International Distribution Agreement

Exhibit 10.12
Certain information has been omitted
from this exhibit and filed separately
with the SEC pursuant to a request for
confidential treatment under Rule 24b-2


UROLOGIX, INC.


INTERNATIONAL DISTRIBUTION AGREEMENT


THIS AGREEMENT is made as of the 26th day of June, 1996, by and between Urologix, Inc., a corporation organized and existing under the laws of the State of Minnesota, ("Urologix") and Boston Scientific Corporation, a corporation organized and existing under the laws of Delaware ("BSC").


BACKGROUND


Urologix is in the business of manufacturing and marketing its T3 System for use in the treatment of benign prostatic hyperplasia (BPH). BSC is engaged in the sale of various medical devices worldwide.


Urologix has previously granted distribution rights to the T3 System in Japan to another party and desires to retain for itself the right to sell the T3 System in the United States. Accordingly, Urologix and BSC desire to enter into an International Distribution Agreement under which BSC would be entitled to sell the T3 System for the treatment of BPH outside of the United States and Japan, on the terms and conditions set forth below.


TERMS AND CONDITIONS


NOW THEREFORE, in consideration of the mutual promises contained herein, the parties hereto agree as follows:


1. PRODUCTS.


1.1 The term "Products" shall mean the Urologix T3 System for the treatment of BPH, which consists of the control unit (the "Control Unit") and the procedure kit (the "Procedure Kits") described on Exhibit A, and all future improvements or new generations to the T3 System which Urologix may develop for the treatment of BPH, using microwave or other minimally invasive treatment, but expressly excluding any modifications or adaptations of the T3 System for the treatment of any disease or condition other than BPH. Any additional products which Urologix may offer to BSC and which BSC elects to sell and distribute shall be added to the list of Products on Exhibit A. Urologix shall not make any material changes in the performance or specifications of any of the Products without first giving at least 90 days written notice to BSC with regard to the same. However, any changes which Urologix believes are necessary, for reasons of safety, efficacy, or compliance with any regulatory request or suggestion may be made with less than 90 days written notice to BSC so long as Urologix promptly notifies BSC of any such change when it is implemented and prior to the shipment of the changed Products and the reasons therefor. Notwithstanding the foregoing, if


1


Urologix (i) makes any change to any of the Products which change does not occur in the normal course of developing or improving that Product or any new generation of that Product, but rather occurs for any of the reasons described in the immediately preceding sentence, and (ii) that change makes the changed Product incompatible with any of the Products that BSC has previously sold or otherwise placed with any customer or that BSC then holds in inventory, and (iii) Urologix no longer makes available another version of the Product which has been changed which is compatible with the related Product that BSC has previously sold or placed with customers or then holds in inventory, Urologix shall, at its expense, replace as soon as is reasonably practical all such incompatible Products or, with respect to Control Units, make such modifications to such Control Units as are necessary to make them compatible with the changed Products. The procedure described in the immediately preceding sentence shall not apply in the case of any change to a Product which occurs in the normal course of developing or improving that Product or any new generation of that Product.


1.2 If, during the term of this Agreement, Urologix wishes to explore the possibility of entering into an exclusive distribution agreement with a single distributor (other than an Affiliate of Urologix) for the purpose of distributing, throughout the Territory, a product (other than the Products) for the treatment of a disease of the prostate, Urologix shall give written notice of the same to BSC before proceeding beyond a preliminary phase with any such discussions with any third party other than BSC. The date on which BSC receives any such notice from Urologix is hereafter referred to as the "First Negotiation Date". If, within 15 days of the First Negotiation Date, BSC, by written notice to Urologix, informs Urologix that it wishes to enter into negotiations with Urologix with respect to such a distribution agreement, Urologix shall provide BSC with a reasonable opportunity, for a period of 45 days from the First Negotiation Date, to negotiate and execute a term sheet outlining the basic business terms with respect to such distribution rights. If such a term sheet is executed within that period, Urologix shall provide BSC with a reasonable opportunity during the period ending 90 days from the First Negotiation Date, to negotiate and execute a definitive distribution agreement with Urologix with respect to such distribution rights.


