to the 2005 sale of our investment in Genyx Medical, Inc..  Gain on sale of investments, net was $4.6 million in the six months ended July 3, 2005 related to earlier milestone payments received from the sale of our investments in Genyx Medical, Inc. and Enteric Medical Technologies, Inc.

Interest (income) expense, net.  Net interest income, was $1.2 million in the six months ended July 2, 2006 compared to net interest expense of $11.8 million in the six months ended July 3, 2005.   A portion of the proceeds from our initial public offering in June 2005 were invested in short-term, investment-grade, interest-bearing securities contributing interest income during the full six months ended July 2, 2006 versus only a portion of the six months ended July 3, 2005 .  We also used a portion of the proceeds to reduce our financing balance to zero resulting in the reduction of interest expense.

Other (income) expense, net.  Other income was $1.4 million in the six months ended July 2, 2006 compared to other expense of $2.9 million in the six months ended July 3, 2005.  The other (income) expense in the six months ended July 2, 2006 and July 3, 2005 was primarily due to foreign exchange gains and losses.

Income tax expense(benefit).  We incurred modest levels of income tax in the six months ended July 2, 2006 and modest levels of income tax benefit in the six months ended July 3, 2005 related to certain European sales offices.  We recorded no provision for U.S. income taxes in either the six months ended July 2, 2006 or July 3, 2005 due to our history of operating losses.

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Accretion of preferred membership units to redemption value.  Accretion of preferred membership units to redemption value was recorded up to the date of our initial public offering in June 2005 at which time all preferred units were converted into common shares.

Liquidity and Capital Resources

Balance Sheet Data	July 2, 2006		December 31, 2005
	(in thousands)
Cash and cash equivalents	$	28,783	$	69,592
Short-term investments	18,450		12,000
Total current assets	127,118		151,675
Total assets	350,826		296,828
Total current liabilities	37,228		37,671
Total liabilities	37,843		38,523
Total stockholders’ equity	312,983		245,455

Financing history.  We have generated significant operating losses since our inception.  These operating losses, including cumulative non-cash charges for acquired in-process research and development of $128.7 million, have resulted in an accumulated deficit of $597.5 million as of July 2, 2006. We completed an initial public offering of our common stock on June 21, 2005 in which we sold 11,765,000 shares of our common stock at $14.00 per share, resulting in net proceeds to us of approximately $152.7 million, after deducting underwriting discounts and commissions and offering expenses.  We used $36.5 million of these net proceeds to repay a portion of the accrued and unpaid interest on certain demand notes held by Warburg Pincus and Vertical.  In addition, on July 20, 2005, we sold 205,800 shares of common stock pursuant to an over-allotment option granted to the underwriters which resulted in net proceeds to us of $2.2 million, after deducting underwriting discounts and commissions and offering expenses.  We invested the remaining portion of the net proceeds in short-term, investment-grade, interest-bearing securities.  We have used these funds for general corporate purposes since our initial public offering and expect to continue to do so.  See Part 2, Item 2 under the heading Use of Proceeds included within this report.

Cash, cash equivalents and short-term investments. Our cash, cash equivalents and short-term investments available to fund current operations totaled approximately $47.2 million at July 2, 2006, a decrease of $34.4 million from December 31, 2005.  We expect our cash balances to continue to decrease as we use cash to fund our operations.

Credit facility.  On June 28, 2006, our operating subsidiaries, ev3 Endovascular, Inc., ev3 International, Inc. and Micro Therapeutics, Inc., which we refer to as the “borrowers”, entered into a Loan and Security Agreement, which we refer to as the loan agreement,  with Silicon Valley Bank, or SVB, consisting of a two-year $30.0 million revolving line of credit and a 48-month $7.5 million equipment financing line.  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 million without any borrowing base limitations. Aggregate borrowings under the revolving line of credit that exceed $12 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 $7.5 million.  Borrowings under the revolving line bear interest at a variable rate equal to SVB’s prime rate.  Borrowings under the equipment line bear interest at a variable rate equal to SVB’s prime rate plus 1.0%.   Accrued interest on any outstanding balance under the revolving line is payable monthly in arrears.  Amounts outstanding under the equipment line as of December 31, 2006 will be payable in 42 consecutive equal monthly installments of principal, beginning on January 31, 2007.   As of July 2, 2006, we had no borrowings under the revolving line of credit or the equipment line.  However, on July 7, 2006, subsequent to the end of the second fiscal quarter, we borrowed $7.5 million under the equipment line for planned equipment purchases related to the expansion of our manufacturing capabilities.

Both the revolving line of credit and equipment financing 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

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guaranteed by ev3 Inc. and all of our domestic direct and indirect subsidiaries. The loan agreement requires the borrowers to maintain a specified liquidity ratio and a tangible net worth level.  The loan agreement imposes certain limitations on the borrowers, their subsidiaries and ev3, including without limitation, 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 on deposit or invested with SVB or its affiliates the lesser of $15.0 million or 50% of our aggregate cash and cash equivalents.  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 payments, the failure to comply wither 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 continuation of an event of default, amounts due under the loan agreement may be accelerated.

We believe our cash, cash equivalents, short-term investments and funds available under our revolving credit facility will be sufficient to meet our liquidity requirements through at least the next 12 months.

Operating activities.  Cash used in operations during the six months ended July 2, 2006 was $31.4 million, reflecting primarily our net loss and increased working capital requirements during the period.  Our net loss included approximately $16.8 million of non-cash charges for depreciation and amortization, acquired in-process research and development and stock-based compensation expense.  We expect that operations will continue to use cash during the remainder of 2006.

Investing activities.  Cash used in investing activities during the six months ended July 2, 2006 was $13.5 million primarily due to the purchase of $6.8 million of short-term investments and the purchase of $7.4 million of property and equipment.  Historically, our capital expenditures have consisted of purchased manufacturing equipment, research and testing equipment, computer systems and office furniture and equipment.  We expect to continue to make investments in property and equipment and to incur approximately an additional $11.0 million in capital expenditures during the balance of 2006.

Financing activities.  Cash provided by financing activities was $3.8 million during the six months ended July 2, 2006, generated primarily from proceeds of stock option exercises.

Contractual cash obligations.  Our contractual cash obligations as of December 31, 2005 are set forth in our annual report on Form 10-K for the year ended December 31, 2005. There have been no material changes in our contractual cash obligations and commercial commitments since December 31, 2005, except for additional commitments of approximately $2.0 million and $1.5 million in the years ended December 31, 2006 and 2007, respectively, for financed insurance premiums as described in more detail in Note 12 to our consolidated financial statements included elsewhere in this report.

Other liquidity information.  The acquisition agreements relating to our purchase of MitraLife, Appriva Medical, Inc. and Dendron GmbH require us to make additional payments to the sellers of these businesses if certain milestones related to regulatory steps in the product commercialization process are achieved.  The potential milestone payments total $25.0 million, $175.0 million and $15.0 million with respect to the MitraLife, Appriva and Dendron acquisitions, respectively, during the period of 2003 to 2009.  We do not believe it is likely that we will have obligations with respect to the MitraLife milestones in the future.  We have determined that the first milestone with respect to the Appriva agreement was not achieved by the January 1, 2005 milestone date and that the first milestone is not payable.  On September 27, 2005, we announced that we had decided to discontinue the development and commercialization of our PLAATO device, which is the technology we acquired in the Appriva transaction.  Although we recently had obtained conditional approval from the FDA for an Investigational Device Exemption (“IDE”) clinical trial for the PLAATO device, we determined that, due to the time, cost and risk of enrollment, the trial design ultimately mandated by the FDA was not commercially feasible for us at such time.  We continue to keep all of our options open with regard to the future of the PLAATO technology, which may include a

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sale or licensing of the technology to third parties.  Under the terms of the stock purchase agreement we entered into in connection with our acquisition of Dendron, we may be required to make additional payments which are contingent upon Dendron products achieving certain revenue targets between 2003 and 2008. In 2003, the $4.0 million revenue target for sales of Dendron products during 2003 was met.  Accordingly, an additional payment to the former Dendron stockholders of $3.75 million was made in 2004.  In 2004, the $5.0 million revenue target for sales of Dendron products during 2004 was met. Accordingly, a payment to the former Dendron stockholders of $3.75 million was accrued in 2004 and was paid during the second quarter of 2005.  We may be required to make a final payment of $7.5 million, which is contingent upon Dendron products achieving annual revenues of $25 million in any year during the period between 2003 and 2008.  Any such final payment would be due in the year following the year of target achievement.

Our future liquidity and capital requirements will be influenced by numerous factors, including extent and duration of 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, continuing acceptance of our products in the marketplace competing technologies, market and regulatory developments, and the future course of intellectual property litigation.  We believe that the resources generated from our initial public offering, together with funds available under our revolving credit facility, are sufficient to meet our liquidity requirements through at least the next 12 months. In the event that we require additional working capital to fund future operations and any future acquisitions, we may negotiate a financing arrangement with an independent institutional lender, sell notes to public or private investors or sell additional shares of stock or other equity securities.  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 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.  From time to time, we may also sell a given technology or intellectual property having a development timeline or development cost that is inconsistent with our investment horizon or which does not adequately complement our existing product portfolio.  See Note 4 and Note 12 to our consolidated financial statements included elsewhere in this report.

Critical Accounting Policies and Estimates

We have adopted various accounting policies to prepare our consolidated financial statements in accordance with U.S. GAAP. Our most significant accounting policies are described in Note 3 to our audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2005.  The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes.  Our estimates and assumptions, including those related to bad debts, inventories, intangible assets, sales returns and discounts, and income taxes are updated as appropriate.

Certain of our more critical accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates.  By their nature, these judgments are subject to an inherent degree of uncertainty.  These judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our physician customers and information available from other outside sources, as appropriate.  Different, reasonable estimates could have been used in the current period.  Additionally, changes in accounting estimates are reasonably likely to occur from period to period. Both of these factors could have a material impact on the presentation of our financial condition, changes in financial condition or results of operations.

We believe that the following financial estimates are both important to the portrayal of our financial condition and results of operations and require subjective or complex judgments.  Further, we believe that the items discussed below are properly recorded in our consolidated financial statements for all periods presented.  Management has discussed the development, selection and disclosure of our most critical financial estimates with the audit committee of our board of directors and our independent registered public accounting firm.  The judgments about those financial estimates are based on information available as of the date of our consolidated financial statements.  Those financial estimates include:

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Revenue Recognition

We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which requires that four basic criteria must be met before sales can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable and (4) collectibility is reasonably assured.  These criteria are met at the time of shipment when risk of loss and title passes to the customer or distributor, unless a consignment arrangement exists. Sales from consignment arrangements are recognized upon written acknowledgement that the product has been used by the customer indicating that a sale is complete.  Our terms of sale for regular sales are typically FOB shipping point, net 30 days.  Regular sales include orders from customers for replacement of customer stock, replenishment of consignment product used by customers, orders for a scheduled case/surgery and stocking orders.

We allow customers to return defective or damaged products for credit.  Our estimate for sales returns is based upon contractual commitments and historical return experience which we analyze by geography and is recorded as a reduction of sales for the period in which the related sales occurred.  Historically, our return experience has been low with return rates approximating 3.0% of our net sales.

Stock-Based Compensation

We currently use the Black-Scholes option pricing model to determine the fair value of stock options and other equity incentive awards. The determination of the fair value of stock-based compensation awards on the date of grant using an option-pricing model is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables which include the expected life of the award, the expected stock price volatility over the expected life of the awards, expected dividend yield, risk-free interest rate and the forfeiture rate.

We estimate the expected term of options based upon our historical experience. We estimated expected stock price volatility based upon historical volatility of our common stock which is substantially equivalent to volatility rates as measured against a set of guideline companies.  The guideline companies consist of public and recently public medical technology companies.  The risk-free interest rate was determined using U.S. Treasury rates appropriate for the expected term. Dividend yield is estimated to be zero as we have never paid dividends and have no plans of doing so in the future.

We estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate forfeitures and record stock-based compensation expense only for those awards that are expected to vest. All stock-based compensation is amortized on a straight-line basis over the respective requisite service periods, which are generally the vesting periods.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods, the future periods may differ significantly from what we have recorded in the current period and could materially affect our results of operations. It may also result in a lack of comparability with other companies that use different models, methods and assumptions.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics not present in our option grants. Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our stock-based compensation. Consequently, there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based awards in the future. Certain stock-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that is significantly higher than the fair values originally estimated on the grant date and reported in our financial statements. There is not currently a market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models.

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The guidance in SFAS 123(R) and SAB 107 is relatively new. The application of these principles may be subject to further interpretation and refinement over time. See Note 3 to our consolidated financial statements for further information regarding our SFAS 123(R) disclosures.

Allowance for Doubtful Accounts

We make judgments as to our ability to collect outstanding receivables and provide allowance for a portion of receivables when collection becomes doubtful.  Provisions are made based upon a specific review of all significant outstanding account balances and the overall quality and age of those balances not specifically reviewed.  In determining the provision for invoices not specifically reviewed, we analyze historical collection experience and current economic trends.  If the historical data used to calculate the allowance provided for doubtful accounts does not reflect our future ability to collect outstanding receivables or if the financial condition of customers were to deteriorate, resulting in impairment of their ability to make payments, an increase in the provision for doubtful accounts may be required.  We maintain a large customer base that mitigates the risk of concentration with one customer.  However, if the overall condition of the health care industry were to deteriorate, resulting in an impairment of our customers’ ability to make payments, significant additional allowances could be required.

Our accounts receivable balance was $36.0 million and $28.5 million, net of accounts receivable allowances, comprised of both allowances for doubtful accounts and sales returns, of $3.7 million and $3.6 million at July 2, 2006 and December 31, 2005, respectively.

Excess and Obsolete Inventory

We calculate an inventory reserve for estimated obsolescence or excess inventory based on historical turnover and assumptions about future demand for our products and market conditions.  Our industry is characterized by regular new product development, and as such, our inventory is at risk of obsolescence following the introduction and development of new or enhanced products.  Our estimate and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis.  The estimates we use for demand are also used for near-term capacity planning and inventory purchasing and are consistent with our sales forecasts. Future product introductions and related inventories may require additional reserves based upon changes in market demand or introduction of competing technologies.  Increases in the reserve for excess and obsolete inventory result in a corresponding expense to cost of goods sold.  Our reserve for excess and obsolete inventory was $4.3 million and $4.0 million at July 2, 2006 and December 31, 2005, respectively.

Valuation of Acquired In-Process Research and Development, Goodwill and Other Intangible Assets

When we acquire another company, the purchase price is allocated, as applicable, between acquired in-process research and development, other identifiable intangible assets, tangible net assets and goodwill as required by U.S. GAAP.  In-process research and development is defined as the value assigned to those projects for which the related products have not received regulatory approval and have no alternative future use.  Determining the portion of the purchase price allocated to in-process research and development and other intangible assets requires us to make significant estimates that may change over time.  During the six months ended July 2, 2006, we recorded an in-process research and development charge of $1.8 million related to the January 6, 2006 acquisition of the remaining minority interest in MTI.

The income approach was used to determine the fair values of the acquired in-process research and development.  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.  Revenue estimates were based on relative market size, expected market growth rates and market share penetration.  Gross margin estimates were based on the estimated cost of the product at the time of introduction and historical gross margins for similar products offered by us or by competitors in the marketplace.  The estimated selling, general and administrative expenses were based on historical operating expenses of the acquired company as well as long-term expense levels based on industry comparables.  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 acquired in-process research and development projects, 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

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technologies, the expected introduction date and the estimated useful life of the technology.  The discount rate used to arrive at the present value of acquired in-process research and development as of the acquisition date was based on the time value of money and medical technology investment risk factors.  We believe that the estimated acquired in-process research and development amounts determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the projects.

Goodwill represents the excess of the aggregate purchase price over the fair value of net assets, including in-process research and development, of the acquired businesses.  Goodwill is tested for impairment annually, or more frequently if changes in circumstance or the occurrence of events suggest an impairment exists.  The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows.  Our estimates associated with the goodwill impairment tests are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value amounts, including projected future cash flows.  Goodwill was $149.1 million and $94.5 million at July 2, 2006 and December 31, 2005, respectively.

Other intangible assets consist primarily of purchased developed technology, patents, customer relationships and trademarks and are amortized over their estimated useful lives, ranging from 5 to 10 years.  We review these intangible assets for impairment annually during our fourth fiscal quarter or as changes in circumstance or the occurrence of events suggest the remaining value may not be recoverable.  Other intangible assets, net of accumulated amortization, were $45.7 million and $26.2 million at July 2, 2006 and December 31, 2005, respectively.

The evaluation of asset impairments related to goodwill and other intangible assets require us to make assumptions about future cash flows over the life of the assets being evaluated.  These assumptions require significant judgment and actual results may differ from assumed or estimated amounts.

Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to determine our income taxes in each of the jurisdictions in which we operate.  This process involves estimating our actual current tax expense together with assessing temporary differences resulting from recognition of items for income tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are included on our consolidated balance sheets.  We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance.  To the extent we establish a valuation allowance or increase this allowance in a period, we must reflect this increase as an expense within the tax provision in our consolidated statement of operations.

Management’s judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.  We will continue to monitor the realizability of our deferred tax assets and adjust the valuation allowance accordingly.  We have recorded a full valuation allowance on our net deferred tax asset as of July 2, 2006.

Seasonality

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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC, 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.

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Recent Accounting Pronouncement

On January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (SFAS 123(R)) using the modified prospective method.  SFAS 123(R) requires companies to measure and recognize the cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards.  Compensation cost under SFAS 123(R) is recognized ratably using the straight-line attribution method over the expected vesting period.  In addition, pursuant to SFAS 123(R), we are required to estimate the amount of expected forfeitures when calculating the compensation costs, instead of accounting for forfeitures as incurred, which was our previous method.     Prior periods are not restated under this transition method.  Options previously awarded and classified as equity continue to maintain their equity classification and there has been no reclassification of awards in our consolidated balance sheet.

Prior to January 1, 2006 and since the beginning of 2003, we accounted for share-based awards under the recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation” using the modified prospective method of adoption described in SFAS 148.  We used the minimum value pricing model for measuring the fair value of our options granted through the first quarter 2005, which does not take into consideration volatility. In accordance with SFAS 123, subsequent to April 5, 2005, the date of our initial filing of the registration statement relating to our initial public offering with the Securities and Exchange Commission, we used the Black-Scholes method, including an estimated volatility assumption, to estimate the fair value of all option grants. Expense previously recognized related to options that were cancelled or forfeited prior to vesting was reversed in the period of the cancellation or forfeiture, as allowed under SFAS 123.

In November 2005, the FASB issued FASB Staff Position No. 123(R)-3 (FSP 123(R)-3), “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards”.  FSP 123(R)-3 provides an elective alternative transition method for calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123(R).  Companies may take up to one year from the effective date of FSP 123(R)-3 to evaluate the available transition alternatives and make a one-time election as to which method to adopt.  We are currently in the process of evaluating the alternative methods.

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” 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 “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

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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:

·Lack of market acceptance of new products;

·Failure to develop innovative and successful new products and technologies;

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

·Disruption in our ability to manufacture our products or the 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;

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

·Effects of litigation, including threatened or pending litigation, on matters relating to patent infringement, employment, and commercial disputes;

·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 applicable laws and regulations and to obtain and maintain required regulatory approvals for our products in a cost-effective manner or at all;

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

·Fluctuations in foreign currency exchange rates and interest rates;

·Inability to meet performance enhancement objectives, including efficiency and cost reduction strategies;

·Incurrence of additional debt, contingent liabilities and expenses in connection with future acquisitions;

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

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

·Dependence upon a few of our products to generate a large portion of our net sales and exposure if drug-eluting stents become a dominant therapy in the peripheral vascular stent market and we are not able to develop or acquire a drug-eluting stent to market and sell;

·Exposure to product liability claims;

·Obligation to make significant milestone payments not currently reflected in our financial statements;

·Failure to retain senior management or replace lost senior management;

·Ineffectiveness of our internal controls;

·Failure to comply with our covenants under our loan and security agreement with Silicon Valley Bank;

·Delays in product introduction;

·Loss of customers;

·Disruption in the supply of products of Invatec S.r.l. that we distribute or our relationship with Invatec;

·Failure to integrate effectively newly acquired operations;

·Absence of expected returns from the amount of intangible assets we have recorded;

·Reliance on independent sales distributors and sales associates to market and sell our products in certain foreign countries;

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

·Increases in prices for raw materials;

·Conflicts of interests due to our ownership structure;

·Employee slowdowns, strikes or similar actions;

·Adverse changes in applicable laws or regulations;

·Changes in generally accepted accounting principles; or

·Conditions and changes in medical device industry or in general economic and business conditions.

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, 2005 under the heading “Part I — Item 1A.  Risk Factors” on pages 36 through 57 of such report and “Part II — Item 1A. Risk Factors” included elsewhere in 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 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.

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 exchange fluctuations.  We may enter into derivatives or other financial instruments for trading or speculative purposes; however, our policy is to only enter into contracts that can be designated as normal purchases or sales.

Interest Rate Risk

Borrowings under our revolving line of credit bear interest at a variable rate equal to SVB’s prime rate.  Borrowings under the equipment line bear interest at a variable rate equal to SVB’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 July 2, 2006, we had no borrowings under our revolving line of credit or the equipment line; however, on July 7, 2006, subsequent to the end of our second fiscal quarter, we borrowed $7.5 million under the equipment line.  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 $70 thousand on an annual basis.

Foreign Currency Exchange Rate Risk

Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies could adversely affect our financial results.  In the three and six months ended July 2, 2006, approximately 29.5% and 30.5%, respectively, of

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our net sales were denominated in foreign currencies.  We expect that foreign currencies will continue to represent a similarly significant percentage of our net sales in the future.  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 if 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 70.0% and 71.1% of our net sales denominated in foreign currencies in the three and six months ended July 2, 2006, respectively, were derived from European Union countries and were denominated in the Euro.  Additionally, we have significant intercompany receivables from our foreign subsidiaries, which are denominated in foreign currencies, principally the Euro and the Yen.  Our principal exchange rate risks therefore exist between the U.S. dollar and the Euro and between the U.S. dollar and the Yen.  Fluctuations from the beginning to the end of any given reporting period result in the remeasurement of our foreign currency-denominated 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.  We recorded a $1.3 million and $1.4 million foreign currency transaction gain in the three and six months ended July 2, 2006, respectively, compared to a $1.9 million and $3.1 million foreign currency transaction loss in the three and six months ended July 3, 2005, respectively, related to the translation of our foreign denominated net receivables into U.S. dollars.  We do not currently hedge our exposure to foreign currency exchange rate fluctuations.  We may, however, hedge such exposure to foreign currency exchange rates in the future.

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 and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.  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

A material weakness is a control deficiency or a combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. Our management concluded that as of December 31, 2005 we did not maintain effective controls over the preparation, review and presentation and disclosure of our consolidated statements of cash flows. Specifically, we incorrectly reported an interest payment on demand notes payable as a financing cash out-flow instead of an operating cash out-flow, in accordance with generally accepted accounting principles. This control

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deficiency resulted in the restatement of our consolidated financial statements for the quarters ended July 3, 2005 and October 2, 2005. Additionally, this control deficiency could result in a misstatement of the presentation and disclosure of our operating and financing cash flows in our consolidated financial statements that would result in a material misstatement in our annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management determined that this control deficiency constituted a material weakness in our internal control over financial reporting.

