<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from ____________ to _______________
Commission File Number 0-28414
UROLOGIX, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1697237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14405 21st Avenue North, Minneapolis, MN 55447
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 475-1400
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 [ ]
As of January 27, 1999, the Company had outstanding 11,417,911 shares of common
stock, $.01 par value.
<PAGE>
UROLOGIX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1998
----------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,087,543 $ 882,801
Available-for-sale securities 30,572,939 35,616,726
Accounts receivable 1,346,079 4,013,533
Inventories 2,912,997 4,313,895
Prepaids and other current assets 747,022 691,102
------------ -----------
Total current assets 36,666,580 45,518,057
------------ -----------
Property and equipment:
Machinery, equipment and furniture 4,349,815 4,902,773
Less - accumulated depreciation (1,951,396) (1,703,293)
------------ -----------
Property and equipment, net 2,398,419 3,199,480
Other assets, net 4,601,529 4,771,222
------------ -----------
$ 43,666,528 $53,488,759
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized lease obligations $ 20,450 $ 28,138
Accounts payable 926,985 1,960,768
Accrued liabilities 2,309,918 2,154,078
------------ -----------
Total current liabilities 3,257,353 4,142,984
Capitalized lease obligations, less current maturities 5,520 8,871
------------ -----------
Total liabilities 3,262,873 4,151,855
------------ -----------
Commitments and contingencies
Shareholders' equity
Common stock, $.01 par value, 25,000,000 shares 113,632 112,399
authorized; 11,363,161 and 11,239,892 shares
issued and outstanding
Additional paid-in capital 91,066,801 91,016,366
Accumulated deficit (50,915,607) (41,780,353)
Cumulative other comprehensive income(loss) 138,829 (11,508)
------------ -----------
Total shareholders' equity 40,403,655 49,336,904
------------ -----------
$ 43,666,528 $53,488,759
============ ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
2
<PAGE>
UROLOGIX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- -------------------------
1998 1997 1998 1997
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Sales $ 1,233,947 $ 3,203,845 $ 2,858,552 $ 5,802,980
Cost of goods sold 896,291 2,140,126 3,742,702 3,878,427
------------- ----------- ------------ -----------
Gross profit (loss) 337,656 1,063,719 (884,150) 1,924,553
------------- ----------- ------------ -----------
Costs and expenses:
Research and development 1,028,937 1,444,241 2,525,840 2,818,406
Sales and marketing 2,037,712 1,520,866 3,694,362 2,853,832
General and administrative 658,724 631,200 2,957,153 1,132,005
------------- ----------- ------------ -----------
Total costs and expenses 3,725,373 3,596,307 9,177,355 6,804,243
------------- ----------- ------------ -----------
Operating loss (3,387,717) (2,532,588) (10,061,505) (4,879,690)
Interest income, net 451,011 392,281 926,251 723,723
------------- ----------- ------------ -----------
Net loss $ (2,936,706) $(2,140,307) $ (9,135,254) $(4,155,967)
============= =========== ============ ===========
Basic and diluted net loss per
common share $ (0.26) $ (0.21) $ (0.81) $ (0.43)
============= =========== ============ ===========
Basic and diluted weighted average
number of common shares
outstanding 11,357,694 10,140,194 11,307,914 9,725,045
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
3
<PAGE>
UROLOGIX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The Six Months Ended
December 31,
---------------------------
1998 1997
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (9,135,254) $ (4,155,967)
Adjustments to reconcile net loss to net cash used
for operating activities -
Loss on impairment of assets 771,362 -
Depreciation and Amortization 775,875 928,620
Change in operating items:
Accounts receivable 2,667,454 (2,511,054)
Inventories 1,400,898 (1,700,080)
Prepaids and other current assets (55,919) 222,815
Accounts payable and accrued liabilities (877,943) 420,326
------------ -------------
Net cash used for operating activities (4,453,527) (6,795,340)
------------ -------------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (576,484) (807,498)
Purchase of available-for-sale securities (43,110,348) (235,146,258)
Proceeds from sale of available-for-sale securities 48,304,472 211,279,723
------------ -------------
Net cash provided by (used in) investing
activities 4,617,640 (24,674,032)
------------ -------------
FINANCING ACTIVITIES:
Proceeds from the sale of common stock, net - 31,527,102
Proceeds from exercise of stock options 51,668 237,977
Payments made on capital lease obligations (11,039) (9,835)
------------ -------------
Net cash provided by financing activities 40,629 31,755,244
------------ -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 204,742 285,872
CASH AND CASH EQUIVALENTS:
Beginning of period 882,801 275,571
------------ -------------
End of Period $ 1,087,543 $ 561,443
------------ -------------
Supplemental cash flow disclosure:
Cash paid for interest $ 1,909 $ 2,175
============ =============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
4
<PAGE>
UROLOGIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
1. Basis of presentation
The accompanying unaudited condensed financial statements of Urologix, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. The balance sheet as of December 31, 1998
and the statements of operations for the three and six-month periods ended
December 31, 1998 and 1997, and the statements of cash flows for the six-month
periods ended December 31, 1998 and 1997, are unaudited but include all
adjustments (consisting of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at such
dates and the operating results and cash flows for those periods. Although the
Company believes that the disclosures in these financial statements are adequate
to make the information presented not misleading, certain information normally
included in financial statements and related footnotes prepared in accordance
with generally-accepted accounting principles has been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The accompanying financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended June 30, 1998.
