April 29, 2005
L. Cecily Hines, Vice President
Ev3 Inc.
4600 Nathan Lane North
Plymouth, Minnesota 55442
Re: ev3 Inc.
Form S-1
File No. 333-123851
Filed April 5, 2005
Dear Ms. Hines:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Prospectus Summary - Page 1
1. Please confirm that any preliminary prospectus you circulate
will
include all non-Rule 430A information. This includes the price
range
and related information based on a bona fide estimate of the
public
offering within that range. Also note that we will have additional
comments after you include this and other missing information.
2. Revise the third paragraph of the prospectus summary and
elsewhere
throughout the filing to accurately reflect the history of the
registrant. We note footnote 2 on page F-9. Quantify the roles
of
Warburg Pincus and The Vertical Group, Inc., and their current and
previous equity and other interests in the registrant. Also
explain
in more detail the registrant`s relationship with MTI and the
extent
to which the registrant`s revenues are attributable to MTI
operations.
3. Please define technical terms in the summary when they are
first
used, including:
* Embolic protection
* Thrombectomy
* Balloon angioplasty
* Liquid embolics
* PLAATO
* Atrial fibrillation
* Aneurysm
4. Provide supplemental support for all industry and market
statistics.
Corporate Reorganization - Page 3
5. Due to the blanks in this discussion and the reverse split
discussion, we will defer or comments on this section until the
disclosure is complete. Ensure that the discussion clearly states
the value of what Warburg Pincus and The Vertical Group are giving
up
and what they are getting in each of these transactions.
6. Explain the business reasons for this series of transactions.
Merger with ev3 LLC - Page 3
7. Disclose how many unit holders there are in ev3 LLC, identify
the
major holders, and quantify the extent of their ownership
interest.
Our Structure - Page 5
8. In the second chart, identify the major shareholders of ev3
Inc.,
and quantify their ownership interest after the reorganization
transactions are completed.
Risk Factors
9. Expand the first risk factor to quantify your members` deficit
to
date.
If third parties claim that we infringe ... - Page 11
10. Discuss under a separate caption the instances where you have
been notified by other parties about potential infringement
claims,
beginning in the middle of page 12.
We may experience conflicts of interest... - Page 16
11. Expand the first paragraph to clarify that your current board
of
directors is comprised of seven members, four of which are also
members of MTI`s board of directors. Identify the four directors.
Capitalization Table - Page 38
12. Please remove the cash and cash equivalent caption from this
table.
Management`s Discussion - Page 44
Overview - Page 44
13. Quantify the percentage of the registrant`s revenues and net
losses that are attributable to MTI.
Results of Operations - Page 47
Comparison of Year Ended December 31, 2004 to Year Ended December
31,
2003 - Page 48
14. Unless insignificant, please expand to quantify the effect of
changes in prices on reported revenues. In general, your
discussion
should separately describe and quantify the effects of price
changes
and sales volumes on reported revenues.
Liquidity and Capital Resources - Page 53
15. Please expand the discussion of liquidity and capital
resources
to address any material acquisitions.
16. Please significantly expand your disclosures to discuss your
financing arrangements with MII, MTI, Warburg Pincus and The
Vertical
Group. Your attention is invited to the disclosure requirements of
SFAS 57.
MTI Financings and Liquidity - Page 56
17. The reference to "continuing cash from operations" as a source
of
liquidity for MTI is unclear in light of disclosure elsewhere that
you expect operations to consume cash in 2005. Please revise or
advise.
Critical Accounting Policies and Estimates - Page 57
18. What consideration have you given to disclosing your inter-
company transaction policies under this heading?
19. We note that you used a "third party appraisal" to value the
in-
process research and development acquired in 2002. If you elect
to
make such a reference, please note that you will be required to
identify the appraisal firm under "Experts" and include their
consent
in your registration statement. We will not object if you wish to
indicate (instead) that management considered an appraisal when
estimating fair values.