Management has taken steps to remediate the material weakness in our internal control over financial reporting relating to the presentation of our cash flows. These steps include a thorough review of the classification requirements of each component line item and the individual elements that comprise each line item of the statement of cash flows in accordance with generally accepted accounting principles. As a result of these measures and based upon our evaluation of the performance of these controls through the first two quarters of fiscal year 2006, we have concluded that the material weakness that existed in our internal control over financial reporting relating to the presentation of our cash flows as of December 31, 2005 has been fully remediated as of July 2, 2006.

Except as described above, there was no change in our internal control over financial reporting that occurred during our quarter ended July 2, 2006 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 12 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, 2005 under the heading “Part I — Item 1A. Risk Factors,” which could materially adversely affect our business, financial condition or operating results.  Except for the remediation of the material weakness described under the heading “Part I — Item 4. Controls and Procedures” and the additional risk factors set forth below, there has been no material change in those risk factors.

The restrictive covenants in our loan agreement could limit our ability to conduct our business and respond to changing economic and business conditions and may place us at a competitive disadvantage relative to other companies that are subject to fewer restrictions.

Our loan and security agreement with Silicon Valley Bank requires our compliance with a liquidity ratio and minimum tangible net worth level. Our failure to comply with these financial covenants could adversely affect our financial condition. Our loan agreement also contains a number of limitations that limit our ability and the ability of certain of our subsidiaries to, among other things:

·transfer all or any part of our business or properties;

·permit or suffer a change in control;

·merge or consolidate, or acquire all or substantially all of the capital stock or property of another company;

·engage in new business;

·incur additional indebtedness or liens with respect to any of their properties;

·pay dividends or make any other distribution on or purchase of, any of their capital stock;

·make investments in other companies; or

·engage in related party transactions,

subject in each case to certain exceptions and limitations. These restrictive covenants could limit our ability, and that of certain of our subsidiaries, to obtain future financing, withstand a future downturn in our business or the economy in general or otherwise conduct necessary corporate activities. The financial and restrictive covenants contained in the loan agreement could also adversely affect our ability to respond to changing economic and business conditions and place us at a competitive disadvantage relative to other companies that may be subject to fewer restrictions. Transactions that we may view as important opportunities, such as certain acquisitions, may be subject to the consent of Silicon Valley Bank, which consent may be withheld or granted subject to conditions specified at the time that may affect the attractiveness or viability of the transaction.

We cannot assure you that we will be able to comply with all of these restrictions and covenants at all times, especially the financial covenants. Our ability to comply with these restrictions and covenants depends on the success of our business and our operating results and may also be affected by events beyond our control.  A breach of any of the restrictions and covenants in our loan agreement by us or certain of our subsidiaries could lead to an event of default under the terms of the credit agreement, notwithstanding our ability to meet our debt service obligations thereunder. Upon the occurrence of an event of default under our loan agreement, Silicon Valley Bank has available a range of remedies customary in these circumstances, including declaring all such debt, together with accrued and unpaid interest thereon, to be due and payable, foreclosing on the assets securing the loan agreement

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and/or ceasing to provide additional revolving loans or letters of credit, which could have a material adverse effect on us. Although it is possible we could negotiate a waiver with our lenders of an event of default, such a waiver would likely involve significant costs.

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

Recent Sales of Unregistered Equity Securities

During the three months ended July 2, 2006, we did not issue any shares of our common stock or other equity securities of ours that were not registered under the Securities Act of 1933, as amended.

Use of Proceeds

On June 15, 2005, our registration statement on Form S-1 (Registration No. 333-123851) was declared effective.  Our initial public offering resulted in gross proceeds to us of $167.6 million.  Expenses related to the initial public offering were as follows:  approximately $8.4 million for underwriting discounts and commissions and approximately $4.2 million for other expenses, for total expenses of approximately $12.6 million.  None of the offering expenses resulted in direct or indirect payments to any of our directors, officers or their associates, to persons owning 10% or more of our common stock or to any of our affiliates.  All of the offering expenses were paid to others.

After deduction of offering expenses, we received net proceeds of approximately $154.9 million in our initial public offering, including shares sold by us pursuant to the underwriters’ over-allotment option.  As of July 2, 2006, the proceeds from our initial public offering and available cash were used as follows:  $36.5 million of the net proceeds were used to repay a portion of the accrued and unpaid interest on the demand notes, $81.3 million for general corporate purposes and the remaining net proceeds were invested in short-term, investment-grade, interest bearing securities.  We cannot predict whether the proceeds will yield a favorable return.  Other than $36.5 million of the net proceeds used to repay a portion of the accrued and unpaid interest on demand notes held by Warburg Pincus, which is our majority stockholder, and Vertical, which is one of our stockholders, none of the net proceeds from our initial public offering have resulted in direct or indirect payments to directors, officers or their associates, to persons who owned 10% or more of our common stock or to any of our affiliates.

We expect to use the remaining $37.1 million in net proceeds from our initial public offering for general corporate purposes.  Our management has broad discretion as to the use of the net proceeds.  We may use a portion of the net proceeds for the acquisition of, or investment in, technologies or products that complement our business.  As required by Securities and Exchange Commission regulations, we will provide further detail on our use of the net proceeds from our initial public offering in future periodic reports.

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 three months ended July 2, 2006.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
Month # 1 (April 3, 2006 – May 2, 2006)	0		N/A		N/A	N/A
Month # 2 (May 3, 2006 – June 2, 2006)	3,280	(2)	$	13.84	N/A	N/A
Month # 3 June 3, 2006 – July 2, 2006)	5,988	(2)	$	14.00	N/A	N/A
Total:	9,268	(2)	$	13.90	N/A	N/A

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(1)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.

(2)Consists of shares repurchased from employees in connection with the required payment of withholding or employment-related tax obligations due in connection with the issuance of unrestricted stock awards.

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 three months ended July 2, 2006.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

(a)   Our Annual Meeting of Stockholders was held on May 9, 2006.

(b)   The results of the stockholder votes were as follows:

	For	Against/Withhold	Abstain	Broker Non-Votes
1.Election of Directors – for terms expiring at the2009 Annual Meeting of Stockholders
James M. Corbett	52,106,267	2,063,239	—	—
Thomas E. Timbie	52,197,183	1,972,323	—	—
2.Approval of ev3 Inc. Amended and Restated 2005 Incentive Stock Plan	45,261,203	3,057,897	179,424	5,670,982
3.Approval of ev3 Inc. Employee Stock Purchase Plan	47,228,587	1,258,868	11,069	5,670,982
4.Ratification of Independent Registered Public Accounting Firm	54,104,432	53,690	11,384	—

John K. Bakewell, Richard B. Emmitt and Dale A. Spencer will continue to serve as directors of ev3 for terms expiring at our 2007 Annual Meeting of Stockholders.

Douglas W. Kohrs and Elizabeth H. Weatherman will continue to serve as directors of ev3 for terms expiring at our 2008 Annual Meeting of Stockholders.

ITEM 5.OTHER INFORMATION

Not applicable.

ITEM 6.EXHIBITS

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

Exhibit No.	Description
10.1	ev3 Inc. Amended and Restated 2005 Incentive Stock Plan (Incorporated by reference to Exhibit 10.1 to ev3 Inc.’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on May 10, 2006 (File No. 000-51348))
10.2	ev3 LLC Amended and Restated 2003 Incentive Plan (Filed herewith)
10.3	ev3 Inc. Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.24 to ev3 Inc.’s

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Exhibit No.	Description
	Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (File No. 000-51348))
10.4	Offer Letter dated April 3, 2006 by and between ev3 Inc. and Matthew Jenusaitis (Filed herewith)
10.5	Employment Agreement dated April 3, 2006 by and between ev3 Inc. and Matthew Jenusaitis (Filed herewith)
10.6	Change in Control Agreement dated April 3, 2006 by and between ev3 Inc. and Matthew Jenusaitis (Filed herewith)
10.7	Separation Agreement dated April 3, 2006 by and between ev3 Inc. and Thomas C. Wilder III, as amended (Filed herewith)
10.8	Loan and Security Agreement dated as of June 28, 2006 among Silicon Valley Bank, ev3 Endovascular, Inc., ev3 International, Inc. and Micro Therapeutics, Inc. (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.

August 8, 2006	ev3 Inc.
	By:	/s/ James M. Corbett
		James M. Corbett
		President and Chief Executive Officer
		(principal executive officer)
	By:	/s/ Patrick D. Spangler
		Patrick D. Spangler
		Chief Financial Officer and Treasurer
		(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	ev3 Inc. Amended and Restated 2005 Incentive Stock Plan	Incorporated by reference to Exhibit 10.1 to ev3 Inc.’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on May 10, 2006 (File No. 000-51348)
10.2	ev3 LLC Amended and Restated 2003 Incentive Plan	Filed herewith
10.3	ev3 Inc. Employee Stock Purchase Plan	Incorporated by reference to Exhibit 10.24 to ev3 Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (File No. 000-51348)
10.4	Offer Letter dated April 3, 2006 by and between ev3 Inc. and Matthew Jenusaitis	Filed herewith
10.5	Employment Agreement dated April 3, 2006 by and between ev3 Inc. and Matthew Jenusaitis	Filed herewith
10.6	Change in Control Agreement dated April 3, 2006 by and between ev3 Inc. and Matthew Jenusaitis	Filed herewith
10.7	Separation Agreement dated April 3, 2006 by and between ev3 Inc. and Thomas C. Wilder III, as amended	Filed herewith
10.8	Loan and Security Agreement dated as of June 28, 2006 among Silicon Valley Bank, ev3 Endovascular, Inc., ev3 International, Inc. and Micro Therapeutics, Inc.	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-10.2

Exhibit 10.2

ev3 LLC AMENDED AND RESTATED 2003 INCENTIVE PLAN
(as amended through June 12, 2006)

Section 1.PURPOSE.

The Plan is intended as an incentive to improve the performance, encourage the continued employment and increase the proprietary interest of certain members, employees, and advisors of the Company. The Plan is designed to grant such members, employees, and advisors the opportunity to share in the Company’s long-term success through ownership of Units and to afford them the opportunity for additional compensation related to the value of the Units. It is not intended that options granted under this Plan to qualify as “incentive stock options” under Section 422 of the Code.

Section 2.DEFINITIONS.

(a)“Award” means any right granted under the Plan, including any Option, Restricted Unit, or other Unit-based award.

(b)“Board” means the “Board,” as such term is defined in the LLC Agreement.

(c)“Change in Control” means:

(i)the acquisition by any individual, entity or group (other than the Company, Warburg or any employee benefit plan of the Company,) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of securities representing more than 50% of the voting securities of the Company entitled to vote generally in the election of directors, determined on a fully diluted basis (“Company Voting Securities”); provided, however, that such acquisition shall not constitute a Change in Control hereunder if a majority of the holders of the Company Voting Securities immediately prior to such acquisition retain directly or through ownership of one or more holding companies, immediately following such acquisition, a majority of the voting securities entitled to vote generally in the election of directors of the successor entity;

(ii)The date upon which individuals who as of the date hereof constitute a majority of the Board (the “Incumbent Board”) cease to constitute at least a majority of the Board, provided, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board;

(iii)Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, the individuals or entities who were the beneficial owners, respectively, of the Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more

than 50% of, respectively, the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries); or

(iv)approval by the Company’s stockholders of a complete dissolution or liquidation of the Company.

(d)“Code” means the Internal Revenue Code of 1986, as amended.

(e)“Committee” means the Board or such other committee of at least two persons as the Board may appoint to administer the Plan.

(f)“Company” means ev3 LLC, a Delaware limited liability company.

(g)“Eligible Persons” means any member, employee, or advisor of the Company or its subsidiaries.

(h)“Fair Market Value” means the fair market value per share of Unit, on a fully diluted basis, determined by the Board in good faith.

(i)“IPO” means an initial public offering of the equity of the Company registered under the Securities Act pursuant to an effective registration statement.

(j)“IPO Date” means the effective date of the IPO.

(k)“LLC Agreement” means the Operating Agreement of the Company, dated as of August 29, 2003, as the same may be amended from time to time.

(l)“Option” means an option to purchase Units granted pursuant to the Plan.

(m)“Option Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Option grant.

(n)“Participant” means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Award.

(o)“Plan” means the ev3 LLC 2003 Incentive Plan.

(p)“Restricted Units” means Units issued or transferred to a Participant subject to forfeiture and the other restrictions set forth in Section 7 hereof.

(q)“Restricted Unit Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Restricted Unit grant.

(r)“Securities Act” means the Securities Act of 1933, as amended.

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(s)“Unit” means a “Common Membership Unit,” as such term is defined in the LLC Agreement.

(t)“Warburg” means Warburg, Pincus Equity Partners, L.P. and its affiliates.

Section 3.ADMINISTRATION.

(a)General. The Plan shall be administered by the Committee.

(b)Powers of the Committee. Subject to the provisions of the Plan, the Committee shall have sole authority, in its absolute discretion:

(i)To determine from time to time which of the Eligible Persons shall be granted Awards, when and how each Award shall be granted, what type or combination of types of Award shall be granted, the provisions of each Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Units pursuant to an Award, and the number of Units with respect to which an Award shall be granted to each such person;

(ii)To construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for its administration;

(iii)To amend the Plan or an Award as provided in Section 17; and

(iv)To exercise such powers and to perform such acts as the Committee deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.

(c)Committee Determinations. All determinations, interpretations and constructions made by the Committee in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.

Section 4.UNITS SUBJECT TO THE PLAN.

(a)Unit Reserve. Subject to Section 11 hereof relating to adjustments, the total number of Units which may be granted pursuant to Awards hereunder shall not exceed, in the aggregate, 12,549,655.

(b)Source. The Units to be granted or optioned under the Plan shall be authorized but unissued Units or previously issued Units reacquired by the Company on the open market or by private purchase.

(c)Reversion of Units. If any Award shall for any reason expire, be forfeited or otherwise terminate, in whole or in part, the Units not acquired under such Award shall revert to and again become available for issuance under the Plan.

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Section 5.ELIGIBILITY.

Participation shall be limited to Eligible Persons who have received written notification from the Committee, or from a person designated by the Committee, that they have been selected to participate in the Plan.

Section 6.OPTIONS.

(a)General. The Committee is authorized to grant, from time to time, one or more Options to any Eligible Person. Options granted hereunder shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate.

(b)Option Agreement. The provisions of Options shall be set forth in an Option Agreement, which agreements need not be identical, and, except as otherwise provided by the Committee in the Option Agreement, each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

(i)Term. No Option granted hereunder shall be exercisable after the expiration of ten (10) years from the date it was granted.

(ii)Exercise Price. The exercise price per Unit for each Option shall be set by the Committee at the time of grant; provided, however, that the exercise price per unit shall in no event be less than 85% of the Fair Market Value of a Unit on the date of grant.

(iii)Payment for Units. Payment for Units acquired pursuant to Options granted hereunder shall be made in full, upon exercise of the Options (i) in immediately available funds in United States dollars, by certified or bank cashier’s check, (ii) by surrender to the Company of Units which have either (a) have been held by the Participant for at least six-months, or (b) were acquired from a person other than the Company, (iii) by a combination of (i) and (ii), or (iv) by any other means approved by the Committee.

(iv)Vesting. Options shall vest and become exercisable in such manner and on such date or dates set forth in the Option Agreement, as may be determined by the Committee; provided, however, that notwithstanding any vesting dates set by the Committee, the Committee may in its sole discretion accelerate the vesting of any Option, which acceleration shall not affect the terms and conditions of any such Option other than with respect to vesting. Unless otherwise specifically determined by the Committee, the vesting of an Option shall occur only while the Participant is employed or rendering services to the Company and all vesting shall cease upon a Participant’s termination of employment or services for any reason. If an Option is exercisable in installments, such installments or portions thereof which become exercisable shall remain exercisable until the Option expires.

(v)Transferability of Options. Except as otherwise provided below or in the Option Agreement, an Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant; provided, however, that the Participant may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the

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death of the Participant, shall thereafter be entitled to exercise the Option; and provided, further, that an Option may be transferred by a Participant to a “family member” (as defined for purposes of Form S-8 under the Securities Act) of such Participant or to a trust exclusively for the benefit of one or more of such family members of such Participant provided such transfer is made as a gift without consideration, and such transfer complies with applicable securities laws.

(vi)Early Exercise. The Option may, but need not, include a provision whereby the Participant may elect at any time before the Participant’s employment or service terminates to exercise the Option as to any part or all of the Units subject to the Option prior to the full vesting of the Option. Any unvested Units so purchased shall be subject to a repurchase option in favor of the Company and to any other restriction the Committee determines to be appropriate.

Section 7.RESTRICTED UNITS.

(a)General. The Committee is authorized to grant, from time to time, one or more Restricted Units to any Eligible Person. Restricted Units granted hereunder shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate. The terms and conditions of each Restricted Unit grant shall be evidenced by a Restricted Unit Agreement. Subject to the restrictions set forth in Section 7(b), the Participant shall generally have the rights and privileges of a member as to such Restricted Unit, including the right to vote such Restricted Unit. At the discretion of the Committee, distributions, if any, with respect to the Restricted Units may be either currently paid to the Participant or withheld by the Company for the Participant’s account. Unless otherwise determined by the Committee, distributions so withheld by the Committee shall be subject to forfeiture to the same degree as the shares of Restricted Unit to which they relate. No interest will accrue or be paid on the amount of any distributions withheld.

(b)Restrictions. In addition to any other restrictions set forth in a Participant’s Restricted Unit Agreement and the LLC Agreement, until the expiration of the applicable restricted period set forth in such Restricted Unit Agreement, the Participant shall not be permitted to sell, transfer, pledge, or otherwise encumber the Restricted Units. The Committee shall have the authority to remove any or all of the restrictions on the Restricted Units whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising after the date of the Restricted Unit Award, such action is appropriate.

(c)Certificates. Certificates for Restricted Units shall be registered in the name of the Participant but shall be appropriately legended and returned to the Company by the Participant, together with a unit power, endorsed in blank by the Participant. Notwithstanding the foregoing, the Committee may determine, in its sole discretion, that the Restricted Units shall be held in book entry form rather than delivered to the Participant pending the release of the applicable restrictions.

Section 8.OTHER UNIT-BASED AWARDS.

The Committee may grant any other Unit-based Awards to any eligible individual under this Plan that the Committee deems appropriate, including, but not limited to, appreciation

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rights, phantom Unit awards, the bargain purchase of Units and Unit bonuses. Any such benefits and any related agreements shall contain such terms and conditions as the Committee deems appropriate. Such Awards and agreements need not be identical. With respect to any benefit under which Units are or may in the future be issued for consideration other than prior services, the amount of such consideration shall not be less than the amount required to be received by the Company in order to comply with applicable state law.

Section 9.LLC AGREEMENT

As a condition of (a) exercising an Option, or (b) the grant of any Award other than an Option, if a Participant has not previously executed a copy of the LLC Agreement, such Participant shall be required to execute a copy of the LLC Agreement and to be bound by the terms and conditions contained therein.

Section 10.REPURCHASE OF UNITS.

At any time prior to the IPO Date, upon any termination of a Participant’s employment or service, the Committee may, in its discretion, and on terms it considers appropriate, require a Participant, or the executors or administrators of a Participant’s estate, to sell back to the Company all Units acquired through any Award at a price equal to the Fair Market Value at the time of such repurchase; provided, however, that except due to unforeseen circumstances, the Committee shall not exercise its repurchase right prior to the six-month anniversary of the date of grant, in the case of Restricted Units, or the date of exercise, in the case of an Option.

Section 11.ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.

(a)Capitalization Adjustments. The aggregate number of Units which may be granted or purchased pursuant to Awards granted hereunder, the number of Units covered by each outstanding Award, and the price per Unit thereof in each such Award may be subject to adjustment or substitution, as determined by the Committee in its sole discretion, as to the number, price or kind of Units or other consideration subject to such Awards or as otherwise determined by the Committee to be equitable (i) in the event of changes in the outstanding Units or in the capital structure of Company by reason of dividends, splits, reverse splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges, or other relevant changes in capitalization occurring after the date of grant of any such Award, (ii) in the event of any change in applicable laws or any change in circumstances which results in or would result in any substantial dilution or enlargement of the rights granted to, or available for, Participants in the Plan, or (iii) for any other reason which the Committee, in its sole discretion, determines otherwise warrants equitable adjustment because it interferes with the intended operation of the Plan. Any adjustment shall be conclusively determined by the Committee.

(b)Change in Control. Notwithstanding subsection (a) above, in the event of Change in Control, the Company shall require the successor entity or parent thereof to assume all outstanding Awards; provided, however, the Committee may, in its discretion and in lieu of requiring such assumption, provide that all outstanding Awards shall terminate as of the consummation of such Change in Control, and (x) accelerate the exercisability of, or cause all

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vesting restrictions to lapse on, all outstanding Awards to a date at least ten days prior to the date of such Corporate Event and/or (y) provide that holders of Awards will receive a cash payment in respect of cancellation of their Awards based on the amount (if any) by which the per share consideration being paid for the Units in connection with such Change in Control exceeds the applicable exercise price, if any.

(c)Assumption. For purposes of Section 11(b) above, an Award shall be considered assumed, without limitation, if, at the time of issuance of the securities or other consideration upon a Change in Control, each holder of an Award would be entitled to receive upon exercise of the award the same number and kind of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to such transaction, the holder of the number of Units covered by the Award at such time; provided, that if such consideration received in the transaction is not solely equity securities of the successor entity, the Committee may, with the consent of the successor entity, provide for the consideration to be received upon exercise of the Award to be solely equity securities of the successor entity equal to the Fair Market Value of the per share consideration received by holders of Units in the Change in Control.

(d)Fractional Shares. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an option.

Section 12.USE OF PROCEEDS.

The proceeds received from the sale of Units pursuant to the Plan shall be used for general purposes.

Section 13.RIGHTS AND PRIVILEGES AS A MEMBER.

Except as otherwise specifically provided in the Plan, no person shall be entitled to the rights and privileges of a member of the Company in respect of Units which are subject to Awards hereunder until such shares have been issued to that person.

Section 14.EMPLOYMENT OR SERVICE RIGHTS.

No individual shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. Neither the Plan nor any action taken hereunder shall be construed as giving any individual any right to be retained in the employ or service of the Company.

Section 15.COMPLIANCE WITH LAWS.

The obligation of the Company to make payment of Awards in Units or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell and shall be prohibited from offering to sell or selling any Units pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel,

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satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale or resale under the Securities Act any of the Units to be offered or sold under the Plan or any Units issued upon exercise of Options. If the Units offered for sale or sold under the Plan are offered or sold pursuant to an exemption from registration under the Securities Act, the Company may restrict the transfer of such shares and may legend the Unit certificates representing such Units in such manner as it deems advisable to ensure the availability of any such exemption.

Section 16.WITHHOLDING OBLIGATIONS.