1.2.1 It is expressly understood and agreed that, with respect to any
such negotiations, neither BSC nor Urologix shall be obligated to accept
any terms or conditions which are not fully acceptable to the party
involved in its sole discretion for whatsoever reason. Furthermore, if BSC
and Urologix are not able to conclude and execute such a definitive
distribution agreement within such period of time, Urologix shall have no
further obligations to BSC under this Section 1.2 and shall be free to
enter into a distribution agreement, upon any terms and conditions which
are acceptable to Urologix, with any other party for the distribution
throughout the Territory, of the product involved, subject only to the
requirement that if Urologix, in thereafter pursuing such other
relationships, makes a proposal to a third party which contains economic
terms significantly more favorable, in the aggregate, to that potential
distributor than the last proposal which Urologix made to BSC in its
earlier negotiations, then Urologix shall advise BSC of that proposal.
Urologix shall be obligated to so advise BSC of a more favorable proposal
only once, irrespective of whether Urologix makes more than one such
favorable proposal to any one or more potential distributors. After
receiving notice from Urologix as to such a proposal, BSC is free to then
determine whether it wishes to enter into renewed negotiations with
Urologix. If BSC elects to inform Urologix that it is interested in such
renewed negotiations, then without otherwise imposing any obligations upon
Urologix to negotiate with BSC, Urologix shall promptly advise BSC as to
whether it will enter into such renewed negotiations with BSC, even though
those negotiations need not be on an exclusive basis.


1.2.2 The provisions of this Section 1.2 shall apply only to the form
of distribution arrangement described in the first sentence of this Section
1.2 and shall in no manner


2


affect or relate to any other distribution arrangement or arrangements
which Urologix may enter into with any one or more third parties for the
sale of any of Urologix's products in the Territory. In the event of the
expiration or termination of this Agreement for any reason, this Section
1.2 shall be null and void and of no further force or affect.


2. EXCLUSIVE DISTRIBUTORSHIP.


2.1 Subject to the terms and conditions contained herein, Urologix grants to BSC, and BSC hereby accepts, the rights and responsibilities of an exclusive distributor of Products for use in the treatment of BPH in all geographic areas of the world, other than the United States and Japan (the "Territory"). During the term of this Agreement, Urologix agrees, to the extent permitted by law, to maintain BSC's exclusivity in the Territory for the Products and not to appoint another distributor of Products in the Territory or to itself sell Products directly or through a third party to customers in the Territory for the treatment of BPH. However, nothing contained herein shall in any manner restrict or limit Urologix in regard to providing any Products to any other parties, either without charge or at a price which does not include a profit for Urologix, for research or investigational purposes. BSC shall promptly notify Urologix of the placement of any such units for research or investigational purposes in a single-site study, which has deprived BSC of a Product sale. In the event any such placement deprives BSC of the opportunity to sell Products to a customer which has indicated it is likely to purchase Products from BSC, BSC's Minimum Purchase Obligations under Section 10.1 shall be reduced in an appropriate and mutually acceptable manner. If Urologix desires to initiate a clinical study at more than one clinical site in the Territory (a "Multi-Site Study") with respect to a particular Product in order to support a submission by Urologix to the FDA with respect to that Product, Urologix shall first inform BSC of its intentions with respect to that Multi-Site Study before initiating the same. If, in conjunction with any such Multi-Site Study, Urologix provides those sites which are participating in that study with Control Units which are substantially the same as the Control Units then being sold by BSC under this Agreement, and such placement deprives BSC of the opportunity to sell Products to a customer, BSC's minimum purchase obligations with respect to Control Units under Section 10.1 shall be reduced by one unit for each such Control Unit placed with those sites. However, BSC's minimum purchase obligations under Section 10.1 with respect to Procedure Kits shall not be reduced with respect to any Procedure Kits supplied by Urologix to the sites participating in that Multi-Site Study except to the extent that Urologix provides those sites with a greater number of Procedure Kits than is reasonably desirable with respect to the Multi-Site Study involved.


[2.2 Confidential Treatment Requested]


2.3 The parties recognize that initially, BSC's efforts with respect to the sale of the Products shall initially be concentrated in the countries named in Section 9.1. However, it is the expectation of the parties that BSC will also devote reasonable commercial efforts to the market development, sales, and marketing of Products both in other individual countries and in distinct multi- country regions which represent a meaningful, potential market for the treatment of BPH. This Section 2.3 establishes a procedure whereby a particular country or region may be withdrawn from the Territory if it is neglected by BSC. This procedure is not intended to, and shall not, entitle Urologix to withdraw an individual country from the Territory if that country is a part of a distinct multi-country region which, as a region, has not been neglected by BSC in the manner described in this Section 2.3.