Results for any interim period are not necessarily indicative of results for any
other interim period or for the entire year.
2. Basic and diluted net loss per share
Basic and diluted net loss per common share was computed by dividing basic and
diluted net loss by the weighted average number of shares of common stock
outstanding during each period. The impact of common stock equivalents has been
excluded from the computation of weighted average common shares outstanding, as
the effect would be antidilutive.
3. Inventories
Inventories consisted of the following as of:
December 31, 1998 June 30, 1998
------------------ --------------
Raw materials $1,636,191 $2,349,717
Work in process 526,477 132,559
Finished goods 750,329 1,831,619
---------- ----------
$2,912,997 $4,313,895
========== ==========
4. Recently Issued Accounting Standards
The Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting in the financial statements all changes in
equity during a period, except those resulting from investments by and
distributions to owners. For the Company, comprehensive income represents net
income adjusted for unrealized gains/losses on available for sale securities.
Comprehensive income(loss) as defined by SFAS No. 130, was $(2,907,217) and
($8,984,917) for the three and six-month periods ended December 31, 1998 and
$(2,028,971) and ($4,028,491) for the three and six-month periods ended
December 31, 1998.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Urologix develops, manufactures and markets minimally invasive medical
devices for the treatment of urological diseases. The Company's initial product,
the Targis(TM) System, is designed to treat benign prostatic hyperplasia
("BPH"), commonly known as "enlarged prostate." BPH dramatically affects the
quality of life of millions of men by causing adverse changes in urinary voiding
patterns. The Targis System has been approved for marketing in the United
States, the 15 European Union countries, Japan and Canada. The Company is
currently selling the Targis System outside the United States through
distributors and in the United States through its direct sales force.
The Targis procedure is a non-surgical, catheter-based therapy that
uses a proprietary microwave technology that preferentially heats diseased areas
of the prostate to a temperature sufficient to cause cell death, while
simultaneously cooling and protecting the pain-sensitive urethral tissue.
Because the urethra is protected from heat and is not punctured or penetrated, a
Targis procedure can be performed without general or regional anesthesia or
intravenous sedation. Accordingly, the procedure can be performed in a low cost
setting such as a physician's office or an outpatient clinic. The Company
believes that the Targis System provides an efficacious, safe and cost effective
procedure for the treatment of BPH without the complications and side effects
inherent in most current treatments, and as such, is well positioned to address
the needs of physicians, patients and payors.
The Company's clinical studies demonstrated that most patients who
received the Targis therapy experienced a significant improvement in BPH
symptoms and urine flow rates, minimal complications and post-treatment
discomfort, and were able to return to normal activities within a few days. The
Company submitted results of its clinical studies to the United States Food and
Drug Administration (the "FDA") in its premarket approval application ("PMA") in
February 1997 and subsequently received FDA approval to market the Targis System
in August 1997.
The Company markets the Targis System in the United States through a
direct sales force and its co-marketing partner, Boston Scientific Corporation
("Boston Scientific"), a world wide developer, manufacturer and marketer of
medical devices. Urologix' direct sales force has sole responsibility for
completing and transacting the sales of the Targis system, while Boston
Scientific, through its Microvasive Urology sales force, assists in the
promotion and marketing of the Targis System among urologists throughout the
United States. The Company has developed a sales and marketing team consisting
of sales and marketing management, product managers, communication specialists
and direct domestic sales representatives, who are all dedicated to marketing
the Targis System. Outside the United States, the Company has developed broad-
based relationships with two parties for market development and sales of the
Targis System. Boston Scientific markets the Targis System in all countries
outside the United States, except Japan. Nihon Kohden Corporation ("Nihon
Kohden"), a major Japanese developer, manufacturer and marketer of medical
devices, markets the Targis System in Japan.