The Company is authorized to withhold from any Award granted, any payment relating to an Award under the Plan, including from a distribution of Units, or any payroll or other payment to a Participant, amounts of withholding and other taxes due in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Units or other property and to make cash payments in respect thereof in satisfaction of a Participant’s tax obligations. In addition to the Company’s right to withhold from any compensation paid to the Participant by the Company, a Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Units pursuant to an Award by tendering a cash payment or, in the sole discretion of the Committee, by any of the following means or by a combination of such means:  (i) authorizing the Company to withhold Units from the Units otherwise issuable to the Participant as a result of the exercise or acquisition of Units pursuant to the Award; provided, however, that no Units are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (ii) delivering to the Company owned and unencumbered Units. For purposes of this Section 16, the term “Company” shall be deemed to mean any affiliate that may have a tax withholding obligation due to its relationship with a Participant.

Section 17.AMENDMENT OF THE PLAN OR AWARDS.

(a)Amendment of Plan. The Board at any time, and from time to time, may amend the Plan.

(b)No Impairment of Rights. Rights under any Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant, and (ii) the Participant consents in writing.

(c)Amendment of Awards. The Committee, at any time, and from time to time, may amend the terms of any one or more Awards; provided, however, that the rights under any Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.

Section 18.TERMINATION OR SUSPENSION OF THE PLAN.

The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the effective

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date, as set forth in Section 19 below. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

Section 19.EFFECTIVE DATE OF THE PLAN.

The Plan is effective as of August 29, 2003.

Section 20.MISCELLANEOUS.

(a)No Liability of Committee Members. No member of the Committee shall be personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person’s own fraud or willful bad faith; provided, however, that approval of the Board shall be required for the payment of any amount in settlement of a claim against any such person. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the LLC Agreement, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

(b)Payments Following Accidents or Illness. If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.

(c)Governing Law. The Plan shall be governed by and construed in accordance with the internal laws of the State of Delaware without reference to the principles of conflicts of laws thereof.

(d)Funding. No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under general law.

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(e)Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in relying, acting or failing to act, and shall not be liable for having so relied, acted or failed to act in good faith, upon any report made by the independent public accountant of the Company and its affiliates and upon any other information furnished in connection with the Plan by any person or persons other than himself.

(f)Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control.

*     *     *

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EX-10.4

Exhibit 10.4

April 1, 2006

Matthew Jenusaitis
1123 Hampton Court
Encinitas, CA  92024

Dear Matthew:

We are thrilled you are considering employment with ev3!   As we discussed, ev3 offers the unique opportunity for you to help us build a successful endovascular enterprise with a team of people committed to people, ideas and passion.  I also want you to know that I am personally looking forward to working with you and having you meet the rest of the team.

On behalf of ev3, I would like to extend the following job offer:

1.	Position:	President, Neurovascular Division
2.	Reporting to:	Jim Corbett
3.	Proposed Start Date:	April 3, 2006
4.	Compensation:	$290,000 annual salary, less withholdings for Federal, FICA and State taxes, paid bi-weekly in accordance with ev3’s normal payroll procedures. You will receive a salary and performance review effective January 1, 2007.
5.	Performance Incentive:	You will be eligible to participate in the ev3 performance incentive program. While there is no guarantee, your participation in the plan has been structured so that your incentive target is 45% (pro rated upon start date). Actual payout will depend upon achievement of established ev3 goals.
6.	Stock Options:	Equity compensation is a planned part of our overall compensation philosophy. ev3’s equity program has been established commensurate with an employee’s level within the organization. Subject to Board approval, you will receive 150,000 options at the fair market value on the date of the grant by the Board of Directors.

As an employee of ev3 you will be eligible to participate in ev3’s benefit programs in accordance with the terms of such plans and programs as in effect from time to time.   In addition, you will be entitled to 20 days paid vacation per year accruing on a monthly basis following start date.

Upon acceptance of this offer of employment, the following documents need to be completed, signed and returned in the enclosed postage-paid envelope:

1.Pre-employment Drug & Alcohol Screening Policy Acknowledgement and Consent Form for Substance Abuse Testing

2.Disclosure and Authorization for Consumer Report

3.Employment Agreement

4.Offer Letter

5.New Hire Information Form

6.Job Description

You will be required to provide proof of your identity and authorization to work in the United States as required by Federal immigration laws; please bring the proper original identification documents with you on your first day of work.  Feel free to contact Human Resources if you have questions regarding the documents that are considered acceptable for this purpose.

This offer of employment is conditioned upon each of the following:  (i) your submitting to a drug test and ev3 receiving a negative test result on the drug test; (ii) your submitting to a background check and ev3 receiving a satisfactory report on the background check; (iii) your proving your eligibility to work in the United States by way of completion of the I-9 Form; (iv) your representation to the Company, as set forth in the Employment Agreement, that you are not bound by any commitments to third parties that would prevent you from accepting the position described in the Employment Agreement; and (v) your execution of the enclosed Employment Agreement prior to commencing employment with ev3.

Please note that the Employment Agreement includes non-compete, non-solicitation, and confidentiality clauses, among others, which restrict you from engaging in certain activities during and after termination of your employment with ev3.  I am sure you understand that these provisions are necessary to protect ev3’s investment in its confidential information, trade secrets, customer relationships, and goodwill.

Matthew, we look forward to you joining our effort on a full time basis, and hope the opportunity will be mutually rewarding.  I am looking forward to working with you and to having you meet the rest of the team.  To confirm that you agree to the terms stated in this letter, please sign and date both copies of this letter and return them to me.  Congratulations and welcome!

Sincerely,	Agreed,
/s/ Jim Corbett
Jim Corbett	/s/ Matthew Jenusaitis	4/3/06
President and CEO	Matthew Jenusaitis	Date

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EX-10.5

Exhibit 10.5

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is made effective as of April 03, 2006 (the “Effective Date”), by and between ev3 Inc. (“Company”), having a principal place of business at 9600 54th Avenue North, Plymouth, MN 55442, and Matthew Jenusaitis (“Employee”), having an address of 1123 Hampton Court, Encinitas, CA 92024.

WHEREAS, Company is a leading global medical device company focused on catheter-based, or endovascular, technologies for the minimally invasive treatment of vascular diseases and disorders and desires to employ Employee on the terms and subject to the conditions set forth herein.

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

WHEREAS, Company has expended considerable funds, time, effort, and resources in the development of its customer goodwill and recruiting and training its workforce, which also must be maintained in order to ensure the success of Company’s business; and

WHEREAS, by virtue of Employee’s employment with Company, Employee will be performing services in a confidential capacity and will be acquiring knowledge about Company’s valuable confidential and technical information, its trade secrets, customer goodwill, and its highly trained workforce and Company desires reasonable protection of its confidential business and technical information, its trade secrets, customer goodwill, and its highly trained workforce.

NOW THEREFORE, in consideration of the covenants and promises contained herein, and of Employee’s at-will employment by Company, the compensation and benefits received by Employee from Company, and the access given Employee to Company’s Confidential and Proprietary Information, as defined below, all of which Employee acknowledges are good and valuable consideration for Employee entering into this Agreement and for the restrictions imposed in Employee’s current and post-employment activities under this Agreement, the parties hereto agree as follows:

1.Employment.

1.01.Position. Company hereby employs Employee in the position described in Employee’s offer letter, with such specific duties, responsibilities, and powers as Company may from time to time prescribe.

1.02.Best Efforts. Employee covenants and agrees that, at all times during the term of this Agreement, Employee shall devote Employee’s full-time, best efforts to the duties assigned to Employee by Company. Employee further covenants and agrees that Employee will not, directly or indirectly, engage or participate in any activities at any time during the term of this Agreement in conflict with the best interests of Company.

2.Compensation and Benefits.

2.01.Hourly Compensation. Company shall pay Employee compensation at the rate set forth in Employee’s offer letter, less applicable tax withholdings, paid semi-monthly in accordance with Company’s normal payroll practices. Company may adjust Employee’s hourly compensation

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periodically according to its payroll policies, which presently provide for a salary review effective January 1 of each year.

2.02.Benefits. Employee shall be entitled to participate in Company’s employee benefit programs in accordance with the terms of such plans and programs as in effect from time to time.

3.Term and Termination.

3.01.At-Will Employment. The term of Employee’s employment under this Agreement shall commence on the Start Date set forth in Employee’s offer letter and continue until terminated as hereinafter provided. Employee understands and agrees that employment with Company is at-will and is not guaranteed for any specified duration.

3.02.Termination With or Without Cause. Employee acknowledges and agrees that Employee’s employment may be terminated by Company or Employee at any time, with or without cause, with or without notice, and for any reason. Depending on the circumstances, but only in the case of a without cause termination, some severance may be offered in the sole discretion of the Company.

3.03.Payment upon Termination. In the event of a termination of Employee’s employment for any reason, Employee shall be entitled to compensation to the date of termination, but Company shall not be obligated to make any further payments after the date of termination.

4.Employee’s Representations and Duties.

4.01.Company. Solely for purposes of Articles 4, 5, 6, 7, 8, 9 and 10 of this Agreement, “Company” includes Company, its parent, subsidiary, and affiliated companies, and their successors and assigns.

4.02.No Conflicts. Employee represents and warrants to Company that Employee is not currently subject to any non-competition, confidentiality, or any other type of agreement or other obligation with any third party (including but not limited to any former employer) that would prohibit Employee from accepting this position with Company, conflict with Employee’s obligations under this Agreement, or in any way restrict or impair Employee’s ability to perform the full scope of duties and responsibilities Employee is expected to perform for Company, except as Employee has disclosed to the Company prior to accepting this offer of employment with Company. Regarding such disclosures that have been discussed with the Company, Company agrees to pay the costs of reasonable attorney’s fees and expenses in defense of any claim that may be brought against Employee for any alleged breach of any alleged obligations, and to reimburse Employee for any monetary settlement payments that might result from such claim.

4.03.Compliance with Company Policies. Employee shall, at all times, comply with all policies, rules, and procedures of Company, which include, but are not limited to, Company’s Code of Conduct, Corporate Compliance Policy, and Insider Trading Policy.

4.04.Duty of Loyalty. In all aspects of Employee’s employment with Company, Employee shall act in the utmost good faith, deal fairly with Company, and fully disclose to Company all information that Company might reasonably consider to be important or relevant to Company’s business.  Employee further agrees that during employment by Company, Employee shall not engage in any conduct that might result in, or create the appearance of using Employee’s

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position for Employee’s private gain, or otherwise create a conflict of interest, or the appearance of a conflict of interest, with Company. Such prohibited conduct includes, but is not limited to, having an undisclosed financial interest in any vendor or supplier of Company, accepting payments of any kind or gifts other than of a nominal value from vendors, customers, or suppliers, or having an undisclosed relationship with a family member or other individual who is employed by any entity in active or potential competition with Company, and which creates a conflict of interest. While employed at Company, Employee shall not establish, operate, participate in, advise, or assist to establish in any manner whatsoever any business, that could or would be in competition with Company’s business, and Employee shall not take any preliminary or preparatory steps toward establishing or operating such a business. Notwithstanding the foregoing, Employee may own less than two percent (2%) of any class of stock or security of any company that competes with Company listed on a national securities exchange.

4.05.E-Mail Messages and Internet Usage. Employee acknowledges and agrees that all e-mail messages that Employee produces, sends, or receives while at Company facilities or using Company equipment are the property of Company. Employee also acknowledges and agrees that Company may monitor and inspect all such messages and also may monitor and control the communications that Employee initiates or receives through the Internet while at Company facilities and while using Company equipment in any location. Employee acknowledges that Employee has no right to or expectation of privacy in such communications. Employee agrees to cooperate with Company in its implementation of such security and control measures as it may implement from time to time with respect to e-mail and Internet communications and shall take all reasonable precautions to ensure that the confidentiality of any such communications containing Confidential and Proprietary Information, as defined below, is maintained. Employee also agrees that the Internet may not be used for the transmission or intentional reception of obscene, scandalous, offensive, or otherwise inappropriate materials, and that Employee will comply with all Company policies regarding appropriate use of the Internet and e-mail.

5.Nondisclosure of Confidential and Proprietary Information.

5.01.Definition of Confidential and Proprietary Information. “Confidential and Proprietary Information” means any and all information, whether oral, written, or committed to Employee’s memory, that is not generally known by persons not employed by, or parties to contracts with, Company, whether prepared by Company or Employee, 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, or compositions developed or otherwise possessed by Company;

(b)the subject matter of Company’s patents, design patents, copyrights, trade secrets, trademarks, service marks, trade names, trade dress, manuals, operating instructions, and other intellectual property to the extent that such information is unavailable to the public;

(c)Company’s information, knowledge, or data concerning its financial data, including financial statements and projections, pricing information, costs, sales, budgets, and profits; business plans such as products and services under development, clinical trials, proposals, presentations, potential acquisitions under consideration, and marketing strategies; manufacturing processes; organizational structures, such as

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names of employees, consultants, and their positions and compensation schedules; customer information such as surveys, customer lists, lists of prospective customers, customer research, customer meetings, customer account records, sales records, training and servicing materials, programs, techniques, sales, and contracts; supplier and vendor information including lists and contracts; relational data models, company manuals and policies, computer programs, software, disks, source code, systems architecture, blue prints, flow charts, and licensing agreements; and/or

(d)any document marked “Confidential”, or any information that Employee has been told is “Confidential” or that Employee might reasonably expect Company would regard as “Confidential,” or any information that has been given Company in confidence by customers, suppliers, or other persons.

5.02.Confidentiality Obligations. Employee agrees to hold all Confidential and Proprietary Information in the strictest confidence both during Employee’s employment relationship with Company and after Employee’s employment relationship with Company is voluntarily or involuntarily terminated for any reason. To this end, Employee shall:

(a)not make, or permit or cause to be made, copies of any Confidential and Proprietary Information, except as necessary to carry out Employee’s duties as prescribed by Company;

(b)not disclose or reveal any Confidential and Proprietary Information, or any portion thereof, to any person or company who is not under a legal or contractual obligation to Company to hold such information confidential;

(c)take all reasonable precautions to prevent the inadvertent disclosure of any Confidential and Proprietary Information to any unauthorized person;

(d)acknowledge that Company is the owner of all Confidential and Proprietary Information and agree not to contest any such ownership rights of Company, either during or after Employee’s employment with Company; and

(e)upon termination of employment with Company or upon request by Company, deliver promptly to Company all Confidential and Proprietary Information and all Company documents and property, whether confidential or not, including, without limitation, all books, manuals, records, reports, notes, contracts, lists, blueprints, programs, databases, and other documents or materials, whether in hard copy, electronic, or other form, including copies thereof, whether prepared by Employee or Company, and all equipment furnished to Employee in the course of or incident to employment, including any laptop computer and all data contained on such computer.

5.03.Obligations to Third Parties. Employee understands and acknowledges that Company has a policy prohibiting the receipt or use by Company of any confidential information or trade secret protected information in breach of Employee’s obligations to third parties and Company does not desire to receive any confidential information under such circumstances. Accordingly, Employee will not disclose to Company or use in the performance of any duties for Company any confidential information in breach of an obligation to any third party. Employee represents that Employee has informed Company, in writing, of any restriction on Employee’s use of a third party’s confidential information that conflicts with any obligations under this Agreement.

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6.Non-Competition.

6.01.Post-Employment Restrictions. Employee agrees that for a period of one (1) year following Employee’s termination or separation from employment with Company for any reason, voluntary or involuntary, Employee shall not directly or indirectly (including without limitation as an officer, director, employee, advisor, consultant, or otherwise), render services to any person or entity in connection with the design, development, manufacture, marketing, or sale of a Competitive Product, as defined below, that is sold or intended for use or sale in any geographic area in which Company markets or intends to market any of its products. It is agreed that Employee is free to work for a competitor of Company, provided that:  (i) such employment does not include any responsibilities for, or in connection with, a Competitive Product for the one-year period of the restriction contained in this Paragraph 6.01; and (ii) Employee has not assumed a position with a competitor that would lead to the inevitable disclosure of Company’s trade secrets or Confidential and Proprietary Information.

6.02.Field Sales Restrictions. If Employee’s only responsibilities for Company during the last two years of employment have been in a field sales or field sales management capacity, the restrictions in Paragraph 6.01 above shall be for a period of one year in the sales territory or territories Employee covered or supervised for all or part of the last year of employment and/or for any customers Employee had direct or indirect contact with, within or outside of the sales territory, for all or part of the last year of employment.

6.03.Definition of Competitive Product. “Competitive Product” means any product or component thereof, product line, or service that has been designed or is being designed, developed, manufactured, marketed, or sold by anyone other than Company and is: (i) of the same general type, (ii) performs similar functions, and/or (iii) is used for the same or similar purposes, and/or to achieve similar results, as a Company product.

6.04.Disclosure of Obligations. During the restrictive period set forth in this Article 6, Employee will inform any new employer or prospective employer, prior to accepting employment, of the existence of this Agreement and provide such employer with a copy of this Agreement.

6.05.Acknowledgment of Company Efforts. Employee acknowledges that Company has many near-permanent customers throughout the world to which Employee has access.  These include customers that Company developed as a result of many years of significant efforts and significant financial investments by Company.

6.06.Acknowledgment of Reasonableness. Employee acknowledges and agrees that the restrictions contained in this Article 6 are reasonable as to time, area, and persons and are necessary to protect the legitimate business interests of Company and to avoid disruption of Company’s business. In that connection, Employee further acknowledges that Company’s business is worldwide in geographic scope and that its business is conducted, in part, over the worldwide web.

6.07. Consideration. Employee acknowledges and agrees that Employee has received consideration in exchange for signing this Agreement and that Employee was advised of, and presented with, a copy of this Agreement prior to accepting employment with Company.

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7.Post-Employment Restriction on Recruiting or Hiring Company Employees.

7.01.Acknowledgment of Training Efforts. Employee acknowledges that Company has expended considerable time and effort in recruiting and training its employees, many of whom are accomplished professionals.

7.02.No Recruiting of Company Employees. Employee hereby agrees that, during Employee’s employment by Company and for a period of one (1) year following the termination or separation from employment with Company, for any reason, voluntary or involuntary, Employee shall not, directly or indirectly, hire or recruit any employees of Company. This restriction shall not apply if Employee is a CEO of another company and has no knowledge/indication of that other company’s hire of a Company employee, and no knowledge of the possibility of that particular hire.

8.Inventions.

8.01.Definition of Inventions. “Inventions” means any inventions, discoveries, improvements, and ideas, whether or not in writing or reduced to practice and whether or not patentable or copyrightable, made, authored, or conceived by Employee, whether by Employee’s individual efforts or in connection with the efforts of others, and that either (i) relate in any way to Company’s business, products, or processes, past, present, anticipated, or under development; or (ii) result in any way from Employee’s employment by Company; or (iii) use Company’s equipment, supplies, facilities, or Confidential and Proprietary Information.

8.02.Assignment of Inventions. During the course of Employee’s employment and for a period of six (6) months thereafter, Employee shall promptly and fully disclose to Company, and will hold in trust for Company’s sole right and benefit, any Invention that Employee makes, conceives, or reduces to practice, or causes to made, conceived, or reduced to practice, either alone or in conjunction with others, whether made during the working hours of Company or on Employee’s own time. Employee shall: (i)  assign, and hereby assigns, to Company all of Employee’s right, title, and interest in and to all such Inventions, any applications for patents,  copyrights, or any other registration of intellectual property in any country covering or relating to any such Invention, and any patents, copyrights, or other intellectual property registration granted to Employee or Company; (ii) acknowledge and deliver promptly to Company any written instruments and perform any other acts necessary in Company’s opinion to preserve property rights in any Invention against forfeiture, abandonment, or loss, to obtain and maintain letters patent and/or copyrights or other registration of any intellectual property rights on any such Invention, and to vest the entire right and title to such Inventions and related intellectual property in Company. Employee agrees to perform promptly (without charge to Company but at the expense of Company) all such acts as may be necessary in Company’s opinion to preserve all patents and/or copyrights or other intellectual property covering the Inventions and to enable Company to obtain the sole right, title, and interest in all such Inventions, including without limitation the execution of assignments or patent prosecution documentation and appearing as a witness in any action brought in connection with this Agreement.

8.03.Exclusion. The parties agree, and Employee is hereby notified, that the requirements of this Article 8 do not apply to any invention for which no equipment, supplies, facility, or information of Company was used and which was developed entirely on Employee’s own time, and which (i) does not relate directly to Company’s business or to Company’s actual or demonstrably anticipated research or development; or (ii) does not result from any work Employee performed for Company. Employee represents that, except as disclosed on Exhibit A, as of the date of this Agreement, Employee has no rights under, and will make no claims against Company with respect

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to, any inventions, discoveries, improvements, ideas, or works of authorship that would be Inventions if made, conceived, authored, or acquired by Employee during the term of this Agreement. All inventions that Employee already has conceived or reduced to practice and that Employee claims to be excluded from the scope of this Agreement are listed on Exhibit A (if none, write “none”).

8.04.Copyrights. Employee acknowledges that any documents, drawings,  computer software, or other work of authorship prepared by Employee within the scope of Employee’s employment is a “work made for hire” under U.S. copyright laws and that, accordingly, Company exclusively owns all copyright rights in such works of authorship. For purposes of this Agreement, “scope of employment” means the work of authorship: (i)  relates to any subject matter pertaining to Employee’s employment; (ii)  relates to or is directly or indirectly connected with the existing or reasonably foreseeable business, products, projects, or Confidential and Proprietary Information of Company; and/or (iii) involves the use of any time, material, or facility of Company.

8.05.Presumption. In the event of any dispute, arbitration, or litigation concerning whether an invention, improvement, or discovery made or conceived by Employee is the property of Company, such invention, improvement, or discovery will be presumed the property of Company and Employee will bear the burden of establishing otherwise.

9.Non-Disparagement.

Employee agrees that Employee will not, directly or indirectly, speak or act in any manner that is intended to, or does in fact, damage the goodwill or the business of Company, or the business or personal reputations of any of its directors, officers, agents, employees, customers, vendors, or suppliers. Employee further agrees that Employee will not engage in any other deprecating conduct or communications with respect to Company; provided, however, that nothing in this Agreement shall preclude Employee from providing honest, forthright, and truthful testimony in any court or regulatory action or proceeding.

10.Injunctive Relief.

10.01.Existence of Irreparable Harm. 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 that Company will suffer irreparable harm and, as a result, Company shall be entitled to injunctive and other equitable relief such as restraining orders and preliminary or permanent injunctions to specifically enforce the provisions of this Agreement and to protect Company against any breach or threatened breach.  If Company is required by applicable law to furnish a bond or other surety as a condition of the entry of an injunction or restraining order, Employee agrees that such bond or surety shall be in the minimum amount required by law.

10.02.Non-Exclusive Remedies. Nothing herein shall be construed as prohibiting Company from pursuing any other remedies available to Company for Employee’s breach or threatened breach of this Agreement, including the recovery of damages from Employee and an accounting and repayment of all profits, compensation, commissions, remuneration, or other benefits that Employee directly or indirectly has realized and/or may realize as a result of, growing out of, or in connection with, any such violation. These remedies shall be in addition to, and not in limitation of, any other rights or remedies to which Company is or may be entitled.