Peripheral Vascular Market Opportunity Business - Page 69
20. Please revise to describe the typical applications of your
peripheral stents. We note the only application mentioned is the
carotid artery. Are your stents approved for other uses?
Clinical Studies - Page 85
21. Please explain the term "primary endpoint."
Government Regulation - Page 90
Other Regions - Page 96
22. If material to your current or future sales, please describe
the
regulatory system in Japan.
Intellectual Property Rights - Page 100
23. If material, describe patent expirations.
Management - Page 104
24. Please add the business experience information for Patrick
D.Spangler.
25. With regard to Mr. Adams, please explain the terms "CAPLA" and
"vascular brachy therapy."
26. With regard to Ms. Hines, please disclose her principal
occupation during the period April 2000 - January 2002.
27. With regard to Mr. Dale Spencer, please disclose his principal
occupation during the past five years.
Option Grants in 2004 - Page 112
28. Disclose how the reverse split will affect the number of
options
outstanding.
Employment Agreements - Page 113
29. Please describe the terms of your basic employment agreements,
such as salary, bonus, options, term of office, etc., with the
named
executive officers.
Stock Plans - Page 115
Predecessor Plan - Page 115
30. Revise to clarify how exercise prices of assumed options will
be
determined.
2005 Incentive Stock Plan - Page 116
31. Revise to disclose whether options and rights may be granted
at
exercise prices less than 100% of market price at date of grant
and
how exercise prices will be determined.
32. State whether options will be qualified under tax rules.
Certain Relationships and Related Party Transactions - Page 118
Corporate Reorganization - Page 118
33. Please revise to clarify at what point the reverse split will
occur, and the effect thereof on the number of shares of stock the
affiliates will own after the offering.
34. When blanks are filled in, we will comment further on this
section.
Principal and Selling Stockholders - Page 126
35. Identify the persons who have or share voting and/or
investment
control over the shares held by the entities listed in the table.
Underwriting - Page 137
36. Tell us about the nature and timing any discussions or
arrangements you have had regarding the reserved (directed) shares
with any parties for whom the underwriters will reserve shares.
Who will be eligible to purchase in the reserved share program?
How
will potential participants be notified of the offering?
How did you determine the number of shares to reserve?
Tell us the procedures that will be followed to implement the
reserved share program.
Supplementally provide a copy of all written material used in
connection with the reserved share program and analyze how that
material is consistent with Rule 134.
Consolidated Financial Statements - Page F-1
General
37. Consideration should be given on an ongoing basis to the
updating
requirements of Rule 3-12 of Regulation S-X.
38. All amendments should contain a currently dated accountant`s
consent.
Reports of Independent Registered Accounting Firms - Page F-2
39. We note your "draft" report for the effect of the contribution
of
shares held by Warburg, Pincus Equity Partners described in Note
2.
Prior to going effective the audit report should be signed and
unrestricted. This comment also applies to the auditors` consent.
Note 3. Summary of Significant Accounting Policies
Revenue Recognition - Page F-12
40. Please tell us the primary terms of your arrangements with
your
distributors, including payment, price protection, return,
exchange,
and other significant terms. We note that sales to distributors
are
generally recognized at the time of shipment, tell us when this
would
not be the case. Describe the primary terms of your arrangements
with stocking distribution partners and when sales through these
individuals are recognized.
41. Supplementally clarify whether there are any post-shipment
obligations (e.g. training, education) or any additional
obligation
after revenue is recognized and indicate how this impacts the
accounting treatment.
42. We note that you have an agreement with Invatec to distribute
their products in the United States. Supplementally tell how sales
of
these products are reported in your financial statements. Refer
to
EITF 99-19 in your response.
43. We note you introduced four new products from October 1, 2004
to
December 31, 2004. In view of your limited history of commercial
sales, please tell us how you have developed the requisite
historical
data on which to base estimates of returns for these new products.