If BSC has neglected the market development, sales, and marketing of Products in a country or region while third parties are making material, actual sales of products for the treatment of BPH in that country or region, Urologix may give written notice to BSC that Urologix desires to exclude that country or


3


region from the Territory. If BSC does not, (a) within six months of the date of such notice from Urologix, initiate and diligently seek to obtain, using reasonable commercial efforts, all regulatory approvals (except to the extent a particular approval is to be obtained by Urologix under Section 18.1) required for the sale of the Products in that country or region, and (b) initiate the sale and marketing of the Products in that country or region within a reasonable period of time following issuance of the appropriate regulatory clearances, then that country or region shall be excluded from the Territory if Urologix, at any time after the expiration of either of such time periods and before BSC has cured any such deficiency, gives written notice to BSC that Urologix wishes to withdraw that country or region from the Territory. In the event that any such country or region is withdrawn from the Territory in accordance with the provisions of this Section 2.3, BSC shall thereafter have no further rights of any nature with respect to the distribution of any of the Products in that country or region and the terms of this Agreement shall not apply to the sale of Products in that country or region.


2.4 The responsibilities of BSC with respect to the Products under Section 9, Section 18, and the other sections of this Agreement, shall be equally applicable to all future improvements or new generations to the T3 System which are deemed to be "Products" under Section 1. With regard to the responsibilities of Urologix and BSC under Sections 18.1 and 18.2, Urologix shall be responsible for obtaining and maintaining a CE mark for the sale of any such improved or new generation Product in the European Union and for obtaining regulatory approval from the primary agency which must approve the sale of medical devices in the countries of Canada and Australia. If BSC does not initiate reasonable commercial efforts for the sale of any such improved or future generation Product within ninety (90) days of the date on which Urologix receives such CE mark or receives the applicable regulatory approval for the sale of such Product in Canada or Australia, as applicable, then any such improved or new generation Product shall no longer be deemed to be a Product under this Agreement and BSC shall have no rights whatsoever with respect to the distribution of that product.


3. NO AGENCY. Each of the parties is an independent contractor and nothing contained herein shall be deemed or construed to create the relationship of an agency, partnership, joint venture, franchise or any other association or relationship between the parties except that of an exclusive distributor relationship. Neither BSC nor Urologix shall have, and shall not hold itself out as having, any right, power or authority to create any contract, obligation or responsibility either express or implied, on behalf of, or in the name of, the opposite party unless the opposite party shall consent thereto in writing. Neither party shall have any authority to bind the opposite party in any respect. All persons engaged by either party shall be that party's employees, legal representatives, agents or independent contractors and not those of the opposite party.


4. PURCHASE ORDERS.


4.1. By July 1, 1996, and by each July 1 thereafter during the term of this Agreement, BSC shall provide Urologix with a firm purchase order under which BSC agrees to purchase the full amount of its Minimum Purchase Obligation for the Contract Year commencing on that particular July 1st (an "Annual Firm Order"), with all units of Products covered by that Annual Firm Order to be delivered on delivery dates reasonably acceptable to Urologix. On the first day of each month during the remainder of the term of this Agreement, after July 1, 1996, BSC shall provide Urologix with its reasonably best estimate ("Estimate") of the quantity of each Product which BSC will need during each of the 12 months thereafter. The delivery dates scheduled under each Estimate shall be as are reasonably acceptable to Urologix. The Estimate shall be binding upon BSC only to the extent of any units of Products scheduled for delivery in the accordance with the terms of the Annual Firm Order which encompasses the period of a particular Estimate. BSC shall not be obligated to purchase, and Urologix shall not be obligated to deliver, any units of Products


4


in excess of BSC's Minimum Purchase Obligations under an Annual Firm Order until BSC has submitted, and Urologix has accepted, a purchase order for any such additional Products. Urologix's normal lead time is [confidential treatment requested] days for the manufacture of Control Units and [confidential treatment reuqested] days for Procedure Kits.


4.2 The first Contract Year shall be for the period from the date of this Agreement through June 30, 1997 and subsequent Contract Years shall be the periods of July 1 through June 30 thereafter. Except as otherwise agreed in writing by Urologix, an order may not be canceled by BSC after it has been accepted, and except as otherwise provided, Products are not returnable after they have been delivered.