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11.Miscellaneous.

11.01.No Waiver. No failure or delay by any party hereto in exercising any right, power, or privilege hereunder will operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power, or privilege hereunder.

11.02.Survival. The provisions of Paragraph 3.03 and Articles 5, 6, 7, 8, 9, 10 and 11 shall survive any termination of Employee’s employment or this Agreement.

11.03.Assignment. This Agreement shall be binding upon Employee’s heirs, personal representatives, and assigns, to the extent its provisions are applicable, and may be transferred by Company to its successors and assigns.

11.04.Severability. In the event any one or more of the provisions contained in this Agreement are deemed illegal or unenforceable, such provision:  (i) shall be construed in a manner to enable it to be enforced to the extent permitted by applicable law; and (ii) shall not affect the validity and enforceability of any legal and enforceable provision of this Agreement.

11.05.Construction. It is agreed that the provisions of this Agreement will be regarded as divisible and if any provision is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or persons or in too broad a geographic area, it shall be interpreted to extend over the maximum period of time, range of activities or persons, and/or geographic areas as to which it may be enforceable. Any Court is also authorized to extend the duration of any restriction under Articles 6 and 7 for the period that any violation of Articles 6 or 7 exists. All captions and titles are for convenience only, and may not be used to interpret or to define the terms of this Agreement.

11.06.Governing Law and Jurisdiction. This Agreement shall be governed by the laws of the State of Minnesota, without regard to choice of law rules. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction and venue of the federal and state courts within the State of Minnesota, and each party hereby consents to personal jurisdiction in such forum, for any actions, suits, or proceedings arising out of or relating to this Agreement (and agrees not to commence any action, suit, or proceeding relating thereto except in such courts). Notwithstanding the foregoing, nothing in this Agreement will prevent Company from seeking interim or permanent injunctive relief or filing any action to recover amounts owed to Company by Employee in any court having jurisdiction over Employee.

11.07.Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all previous agreements and understandings, whether oral or written, between the parties with respect to the subject matter hereof. This Agreement may only be modified in a writing signed by both of the parties hereto.

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IN WITNESS WHEREOF, the parties hereto have subscribed their names to this Agreement on the day and year written below.

COMPANY		EMPLOYEE
By:	/s/ Greg Morrison	/s/ M. Jenusaitis
Print Name: Greg Morrison		Print Name: M. Jenusaitis
Title:   Vice President, Human Resources
Date:		Date: 4-3-06

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EXHIBIT A

Disclosure of Prior Inventions

All inventions that Employee already has conceived or reduced to practice and that Employee claims to be excluded from the scope of “Inventions” as defined in the Employment Agreement are listed below (if none, write “none”):

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EX-10.6

Exhibit 10.6

[ev3 Letterhead]

April 3, 2006

Matthew Jenusaitis
1123 Hampton Court
Encinitas, CA 92024

Dear Matthew:

The Board considers the operation of the Company to be of critical importance to the Parent Company and therefore the establishment and maintenance of a sound and vital management team of the Company is essential to protecting and enhancing the best interests of the Parent Company and its stockholders.  In this connection, the Board recognizes that the possibility of a Change in Control of the Parent Company may arise and that such possibility and the uncertainty and questions which such transaction may raise among key management personnel of the Company and its subsidiaries could result in the departure or distraction of such management personnel to the detriment of the Parent Company and its stockholders.

Accordingly, the Board has determined that appropriate actions should be taken to minimize the risk that Company management will depart prior to a Change in Control of the Parent Company, thereby leaving the Company without adequate management personnel during such a critical period, and to reinforce and encourage the continued attention and dedication of key members of Company’s management to their assigned duties without distraction in circumstances arising from the possibility of a Change in Control of the Parent Company.  In particular, the Board believes it important, should the Parent Company or its stockholders receive a proposal for transfer of control of the Parent Company that you be able to continue your management responsibilities without being influenced by the uncertainties of your own personal situation.

The Board recognizes that continuance of your position with the Subsidiary involves a substantial commitment to the Company in terms of your personal life and professional career and the possibility of foregoing present and future career opportunities, for which the Company receives substantial benefits.  Therefore, to induce you to remain in the employ of the Subsidiary, this Agreement, which has been approved by the Board, sets forth the benefits which the Company agrees will be provided to you in the event your employment with the Subsidiary or its successor is terminated in connection with a Change in Control of the Parent Company under the circumstances described below.

1.Definitions.  The following terms will have the meaning set forth below unless the context clearly requires otherwise.  Terms defined elsewhere in this Agreement will have the same meaning throughout this Agreement.

(a)“Affiliate” means with respect to any Person (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) shall mean any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person.

(b)“Agreement” means this letter agreement as amended, extended or renewed from time to time in accordance with its terms.

(c)“Base Pay” means your annual base salary from the Subsidiary at the rate in effect immediately prior to a Change in Control or at the time Notice of Termination is given, whichever is greater.  Base Pay includes only regular cash salary and is determined before any reduction for deferrals pursuant to any nonqualified deferred compensation plan or arrangement, qualified cash or deferred arrangement or cafeteria plan.

(d)“Benefit Plan” means any

(i)employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended;

(ii)cafeteria plan described in Code Section 125;

(iii)plan, policy or practice providing for paid vacation, other paid time off or short- or long-term profit sharing, bonus or incentive payments; or

(iv)stock option, stock purchase, restricted stock, phantom stock, stock appreciation right or other equity-based compensation plan that is sponsored, maintained or contributed to by the Company for the benefit of employees (and/or their families and dependents) generally or you (and/or your family and dependents) in particular, including, without limitation, any of the Stock Incentive Plans.

(e)“Bonus Plan Payment” means the full amount of the annual target bonus payment which is payable by the Subsidiary to you pursuant to the Subsidiary’s company-wide bonus plan or equivalent plan of the Successor,  based on the assumption that all of the annual performance milestones will have been satisfied for such year.

(f)“Board” means the board of directors of the Parent Company.  On and after the date of a Change in Control, any duty of the Board in connection with this Agreement is nondelegable and any attempt by the Board to delegate any such duty is ineffective.

(g)“Cause” means: (i) your gross misconduct; (ii) your willful and continued failure to perform substantially your duties with the Subsidiary (other than a failure resulting from your incapacity due to bodily injury or physical or mental illness) after a demand for substantial performance is delivered to you by the chair of the Board which specifically identifies the manner in which you have not substantially performed your duties and provides for a reasonable period of time within which you may take corrective measures; or (iii) your conviction (including a plea of nolo contendere) of willfully engaging in illegal conduct constituting a felony or gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Subsidiary or which impairs your ability to perform substantially your duties for the Subsidiary.  An act or failure to act will be considered “gross” or “willful” for this purpose only if done, or omitted to be done, by you in bad faith and without reasonable belief that it was in, or not opposed to, the best interests of the Subsidiary.  Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Subsidiary’s Board (or a committee thereof) or based upon the advice of counsel for the Subsidiary will be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Subsidiary.  Notwithstanding the foregoing, you may not be terminated for Cause unless and until there has

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been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth above in clauses (i), (ii) or (iii) of this definition and specifying the particulars thereof in detail.

(h)“Change in Control”  means any of the following:  (i) the sale, lease, exchange or other transfer, directly or indirectly, of all or substantially all of the assets of the Parent Company, in one transaction or in a series of related transactions, to any Third Party; (ii) any Third Party, other than a “bona fide underwriter,” is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities (x) representing 50% or more of the combined voting power of the Parent Company’s outstanding securities ordinarily having the right to vote at elections of directors, or (y) resulting in such Third Party becoming an Affiliate of the Parent Company, including pursuant to a transaction described in clause (iii) below; (iii) the consummation of any transaction or series of transactions under which the Parent Company is merged or consolidated with any other company, other than a merger or consolidation which would result in the stockholders of the Parent Company immediately prior thereto continuing to own (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation; or (iv) the Continuity Directors cease for any reason to constitute at least a majority the Board.  For purposes of this Section 1(h), a “Continuity Director” means an individual who, as of date of this Agreement, is a member of the board of directors of the Parent Company, and any other individual who becomes a director subsequent to the as of date of this Agreement whose election, or nomination for election by the Parent Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Continuity Directors, but excluding for this purpose any individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person or entity other than the board of directors of the Parent Company.  For purposes of this Section 1(h), a “bona fide underwriter” means a Third Party engaged in business as an underwriter of securities that acquires securities of the Parent Company through such Third Party’s participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition.  For the avoidance of doubt, Change in Control does not include any of the foregoing events occurring with respect to the Subsidiary, and this Agreement is not intended to be interpreted to provide any benefits to you upon a Change in Control of the Subsidiary.

(i)“Code” means the Internal Revenue Code of 1986, as amended from time to time.

(j)“Company” means the Parent Company, any Successor and any Affiliate.

(k)“Date of Termination” following a Change in Control (or prior to a Change in Control if your termination was either a condition of the Change in Control or was at the request or insistence of any Third Party relating the Change in Control) means: (i) if your employment is to be terminated by you for Good Reason, the date specified in the Notice of Termination which in no event may be a date more than 15 days after the date on which Notice of Termination is given unless the Company agrees in writing to a later date; (ii) if your employment is to be terminated by the Subsidiary for Cause, the date specified in the Notice of Termination; (iii) if your employment is terminated by reason of your death, the date of your death; or (iv) if your

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employment is to be terminated by the Subsidiary for any reason other than Cause or your death, the date specified in the Notice of Termination, which in no event may be a date earlier than 15 days after the date on which a Notice of Termination is given, unless you expressly agree in writing to an earlier date.  In the case of termination by the Subsidiary of your employment for Cause, then within the 30 days after your receipt of the Notice of Termination, you may notify the Subsidiary that a dispute exists concerning the termination, in which event the Date of Termination will be the date set either by mutual written agreement of the parties or by the judge or arbitrator in a proceeding as provided in Section 9 of this Agreement.  In all cases, your termination of employment must constitute a “separation from service” within the meaning of Section 409A of the Code.

(l)“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

(m)“Good Reason” means:

(i)a substantial change in your status, position(s), duties or responsibilities as an executive of the Subsidiary as in effect immediately prior to the Change in Control which, in your reasonable judgment, is adverse with respect to any of the foregoing; provided, however, that Good Reason does not include a change in your status, position(s), duties or responsibilities caused by an inadvertent action that is remedied by the Subsidiary promptly after receipt of notice of your objection to such change, and it also being agreed that small and insubstantial changes will not be considered Good Reason unless the changes in totality would be substantial;

(ii)a reduction by the Subsidiary in your Base Pay, a material change in the annual Bonus Plan Payment expectations, or an adverse change in the form or timing of the payments thereof, as in effect immediately prior to the Change in Control or as thereafter increased;

(iii)the failure by the Subsidiary to cover you under Benefit Plans that, in the aggregate, provide substantially similar benefits to you and/or your family and dependents at a substantially similar total cost to you (e.g., premiums, deductibles, co-pays, out of pocket maximums, required contributions and the like) relative to the benefits and total costs under the Benefit Plans in which you (and/or your family or dependents) were participating at any time during the 90-day period immediately preceding the Change in Control;

(iv)the Subsidiary’s requiring you to be based more than 50 miles from where your office is located immediately prior to the Change in Control, except for required travel on the Subsidiary’s business;

(v)the failure by the Subsidiary or the Parent Company to obtain from any Successor the assent to this Agreement as soon as reasonably practicable in the circumstances and in any event within the times required by Section 6 hereof; or

(vi)any purported termination by the Subsidiary of your employment that is not properly effected pursuant to a Notice of Termination and pursuant to any other requirements of this Agreement, and, for purposes of this Agreement, no such purported termination will be effective.

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Your continued employment does not constitute consent to, or waiver of any rights arising in connection with, any circumstances constituting Good Reason.  Your termination of employment for Good Reason as defined in this Section 1(m) will constitute Good Reason for all purposes of this Agreement notwithstanding that you may also thereby be deemed to have retired under any applicable retirement programs of the Subsidiary and/or Parent Company.

(n)“Notice of Termination” means a written notice (except in the case of a deemed Notice of Termination pursuant to Section 3(a) hereafter) given on or after the date of a Change in Control (unless your termination before the date of the Change in Control was either a condition of the Change in Control or was at the request or insistence of any Third Party related to the Change in Control) which indicates the specific termination provision in this Agreement pursuant to which the notice is given.  Any purported termination by the Subsidiary or by you for Good Reason on or after the date of a Change in Control (or before the date of a Change in Control if your termination was either a condition of the Change in Control or was at the request or insistence of any Third Party related to the Change in Control) must be communicated by written Notice of Termination to be effective; provided, that your failure to provide Notice of Termination will not limit any of your rights under this Agreement except to the extent the Company demonstrates that it suffered material actual damages by reason of such failure.

(o)“Parent Company” means ev3 Inc., a Delaware corporation.

(p)“Subsidiary” means Micro Therapeutics, Inc., a Delaware corporation.

(q)“Stock Incentive Plan” means (i) the ev3 LLC 2003 Incentive Plan, as amended, (ii) the ev3 Inc. Amended and Restated 2005 Incentive Stock Plan or (iii) any successor or additional stock option, stock award, or other incentive plans of the Parent Company or Subsidiary.

(r)“Stock Option Agreements” means in any of the non-statutory stock option agreements, incentive stock options agreements, restricted stock awards or other similar agreements you may have entered into with the Company pursuant to the Stock Incentive Plans.

(s)“Successor” means any Third Party that succeeds to, or has the ability to control (either immediately or with the passage of time), the Parent Company’s or the Subsidiary’s, as applicable, business directly, by merger, consolidation or other form of business combination, or indirectly, by purchase of the Parent Company’s outstanding securities entitling the holder thereof to be allocated a portion of the Parent Company’s net income, net loss or distributions or purchases of the Subsidiary’s outstanding securities ordinarily having the right to vote at the election of directors or all or substantially all of its assets or otherwise

(t)“Third Party” means any Person, other than the Parent Company, any Affiliate of the Parent Company, or any Benefit Plan(s) sponsored by the Parent Company or an Affiliate.

2.Term of Agreement.  This Agreement is effective immediately and will continue in effect only so long as you remain employed by the Subsidiary or, if later, until the date on which the Subsidiary’s obligations to you arising under this Agreement have been satisfied in full.  Notwithstanding the foregoing, this Agreement shall terminate immediately in the event, prior to a Change in Control, either the Subsidiary ceases to be an Affiliate of the Parent Company or sells all or substantially all of its assets, in one or a series of related transactions, to a Third Party.

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3.Benefits upon a Change in Control.  You will become entitled to the benefits described in this Section 3 as of the date of a Change in Control.

(a)As of the date of such Change in Control, the Company and the Subsidiary will be jointly and severally responsible for paying to you all of the Base Pay owed through such date and a pro rata portion of your Bonus Plan Payment based upon the number of months in the current year which you have worked prior to the date of the Change in Control, assuming for this Section 3(a) that you have worked the full month of the month in which the Change in Control occurs.

(b)The following terms shall control notwithstanding any conflicting terms contained in any employment agreement, or Stock Option Agreements.  In addition to the payments under Section 3(a), you will be entitled to the following:

(i)Cash Payments.  At the date of the Change in Control, if you have not been made a written offer of employment with the Successor, or received written confirmation for continued employment with the Subsidiary if it survives the Change in Control, on terms substantially identical to your current employment terms, including the benefits set forth herein, for any reason whatsoever, then you shall be deemed to have received a Notice of Termination effective on the date of the Change in Control and no later than 10 days after your Date of Termination, the Company and the Subsidiary (and any Successor thereto) will be jointly and severally responsible for making a lump sum payment to you equal to 12 months of your then current Base Pay, and the full amount of a Bonus Plan Payment for the next 12 months, determined by assuming for this purpose that such Bonus Plan Payment amount is equal to your Bonus Plan Payment for the current year.    Furthermore, if you elect to accept the offer of employment with the Successor or continue your employment with the Subsidiary, as the case may be, as provided for above, the Successor or Company, as the case may be, shall be then obligated to make a lump sum cash payment to you within 10 days after your Date of Termination equal to 12 months of your then current Base Pay and the full annualized amount due under your then current Bonus Plan Payment commitment which is payable within the next 12 months, in the event any time within the first 24 months of such new employment relationship after the Change in Control, either (A) your employment is terminated by the Successor or the Company, as the case may be, for any reason other than your death or Cause, or (B) you terminate your employment with the Successor or the Company for Good Reason.  If you decline the offer of employment herein, no further benefits pursuant to Section 3(b)(i), (ii) or (iii) will be payable.

(ii)Group Health Plans.  During the Continuation Period (as defined below), the Company and the Subsidiary (and any Successor thereto) will be jointly and severally responsible for either (A) maintaining a group health plan(s) which by its terms covers you (and your family members and those dependents eligible to be covered during the 90 days immediately preceding a Change in Control) under the same or similar terms as provided to you during the 90 days immediately preceding such Change in Control (without regard to any reduction in such benefits that constitutes Good Reason), or (B) providing comparable medical benefits pursuant to an alternative arrangement, such as an individual medical insurance contract.  The “Continuation Period” is the period beginning on your Date of Termination, whether such date is at or prior to the Change in Control as provided for in the definition of Change in Control or within 12 months after accepting employment with the Successor or the Subsidiary, as the case may be, as provided for in Section 3(b)(i) above, and ending on the earlier of (A) the last day of the 18th month that

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begins after your Date of Termination or (B) the date on which you first become eligible to participate as an employee in a plan of another employer providing group health benefits to you and your eligible family members and dependents.  If you timely elect continued coverage under such group health plan(s) pursuant to Section 4980B of the Internal Revenue Code of 1986 and Part 6 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974, as amended (“COBRA”), in accordance with ordinary plan practices, for the Continuation Period, the Company will reimburse you on an income tax grossed-up basis for a portion of the amount you pay for such COBRA continuation coverage (or if COBRA coverage is not available, such alternative medical coverage), so that on an after-tax basis you are paying the amount you paid (or would have paid) for the same level of coverage prior to the Change in Control.  In order to receive reimbursements pursuant to this section, you must comply with any reimbursement policies and procedures specified by the Company.

(iii)Gross-Up Payments.  Following a Change in Control, if the Subsidiary’s independent auditors determine that any payment or distribution by the Parent Company and/or the Subsidiary to you (the “Payments”) will result in an excise tax imposed by Code Section 4999 or any comparable state or local law, or any interest or penalties with respect thereto, the Company and the Subsidiary (and any Successor thereto) will be responsible for making an additional cash payment (a “Gross-Up Payment”) to you within 10 days after such determination equal to an amount such that, after payment by you of all taxes (including any interest or penalties imposed with respect to such taxes), including any excise tax, imposed upon the Gross-Up Payment, you would retain an amount of the Gross-Up Payment equal to the excise tax imposed upon the Payments.  You will provide the Successor or the Company with a written certification that you will pay all taxes due on the Payments and the Gross-Up Payment.  The Gross-Up Payment will be made not later than the March 15 following the calendar year in which the payment giving rise to the Gross-Up Payment is received by you.

(iv)Outplacement Services.  In the event any lump sum payments are made to you pursuant to Section 3(b)(i), the Company shall then provide you with up to $20,000 of reasonable outplacement services actually incurred by you and directly related to your termination of employment under Section 3(b)(i), including outplacement consultant’s services, travel and hotel expense reimbursements, office expense reimbursements or similar costs you incur in seeking and obtaining new employment, the allocation of which among the categories to be within your sole discretion, provided, however, such expenses must be incurred by you and reimbursed hereunder no later than the December 31 of the second calendar year following the calendar year in which your termination of employment occurs.  You will be required to provide receipts or invoices for the costs and expenses incurred under this Section 3(b)(iv).

4.Stock Option Acceleration.  In the event of a Change in Control, if the acquiring entity or Successor does not assume or replace the unvested stock options or stock awards then granted to you pursuant to any of the Stock Incentive Plans, the vesting schedules under the applicable Stock Option Agreements will be accelerated and all such stock options will become fully vested and immediately exercisable upon the closing of the Change in Control.  Furthermore, even if the Stock Options Agreements are assumed or replaced with substantially similar stock options, if you are not offered employment by the Successor or continued employment with the Company or if your employment is subsequently terminated under circumstances in which you will receive a lump sum cash payment

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pursuant to Section 3(b)(i) hereof, your then unvested stock options as of the Change in Control or Date of Termination, as the case may be, shall become fully vested and immediately exercisable.

5.Indemnification.  Following a Change in Control, the Parent Company and the Subsidiary shall be jointly and severally responsible for indemnifying and advancing expenses to you to the full extent permitted by law for damages, costs and expenses (including, without limitation, judgments, fines, penalties, settlements and reasonable fees and expenses of your counsel) incurred by you as a result of your service to or status as an officer and employee with the Parent Company or the Subsidiary or any other corporation, employee benefit plan or other entity with whom you served at the request of the Parent Company or the Subsidiary prior to the Change in Control, provided that such damages, costs and expenses did not arise as a result of your gross negligence or willful misconduct.  The indemnification under this Agreement shall be in addition to any similar obligation of the Parent Company or the Subsidiary under any other separate agreement, or under the Parent Company’s Operating Agreement or the Subsidiary’s Certificate of Incorporation or Bylaws, or as they be amended from time to time, provided however, you may only be reimbursed or recover once for any such damages, costs and expenses, from whatever source.

6.Successors.  The Parent Company will seek to have any Successor to the Parent Company, by agreement in form and substance satisfactory to you, assume and assent to the fulfillment by such Successor of the Parent Company’s obligations under this Agreement.  Failure of the Parent Company to obtain such assent and assumption at least three (3) business days prior to the time a Third Party becomes a Successor (or where the Parent Company does not have at least three (3) business days’ advance notice that a Third Party may become a Successor, within one (1) business day after having notice that such Third Party may become or has become a Successor) will constitute Good Reason for termination by you of your employment.  The date on which any such succession becomes effective will be deemed the Date of Termination, and Notice of Termination will be deemed to have been given to you on that date.  A Successor has no rights, authority or power with respect to this Agreement prior to a Change in Control.

7.Binding Agreement.  This Agreement inures to the benefit of, and is enforceable by, you, your personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you die after a Change in Control while any amount would still be payable to you under this Agreement, all such amounts, unless otherwise provided in this Agreement, will be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate.

8.Notices.  For the purposes of this Agreement, notices and other communications provided for in this Agreement must be in writing and will be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid and addressed to each party’s respective address set forth on the first page of this Agreement, or to such other address as either party may have furnished to the other in writing in accordance with these provisions, except that notice of change of address will be effective only upon receipt.