RESULTS OF OPERATIONS
Sales decreased to $1.2 million and $2.9 million for the three and
six-month peroids ended December 31, 1998 from $3.2 million and $5.8 million for
the same periods in the prior fiscal year due to a decrease in sales to the
Company's international distributors as a result of adequate inventory levels of
the Targis System at international distributors. Sales in the United States
represented approximately 91% of revenue during the first six months of 1998,
compared to 16% of revenue in the first six months of 1997. The Company expects
United States sales of the Targis System to increase in fiscal year 1999
compared to fiscal year 1998; however, international sales are expected to be
minimal due to existing inventory levels of Targis Systems at the Company's
international distributors.
Cost of goods sold includes raw materials, labor and royalties, as well
as costs incurred in connection with the production of the Targis Systems. Cost
of goods sold decreased to $896,000 during the three-months ended December 31,
1998 compared to $2.1 million for the same period in 1997. Cost of goods sold
was affected primarily by lower sales volumes during the three-months ended
December 31, 1998 when compared to the same period in the prior fiscal year.
Cost of goods sold decreased to $3.7 million during the first six-months of 1998
compared to $3.9 during the first six months of 1997. Costs of goods sold were
affected by two events during the
6
<PAGE>
first six months of 1999. First, as a result of a downward revision to its
forecasted Fiscal 1999 sales in the first fiscal quarter and design changes to
the Targis System, the Company established a reserve of $1.3 million for
inventory that exists in excess quantities. Second, the Company operated under a
reduced production schedule as production was transitioned to a new catheter
design, resulting in the allocation of overhead over a lower production volume.
The new catheter design is expected to have significantly higher production
yields and field reliability. The Company began production of the catheter
in August 1998.
Research and development expenses include those costs associated with
product development, protection of the Company's intellectual property,
treatment of patients participating in clinical trials, the accumulation of
outcome data to substantiate clinical results and the preparation and submission
of applications for regulatory approvals. Research and development expenses
decreased to $1.0 million and $2.5 million for the three and six-month periods
ended December 31, 1998 from $1.4 million and $2.8 million for the same periods
in the prior fiscal year, due primarily to the conclusion of several clinical
studies, lower regulatory expenses and the settlement of litigation.
Sales and marketing expenses for the three and six-months ended
December 31, 1998 increased to $2.0 million and $3.7 million from $1.5 million
and $2.9 million during the same periods in the prior fiscal year due primarily
to costs associated with the Company's U.S. marketing launch of the Targis
System and supporting the marketing of the Targis System in Europe and Japan.
These costs included the hiring of sales and marketing management, preparation
of promotional materials, recruitment of field sales representatives and efforts
related to obtaining third-party reimbursement for the Targis System. The
Company expects sales and marketing expenses to increase as it increases its
sales efforts in the United States, and continues supporting its international
distributors' sales efforts.
General and administrative expenses increased to $659,000 and $3.0
million for the three and six-month periods ended December 31, 1998 from
$631,000 and $1.1 million for the same periods in the prior fiscal year. General
and Administrative expenses for the six month period ended December 31, 1998
reflect a non-recurring charge of $1.6 million incurred in connection with a
reduction in workforce that resulted from the downward revision of the Company's
sales forecast. The charge includes severance costs paid to employees, future
lease costs related to facilities no longer occupied and the impairment of
assets no longer used as a result of the reduction in work force.
Interest income increased to $451,000 and $926,000 for the three and
six-month periods ended December 31, 1998 from $392,000 and $724,000 for the
same periods in the prior fiscal year, due primarily to higher cash and
investment balances.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily
through sales of equity securities and, to a lesser extent, sales of the Targis
System. As of December 31, 1998, the Company had total cash, cash equivalents
and available-for-sale securities of $31.7 million and working capital of $33.4
million. During the six months ended December 31, 1998 the Company used
approximately $5.0 million of cash for operating activities and property and
equipment purchases, which amounts were funded primarily by proceeds from
available-for-sale securities.
At December 31, 1998, the Company had committed to purchase
approximately $500,000 in components for the Targis Systems from a third-party
vendor.