4.3 In the event that, during the first Contract Year, Urologix fails to timely deliver any Products under a purchase order which Urologix has accepted, 1.5 units of the Product involved shall be deemed to have been purchased by BSC for each unit of such Product which Urologix has failed to deliver, for purposes of determining whether BSC has purchased its Minimum Purchase Obligations under Section 10 for the first Contract Year. In the event of any such failure to deliver during the second or any subsequent Contract Year, one unit of the Product involved under a purchase order which Urologix has accepted shall be deemed to have been purchased by BSC for each unit of that Product which Urologix has so failed to deliver for purposes of determining whether BSC has purchased its Minimum Purchase Obligations under Section 10 for subsequent Contract Years.


4.4 All sales of Products by Urologix to BSC shall be subject to the provisions of this Agreement and shall not be subject to the terms and conditions contained in any purchase order of BSC or confirmation of Urologix, except insofar as any such purchase order or confirmation establishes (a) the quantity of Products to be sold or (b) the shipment date of Products. In the event of any shortages in the availability of Products or in Urologix's capacity to meet demand for Products, Urologix shall allocate available Products to and schedule the timing of Product delivery to, BSC in a reasonable manner such that BSC shall receive a percentage of available Products that is the same as the percentage derived from comparing BSC's unfilled demand for Products in relation to the total unfilled demand for Products from all Urologix customers, distributors, and sales representatives (including BSC) on a combined basis at the time of such unavailability (as measured from firm purchase orders). Urologix's right to allocate available Products under this Section 4.4 shall not relieve Urologix of the consequences under Section 4.3 for Urologix's failure to deliver Products.


4.5 If BSC shall fail to make any payment to Urologix when due under this Agreement, and such amount remains unpaid for fifteen (15) days following notice of late payment given by Urologix, Urologix shall have the right to cancel any orders, delay any shipments to BSC until payment is made or assurances required by Urologix are received, or terminate this Agreement in accordance with Section 11, unless there is an unresolved good faith dispute with regard to Urologix's entitlement to such payment. In the event either BSC or Urologix sends a notice of termination of this Agreement pursuant to Section 11, Urologix may, at its option, require all subsequent purchases by BSC of Products from Urologix to be C.O.D.


5


5. SHIPMENT.


5.1 Subject to delay due to force majeure, Urologix will ship Products to BSC in accordance with the procedures set forth in Section 4 upon the receipt of purchase orders that Urologix has accepted under Section 4.


5.2 All Products sold by Urologix to BSC hereunder will be shipped by Urologix FOB from the location where the manufacture of the Products involved is completed ("Shipping Point"). BSC will pay all loading, freight, shipping, insurance, duties, forwarding and handling charges, taxes, storage, and all other charges applicable to the Products after they are delivered by Urologix to the carrier involved at the Shipping Point.


5.3 BSC shall assume all risk of loss for Products upon delivery by Urologix of the Products to the carrier involved at the location where the manufacture of the Products is completed by Urologix.


5.4 BSC shall, at its expense, secure and maintain all import licenses, customs clearances, currency exchange authorizations, as required by the appropriate governmental authorities in the countries in the Territory where BSC determines to sell the Products. Subject to the provisions of Section 18, BSC shall comply with all United States and foreign governmental requirements with respect to the export and import of the Products and shall not export, or allow to be exported or re-exported, any of the Products except in compliance with such restrictions, laws and regulations. Similarly, BSC shall comply with all sales, use and value added tax law requirements, including any required filings in any foreign country.


6. PRICE AND PAYMENT.


6.1 Base Price and Sharing Adjustment for Control Units. The base price of all Control Units sold by Urologix to BSC shall be $ [Confidential Treatment Requested] (the "Base Price"). If BSC's average selling price (the "Average Selling Price") for all Control Units sold by BSC and its Affiliates is more than $[Confidential Treatment Requested] but less than $[Confidential Treatment Requested], then the final price which BSC shall pay Urologix for each Control Unit sold to BSC (the "Transfer Price") shall be that amount which is equal to [Confidential Treatment Requested] of BSC's Average Selling Price. If BSC's Average Selling Price is $[Confidential Treatment Requested] or more, then the Transfer Price shall be an amount equal to the Base Price plus a certain percentage of the amount by which BSC's Average Selling Price exceeds $[Confidential Treatment Requested] (the "Sharing Adjustment") as follows:


AVERAGE SELLING PRICE SHARING ADJUSTMENT
--------------------- ------------------


[Confidential Treatment Requested]


For example, if BSC's Average Selling Price for a particular month was $
[Confidential Treatment Requested], then the Transfer Price would be
$[Confidential Treatment Requested], calculated as follows: [Confidential
Treatment Requested]