9.Disputes.  If you so elect, any dispute, controversy or claim arising under or in connection with this Agreement will be heard and settled exclusively by binding arbitration administered by the American Arbitration Association in Minneapolis, Minnesota before a single arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction; provided, that you may seek specific performance in a court of competent jurisdiction of your right to receive benefits until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.  If any dispute, controversy or claim for damages arising under or in connection with this

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Agreement is settled by arbitration, the Company and the Subsidiary will be jointly and severally responsible for paying, or if elected by you, reimbursing, all fees, costs and expenses incurred by you related to such arbitration.  If you do not elect arbitration, you may pursue all available legal remedies.  The Company and the Subsidiary will be jointly and severally responsible for paying, or if elected by you, reimbursing you for, all fees, costs and expenses incurred by you in connection with any actual, threatened or contemplated litigation relating to this Agreement to which you are or reasonably expect to become a party, whether or not initiated by you, if but only if you are successful in recovering any benefit under this Agreement as a result of such legal action.  The parties agree that any litigation arising under or in connection with this Agreement must be brought in a court of competent jurisdiction in the State of Minnesota, and both parties hereby consent to the exclusive jurisdiction of said courts for this purpose and agree not to assert that such courts are an inconvenient forum.  Neither the Parent Company nor the Subsidiary will assert in any dispute or controversy with you arising under or in connection with this Agreement your failure to exhaust administrative remedies.

10.Related Agreements.  To the extent that any provision of any other Benefit Plan or agreement between the Parent Company and you or the Subsidiary and you limits, qualifies or is inconsistent with any provision of this Agreement, the provision of this Agreement will control. Nothing in this Agreement prevents or limits your continuing or future participation in, and rights under, any Benefit Plan provided by the Parent Company or the Subsidiary and for which you may qualify.  Amounts which are vested benefits or to which you are otherwise entitled under any Benefit Plan or other agreement with the Parent Company or the Subsidiary at or subsequent to the Date of Termination will be payable in accordance with the terms thereof.  Furthermore, nothing in this Agreement will prevent the Parent Company, the Subsidiary or the Successor to the Parent Company or the Subsidiary from seeking enforcement of and damages arising under any confidentiality, invention assignment or non-competition provision or breach thereof contained in any other agreement with the Parent Company or the Subsidiary or any Successor to the Parent Company or the Subsidiary.

11.No Employment or Service Contract.  Nothing in this Agreement is intended to provide you with any right to continue in the employ of the Subsidiary for any period of specific duration or interfere with or otherwise restrict in any way your rights or the rights of the Subsidiary, which rights are hereby expressly reserved by each, to terminate your employment at any time for any reason or no reason whatsoever, with or without cause.

12.Survival.  The respective obligations of, and benefits afforded to, the Parent Company, the Subsidiary and you which by their express terms or clear intent survive termination of your employment with the Subsidiary or termination of this Agreement, as the case may be, will survive termination of your employment with the Subsidiary or termination of this Agreement, as the case may be, and will remain in full force and effect according to their terms.

13.Miscellaneous.  No provision of this Agreement may be modified, waived or discharged other than in a writing signed by you, the Parent Company and the Subsidiary.  No waiver by any party to this Agreement at any time of any breach by another party of any provision of this Agreement will be deemed a waiver of any other provisions at the same or at any other time.  This Agreement reflects the final and complete agreement of the parties and supersedes all prior and simultaneous agreements with respect to the subject matter hereof, including without limitation any change in control or similar agreement between any past, current or future Affiliate of the Parent Company or the Subsidiary and you.  This Agreement will be governed by and construed in accordance with the laws of the State of Delaware (without regard to the conflict of laws principles of any jurisdiction).  The invalidity or unenforceability of all or any part of any provision of this Agreement will not affect the validity or enforceability of the remainder of such provision or of any other provision of this Agreement.  This Agreement may be

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executed in several counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

If this letter correctly sets forth our agreement on the subject matter discussed above, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject.

Sincerely,
ev3 Inc.
By:	/s/ James M. Corbett
	Name: James M. Corbett
	Title: CEO
Micro Therapeutics, Inc.
By:	/s/ James M. Corbett
	Name:
	Title:
Agreed to and Accepted as of this 3rd day of April, 2006:
/s/ Matthew Jenusaitis

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EX-10.7

Exhibit 10.7

SEPARATION/CONSULTING AGREEMENT

This Separation/Consulting Agreement (“Agreement”) is made and entered into by and between Thomas Wilder, whose address is 1841 Port Sheffield Place, Newport Beach, CA 92660 (“Employee”) and ev3 Inc., whose address is 9600 54th Avenue North, Plymouth, MN 55442 (“Employer”).

WHEREAS, Employee and Employer desire to terminate the employment relationship between them in an orderly and mutually satisfactory manner; and

WHEREAS, Employee and Employer want to fully address their relationship going forward.

NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, Employee and Employer agree as follows:

1.Employer. The term “Employer” as used in this Agreement shall mean any entity related to ev3 Inc., in the present or past, including without limitation, its predecessors, successors, parents, stockholders, subsidiaries, affiliates, joint venture partners and divisions, and any of its present and past officers, directors, employees, agents, consultants, attorneys, insurers and the present and past fiduciaries of any employee benefit plan providing benefits to Employer.

2.Resignation.  Employee hereby acknowledges and confirms Employee’s resignation as an employee of Employer, effective June 30, 2006 (the “Resignation Date”).  By Employee’s signature on this Agreement, Employee acknowledges that Employee has voluntarily resigned Employee’s employment with Employer as of the Resignation Date.  Effective April 3, 2006, Employee resigns as an executive officer and all other officer and director positions of Employer and/or any direct or indirect subsidiaries of Employer.

3.Payments.  Employee acknowledges that Employer has made all payments due Employee, including, but not limited to, salary, commissions, bonus, expense reimbursement, vacation pay, and payments due pursuant to any contract(s) between Employer and Employee except as set forth in this Agreement.

4.Vacation Pay.  Employee agrees, in consultation and coordination with Employer’s Chief Executive Officer, to take and use all remaining accrued vacation time prior to the Resignation Date and Employee further agrees that he will make no claim after the Resignation Date for accrued but unused vacation time.

5.Consulting Services.  In consideration for allowing Employee to remain as an active employee through the Resignation Date, Employee agrees to provide Consulting Services to Employer for a period of one (1) year after the Resignation Date.  Employee will provide such Consulting Services to Employer at no charge for up to eight (8) hours per month.  For any Consulting Services requested by Employer in excess of eight (8) hours per month during the one (1) year consulting period, Employer shall pay Employee as follows: (i) if Employee provides Consulting Services to Employer for a full day, or a

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substantially full day, Employer shall pay Employee in the amount of $1,000; and (ii) if Employee provides Consulting Services to Employer for a half-day, Employer shall pay Employee in the amount of $500.  All Consulting Services shall be at Employer’s reasonable request and may be related to any aspect of Employer’s business.  All such requests by Employer shall be made either by Employer’s Chief Executive Officer or Chief Legal Officer.

6.Consulting Payments.  For the payments for Consulting Services, Employee shall be responsible for the payment of all taxes including but not limited to FICA, which are due and payable to all governmental or regulatory authorities, and recognizes that Employer will be issuing a Form 1099 for the payment of any Consulting Services.  Employee shall submit to Employer a monthly invoice describing with specificity the Consulting Services provided by Employee during the applicable period.  Payment will be made only for Services performed at Employer’s request.  Employer shall make payment to Employee within forty-five (45) days of Employer’s receipt of Employee’s invoice

7.Employee Representations.  Employee represents that Employee is legally able and entitled to receive the payments for Consulting Services.  Employee agrees that Employee will defend, indemnify and hold Employer harmless from any and all claims, actions, losses, taxes, attorney’s fees, interest, penalties and expenses of any sort relating to a breach of the representations contained in this section and Employee’s obligation to pay taxes on the payments.

8.Return of Property.  Employee represents that Employee will return to Employer, on or before the Resignation Date, all its property, including without limitation records, correspondence, proprietary and confidential information, computer equipment, electronic or paper files and documents, corporate credit cards, cell phone, badge and keys.  Employee acknowledges that Employer is expressly relying on this representation in entering into this Agreement and it is a material term of the Agreement.

9.Unit/Stock Options.  Employee’s rights to any stock options shall be determined in accordance with the applicable written agreement(s) and/or plan(s) governing such stock options.

10.Insurance.  Employee’s coverage under Employer’s health, dental and life insurance plans shall continue until June 30, 2006.  Thereafter, Employee’s right to continue coverage shall be governed by applicable law, plan documents, and insurance policies and all premiums or other charges shall be the sole responsibility of Employee.  Employee’s disability insurance shall terminate as of the termination of Employee’s employment.

11.Business Protections.  The parties acknowledge and agree that the Employee Confidential Information Agreement, signed by Employee as of August 20, 2002 is valid and enforceable by Employer.  In consideration of the mutual promises and commitments set forth in this Agreement, Employee acknowledges and reaffirms all obligations under the Employee Confidential Information Agreement, which obligations continue in full force and effect.

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12.Investigations and Litigation.  Employee agrees that Employee will, at any future time, be available upon reasonable notice from Employer, with or without subpoena, to be interviewed, review documents or things, give depositions, testify, or engage in other reasonable activities in connection with any litigation or investigation, with respect to matters concerning which Employee has or may have knowledge as a result of or in connection with Employee’s employment by Employer or any related entity. This includes, but is not limited to, the University of California/Boston Scientific neurovascular coil litigation pending in any and all jurisdictions.  In performing Employee’s obligations under this section to testify or otherwise provide information, Employee will honestly, truthfully, forthrightly, and completely provide the information requested. Employee will comply with this Agreement upon notice from Employer that Employer or its attorneys believe that Employee’s compliance would be helpful in the resolution of an investigation or the prosecution or defense of claims.  Employer agrees to pay Employee as described in Paragraph 5, even if such services occur after the one-year consulting term.

13.Governing Law and Venue.  This Agreement shall be governed by, and construed and enforced in accordance with Minnesota law, except to the extent it is pre-empted by federal law.  The parties agree that any dispute relating to this Agreement shall be subject to the jurisdiction of the courts within the State of Minnesota, Hennepin County.

14.Entire Agreement.  This Agreement contains all the understandings and agreements between the parties concerning Employee’s employment with and separation from employment with Employer and supersedes any and all prior agreements and understandings, whether written or oral, relating to the matters addressed in this Agreement, except the Employee Confidential Information Agreement shall remain in full force and effect.  The parties specifically acknowledge and agree that: (i) Employee’s Change in Control Agreements with Employer and/or any of its subsidiaries or affiliates are hereby void and of no further force or effect; and (ii) Employee’s Employment Letter Agreement shall be void and of no further force or effect as of the Resignation Date. The parties agree that there were no inducements or representations leading to the execution of this Agreement except as stated in this Agreement.  Any modification of or addition to this Agreement must be in writing and signed by Employee and Employer’s CEO or Vice-President of Human Resources.

ev3 Inc.		Employee
/s/ Greg Morrison		/s/ Thomas Wilder
Greg Morrison		Thomas Wilder
Vice-President, Human Resources
Date Signed:	4/3/06	Date Signed:	4/3/06

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AMENDMENT TO SEPARATION/CONSULTING AGREEMENT

This Amendment to Separation/Consulting Agreement (this “Amendment”) is made and entered into by and between Thomas C. Wilder III, whose address is 1841 Port Sheffield Place, Newport Beach, CA 92660 (“Employee”) and ev3 Inc., whose address is 9600 54th Avenue North, Plymouth, MN 55442 (“Employer”).

WHEREAS, Employee and Employer have previously entered into that certain Separation/Consulting Agreement dated as of April 3, 2006 (the “Original Agreement”) pursuant to which the Employee and Employer intended to terminate the employment relationship between them in an orderly and mutually satisfactory manner and address their relationship going forward; and

WHEREAS, Employee and Employer want to amend the consulting services provision and clarify the stock option provision of the Original Agreement.

NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, Employee and Employer agree as follows:

1.Consulting Services.  Section 5 of the Original Agreement is hereby amended in its entirety to state as follows:

“In consideration for allowing Employee to remain as an active employee through the Resignation Date, Employee agrees to provide certain Consulting Services to Employer through August 31, 2006 as described in more detail on Exhibit A attached hereto, and after August 31, 2006, to make himself available to assist Employer’s management and legal counsel regarding the global intellectual property legal proceedings regarding neuro coils of which Micro Therapeutics, Inc. is subject, through the date such legal proceedings are finally resolved.  Employee will provide the Consulting Services listed on Exhibit A through August 31, 2006 in exchange for an aggregate payment of $5,000.  Employee will provide the other consulting assistance as may be requested after August 31, 2006 to Employer at no charge for up to eight (8) hours per month.  For any assistance requested by Employer in excess of eight (8) hours per month, Employer shall pay Employee as follows: (i) if Employee provides assistance to Employer for a full day, or a substantially full day, Employer shall pay Employee in the amount of $1,000; and (ii) if Employee provides assistance to Employer for a half-day, Employer shall pay Employee in the amount of $500.  All Consulting Services and assistance shall be at Employer’s reasonable request.  All requests by Employer for Consulting Services and other assistance by Employee shall be made either by Employer’s Chief Executive Officer or Chief Legal Officer.”

2.Unit/Stock Options.  Section 9 of the Original Agreement is hereby amended in its entirety to state as follows:

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“Employee’s rights to any stock options shall be determined in accordance with the applicable written agreement(s) and/or plan(s) governing such stock options; provided, however, that Employee hereby waives any additional vesting of his Employer stock options after June 30, 2006.  For purposes of clarity, Employee and Employer hereby understand, acknowledge and agree that pursuant to the terms of such agreement(s) and/or plan(s), the 30-day period in which Employee will be able to exercise any unexercised and unexpired Employer stock options will commence on August 30, 2006, the last day of which Employee will be providing scheduled consulting services hereunder, and will terminate on September 30, 2006.”

3.No Other Changes.  Except as specifically amended by this Amendment, all other provisions of the Original Agreement shall remain in full force and effect.  This Amendment shall not constitute or operate as a waiver of, or estoppel with respect to, any provisions of the Original Agreement by any party hereto.

4.Capitalized Terms.  Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Original Agreement, as in effect on the date hereof.

5.Counterparts.  This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.

ev3 Inc.			Employee
/s/ Patrick D. Spangler			/s/ Thomas C. Wilder III
By: Patrick D. Spangler			Thomas C. Wilder III
Title: CFO
Date Signed:	7/25/06	Date Signed:		7/24/06

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EXHIBIT A

Description of Consulting Services To Be Provided Prior to August 31, 2006

·Attend three meetings with Matthew Jenusaitis and certain other individuals, to be determined, to provide history and strategy regarding the UCAL/BSC global coil litigation;

·Attend one meeting with Matthew Jenusaitis, Cecily Hines, and certain other individuals, to be determined, to provide history of the negotiations related to the Phenox equity acquisition;

·Attend one meeting with Jim Corbett and Matthew Jenusaitis to provide a retrospective on neurovascular product strategies;

·Attend one meeting with Jim Corbett and Matthew Jenusaitis to provide an organizational review of key individuals in the ev3 neurovascular division.

All Consulting Services listed on this Exhibit A shall be provided by Employee in person on location at Employer’s Irvine, California facility.

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EX-10.8

Exhibit 10.8

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective Date between SILICON VALLEY BANK, a California corporation (“Bank”), on the one side, and EV3 ENDOVASCULAR, INC., a Delaware corporation, EV3 INTERNATIONAL, INC., a Delaware corporation, and MICRO THERAPEUTICS, INC., a Delaware corporation (collectively and jointly and severally referred to as “Borrowers”), provides the terms on which Bank shall lend to Borrowers and Borrowers shall repay Bank. The parties agree as follows:

1ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

2LOAN AND TERMS OF PAYMENT

2.1Promise to Pay. Borrowers hereby unconditionally promise to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

2.1.1Revolving Advances.

(a)Availability. Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Availability Amount. Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

(b)Termination; Repayment. The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

2.1.2Letters of Credit Sublimit.

(a)As part of the Revolving Line, Bank shall issue or have issued Letters of Credit for Borrowers’ account. The face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed the Overall Ancillary Sublimit set forth in Section 2.1.6. Such aggregate amounts utilized hereunder shall at all times reduce the amount otherwise available for Credit Extensions under the Revolving Line. If, on the Revolving Maturity Date or any earlier date of termination of the Revolving Line, there are any outstanding Letters of Credit, then on such date Borrowers shall provide to Bank cash collateral in an amount equal to 100% of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to said Letters of Credit. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank’s standard Application and Letter of Credit Agreement (the “Letter of Credit Application”). Borrowers agree to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request. Borrowers further agree to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Bank and opened for any Borrower’s account or by Bank’s interpretations of any Letter of Credit issued by Bank for any Borrower’s account, and Borrowers understand and agree that Bank shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following any Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto.

(b)The obligation of Borrowers to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, such Letters of Credit, and the Letter of Credit Application.

(c)Borrowers may request that Bank issue a Letter of Credit payable in a Foreign Currency. If a demand for payment is made under any such Letter of Credit, Bank shall treat such demand as an Advance to Borrowers of the equivalent of the amount thereof (plus fees and charges in connection therewith such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

(d)To guard against fluctuations in currency exchange rates, upon the issuance of any Letter of Credit payable in a Foreign Currency, Bank shall create a reserve (the “Letter of Credit Reserve”) under the Revolving Line in an amount equal to ten percent (10%) of the face amount of such Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from time to time to account for fluctuations in the exchange rate. The availability of funds under the Revolving Line shall be reduced by the amount of such Letter of Credit Reserve for as long as such Letter of Credit remains outstanding.

2.1.3Foreign Exchange Sublimit. As part of the Revolving Line, Borrowers may enter into foreign exchange contracts with Bank under which Borrowers commit to purchase from or sell to Bank a specific amount of Foreign Currency (each, a “FX Forward Contract”) on a specified date (the “Settlement Date”). FX Forward Contracts shall have a Settlement Date of at least one (1) FX Business Day after the contract date and shall be subject to a reserve of ten percent (10%) of each outstanding FX Forward Contract in a maximum aggregate amount equal to $7,000,000 (the “FX Reserve”). Subject to the Overall Ancillary Sublimit set forth in Section 2.1.6, the aggregate amount of FX Forward Contracts at any one time may not exceed ten (10) times the amount of the FX Reserve.

2.1.4Cash Management Services Sublimit. Subject to the Overall Ancillary Sublimit set forth in Section 2.1.6, Borrowers may use up to the Availability Amount of the Revolving Line for Bank’s cash management services which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in Bank’s various cash management services agreements (collectively, the “Cash Management Services”). Such aggregate amounts utilized hereunder shall at all times reduce the amount otherwise available for Credit Extensions under the Revolving Line. Any amounts Bank pays on behalf of any Borrower or any amounts that are not paid by Borrowers for any Cash Management Services will be treated as Advances under the Revolving Line and will accrue interest at the interest rate applicable to Advances.

2.1.5Equipment Advances.

(a)Availability. Subject to the terms and conditions of this Agreement, during the Draw Period, Bank shall make advances (each, an “Equipment Advance” and, collectively, “Equipment Advances”) not exceeding the Equipment Line.

(i)Qualifying Initial Equipment Advance. If the initial Equipment Advance is requested by Borrowers in time for funding on or before July 7, 2006, then Borrowers may request such Equipment Advance in an amount of up to $7,500,000 (the “Qualifying Initial Equipment Advance”) to finance Eligible Equipment purchased on or after December 31, 2004 and on or before December 30, 2006 (determined based upon the applicable invoice date of such Eligible Equipment) (the “Eligible Equipment Purchase Period”). Concurrently with Borrowers’ request for the Qualifying Initial Equipment Advance, Borrowers shall deliver to Bank copies of all invoices for Eligible Equipment to be financed by the Qualifying Initial Equipment Advance that has been purchased during the Eligible Equipment Purchase Period but before or at the time of such request, and going forward Borrowers shall deliver to Bank copies of all invoices for Eligible Equipment to be financed by the Qualifying Initial Equipment Advance that is purchased during the Eligible Equipment Purchase Period but after such request. If on December 30, 2006 the outstanding amount of the Qualifying Initial Equipment Advance exceeds the aggregate Eligible Equipment Invoice Amounts for which Borrowers have delivered invoices to Bank for purchases of Eligible Equipment made during the Eligible Equipment Purchase Period that are to be financed by the Qualifying Initial Equipment Advance, then Borrowers shall immediately pay the amount of such excess (the “Excess Initial Equipment Advance”) to Bank.

(ii)Non-Qualifying Equipment Advances. Borrowers may request Equipment Advances other than the Qualifying Initial Equipment Advance (a “Subsequent Equipment Advance”) to finance Eligible Equipment purchased within ninety (90) days (determined based upon the applicable invoice date of such Eligible Equipment) before the date of each such Equipment Advance, and no such Equipment Advance may exceed the Eligible Equipment Invoice Amount(s) of the Eligible Equipment being financed. Borrowers may not finance

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the same Eligible Equipment with both the Qualifying Initial Equipment Advance and a Subsequent Equipment Advance.

(iii)Eligible Equipment Invoice Amount; No Reborrowing. As used herein, “Eligible Equipment Invoice Amount” shall mean 100% of the total invoice for Eligible Equipment (excluding taxes, shipping, warranty charges, freight discounts and installation expenses relating to such Eligible Equipment except to the extent such are allowed to be financed pursuant hereto as Other Equipment), provided that, unless otherwise agreed to by Bank, not more than 25% of the proceeds of the Equipment Line shall be used to finance Other Equipment. After repayment, no Equipment Advance may be reborrowed.

(b)Repayment. Equipment Advances outstanding on December 31, 2006 (other than any Excess Initial Equipment Advance) are payable in 42 consecutive equal monthly installments of principal, beginning on January 31, 2007 and continuing on the last day of each month thereafter until June 30, 2010, on which date all remaining outstanding principal and all accrued unpaid interest with respect to such Equipment Advances shall be due. Equipment Advances made after December 31, 2006 and outstanding on the last day of the Draw Period are payable in 42 consecutive equal monthly installments of principal, beginning on July 31, 2007 and continuing on the last day of each month thereafter until December 31, 2010, on which date all remaining outstanding principal and all accrued unpaid interest with respect to such Equipment Advances shall be due.

(c)Prepayment Upon an Event of Loss. Borrowers shall bear the risk of any loss, theft, destruction, or damage of or to the Financed Equipment. If, during the term of this Agreement, any item of Financed Equipment becomes obsolete or is lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or seized by a governmental authority for any reason for a period equal to at least the remainder of the term of this Agreement (an “Event of Loss”), then, within ten (10) days following the later of (i) the date of such Event of Loss or (ii) the settlement of any insurance claim relating thereto, but not later than one hundred ten (110) days following the Event of Loss, Borrowers shall either (i) pay to Bank on account of the Obligations all outstanding principal that had been advanced with respect to the Financed Equipment subject to the Event of Loss, plus all accrued interest relating to such principal; or, if no Event of Default has occurred and is continuing, at Borrowers’ option,  (ii) repair or replace any Financed Equipment subject to the Event of Loss provided (x) the repaired or replaced Financed Equipment is of equal or like value to the Financed Equipment subject to an Event of Loss, (y) Bank has a first priority perfected security interest in such repaired or replaced Financed Equipment, and (z) the Borrowers shall be subject to any limit on the use of insurance proceeds contained in this Agreement. Principal prepayments pursuant to this subsection shall be applied to the principal payments due on the Equipment Advances in the inverse order of maturity.