The Company expects to continue to incur additional losses, and will
use its working capital as it incurs substantial expenses related to the
marketing and sale of the Targis System, clinical trials and research and
development activities. In addition, should the Company choose to rent Targis
System control units to customers in the future, substantial capital could be
required. Although the Company believes that existing cash, cash equivalents and
available-for-sale securities will be sufficient to fund its operations for the
next 24 months, there can be no assurance that the Company will not require
additional financing in the future or that any additional financing will be
available to the Company on satisfactory terms, if at all.
7
<PAGE>
YEAR 2000 ISSUE
The Company is evaluating the potential impact of what is commonly
referred to as the Year 2000 issue, concerning the inability of certain
information systems to properly recognize and process dates containing the year
2000 and beyond. The Company has established a dedicated Year 2000 team working
with every operational area throughout the Company, and this team has worked
with management to commence the following steps: (i) implementing a Year 2000
Assessment and Testing Plan for all internal information systems and other
systems that contain microcontrollers that may be affected by the Year 2000 date
change; (ii) implementing a Year 2000 Assessment and Testing Plan for all
Company products, (iii) communicating with third parties that supply product to
the Company to ensure they are addressing the Year 2000 issue; and (iv)
contingency and disaster recovery planning to ensure Year 2000 problem
resolution.
The Company has completed testing and established compliance with
respect to all of its systems and products, subject to possible equipment
upgrades during 1999 and ongoing communications with third parties. Regardless
of the Year 2000 compliance of the Company's systems and products, there can be
no assurance that the Company will not be adversely affected by the failure of
others to become Year 2000 compliant.
The Company estimates that its direct costs for Year 2000 compliance
will consist of costs related to the staff time devoted to Year 2000 compliance.
The Company does not expect capital expenditures will be necessary related to
Year 2000 compliance. Costs and capital expenditures in these areas have not
been material for historical periods.
As noted below under "Forward-Looking Statements," statements in this section
that are not historical or current facts are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, including statements regarding the timetable for Year 2000
compliance, the Company's costs and capital expenditures, the success of the
Company's efforts and others' efforts to achieve compliance, and the effects of
the Year 2000 issue on the Company's future financial condition and results of
operations. These statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results and
those presently anticipated or projected. The following important factors, among
others, could affect the accuracy of these statements: (i) the inherent
uncertainty of the costs and timing of achieving compliance on the wide variety
of systems used by the Company, (ii) the reliance on the efforts of vendors,
customers, government agencies and other third parties to achieve adequate
compliance and avoid disruption of the Company's business in early 2000 and
(iii) the uncertainty of the ultimate costs and consequences of any
unanticipated disruption in the Company's business resulting from the failure of
one of the Company's applications or of a third party's systems. The foregoing
list is not exhaustive, and the Company disclaims any obligation subsequently to
revise any forward-looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
FORWARD-LOOKING STATEMENTS
Statements included in this Form 10-Q that are not historical or
current facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and are
subject to certain risks and uncertainties that could cause actual results to
differ materially. These factors include (i) competition from other existing or
new BPH treatments; (ii) the Company's ability to successfully market its
product in the United States through sales representatives; (iii) the ability of
the Company's distributors to successfully market and sell the Company's
products in markets outside the United States; (iv) the Company's ability to
successfully manufacture the Targis System in sufficient quantities to meet
future demand for the products; and (v) the extent to which the physicians
performing the Targis System procedures are able to obtain third party
reimbursement. A detailed discussion of risks and uncertainties may be found in
the Section entitled "Business - Forward Looking Statements" in Urologix Form
10-K for the year ended June 30, 1998.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Submission of Matters to a Vote of Securities Holders
On January 14, 1999 the Company held its Annual Shareholders' Meeting.
There were two matters submitted to vote of security holders, (i) the election
of three directors; (ii) the approval of certain amendments to the Urologix,
Inc. 1991 Amended and Restated Stock Option Plan. The directors were elected to
serve a three year term expiring at the Annual Meeting following the year 2001,
or until their respective successors are duly elected. Listed below are the
names of the three directors elected and their respective vote counts.
Bobby I. Griffin For: 9,634,135
Withheld: 120,798
Robert R. Momsen For: 9,581,506
Withheld: 173,427
Michael M. Selzer Jr. For: 9,632,835
Withheld: 122,098
Listed below is the vote count related to the second matter submitted:
Proposal to approve certain amendments to the Urologix, Inc. 1991 Amended and
Restated Option Plan.