Refer to paragraphs 6f and 8 of SFAS 48.
Unit and Stock-Based Compensation - Page F-14
44. We note that you are using the minimum value method to
estimate
the value of your options. This method is appropriate for a
nonpublic entity. However, as indicated under Appendix E of SFAS
123, a company that makes a filing with a regulatory agency in
preparation for the sale of any class of equity securities in a
public market is considered to be a public entity. Supplementally
discuss the consideration that you have given to this guidance.
Note 5. Business Combinations - Page F-18
45. In a supplemental response tell us how you determined the
allocation of the excess purchase price between goodwill and
intangible assets in the acquisition of Intra Therapeutics and
Dendron. Tell us how you determined the amount to allocate to
intangibles. Tell us the main purpose of these acquisitions,
whether
you acquired customer lists and or/ relationships, customer
backlogs,
etc. For reference see EITF 02-17 and SFAS 141.
46. In view of the significant IPR&D write-off, your disclosures
should be enhanced. Please state the significant appraisal
assumptions, such as the period in which material net cash inflows
from significant projects are expected to commence, anticipated
material changes from historical pricing, margins and expense
levels
and the risk adjusted discount rate applied to the projects` cash
flows. Describe each individually significant project acquired,
indicate the degree of completion at the acquisition date and
disclose the anticipated cost and time of completion.
Note 7. Inventories - Page F-23
47. We note that you recorded a reserve for inventory obsolescence
"related to acquisitions." Tell us more about this charge and
confirm inventory was recorded at fair value at the date of
acquisition.
Note 9. Goodwill and Other Intangible Assets - Page F-24
48. We note that you recorded impairment charges for goodwill in
fiscal 2002 and 2003. Please revise the notes to your financial
statements as follows:
(a) Describe the facts and circumstances leading to the goodwill
impairment.
(b) Disclose the significant assumptions used to determine the
fair
value of the associated reporting unit under SFAS 142.
(c) Disclose the number of reporting units used in your assessment
of
goodwill.
Note 10. Investments - Page F-25
49. We note that you recorded an additional gain of $14,647
related
to the achievement of a defined milestone as it relates to the
sale
of Enteric 2002. Please tell us where this is recorded in your
statement of operations. If classified as operating income, tell
us
why this classification is appropriate.
Note 12. Notes Payable - Page F-27
50. Supplementally and in detail show us how the beneficial
conversion features were measured. Refer to EITF 98-5 and 00-27.
Support your presentation as a component of minority interest on
the
balance sheet.
Note 13. Members` Equity and Redeemable Convertible Preferred
Membership Units - Page F-27
Redeemable Convertible Preferred Membership Units - Page F-27
51. We note that the preference shares are convertible to common
units only if the initial public offering aggregate proceeds raise
at
least $100 million with proceeds to the company of at least $40
million. If your offering range does not raise at least $100
million, the pro forma adjustment will not be accurate. Please
advise.
52. Revise to disclose the liquidation preference of preference
membership units on the face of the balance sheet as required by
SFAS
129, paragraph 6 and Rule 4-08 (d) of Regulation S-X.
Note 14. Equity Based Compensation Plans - Page F-29
53. Supplementally tell us how you accounted for the options
granted
with an exercise price below market value during fiscal year 2004.
54. Provide us with an itemized chronological schedule detailing
each
issuance of your ordinary shares, stock options and warrants by
the
company or principal stockholder since January 2004 through the
date
of your response. Include the following information for each
issuance or grant date:
a. Number of shares issued or issuable in the grant
b. Purchase price or exercise price per share
c. Any restriction or vesting terms
d. Management`s fair value per share estimate
e. How management determined the fair value estimate
f. Identity of the recipient and relationship to the company
g. Nature and terms of any concurrent transactions with the
recipient
h. Amount of any recorded compensation element and accounting
literature relied upon
In the analysis requested above, highlight any transactions with
unrelated parties believed by management to be particularly
evident
of an objective fair value per share determination. Progressively
bridge management`s fair value per share determinations to the
current estimated IPO price per share. Also, indicate when
discussions were initiated with your underwriter(s). We will
delay
our assessment of your response pending inclusion of the estimated
IPO price in the filing.