2.1.6Overall Ancillary Sublimit. Anything herein to the contrary notwithstanding, the sum of the aggregate amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit), plus any Letter of Credit Reserve, plus the FX Reserve, plus the aggregate amount used for Cash Management Services, shall not at any time exceed $7,000,000 (the “Overall Ancillary Sublimit”).

2.1.7Voluntary Prepayment; Reduction of the Revolving Line; Termination of the Credit Facility by the Borrowers. Borrowers may prepay the Equipment Advances (in addition to any payments made in accordance with Section 2.1.5(c)) in whole or part at any time by written notice to Bank without premium, penalty or charge whatsoever. Any principal prepayment of Equipment Advances shall be applied to the principal payments due on the Equipment Advances in the inverse order of maturity. Borrowers may terminate the Revolving Line at any time effective three Business Days after written notice to Bank without premium, penalty or charge whatsoever, except as set forth in Section 2.4(e). Upon any such termination of the Revolving Line, Borrowers shall pay and perform the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line (including, without limitation, any prepayment fee that may be due pursuant to Section 2.4(e)).

2.1.8[Omitted.]

2.2Overadvances. If, at any time, the Credit Extensions under Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 exceed the lesser of either (a) the Revolving Line or (b) the greater of (i) $12,000,000 or (ii) the Borrowing Base less applicable reserves, Borrowers shall immediately pay to Bank in cash such excess.

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2.3Payment of Interest on the Credit Extensions.

(a)Interest Rate.

(i)Advances. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below.

(ii)Equipment Advances. Subject to Section 2.3(b), the principal amount outstanding for each Equipment Advance shall accrue interest at a floating per annum rate equal to one (1.0) percentage point above the Prime Rate, which interest shall be payable monthly.

(b)Default Rate. Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points above the rate that is otherwise applicable thereto (the “Default Rate”). Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

(c)Adjustment to Interest Rate. Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.

(d)360-Day Year. Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed.

(e)Debit of Accounts. Bank may debit any deposit account of any Borrower, including the Designated Deposit Account, for principal and interest payments or any other amounts that any Borrower owes Bank when due. These debits shall not constitute a set-off.

(f)Payments. Unless otherwise provided, interest is payable monthly on the last calendar day of each month. Payments of principal and/or interest received after 12:00 p.m. Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest, as applicable, shall continue to accrue.

2.4Fees. Borrowers shall pay to Bank:

(a)Equipment Line Facility Fee. On July 10, 2006, a fully earned, non-refundable facility fee of $18,750 with respect to the Equipment Advance facility, provided that the Bank shall waive the $18,750 fee with respect to the Equipment Advance facility if Borrowers take the Qualifying Initial Equipment Advance by July 7, 2006 in the full amount of $7,500,000;

(b)Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or renewal of Letters of Credit, including, without limitation, a Letter of Credit Fee of one percent (1.00%) per annum of the face amount of each Letter of Credit issued, upon the issuance, each anniversary of the issuance, and the renewal of such Letter of Credit;

(c)Unused Revolving Line Fee. A fee (the “Unused Revolving Line Fee”), payable quarterly, in arrears, on a calendar year basis, in an amount equal to three-eighths of one percent (0.375%) per annum of the average unused portion of the Revolving Line, as determined by Bank. For purposes of computing the Unused Revolving Line Fee, the following shall not be considered as uses of the Revolving Line: the amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit), any Letter of Credit Reserve, any amounts used for Cash Management Services, and any FX Reserve. Borrowers shall not be entitled to any credit, rebate or repayment of any Unused Revolving Line Fee previously earned by Bank pursuant to this Section notwithstanding any termination of the Agreement or the suspension or termination of Bank’s obligation to make loans and advances hereunder;

(d)Revolving Line Facility Fee. A fee, payable quarterly, in arrears, on a calendar year basis, in an amount equal to $46,875 per quarter less one-half of one percent (0.5%) per annum of the average used portion of the Revolving Line, as determined by Bank;

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(e)Prepayment Fee. If the Revolving Line is terminated by Borrowers, or by Bank during the existence of an Event of Default, prior to June 26, 2007, then Borrowers shall pay Bank a prepayment fee equal to $150,000 less the amount paid pursuant to Section 2.4(d) during the period from the Effective Date through the effective date of such termination, but in no event shall said fee be less than zero. If the Revolving Line is terminated by Borrowers, or by Bank during the existence of an Event of Default, on or after June 26, 2007 but prior to the Revolving Line Maturity Date, then Borrowers shall pay Bank a prepayment fee equal to $150,000 less the amount paid pursuant to Section 2.4(d) during the period from June 26, 2007 through the effective date of such termination, but in no event shall said fee be less than zero. For purposes of computing such prepayment fee, the following shall not be considered as uses of the Revolving Line: the amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit), any Letter of Credit Reserve, any amounts used for Cash Management Services, and any FX Reserve; and

(f)Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and expenses, plus expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due.

3CONDITIONS OF LOANS

3.1Conditions Precedent to Initial Credit Extension. Bank’s obligation to make the initial Advance Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

(a)Borrowers shall have delivered duly executed original signatures to the Loan Documents;

(b)Borrowers shall have delivered the Operating Documents of each Borrower and the Operating Documents of Parent and good standing certificates of each Borrower and of Parent certified by the Secretary of States of Delaware and Minnesota as of a date no earlier than thirty (30) days prior to the Effective Date;

(c)Borrowers shall have delivered duly executed original signatures to (i) completed Borrowing Resolutions for each Borrower and (ii) completed Guaranty Resolutions for each Guarantor (other than Borrowers);

(d)Bank shall have received certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

(e)Borrowers shall have delivered Perfection Certificates executed by each Borrower and Parent, the substance of which shall be acceptable to Bank in its discretion;

(f)Borrowers shall have delivered a legal opinion of Borrower’s, Parent’s, and Guarantor’s counsel dated as of the Effective Date together with the duly executed original signatures thereto;

(g)Borrowers shall have delivered to Bank (i) a cross-guaranty by each Borrower of the obligations of the others and (ii) guaranties and security agreements from Parent and all of Parent’s Domestic Subsidiaries (excluding Borrowers), and Bank shall have a first-priority perfected security interest in the collateral of Parent and all such Domestic Subsidiaries, subject to permitted liens, all satisfactory to Bank;

(h)Borrowers shall have delivered evidence satisfactory to Bank that the insurance policies required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing loss payable and/or additional insured clauses or endorsements in favor of Bank;

(i)Borrowers shall have paid the fees and Bank Expenses then due as specified in Section 2.4 hereof; and

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(j)Bank has approved in writing, in its discretion, all schedules which Borrowers’ are permitted or required to deliver to Bank prior to the initial Credit Extension under the terms of this Agreement.

3.2Conditions Precedent to all Credit Extensions. Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following:

(a)except as otherwise provided in Section 3.4(a), timely receipt of an executed Payment/Advance Form;

(b)the representations and warranties in Section 5 shall be true in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Default or Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrowers’ representation and warranty on that date that the representations and warranties in Section 5 remain true in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

(c)in Bank’s sole discretion, there has not been any material impairment in the general affairs, management, results of operation, financial condition or the prospect of repayment of the Obligations, or there has not been any material adverse deviation by Parent or any Borrower from the most recent business plan of Parent (or any Borrower, if applicable) presented to and accepted by Bank.

3.3Covenant to Deliver.

Borrowers agree to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition to any Credit Extension. Borrowers expressly agree that the extension of a Credit Extension prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of any Borrower’s obligation to deliver such item, and any such extension in the absence of a required item shall be in Bank’s sole discretion.

3.4Procedures for Borrowing.

(a)Advances. Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to obtain an Advance (other than Advances under Sections 2.1.2 or 2.1.4), Borrowers shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Advance. Together with any such electronic or facsimile notification, Borrowers shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer of each Borrower or his or her designee. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Bank shall credit Advances to the Designated Deposit Account. Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations which have become due.

(b)Equipment Advances. Subject to the prior satisfaction of all other applicable conditions to the making of an Equipment Advance set forth in this Agreement, to obtain an Equipment Advance, Borrowers must notify Bank (which notice shall be irrevocable) by electronic mail or facsimile no later than 12:00 p.m. Pacific time one (1) Business Day before the proposed Funding Date. The notice shall be a Payment/Advance Form, must be signed by a Responsible Officer of each Borrower or designee, and (except as otherwise provided in Section 2.1.5(a)(i) with respect to the Qualifying Initial Equipment Advance) shall include a copy of the invoice for the Equipment being financed. If Borrowers satisfy the conditions of each Equipment Advance, Bank shall disburse such Equipment Advance by transfer to the Designated Deposit Account.

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4CREATION OF SECURITY INTEREST

4.1Grant of Security Interest. Each Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Each Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement). If any Borrower shall acquire a commercial tort claim, Borrowers shall promptly notify Bank in a writing signed by Borrowers of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full in cash of the Obligations and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at Borrowers’ sole cost and expense, release its Liens in the Collateral and all rights therein shall revert to Borrowers.

4.2Authorization to File Financing Statements. Each Borrower hereby authorizes Bank to file financing statements, without notice to Borrowers, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrowers or any other Person, shall be deemed to violate the rights of Bank under the Code.

5REPRESENTATIONS AND WARRANTIES

Borrowers represent and warrant as follows as of the date of the initial Credit Extension and thereafter:

5.1Due Organization and Authorization. Each Borrower, Parent and each of Parent’s Subsidiaries are duly existing and in good standing in their respective jurisdictions of formation and are qualified and licensed to do business and are in good standing in any jurisdiction in which the conduct of their business or their ownership of property requires that they be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on any Borrower’s or Parent’s business. Pursuant to Section 3.1(e), each Borrower shall deliver to Bank a completed “Perfection Certificate”, in the form previously provided by Bank, signed by Borrower and Parent. Each Borrower represents and warrants to Bank that (a) such Borrower’s exact legal name is that indicated on its Perfection Certificate and on the signature page hereof; (b) such Borrower is an organization of the type and is organized in the jurisdiction set forth in its Perfection Certificate; (c) its Perfection Certificate accurately sets forth such Borrower’s organizational identification number or accurately states that such Borrower has none; (d) its Perfection Certificate accurately sets forth such Borrower’s place of business, or, if more than one, its chief executive office as well as such Borrower’s mailing address (if different than its chief executive office); (e) such Borrower (and each of its predecessors) has not, in the past five (5) years, changed its state of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on its Perfection Certificate pertaining to such Borrower and each of its Subsidiaries is accurate and complete.

The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with such Borrower’s organizational documents, nor constitute an event of default under any material agreement by which such Borrower is bound. Neither such Borrower nor Parent nor any of Parent’s Subsidiaries is in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on any Borrower’s or Parent’s business.

5.2Collateral. Each Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. None of the Borrowers, Parent or any of Parent’s Domestic Subsidiaries have any deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificates of Borrowers and Parent that were delivered to Bank in connection herewith, or of which Borrowers have given Bank notice and taken such actions as are necessary to give Bank a perfected security interest therein (subject to Section 6.6 hereof). The Accounts are bona fide, existing obligations of the Account Debtors.

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The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of the components of the Collateral (other than Inventory in the possession of consignees of such Inventory and Trunk Inventory) shall be maintained at locations other than as provided in the Perfection Certificate or new locations of Borrowers within the United States for which Borrowers have given Bank 30 days’ prior written notice. In the event that any Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral to a bailee, then Borrowers will first receive the written consent of Bank and such bailee must execute and deliver a bailee agreement in form and substance satisfactory to Bank in its sole discretion.

All Financed Equipment is new, except for such Financed Equipment that has been disclosed in writing to Bank by Borrowers as “used”. All Inventory is in all material respects of good and marketable quality, free from material defects.

Each Borrower, Parent and each of Parent’s Subsidiaries is the sole owner of its intellectual property, except for non-exclusive licenses granted to its customers in the ordinary course of business. Each patent is valid and enforceable to the best of each Borrower’s knowledge, and no part of such intellectual property has been judged invalid or unenforceable, in whole or in part, and to the best of each Borrower’s knowledge, except as may be set forth in a schedule hereto, no claim has been made that any part of such intellectual property violates the rights of any third party except to the extent such claim could not reasonably be expected to have a material adverse effect on any Borrower’s or Parent’s business. Except as noted on the Perfection Certificate, neither any Borrower nor Parent nor any Subsidiary of Parent is a party to, nor is bound by, any material license or other agreement with respect to which such Person is the licensee, including without limitation any material license or agreement (a) for which a default under or termination could interfere with the right to sell Collateral, or (b) that prohibits or otherwise restricts such Person from granting a security interest in such Person’s interest in such license or agreement or any other property. Borrowers shall provide written notice to Bank within ten (10) days of any such Person entering or becoming bound by any such license or agreement (other than over-the-counter software that is commercially available to the public). Each Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for Bank to have the ability in the event of a liquidation of the Collateral to dispose of the Collateral in accordance with Bank’s rights and remedies under this Agreement and the Loan Documents.

5.3Accounts Receivable. For any Eligible Account in any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing such Eligible Account are and shall be true and correct and all such invoices, instruments and other documents, and all of each Borrower’s Books are genuine and in all respects what they purport to be. All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations. No Borrower has any knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor with an account that is included as an Eligible Account in any Borrowing Base Certificate. To the best of each Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

5.4Litigation. Except as may be set forth on a schedule hereto, there is no action or proceeding (or series of related actions or proceedings) pending or, to the knowledge of the Responsible Officers of each Borrower, threatened in writing by or against any Borrower, Parent or any of Parent’s Subsidiaries involving more than $500,000.

5.5No Material Deviation in Financial Statements. All consolidated financial statements for Parent and its Subsidiaries delivered to Bank fairly present in all material respects Parent’s consolidated financial condition and Parent’s consolidated results of operations. There has not been any material deterioration in Parent’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

5.6Solvency. The fair salable value of each Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; no Borrower is left with unreasonably small capital after the transactions in this Agreement; and each Borrower is able to pay its debts (including trade debts) as they mature.

5.7Regulatory Compliance. No Borrower is an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act. No Borrower is engaged as one of its important

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activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Each Borrower has complied in all material respects with the Federal Fair Labor Standards Act. No Borrower has violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on any Borrower’s or Parent’s business. No Borrower’s, Parent’s or any of Parent’s Subsidiaries’ properties or assets has been used by such Persons or, to the best of each Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrowers, Parent and all of Parent’s Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted.

5.8Subsidiaries; Investments. No Borrower owns any stock, partnership interest or other equity securities except for Permitted Investments.

5.9Tax Returns and Payments; Pension Contribution. Each Borrower, Parent and Subsidiary of Parent has timely filed all required material tax returns and reports, and each Borrower, Parent and Subsidiary of Parent has timely paid all material foreign, federal, state and local taxes, assessments, deposits and contributions owed by such Person. Any of such Persons may defer payment of any contested taxes, provided that such Person (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”. Each Borrower is unaware of any claims or adjustments proposed for any of such Person’s prior tax years which could result in additional taxes becoming due and payable by such Persons. Each Borrower, Parent and Subsidiary of Parent has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and no such Person has withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of such any such Persons, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

5.10Use of Proceeds. Borrowers shall use the proceeds of the Credit Extensions solely as working capital, to purchase Eligible Equipment, and to fund its general business requirements and not for personal, family, household or agricultural purposes.

5.11Assets of Foreign Subsidiaries. As of March 31, 2006, $746,000 of the Accounts, $595,000 of the Inventory, $625,000 of the net Equipment, and $6,050,000 of the cash and Cash Equivalents listed on Parent’s consolidated financial statements are owned by foreign Subsidiaries of Parent (as opposed to being owned by Borrowers, Parent or Domestic Subsidiaries of Parent).

5.12Full Disclosure. No written representation, warranty or other statement of any Borrower, Parent or any Subsidiary of Parent in any certificate or written statement given to Bank, as of the date such representations, warranties, or other statements were made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).

6AFFIRMATIVE COVENANTS

Borrowers shall do all of the following:

6.1Government Compliance. Each Borrower shall, and shall cause Parent and each of Parent’s Subsidiaries to, maintain its legal existence and good standing in its jurisdiction of formation and each jurisdiction in which the nature of its business requires them to be so qualified, except where the failure to take such action would not reasonably be expected to have a material adverse effect on such Borrower’s or Parent’s business or operations; provided, that (a) the legal existence of any Subsidiary that is not a Guarantor may be terminated or permitted to lapse, and any qualification of such Subsidiary to do business may be terminated or permitted to lapse, if, in the good faith judgment of Borrowers, such termination or lapse is in the best interests of Borrowers, and (b) no

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Borrower or Parent may permit its qualification to do business in the jurisdiction of its chief executive office to terminate or lapse; and provided, further, that this Section 6.1 shall not be construed to prohibit any other transaction that is otherwise expressly permitted in Section 7 of this Agreement.

Each Borrower shall comply, and shall have Parent and each Subsidiary of Parent comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on any Borrower’s or Parent’s business.

6.2Financial Statements, Reports, Certificates.

(a)Deliver to Bank: (i) as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Parent’s consolidated operations for such month certified by a Responsible Officer of Parent and in a form acceptable to Bank (ii) Parent’s 10K, 10Q, and 8K reports as soon as available, but no later than the earlier of (x) five (5) days after filing with the Securities Exchange Commission or (y) in the case of 10Ks with respect to a fiscal year, 120 days after the last day of such fiscal year or (z) in the case of 10Qs with respect to a Fiscal Quarter, forty-five (45) days after the last day of such Fiscal Quarter; (iii) a duly completed Compliance Certificate signed by a Responsible Officer of Parent and each Borrower (which, among other things, shall set forth (y) calculations showing compliance with the financial covenants set forth in this Agreement and (z) the amount and locations of Parent’s, Borrower’s and each Guarantor’s cash and Cash Equivalents) together with delivery of Parent’s 10K and 10Q reports and the monthly financial statements; (iv) prior to the end of each fiscal year, annual financial projections (including profit and loss, balance sheet and cash flow) for the following fiscal year (on a Fiscal Quarter basis) as approved by Parent’s board of directors; (v) a prompt report of any legal action (or series of related legal actions) pending or threatened against Parent or any Subsidiary of Parent that could result in damages or costs to Parent or any Subsidiary of Parent of $500,000 or more; (vi) a copy of the monthly financial information that is provided to Parent’s Board of Directors by Parent, Borrowers and Parent’s Subsidiaries, within five (5) days of providing the same to Parent’s Board of Directors; and (vii) as the Bank shall from time to time reasonably request, budgets, sales projections, and operating plans used in the preparation of the annual financial projections required by clause “iv” above, and other financial information normally prepared by Parent including, without limitation, consolidating financial statements.

(b)Within thirty (30) days after the last day of each Fiscal Quarter, deliver to Bank (i) aged listings of accounts receivable and accounts payable (by invoice date), (ii) perpetual inventory reports for the Inventory valued on a first-in, first-out basis at the lower of cost or market (in accordance with GAAP), or such other inventory reports as are requested by Bank in its good faith business judgment and are reasonably available to Borrowers, (iii) a cash balance report, including account statements detailing cash management types of investments held and maturity dates, and (iv) if at any time during such Fiscal Quarter the sum of the Credit Extensions under Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 exceeds $12,000,0000, a duly completed Borrowing Base Certificate signed by a Responsible Officer of each Borrower and Parent.

(c)Allow Bank to audit each Borrower’s Collateral at Borrowers’ expense. (Without limitation on the foregoing, Borrowers shall cooperate with Bank completing, within 90 days after the Effective Date, an audit of each Borrower’s Collateral and books and records.)

(d)If during a Fiscal Quarter Borrowers desire to obtain Credit Extensions under Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 that aggregate in excess of $12,000,000, and previously during such Fiscal Quarter Borrowers have not provided Bank with a duly completed Borrowing Base Certificate signed by a Responsible Officer of each Borrower and Parent, then Borrowers’ shall first provide Bank with such a Borrowing Base Certificate.

6.3Inventory; Returns. Keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between any Borrower and its Account Debtors shall follow such Borrower’s customary practices as they exist at the Effective Date. Borrowers must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than Five Hundred Thousand Dollars ($500,000) and (i) relate to a single customer or (ii) relate to returns of a single product within a Fiscal Quarter.

6.4Taxes; Pensions. Make, and cause Parent and each of Parent’s Subsidiaries to make, timely payment of all material foreign, federal, state, and local taxes or assessments (other than taxes and assessments

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which such Person is contesting pursuant to the terms of Section 5.9 hereof) and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance (in all material respects) with their terms.

6.5          Insurance. Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrowers’ industry and location and as Bank may reasonably request. Insurance policies shall be in a form and with companies that are satisfactory to Bank. On and after the date of the initial Credit Extension, all property policies shall have a lender’s loss payable endorsement showing Bank as the lender loss payee and waive subrogation against Bank, and all liability policies shall show, or have endorsements showing, Bank as an additional insured. On and after the date of the initial Credit Extension, all policies (or the loss payable and additional insured endorsements) shall provide that the insurer must give Bank at least twenty (20) days notice before canceling, decreasing the policy limits under, or declining to renew its policy. Borrowers shall provide Bank with written notice of any material amendment to any insurance policy (including, without limitation, any material decrease in policy limits, exclusion or increase in deductible) at the later of twenty (20) days before such amendment is to take effect or when any Borrower first learns of such amendment. At Bank’s request, Borrowers shall deliver certified copies of policies and evidence of all premium payments. Except as otherwise provided in Section 2.1.5(c), proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations. Notwithstanding the foregoing, (a)(x) so long as no Event of Default has occurred and is continuing, Borrowers shall have the option of applying the proceeds of any casualty policy up to $3,000,000 with respect to any loss, but not exceeding an aggregate of $3,000,000 for all losses under all casualty policies in any one year, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted a first priority security interest, and (b)(y) after the occurrence and during the continuance of an Event of Default, all proceeds payable under all casualty policies shall, at the option of Bank, be payable to Bank on account of the Obligations. If any Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.

6.6          Operating Accounts.

(a)           Commencing on the date of the initial Credit Extension and continuing thereafter (i) Maintain an operating account with Bank and (ii) cause to be maintained in accounts of Parent, Borrower or Secured Guarantors held with Bank and Bank’s affiliates the lesser of $15,000,000 or an amount equal to 50% of the aggregate cash and Cash Equivalents of Borrowers, Parent and Subsidiaries of Parent.

(b)           Provide Bank five (5) days prior written notice before Parent, any Borrower or any Domestic Subsidiary of Parent establishes any Collateral Account at or with any bank or financial institution other than Bank or its Affiliates. In addition, for each Collateral Account that Parent, any Borrower or any Domestic Subsidiary of Parent at any time maintains, Borrowers shall cause the applicable bank or financial institution (other than Bank) at or with which any such Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of the employees of Parent, Borrowers or such Subsidiary and identified to Bank by Borrowers as such. Notwithstanding the foregoing, Borrowers shall have until the expiration of sixty (60) days following the Effective Date to provide such Control Agreements with respect to Collateral Accounts in existence on the Effective Date.

6.7          Financial Covenants.

Parent shall maintain at all times, to be tested as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Parent and its Subsidiaries:

(a)           Quick Ratio. A ratio of Quick Assets to Current Liabilities of at least 1.3 to 1.0.