6


6.2 Base Price and Sharing Adjustment for Procedure Kits. The base price for all Procedure Kits sold by Urologix to BSC shall be $[Confidential Treatment Requested] (the "Base Price"). If BSC's average selling price (the "Average Selling Price") for all Procedure Kits sold by BSC and its Affiliates is $[Confidential Treatment Requested] or more but less than $[Confidential Treatment Requested], then the final price which BSC shall pay Urologix for each Procedure Kit sold to BSC (the "Transfer Price") shall be that amount which is equal to [Confidential Treatment Requested] of BSC's Average Selling Price. If BSC's Average Selling Price is either less than $[Confidential Treatment Requested] or is $[Confidential Treatment Requested] or more, then the Transfer Price shall be an amount equal to the Base Price plus a certain percentage of the amount by which BSC's Average Selling Price exceeds $[Confidential Treatment Requested] (the "Sharing Adjustment") as follows:


AVERAGE SELLING PRICE SHARING ADJUSTMENT
--------------------- ------------------


[Confidential Treatment Requested]


For example, if BSC's Average Selling Price for a particular month was
$[Confidential Treatment Requested], then the Transfer Price would be
$[Confidential Treatment Requested], calculated as follows:
[Confidential Treatment Requested]


6.2.1 The parties expect that BSC's Average Selling Price for
Procedure Kits sold during the sixth month after BSC has initiated its
full scale product launch in Europe for the Products will be at least
$ [Confidential Treatment Requested] If this is not so, then BSC and
Urologix will discuss modifying the Sharing Adjustments in this
Section 6.2 on an interim basis in a manner which endeavors to provide
BSC with an average gross margin (defined as BSC's Average Selling
Price less the Transfer Price) of [Confidential Treatment Requested]
(before the payment of any royalties). Any such interim modification
of the Sharing Adjustments will remain in effect for such period as is
then agreed by BSC and Urologix, it being understood that whenever
BSC's average selling price during a particular calendar quarter is
$[Confidential Treatment Requested] or more, the original Sharing
Adjustments under Section 6.2 will apply.


6.3 Prior to the commencement of the third, fourth, and fifth Contract Years, the parties will review BSC's then current Average Selling Price and Urologix's then current manufacturing costs for each of the Products. If the gross margin which BSC is then earning on its sales of a Product is materially less or greater than [Confidential Treatment Requested], (before the payment of any royalties), the parties will discuss modifying the Sharing Adjustments in Sections 6.1 and 6.2 in a manner which endeavors to provide BSC with an average gross margin of [Confidential Treatment Requested] (before the payment of any royalties). The determination as to whether any such modification is appropriate will also take into account Urologix's gross margin on its sales of that Product to BSC.


6.4 [Confidential Treatment Requested]


7


6.5 Average Sales Price. For purposes of this Agreement, the term Average Sales Price shall mean, with respect to each Product, (i) the gross invoice or billing price of the Product sold, leased by BSC or any Affiliate of BSC with no deductions except for: (a) the actual cost of freight, shipping, and insurance charges, if any, if stated separately from BSC or its Affiliates ordinary net invoice price for that Product; (b) trade, quantity, and cash discounts, if any, actually allowed; (c) any VAT applicable to the sale of the Product, provided such tax is actually paid by BSC or its Affiliate and is shown separately from the net invoice price of the Product; and (d) such credits or allowances, if any, actually given or made because of the rejection or return of a Product previously delivered to a customer by BSC or its Affiliate; divided by (ii) the number of units of the Product which were sold by BSC during the applicable period.


In determining the number of units of a Product sold by BSC or any Affiliate of BSC during a particular period, units which BSC or any Affiliate of BSC makes available at a reduced price for promotional or other marketing purposes shall not be included in the calculation of Average Selling Price. If BSC or any Affiliate of BSC leases any Products, the sales price of such units for purposes of calculating their Average Sales Price, shall be the price at which the leasing company involved purchases that product from BSC or from that Affiliate of BSC. If that leasing company is an Affiliate of BSC, the price of any units of a Product sold to that leasing company shall, for purposes of calculating Average Sales Price, in no event be less than the price which would be charged by BSC or an Affiliate of BSC for a Product sold to a leasing company which is not an Affiliate of BSC.


6.6 Audit. Upon reasonable written notice to BSC, Urologix shall have the right to inspect the books and records of BSC and its Affiliates relating to the sale of Products by itself or by an independent firm of accountants designated by Urologix for purposes of verifying BSC's calculation of the Average Selling Price for either or both Products during any particular period. BSC agrees to create accurate records sufficient to determine the ...