Note 18. Commitments and Contingencies - Page F-40
55. Revise to disclose the monetary damages of E3.6 million in
U.S.
dollars as well.
56. Supplementally describe, in greater detail, the significant
contractual provisions of the supply agreement with Invatec (page
13). How are prices established? Describe any predetermined
pricing
formula, if applicable. We note that Invatecs has the right to
recover damages, please explain. Revise to disclose your
obligations
under this agreement in the notes and MD&A if material.
57. Even if there is no accrual for a loss contingency because one
or
both of the conditions in paragraph 8 of SFAS 5 are not met, you
should disclose an estimate of the possible loss or range of loss
or
state that such an estimate cannot be made. Refer to SAB Topic
5:Y.
Revise or advise.
Note 19. Related Party Transactions - Page F-43
58. Supplementally provide us with a schedule of activities with
MTI.
Confirm that your historical financial statements reflect all cost
of
doing business, including cost incurred on your behalf by your
parent
company, MTI and any other related companies. Refer to SAB Topic
1-B
for guidance. We may have further comments after reviewing your
response.
Note 20. Segment and Geographic Information - Page F-44
59. Revise the filing to report revenues for each product or each
group of similar products. See paragraph 37 of SFAS 131.
60. If revenues derived from any particular foreign country are
material, revise to disclose the name of the country and the
amount
of revenue from the country. Refer to paragraph 38(a) SFAS 131.
61. SFAS 131 requires disclosure of long-lived assets by
geographic
area. This disclosure should present tangible assets only and
should
not include intangibles or investments. See question 22 in the
FASB
Staff Implementation Guide to Statement 131. Revise as necessary.
Electronic Distribution
62. Identify any members of the underwriting syndicate that will
engage in any electronic offer, sale or distribution of the shares
and describe their procedures to us supplementally. If you become
aware of any additional members of the underwriting syndicate that
may engage in electronic offers, sales or distributions after you
respond to this comment, promptly supplement your response to
identify those members and provide us with a description of their
procedures.
Briefly describe any electronic distribution in the filing.
Also, in your discussion of the procedures, tell us how your
procedures ensure that the distribution complies with Section 5 of
the Securities Act. In particular:
* the communications used;
* the availability of the preliminary prospectus;
* the manner of conducting the distribution and sale, such as
* The useof indications of interest or conditional offers; and
* the funding of an account and payment of the purchase price.
Finally tell us whether you or the underwriters have any
arrangements
with a third party to host or access your preliminary prospectus
on
the internet. If so, identify the party and the website, describe
the material terms of your agreement and provide us with a copy of
any written agreement. Provide us also with copies of all
information concerning your company or prospectus that has
appeared
on their website. Again, if you subsequently enter into any such
arrangements, promptly supplement your response.
We may have further comment.
Request for Confidential Treatment
63. We note you expect to or have filed a request for confidential
treatment of certain portions of exhibits to the registration
statement. Comments, if any, will be furnished after we complete
our
review and will need to be resolved prior to effectiveness of the
registration statement.
* * * * * * * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Julie Sherman at (202) 824-5506 or Angela
Crane
at (202) 942-1931 if you have questions regarding comments on the
financial statements and related matters. Please contact Alan
Morris
at (202) 942-1980 or me at (202) 942-1880 with any other
questions.
Sincerely,
Peggy Fisher
Assistant Director
cc. Tracy Kimmel (King & Spalding)
VIA TELEFAX 212-556-2222
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L. Cecily Hines, Vice President
Ev3 Inc.
April 29, 2005
Page 13