(b)           Tangible Net Worth. A Tangible Net Worth of at least (i) $90,000,000 during the period beginning with the Effective Date through November 30, 2006, (ii) $95,000,000 during the period beginning with December 1, 2006 through May 31, 2007, (iii) $105,000,000 during the period beginning with June 1, 2007 through

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August 31, 2007, (iv) $108,000,000 during the period beginning with September 1, 2007 through November 30, 2007 and (v) $115,000,000 beginning with December 1, 2007 and continuing thereafter; in each of the foregoing cases (y) the minimum Tangible Net Worth requirements will be increased by 50% of Net Income and 50% of issuances of equity (except that, for such purpose, increases in equity due to equity issued upon exercise of options granted under a stock option plan of Parent, a Borrower or any predecessor thereof shall not be included for purposes of computing such increase unless the amount of such increase in equity in a Fiscal Quarter exceeds $500,000, in which case the entire amount of such increase (i.e., not just the excess over $500,000) in the Fiscal Quarter shall be included) after the Effective Date, in accordance with this Section 6.7(b), and (z) if after the Effective Date Parent or a Subsidiary of Parent makes a payment for a purchase or other acquisition of an asset or company (provided that such purchase or acquisition occurred prior to the Effective Date or is allowed under the terms of this Agreement) and because of goodwill, intangibles or in-process research and development that were acquired in such purchase or acquisition the Tangible Net Worth decreases, the minimum Tangible Net Worth requirements will be decreased by the same amount. Increases in the minimum Tangible Net Worth requirements based on consideration received for equity securities shall be effective as of the end of the month in which such consideration is received, and shall continue in effect thereafter; provided that (aa) increases due to equity issued upon the exercise of options granted under a stock option plan as described above, shall be effective as of the end of the month during which the aggregate amount of such increases for the Fiscal Quarter containing such month first exceeds $500,000, and (bb) all such increases which occur in any subsequent month during such Fiscal Quarter shall be effective as of the end of such month. Increases in the minimum Tangible Net Worth requirements based on Net Income shall be effective on the last day of the month in which said Net Income is realized, and shall continue in effect thereafter. Decreases in the minimum Tangible Net Worth requirements based on goodwill, etc. associated with payments for purchases or acquisitions shall be effective on the last day of the month in which such payments are accrued in accordance with GAAP, and shall continue in effect thereafter. Except as described in this subsection with respect to purchases and acquisitions, in no event shall the minimum Tangible Net Worth requirements be decreased.

6.8          Protection of Intellectual Property Rights. Borrowers shall and shall cause Parent and the Subsidiaries of Parent to:  (a) protect, defend and maintain the validity and enforceability of the intellectual property that is material to Borrower’s and/or Parent’s business; (b) promptly advise Bank in writing of material infringements of the intellectual property that is material to Borrower’s and/or Parent’s business; and (c) not allow any intellectual property that, to any Borrower’s knowledge, is material to any Borrower’s and/or Parent’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.

6.9          Litigation Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrowers and their officers, employees and agents and each Borrower’s books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to any Borrower.

6.10        Landlord Consents. At Bank’s request Borrowers shall obtain for Bank landlord consents with respect to locations at which Collateral is located in form acceptable to Bank in its good faith discretion.

6.11        Further Assurances. Borrowers shall execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.

7              NEGATIVE COVENANTS

No Borrower shall do any of the following without Bank’s prior written consent:

7.1          Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively “Transfer”), or permit Parent or any of the Subsidiaries of Parent to Transfer, all or any part of such Person’s business or property, except for:

(a)           Transfers in the ordinary course of business (excluding Transfers of Accounts, but including Transfers of used Financed Equipment subject to the limit set forth below in this Section 7.1) for reasonably equivalent consideration;

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(b)           Transfers (i) from any Borrower to Parent or to any other Borrower, (ii) from any Subsidiary of Parent (other than a Borrower) to Parent, any Borrower or any Secured Guarantor, or (iii) from any foreign Subsidiary of Parent to Parent, any Borrower or any other Subsidiary of Parent;

(c)           Transfers of property (excluding Transfers of Inventory outside the ordinary course of business and Transfers of Accounts, but including Transfers of used Financed Equipment subject to the limit set forth below in this Section 7.1 and including licenses of intellectual property) for fair market value;

(d)           Transfers of property (other than Accounts, Inventory outside the ordinary course of business, Financed Equipment, or intellectual property) in connection with sale-leaseback transactions;

(e)           Transfers of property (other than Accounts, Inventory outside the ordinary course of business, Financed Equipment, or intellectual property) to the extent such property is exchanged for credit against, or proceeds are promptly applied to, the purchase price of other property used or useful in the business of a Borrower or the transferor;

(f)            Transfers constituting non-exclusive licenses and similar arrangements for the use of the property of the transferor in the ordinary course of business and other non-perpetual licenses that may be exclusive in some respects other than territory (and/or that may be exclusive as to territory only in discreet geographical areas outside of the United States), but that could not result in a legal transfer of transferor’s title in the licensed property;

(g)           Transfers otherwise expressly permitted by the Loan Documents;

(h)           sales or discounting of delinquent accounts in the ordinary course of business;

(i)            Transfers associated with the making or disposition of a Permitted Investment; and

(j)            Provided no Event of Default exists or will occur as a result thereof, any exclusive or non-exclusive license (other than to Accounts, Inventory or Financed Equipment) granted in consideration of or to settle any claim or dispute.

Notwithstanding the foregoing, Transfers of used Financed Equipment shall not be permitted under “a” or “c” of this Section 7.1 in a Fiscal Quarter of Borrower to the extent that the aggregate fair market value of all used Financed Equipment transferred in such Fiscal Quarter for all Borrowers exceeds $150,000.

7.2          Changes in Business; Change in Control; Jurisdiction of Formation. Engage in any material line of business other than those lines of business conducted by Borrowers and their Subsidiaries on the date hereof and any businesses reasonably related, complementary or incidental thereto or reasonable extensions thereof; permit or suffer any Change in Control. No Borrower will, without prior written notice, change its jurisdiction of formation.

7.3          Mergers or Acquisitions. Merge or consolidate, or permit Parent or any Subsidiary of Parent to merge or consolidate, with any Person other than a merger of (a) any Subsidiary into any Borrower with such Borrower being the surviving Person, (b) any Subsidiary of Parent (other than a Borrower) into a Secured Guarantor, with such Secured Guarantor being the surviving Person, (c) any foreign Subsidiary of Parent into another foreign Subsidiary of Parent, (d) ev3 Santa Rosa, Inc. into ev3 International, Inc., with ev3 International, Inc. being the surviving Person, and (e) any of EndiCOR Medical, Incorporated, ev3 Sunnyvale, Inc. or ev3 Technologies, Inc into ev3 Peripherals, Inc., with ev3 Peripherals being the survivor; provided in each case that no Event of Default then exists or shall result therefrom.

7.4          Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit Parent or any Subsidiary of Parent to do so, other than Permitted Indebtedness.

7.5          Encumbrance. Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit Parent or any of its Subsidiaries to do so, except for Permitted Liens; permit any Collateral not to be subject to the first priority security interest granted herein, permit any collateral provided by any Guarantor not to be subject to the first priority security interest granted in the Loan Documents by such Guarantor; or enter or allow Parent or any Subsidiary of Parent to enter into any

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agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting any Borrower, Parent or any Subsidiary of Parent from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s, Parent’s or any of such Subsidiarys’ intellectual property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Lien” herein.

7.6          Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 6.6.(b) hereof.

7.7          Distributions; Investments. (a) Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit Parent or any of Parent’s Subsidiaries to do so; or (b) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock other than Permitted Distributions, or permit Parent or any of Parent’s Subsidiaries to do so.

7.8          Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of any Borrower except for (a) transactions that are in the ordinary course of business, upon fair and reasonable terms (when viewed in the context of any series of transactions of which it may be a part, if applicable) that are no less favorable to Borrowers than would be obtained in an arm’s length transaction with a non-affiliated Person; or (b) transactions with Parent or any of Parent’s Subsidiaries so long as no Event of Default exists or could result therefrom.

7.9          Compliance. Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on any Borrower’s or Parent’s business, or permit Parent or any of Parent’s Subsidiaries to do so; withdraw or permit Parent or any Subsidiary of Parent to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of such Person, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

8              EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:

8.1          Payment Default. Any Borrower fails within three (3) Business Days of when due to make any payment of principal or interest on any Credit Extension or other Obligation. During the cure period, the failure to cure the payment default is not an Event of Default (but no Credit Extension will be made during the cure period);

8.2          Covenant Default.

(a)           Any Borrower fails or neglects to perform any obligation in Sections 6.2, 6.6, or 6.7 or violates any covenant in Section 7; or

(b)           Any Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by such Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then such Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in subsection (a) above;

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8.3          Material Adverse Change. A Material Adverse Change occurs;

8.4          Attachment. (a) Any material portion of the assets of any Borrower, Parent or any Subsidiary of Parent is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in ten (10) days; (b) the service of process upon Bank seeking to attach, by trustee or similar process, any funds of any Borrower, Parent or any Subsidiary of Parent on deposit with Bank; (c) any Borrower, Parent or any Subsidiary of Parent is enjoined, restrained, or prevented by court order from conducting a material part of its business; (d) a judgment or other claim in excess of $100,000 becomes a Lien on any of the assets of any Borrower, Parent or any Subsidiary of Parent; or (e) a notice of lien, levy, or assessment is filed against any of the assets of any Borrower, Parent or any Subsidiary of Parent by any government agency and not paid within ten (10) days after any Borrower, Parent or any Subsidiary of Parent receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by such Borrower, Parent or such Subsidiary of Parent (as applicable). No Credit Extensions shall be made during any cure period, notwithstanding any stay or bond;

8.5          Insolvency. (a) Any Borrower, Parent or any Subsidiary of Parent is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) any Borrower, Parent or any Subsidiary of Parent begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against any Borrower, Parent or any Subsidiary of Parent and not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

8.6          Other Agreements. If any Borrower, Parent or any Subsidiary of Parent fails to (a) make any payment that is due and payable with respect to any Material Indebtedness and such failure continues after the applicable grace or notice period, if any, specified in the agreement or instrument relating thereto, or (b) perform or observe any other condition or covenant, or any other event shall occur or condition exist under any agreement or instrument relating to any Material Indebtedness, and such failure continues after the applicable grace or notice period, if any, specified in the agreement or instrument relating thereto and the effect of such failure, event or condition is to cause the holder or holders of such Material Indebtedness to accelerate the maturity of such Material Indebtedness or cause the mandatory repurchase of any Material Indebtedness;

8.7          Judgments. A judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by independent third-party insurance) shall be rendered against any Borrower, Parent or any Subsidiary of Parent and shall remain unsatisfied and unstayed for a period of ten (10) days after the entry thereof (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment);

8.8          Misrepresentations. Any Borrower, Parent or any Subsidiary of Parent or any Person acting therefor makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;

8.9          Subordinated Debt. A default or breach occurs under any agreement between any Borrower, Parent or any Subsidiary of Parent and any creditor of Borrower, Parent or any Subsidiary of Parent that signed a subordination, intercreditor, or other similar agreement with Bank, or any creditor that has signed such an agreement with Bank breaches any terms of such agreement; or

8.10        Cross-Default. A default or breach occurs under any agreement between or by a Guarantor, with or in favor of Bank, which default or breach shall not have been cured or waived within any applicable grace period.

9              BANK’S RIGHTS AND REMEDIES

9.1          Rights and Remedies. While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

(a)           declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

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(b)           stop advancing money or extending credit for Borrowers’ benefit under this Agreement or under any other agreement between any Borrower and Bank, including, without limitation, by terminating the Revolving Line effective immediately;

(c)           demand that Borrowers (i) deposits cash with Bank in an amount equal to the aggregate amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrowers shall forthwith deposit and pay such amounts, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

(d)           terminate any FX Forward Contracts;

(e)           settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, notify any Person owing any Borrower money of Bank’s security interest in such funds, and verify the amount of such account;

(f)            make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrowers shall assemble the Collateral if Bank requests and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Each Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

(g)           apply to the Obligations any (i) balances and deposits of any Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of any Borrower;

(h)           ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, each Borrower’s labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, each Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;

(i)            place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;

(j)            demand and receive possession of each Borrower’s Books; and

(k)           exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

9.2          Power of Attorney. Each Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to:  (a) endorse such Borrower’s name on any checks or other forms of payment or security; (b) sign such Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under such Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Each Borrower hereby appoints Bank as its lawful attorney-in-fact to sign such Borrower’s name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Bank’s foregoing appointment as such Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.

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9.3          Accounts Verification; Collection. Whether or not an Event of Default has occurred and is continuing, Bank may notify any Person owing any Borrower money of Bank’s security interest in such funds and verify the amount of such account. After the occurrence of an Event of Default, any amounts received by any Borrower shall be held in trust by such Borrower for Bank, and, if requested by Bank, such Borrower shall immediately deliver such receipts to Bank in the form received from the Account Debtor, with proper endorsements for deposit.

9.4          Protective Payments. If any Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which such Borrower is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest applicable rate, and secured by the Collateral. Bank will make reasonable efforts to provide such Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

9.5          Application of Payments and Proceeds. Unless an Event of Default has occurred and is continuing, Bank shall apply any funds in its possession, whether from Borrower account balances, payments, or proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, first, to Bank Expenses, including without limitation, the reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Bank in the exercise of its rights under this Agreement; second, to the interest due upon any of the Obligations; and third, to the principal of the Obligations and any applicable fees and other charges, in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrowers or other Persons legally entitled thereto; Borrowers shall remain liable to Bank for any deficiency. If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrowers or other Persons legally entitled thereto; Borrowers shall remain liable to Bank for any deficiency. If Bank, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

9.6          Bank’s Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrowers bear all risk of loss, damage or destruction of the Collateral.

9.7          No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to require strict performance by any Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Bank and then is only effective for the specific instance and purpose for which it is given. Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.

9.8          Demand Waiver. Each Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which any Borrower is liable.

10           NOTICES

All notices, consents, requests, approvals, demands, or other communication (collectively, “Communication”) by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business

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Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrowers may change their address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10. A single Communication made by Bank pursuant to one of the foregoing methods to the address for Borrowers below shall be deemed a Communication to any and all Borrowers.

If to any Borrower or all Borrowers:
	c/o ev3 Inc.
	9600 54th Avenue North
	Plymouth, MN 55442
	Attn: Chief Financial Officer
	Fax: 763.398.7647
	Email:  pspangler@ev3.net
If to Bank:	Silicon Valley Bank
	301 Carlson Parkway, Suite 255
	Minnetonka, MN 55305
	Attn: Mr. Jay McNeil
	Fax:  952.475.8471
	Email: jmcneil@svbank.com

11           CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE

California law governs the Loan Documents without regard to principles of conflicts of law. Each Borrower and Bank submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Each Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and each Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Each Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service on Borrower of such summons, complaints, and other process may be made by registered or certified mail addressed as set forth in Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND BANK WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in

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accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and order applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

12           GENERAL PROVISIONS

12.1        Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. No Borrower may assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion). Bank has the right, without the consent of or notice to any Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.

12.2        Indemnification. Borrowers agree to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank harmless against:  (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or arising from transactions between Bank and any Borrower (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by Bank’s gross negligence or willful misconduct.

12.3        Limitation of Actions. Any claim or cause of action by any Borrower against Bank, its directors, officers, employees, agents, accountants, attorneys, or any other Person affiliated with or representing Bank based upon, arising from, or relating to this Loan Agreement or any other Loan Document, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Bank, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by such Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by (a) the filing of a complaint within one year from the earlier of (i) the date any of such Borrower’s officers or directors had knowledge of the first act, the occurrence or omission upon which such claim or cause of action, or any part thereof, is based, or (ii) the date this Agreement is terminated, and (b) the service of a summons and complaint on an officer of Bank, or on any other person authorized to accept service on behalf of Bank, within thirty (30) days thereafter. Each Borrower agrees that such one-year period is a reasonable and sufficient time for such Borrower to investigate and act upon any such claim or cause of action. The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Bank in its sole discretion. This provision shall survive any termination of this Loan Agreement or any other Loan Document.

12.4        Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement.

12.5        Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

12.6        Amendments in Writing; Integration. All amendments to this Agreement must be in writing signed by both Bank and the Borrowers. This Agreement and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings,

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representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents.

12.7        Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement.

12.8        Survival. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied. The obligation of each Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

12.9        Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use commercially reasonable efforts to obtain such prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; and (e) as Bank considers appropriate in exercising remedies under this Agreement. Confidential information does not include information that either: (i) is in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (ii) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.

12.10      Attorneys’ Fees, Costs and Expenses. In any action or proceeding between any Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled.

12.11      Joint and Several Liability. Borrowers’ liability for the Obligations shall be joint and several, and the compromise of any claim with, or the release of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower.

13           DEFINITIONS

13.1        Definitions. As used in this Agreement, the following terms have the following meanings:

“Account” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to any Borrower.

“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

“Affiliate” of any Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

“Agreement” is defined in the preamble hereof.

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the greater of $12,000,000 or the Borrowing Base; minus (b) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserves, minus (c) the amounts used for Cash Management Services, minus (d) the FX Reserve, and minus (e) the outstanding principal balance of any Advances.

“Bank” is defined in the preamble hereof.

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“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to any Borrower.

“Borrowers” is defined in the preamble hereof.

“Borrower’s Books” are all of each Borrower’s books and records including ledgers, federal and state tax returns, records regarding such Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

“Borrowing Base” is (a) 80% of Eligible Accounts plus (b) the lesser of (i) 30% of the value of Borrowers Eligible Inventory (valued at the lower of cost or wholesale fair market value), (ii) 33% of an amount equal to 80% of Eligible Accounts, or (iii) $7,500,000, as determined by Bank from Borrowers’ most recent Borrowing Base Certificate; provided, however, that Bank may decrease the foregoing percentages in its good faith business judgment, effective upon written notice to Borrowers, based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.

“Borrowing Base Certificate” is that certain certificate in the form attached hereto as Exhibit C.

“Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such Person’s Board of Directors and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its secretary on behalf of such Person certifying that (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that attached as Exhibit A to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed.

“Cash Equivalents” means marketable securities as defined by GAAP.

“Cash Management Services” is defined in Section 2.1.4.

“Change in Control” means any event, transaction, or occurrence as a result of which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as an amended (the “Exchange Act”)), other than a trustee or other fiduciary holding securities under an employee benefit plan of Parent, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Parent, representing fifty-one percent (51%) or more of the combined voting power of Parent’s then outstanding securities; or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Board of Directors of Parent (together with any new directors whose election by the Board of Directors of Parent was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office; or (c) any Borrower is no longer a wholly-owned subsidiary of Parent, or a wholly-owned subsidiary of a wholly-owned subsidiary of Parent, or a wholly-owned subsidiary of a wholly-owned subsidiary of a wholly-owned subsidiary of Parent.

“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other

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jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

“Collateral” is any and all properties, rights and assets of each Borrower described on Exhibit A.

“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.

“Commodity Account” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.

“Communication” is defined in Section 10.

“Compliance Certificate” is that certain certificate in the form attached hereto as Exhibit D.

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

“Control Agreement” is any control agreement entered into among the depository institution at which a Person maintains a Deposit Account or the securities intermediary or commodity intermediary at which a Person maintains a Securities Account or a Commodity Account, such Person, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.

“Credit Extension” is any Advance, Equipment Advance, Letter of Credit, FX Forward Contract, amount utilized for Cash Management Services, or any other extension of credit by Bank for any Borrower’s benefit.

“Current Liabilities” are (a) all obligations and liabilities of Parent and its Subsidiaries, on a consolidated basis, to Bank that mature within one (1) year, plus, (b) without duplication, all uses of the Revolving Line (including, without limitation, (i) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserves, (ii) the amounts used for Cash Management Services, (iii) the FX Reserve, and (iv) the outstanding principal balance of any Advances under the Revolving Line (including any amounts used for Cash Management Services)), plus, (c) without duplication, the aggregate amount of Parent’s and its Subsidiaries’ Total Liabilities, on a consolidated basis, that mature within one (1) year and the current portion of any Subordinated Debt permitted by Bank to be paid by any Borrower.

“Default” means any event which with notice or passage of time or both, would constitute an Event of Default.

“Default Rate” is defined in Section 2.3(b).

“Deferred Revenue” is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.

“Deposit Account” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.

“Designated Deposit Account” is Borrower’s deposit account, account number                          , maintained with Bank.

“Dollars,” “dollars” and “$” each mean lawful money of the United States.

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“Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.

“Draw Period” is the period of time from the Effective Date through the earliest to occur of (a) June 26, 2007, (b) any Event of Default, or (c) any Default.

“Effective Date” is the date Bank executes this Agreement and as indicated on the signature page hereof.

“Eligible Accounts” are, collectively, Eligible Domestic Accounts and Eligible Foreign Accounts.

“Eligible Domestic Accounts” are Accounts which arise in the ordinary course of the applicable Borrower’s business that meet all Borrowers’ representations and warranties in Section 5.3. Bank reserves the right at any time and from time to time after the Effective Date upon written notice to Borrowers, to adjust any of the criteria set forth below and to establish new criteria in its good faith business judgment. Unless Bank agrees otherwise in writing, Eligible Domestic Accounts shall not include:

(a)           Accounts for which the Account Debtor has not been invoiced;

(b)           Accounts that the Account Debtor has not paid within 120 days of invoice date;

(c)           Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have not been paid within 120 days of invoice date;

(d)           Credit balances over 120 days from invoice date;

(e)           Accounts owing from an Account Debtor, including Affiliates, whose total obligations to Borrowers exceed twenty-five percent (25%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing;

(f)            Accounts owing from an Account Debtor which does not have its principal place of business in the United States;

(g)           Accounts owing from an Account Debtor which is a federal, state or local government entity or any department, agency, or instrumentality thereof, that Bank determines in its good faith business judgment are ineligible for loan purposes hereunder (without limiting the generality of the foregoing, Bank may in its good faith business judgment require that Borrowers assign to Bank their right to payment of Accounts owing from an Account Debtor which is a federal entity, pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.));

(h)           Accounts owing from an Account Debtor to the extent that any Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts), with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by such Borrower in the ordinary course of its business;

(i)            Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, “bill and hold”, or other terms if Account Debtor’s payment may be conditional;

(j)            Accounts for which the Account Debtor is any Borrower’s Affiliate, officer, employee, or agent;

(k)           Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;

(l)            Accounts owing from an Account Debtor with respect to which any Borrower has received deferred revenue (but only to the extent of such deferred revenue);

(m)          Accounts for which Bank in its good faith business judgment determines collection to be doubtful;

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(n)           Accounts which arise from the licensing or sale of registered copyrights or are otherwise proceeds of registered copyrights; and

(o)           other Accounts Bank deems ineligible in the exercise of its good faith business judgment.

“Eligible Equipment” is the following to the extent that it complies with all of Borrowers’ representations and warranties to Bank, is acceptable to Bank in all respects and is subject to a first priority Lien in favor of Bank: (a) all of Borrowers’ general purpose new or used equipment used in the manufacture, storage and distribution, of the products of Parent, Borrowers or Subsidiaries of Parent, including lasers, computer equipment, office equipment, test and laboratory equipment and furnishings, subject to the limitations set forth herein, and (b) Other Equipment.

“Eligible Equipment Purchase Period” is defined in Section 2.1.5(a).

“Eligible Foreign Accounts” are Accounts for which the Account Debtor does not have its principal place of business in the United States but are otherwise Eligible Accounts that Bank has not disapproved in its good faith business judgment.

“Eligible Inventory” means, at any time, the aggregate of Borrowers’ Inventory that (a) consists of raw materials or finished goods, in good, new, and salable condition, which is not perishable, returned, obsolete, not sellable, damaged, or defective, and is not comprised of demonstrative or custom inventory, works in progress, packaging or shipping materials, or supplies; (b) meets all applicable governmental standards; (c) has been manufactured in compliance with the Fair Labor Standards Act; (d) is not subject to any Liens, except the first priority Liens granted or in favor of Bank under this Agreement or any of the other Loan Documents; (e) is Trunk Inventory or is located at (i) the locations of Borrowers designated in Borrowers’ Perfection Certificates, (ii) new locations of Borrowers within the United States for which Borrowers have given Bank 30 days’ prior written notice, or (ii) the premises of consignees of such Inventory; and (f) is otherwise acceptable to Bank in its good faith business judgment.

“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

“Equipment Advance” is defined in Section 2.1.5.

“Equipment Line” is an Equipment Advance or Equipment Advances in an aggregate amount of up to $7,500,000.

“ERISA” is the Employment Retirement Income Security Act of 1974, and its regulations.

“Event of Default” is defined in Section 8.

“Event of Loss” is defined in Section 2.1.5(c).

“Excess Initial Equipment Advance” is defined in Section 2.1.5(a)(i).

“Financed Equipment” is all present and future Eligible Equipment in which any Borrower has any interest, the purchase of which is financed by an Equipment Advance.

“Fiscal Quarter” means one of the four 13-week periods during each fiscal year of Parent, each consisting of one five-week and two four-week periods.

“Foreign Currency” means lawful money of a country other than the United States.

“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

“Funding Date” is any date on which a Credit Extension is made to or on account of any Borrower which shall be a Business Day.

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“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is conducting its normal business and (b) the Foreign Currency being purchased or sold by any Borrower is available to Bank from the entity from which Bank shall buy or sell such Foreign Currency.

“FX Forward Contract” is defined in Section 2.1.3.

“FX Reserve” is defined in Section 2.1.3.

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, any trade secret rights, including any rights to unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income and other tax refunds, security and other deposits, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

“Guarantor” is any present or future guarantor of the Obligations.

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrowers’ custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

“Investment” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

“Letter of Credit” means a letter of credit issued by Bank or another institution based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set forth in Section 2.1.2.

“Letter of Credit Application” is defined in Section 2.1.2(a).

“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(d).

“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

“Loan Amount” in respect of each Equipment Advance is the original principal amount of such Equipment Advance.

“Loan Documents” are, collectively, this Agreement, the Perfection Certificates, any note, or notes, or guaranties, or security agreements, or pledge agreements executed by any Borrower or any Guarantor, and any other

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present or future agreement between any Borrower any Guarantor and/or for the benefit of Bank in connection with this Agreement, all as amended, restated, or otherwise modified.

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; or (b) a material adverse change in the business, operations, financial or other conditions of any Borrower, Parent or any Subsidiary of Parent that could reasonably be expected to impact the ability of the Borrowers to repay the Obligations or otherwise perform any of their Obligations under the Loan Documents.

“Material Indebtedness” is any Indebtedness the principal amount of which is equal to or greater than $1,000,000.

“Net Income” means, as calculated on a consolidated basis for Borrowers and their Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and their Subsidiaries for such period taken as a single accounting period.

“Non-cash Stock Compensation Expense” shall mean what is reported therefor by Parent in its financial statements.

“Obligations” are the aggregate of each Borrower’s obligation to pay when due any debts, principal, interest, Bank Expenses and other amounts Borrowers and each of them owes Bank now or later, whether under this Agreement, the Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit, cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of any Borrower assigned to Bank, and the performance of each Borrower’s duties under the Loan Documents.

“Operating Documents” are, for any Person, such Person’s formation documents, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than 30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

“Other Equipment” is leasehold improvements, intangible property such as transferable computer software and transferable software licenses, equipment specifically designed or manufactured for any Borrower, other intangible property, limited use property and other similar property and soft costs approved by Bank, including taxes, shipping, warranty charges, freight discounts and installation expenses.

“Overall Ancillary Sublimit” is defined in Section 2.1.6.

“Parent” shall mean ev3 Inc., a Delaware corporation.

“Payment/Advance Form” is that certain form attached hereto as Exhibit B.

“Perfection Certificate” is defined in Section 5.1.

“Permitted Distributions” means:

(a)           purchases of Parent’s capital stock from former employees, consultants and directors pursuant to repurchase agreements or other similar agreements in an aggregate amount not to exceed $500,000 for all such purchases by Parent and Parent’s Subsidiaries in any fiscal year, provided that at the time of such purchase no Default or Event of Default has occurred and is continuing;

(b)           distributions or dividends consisting solely of Parent’s capital stock;

(c)           purchases for value of any rights distributed in connection with any stockholder rights plan;

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(d)           purchases of capital stock or options to acquire such capital stock with the proceeds received from a substantially concurrent issuance of capital stock or convertible securities;

(e)           purchases of capital stock pledged as collateral for loans to employees;

(f)            purchases of capital stock in connection with the exercise of stock options or stock appreciation rights by way of cashless exercise or in connection with the satisfaction of withholding tax obligations;

(g)           purchases of fractional shares of capital stock arising out of stock dividends, splits or combinations or business combinations; and

(h)           the settlement or performance of such Person’s obligations under any equity derivative transaction, option contract or similar transaction or combination of transactions.

“Permitted Indebtedness” is:

(a)           Borrowers’ Indebtedness to Bank under this Agreement or any other Loan Document;

(b)           any Indebtedness set forth in Parents last 10Q report;

(c)           unsecured Indebtedness of a Person to that Person’s trade creditors incurred in the ordinary course of business;

(d)           Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

(e)           Indebtedness of a Person consisting of interest rate, currency, or commodity swap agreements, interest rate cap or collar agreements or arrangements designated to protect such Person or any Borrower against fluctuations in interest rates, currency exchange rates, or commodity prices;

(f)            capitalized leases and purchase money Indebtedness not creating any Lien on Accounts, Inventory or Financed Equipment;

(g)           Indebtedness of entities acquired in any permitted merger or acquisition transaction; and

(h)           refinanced Permitted Indebtedness, provided that the amount of such Indebtedness is not increased except by an amount equal to a reasonable premium or other reasonable amount paid in connection with such refinancing and by an amount equal to any existing, but unutilized, commitment thereunder.

“Permitted Investments” are:

(a)           Investments existing on the Effective Date;

(b)           (i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agencies or any State maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 2 years after its creation and having a rating of “A-2” or higher from Standard & Poor’s Rating Group or a rating of “Prime-2” or higher from Moody’s Investors Service, Inc., and (iii) Bank’s certificates of deposit maturing no more than 2 years after issue;

(c)           Investments of a Person approved by such Person’s Board of Directors or the Board of Directors of Parent, or otherwise pursuant to an investment policy approved by such Person’s Board of Directors or the Board of Directors of Parent;

(d)           (i) Investments by a Borrower or Parent consisting of Collateral Accounts in the name of such Borrower or Parent (as applicable) so long as Bank has a first priority, perfected security interest in such Collateral Accounts, and (ii) Investments by any Subsidiary of Parent consisting of Collateral Accounts in the name of such Subsidiary so long as (y) if it is a Domestic Subsidiary, Bank has a first priority, perfected security interest in such

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Collateral Accounts or (z) if it is a foreign Subsidiary, the aggregate value of all Collateral Accounts of all foreign Subsidiaries of Parent shall not at any time exceed a value of $12,000,000;

(e)           Investments by a Person consisting of extensions of credit to such Person’s customers in the nature of accounts receivable, prepaid royalties or notes receivable arising from the sale or lease of goods, provision of services or licensing activities of such Person;

(f)            Investments received in satisfaction or partial satisfaction of obligations owed by financially troubled obligors;

(g)           Investments acquired in exchange for any other Investments in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization;

(h)           Investments acquired as a result of a foreclosure with respect to any secured Investment;

(i)            Investments by a Person consisting of interest rate, currency, or commodity swap agreements, interest rate cap or collar agreements or arrangements designated to protect such Person or a Borrower against fluctuations in interest rates, currency exchange rates, or commodity prices; Investments acquired as a result of a foreclosure with respect to any secured Investment;

(j)            Investments by a Person consisting of loans and advances to such Person’s employees, provided that the aggregate amount of all such loans and advances of each Borrower, Parent, and Parent’s Subsidiaries, does not at any time exceed $500,000; and

(k)           Investments consisting of intercompany loans and advances made in the ordinary course of business between or among Parent and its Subsidiaries.

“Permitted Liens” are:

(a)           Liens in favor of Bank arising under this Agreement or other Loan Documents;

(b)           Liens with respect to the assets of a Person for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which such Person maintains adequate reserves on its Books, if they have no priority over any of Bank’s Liens;

(c)           Liens (including with respect to capital leases) (i) on property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) acquired or held by a Person incurred for financing such property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof), or (ii) existing on property (and accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) when acquired, if the Lien is confined to such property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof);

(d)           Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness it secures may not increase;

(e)           leases or subleases of real property granted in the ordinary course of business, and leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or intellectual property) granted in the ordinary course of business, if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest;

(f)            non-exclusive license of a Person’s intellectual property granted to third parties in such Person’s ordinary course of business;

(g)           leases or subleases with respect to assets of a Person granted in such Person’s ordinary course of business, including in connection with leased premises or leased property;

28

(h)           Liens in favor of custom and revenue authorities arising as a matter of law to secure the payment of custom duties in connection with the importation of goods;

(i)            Liens on insurance proceeds securing the payment of financed insurance premiums;

(j)            Liens on assets acquired in mergers and acquisitions not prohibited by Section 7 of this Agreement;

(k)           Liens consisting of pledges of cash, cash equivalents or government securities to secure swap or foreign exchange contracts or letters of credit;

(l)            Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.4 or 8.7;

(m)          Liens with respect to the assets of a Person in favor of other financial institutions arising in connection with such Person’s deposit or securities accounts held at such institutions;

(n)           carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceeding if adequate reserves with respect thereto are maintained on the books of the applicable Person;

(o)           pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and compliance with other social security requirements applicable to the applicable Person; and

(p)           Liens listed on any schedule approved in writing by Bank in its discretion prior to the initial Credit Extension.

“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate.

“Qualifying Initial Equipment Advance” is defined in Section 2.1.5(a).

“Quick Assets” is, on any date, Parent’s and its Subsidiaries’ consolidated, unrestricted cash, unrestricted Cash Equivalents, and net billed trade accounts receivable determined according to GAAP.

“Responsible Officer” with respect to a Person is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of such Person.

“Revolving Line” is an Advance or Advances in an aggregate amount of up to $30,000,000 outstanding at any time.

“Revolving Line Maturity Date” is June 26, 2008.

“Secured Guarantor” shall mean a Guarantor who has provided a first-priority perfected security interest in all of its assets to secure its guaranty, satisfactory to Bank.

“Securities Account” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.

“Settlement Date” is defined in Section 2.1.3.

“Subordinated Debt” is (a) Indebtedness incurred by any Borrower subordinated to Borrowers’ Indebtedness owed to Bank and which is reflected in a written agreement in a manner and form reasonably

29

acceptable to Bank and approved by Bank in writing, and (b) to the extent the terms of subordination do not change adversely to Bank, refinancings, refundings, renewals, amendments or extensions of any of the foregoing.

“Subsequent Equipment Advance” is defined in Section 2.1.5(a).

 “Subsidiary” means, with respect to any Person, any Person of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by such Person or one or more Affiliates of such Person. By way of example and not limitation, each Borrower shall be considered a Subsidiary of Parent.

“Tangible Net Worth” is, on any date, the consolidated total assets of Parent and its Subsidiaries minus (a) any amounts attributable to (i) goodwill, (ii) intangible items including unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses, (iii) notes, accounts receivable and other obligations owing to a Person from its officers or other Affiliates, and (iv) reserves not already deducted from assets, minus (b) Total Liabilities of Parent and its Subsidiaries, plus (c) the aggregate amount of Non-cash Stock Compensation Expense for non-cash stock compensation provided by Parent and its Subsidiaries to their employees during the period from June 30, 2006 to December 31, 2007.

“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as liabilities on the consolidated balance sheet of Parent and its Subsidiaries, including all Indebtedness, and current portion of Subordinated Debt permitted by Bank to be paid by Borrowers, but excluding all other Subordinated Debt.

“Transfer” is defined in Section 7.1.

“Trunk Inventory” shall mean Inventory in the possession of salesmen of Borrowers for purposes of marketing or supplying products to Borrowers’ customers.

“Unused Revolving Line Fee” is defined in Section 2.4(c).

[Signature page follows.]

30

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date.

BORROWERS:

EV3 ENDOVASCULAR, INC.		EV3 INTERNATIONAL, INC.
By:	/s/ Patrick D. Spangler	By:	/s/ Patrick D. Spangler
Name: Patrick D. Spangler		Name: Patrick D. Spangler
Title: Chief Financial Officer		Title: Chief Financial Officer
MICRO THERAPEUTICS, INC.
By:	/s/ Patrick D. Spangler
Name: Patrick D. Spangler
Title: Chief Financial Officer

BANK:
SILICON VALLEY BANK
By	/s/
Name:
Title:
Effective Date: June 28, 2006

[Signature page to Loan and Security Agreement]

EXHIBIT A

The Collateral consists of all of each Borrower’s right, title and interest in and to the following personal property:

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

all of each Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include any of the following, whether now owned, licensed from others, or otherwise held or hereafter acquired, licensed from others, or otherwise held:  any copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of such Borrower connected with and symbolized thereby, know-how, operating manuals, prototypes, trade secret rights, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing; provided, however, the Collateral shall include all Accounts, license and royalty fees and other revenues, proceeds, or income arising out of or relating to any of the foregoing.

Pursuant to the terms hereof, each Borrower has agreed not to encumber any of its copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of such Borrower connected with and symbolized thereby, know-how, operating manuals, prototypes, trade secret rights, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing, whether any of the foregoing is now owned, licensed from others, or otherwise held or hereafter acquired, licensed from others, or otherwise held, without Bank’s prior written consent.

1

EXHIBIT B

Loan Payment/Advance Request Form

DEADLINE FOR SAME DAY PROCESSING IS NOON P.S.T.*

Fax To:  952-475-8471 Date:

LOAN PAYMENT:
[Insert Borrower name]
From Account #	To Account #
(Deposit Account #)	(Loan Account #)
Principal $	and/or Interest $
Authorized Signature:	Phone Number:
Print Name/Title:

LOAN ADVANCE:
Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.
From Account #	To Account #
(Loan Account #)	(Deposit Account #)
Amount of Advance $
All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date:

Authorized Signature:	Phone Number:
Print Name/Title:

OUTGOING WIRE REQUEST:
Complete only if all or a portion of funds from the loan advance above is to be wired.
Deadline for same day processing is noon, P.S.T.
Beneficiary Name:	Amount of Wire: $
Beneficiary Bank:	Account Number:
City and State:
Beneficiary Bank Transit (ABA) #:	Beneficiary Bank Code (Swift, Sort, Chip, etc.):
	(For International Wire Only)
Intermediary Bank:	Transit (ABA) #:
For Further Credit to:
Special Instruction:
By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).
Authorized Signature:	2nd Signature (if required):
Print Name/Title:	Print Name/Title:
Telephone #:	Telephone #:

* Unless otherwise provided for an Advance bearing interest at LIBOR, if applicable.

1

EXHIBIT C

BORROWING BASE CERTIFICATE

Borrower:
Lender:     Silicon Valley Bank
Commitment Amount:  $

ACCOUNTS RECEIVABLE
1.	Accounts Receivable Book Value as of	$
2.	Additions (please explain on reverse)	$
3.	TOTAL ACCOUNTS RECEIVABLE	$
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4.	Un-invoiced Accounts	$
5.	Amounts over 120 days due	$
6.	Balance of 50% over 120 day accounts	$
7.	Credit balances over 120 days	$
8.	Concentration Limits	$
9.	Foreign Accounts determined ineligible by SVB	$
10.	Governmental Accounts determined ineligible by SVB	$
11.	Contra Accounts	$
12.	Promotion or Demo Accounts	$
13.	Intercompany/Employee Accounts	$
14.	Disputed Accounts	$
15.	Deferred Revenue	$
16.	Other (please explain on reverse)	$
17.	TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS	$
18.	Eligible Accounts (#3 minus #17)	$
19.	ELIGIBLE AMOUNT OF ACCOUNTS (    % of #18)	$
INVENTORY
20.	Eligible Inventory Value as of	$
21.	ELIGIBLE AMOUNT OF INVENTORY (     % of #20 but not more than the lesser of (i) $7,500,000 or (ii) 33% of 80% of Eligible Accounts)	$
BALANCES
22.	Maximum Loan Amount	$
23.	Total Funds Available [Lesser of #22 or (#19 plus #21)]	$
24.	Present balance owing on Line of Credit	$
25.	Outstanding under Sublimits	$
26.	RESERVE POSITION (#23 minus #24 and #25)	$

The undersigned represents and warrants that this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank.

		BANK USE ONLY
COMMENTS:		Received by:
		AUTHORIZED SIGNER
		Date:
By:		Verified:
	Authorized Signer	AUTHORIZED SIGNER
Date:		Date:
		Compliance Status:      Yes       No

1

EXHIBIT D

COMPLIANCE CERTIFICATE

TO:	SILICON VALLEY BANK	Date:
FROM:	ev3 Endovascular, Inc.; ev3 International, Inc.; Micro Therapeutics, Inc. (the foregoing are referred to as “Borrowers”); and ev3 Inc. (“Parent”)

The undersigned authorized officers of Borrowers and Parent certify that under the terms and conditions of the Loan and Security Agreement between Borrowers and Bank (the “Agreement”), (1) Borrowers are in complete compliance for the period ending                            with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrowers, Parent, and each of its Subsidiaries have timely filed all required tax returns and reports, and Borrowers, Parent, and each of its Subsidiaries have timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by them except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against Borrowers, Parent, or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrowers have not previously provided written notification to Bank.  Attached are the required documents supporting the certification.  The undersigned certify that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes.  The undersigned acknowledge that no borrowings may be requested at any time or date of determination that Borrowers are not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.

Reporting Covenant	Required	Complies
Monthly financial statements with Compliance Certificate	Monthly within 30 days	Yes   No
10-K with Compliance Certificate	Within 5 days of filing with SEC but within 120 days FYE	Yes   No
10-Q with Compliance Certificate	Within 5 days of filing with SEC but within 45 days FQE	Yes   No
8-K	Within 5 days after filing with SEC	Yes   No
Borrowing Base Certificate (if applicable), A/R & A/P Agings, cash balance reports, inventory reports	Quarterly within 30 days	Yes   No
Annual financial projections	Prior to FYE for following year	Yes   No

r

Financial Covenant	Required	Actual	Complies
Maintain at all times, tested monthly:
Minimum Quick Ratio	1.3:1.0	:1.0	Yes   No
Minimum Tangible Net Worth	$*	$	Yes   No

*$90,000,000 from Effective Date through 11/30/06; $95,000,000 from 12/1/06 through 5/31/07; $105,000,000 from 6/1/07 through 8/31/07; $108,000,000 from 9/1/07 through 11/30/07; $115,000,000 from 12/1/07 and thereafter.

1

Amount and locations of cash and Cash Equivalents:                                                                                .

Other (e.g., legal actions):                                                                                .

The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions to note.”)

EV3 ENDOVASCULAR, INC.	BANK USE ONLY
By:	Received by:
Name:	AUTHORIZED SIGNER
Title:	Date:
	Verified:
EV3 INTERNATIONAL, INC.	AUTHORIZED SIGNER
	Date:
By:
Name:
Title:	Compliance Status:      Yes     No
MICRO THERAPEUTICS, INC.
By:
Name:
Title:
EV3 INC.
By:
Name:
Title:

2

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated:

I.Quick Ratio (Section 6.7(a))

Required:1.3:1.00

Actual:

A.	Aggregate value of the unrestricted cash and unrestricted Cash Equivalents of Parent and its Subsidiaries on a consolidated basis	$
B.	Aggregate value of the net billed trade accounts receivable of Parent and its Subsidiaries on a	$
	consolidated basis
C.	Quick Assets: the sum of lines A through B	$
D.	Current Liabilities: (a) all obligations and liabilities of Parent and its Subsidiaries, on a consolidated basis, to Bank that mature within one (1) year, plus, (b) without duplication, all uses of the Revolving Line (including, without limitation, (i) the amount of all outstanding Lettersof Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserves, (ii) the amounts used for Cash Management Services, (iii) the FX Reserve, and (iv) the outstanding principal balance of any Advances under the Revolving Line (including any amounts used for Cash Management Services)), plus, (c) without duplication, the aggregate amount of Parent’s and its Subsidiaries’ Total Liabilities, on a consolidated basis, that mature within one (1) year and the current portion of any Subordinated Debt permitted by Bank to be paid by any Borrower	$
E.	Quick Ratio (line C divided by line D)

Is line E equal to or greater than 1.3:1:00?

 No, not in compliance Yes, in compliance

II.Tangible Net Worth (Section 6.7(b))

Required:$           

Actual:

A.	Consolidated value of total assets of Parent and its Subsidiaries	$
B.	Consolidated value of goodwill of Parent and its Subsidiaries	$
C.	Consolidated value of intangible assets of Parent and its Subsidiaries and obligations owed to Parent and its Subsidiaries from officers and Affiliates	$

3

D.	Consolidated value of any reserves not already deducted from assets	$
E.	Consolidated value of liabilities of Parent and its Subsidiaries (including all Indebtedness) and current portion of any Subordinated Debt permitted by Bank to be paid by Borrower (but no other Subordinated Debt)	$
F.	Aggregate non-cash stock compensation from Parent and its Subsidiaries to their employees from 6/30/06 to 12/31/07	$
G.	Tangible Net Worth (line A minus line B minus line C minus line D minus line E plus line F)	$

Is line G equal to or greater than the Required amount?

 No, not in compliance Yes, in compliance

4

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, James M. Corbett, 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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and 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) 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

(c) 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 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: August 8, 2006	/s/ James M. Corbett
	James M. Corbett
	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, Patrick D. Spangler, 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)) 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) 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

(c) 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 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: August 8, 2006	/s/ Patrick D. Spangler
	Patrick D. Spangler
	Chief Financial Officer and Treasurer
	(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 July 2, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James M. Corbett, 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: August 8, 2006	/s/ James M. Corbett
	James M. Corbett
	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 July 2, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick D. Spangler, Chief Financial Officer and Treasurer 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: August 8, 2006	/s/ Patrick D. Spangler
	Patrick D. Spangler
	Chief Financial Officer and Treasurer
	(principal financial officer)