For: 8,423,393
Against: 1,206,754
Abstain: 124,786
Item 2. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Co-Marketing Agreement dated October 6, 1998 between Urologix,
Inc. and Boston Scientific Corporation (1)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this Quarterly Report is filed, the
Company filed no Reports on form 8-K.
- --------------
(1) Certain information has been deleted from this exhibit and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment under Rule 24b-2.
9
<PAGE>
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 thereunto duly authorized.
Date February 8, 1999
Urologix, Inc.
- ---------------------------
(Registrant)
/s/ Michael M. Selzer, Jr.
- ---------------------------
Michael M. Selzer, Jr.
President and Chief Executive Officer
(Duly Authorized Officer)
/s/ Wesley E. Johnson, Jr.
- ---------------------------
Wesley E. Johnson, Jr.
Vice President/Finance and Chief
Financial Officer
(Principal Financial Officer)
10
<PAGE>
Exhibit 10.1
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
CO-MARKETING AGREEMENT
----------------------
THIS AGREEMENT is made as of the 6th day of October, 1998 by and between
UROLOGIX, INC., a Minnesota corporation ("Urologix") and Boston Scientific
Corporation, a Delaware corporation ("BSC").
BACKGROUND
Urologix is in the business of manufacturing and marketing its Targis(TM)
System for use in the treatment of benign prostatic hyperplasia ("BPH"). The
Urologix Targis System consists of the control unit (the "Control Unit") and the
procedure kit (the "Procedure Kit"). BSC is engaged, among other things, in the
sale of various medical devices in the United States in the field of urology
through salespersons in the Microvasive Urology Division of BSC.
Urologix desires BSC, through the sales force associated with BSC's
Microvasive Urology Division, to work in conjunction with the Urologix sales
force to actively promote and market the sale of the Urologix Targis System in
the United States, and BSC is willing to provide these services 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. Sales Responsibility. Urologix sales persons will retain sole
responsibility for closing sales of the Targis System.
2. BSC Responsibilities. BSC will use its commercially reasonable
efforts to promote and market the sale and acceptance of the Targis System with
urologists throughout the United States. In conjunction with these efforts:
2.1 BSC will endeavor to maintain approximately [Confidential
Treatment Requested] direct sales persons at all times during the term of this
Agreement who will seek to develop and maintain the good will of customers and
prospective customers and their acceptance of the Targis System. [Confidential
Treatment Requested]. In the event of BSC's breach of
<PAGE>
its obligations under this Section 2.1, Urologix may, as it sole remedy for such
breach, at any time thereafter elect to terminate this Agreement. This right of
termination is in addition to the other termination rights specified in Section
5.
2.2 - 2.8 [Confidential Treatment Requested]
2.9 On a monthly basis, BSC and Urologix will each provide a written
report to the Director of Sales of the other party with information about the
leads generated during that month and the status of sales activities.
3. BSC Compensation.
3.1 In consideration for BSC's services throughout the term of this
Agreement and subject to Section 3.2, Urologix will pay to BSC:
(a)-(b) [Confidential Treatment Requested]
(c) For purposes of this Agreement, (i) a Control Unit or a
Procedure Kit shall be deemed to have been purchased and sold, (ii) all
revenues Urologix is entitled to receive relating to such purchase and sale
shall be deemed to have been received, and (iii) all commissions relating
to such sale shall be deemed to have been earned and accrued, in each case,
when that product has been shipped.
(d) BSC will not receive any commission on any Control Units or
Procedure Kits delivered under any trial period or loaned unit or sample
kit arrangement or in conjunction with any Targis Quality Outcomes Training
Center agreement. In the event Urologix develops a "price per procedure"
sales program, Urologix will pay [Confidential Treatment Requested]. If
BSC and Urologix do not reach agreement, either party may, as its sole
remedy, at any time thereafter elect to terminate this Agreement. This
right of termination is in addition to the other termination rights
specified in Section 5.
(e) "Net Sales Price" means the price of the Control Unit or
Procedure Kit, as applicable, as invoiced by Urologix, less: (i) all sales
and similar taxes, (ii) all transportation or shipping expenses, (iii) any
amounts refunded or credited by reason of rejections, returns, or
retroactive price reductions, (iv) discounts or rebates, (v) amounts paid
for a maintenance service agreement, and (vi) amounts paid for the Targis
Transport Kit.
3.2 Attached to this Agreement as Schedule 3.2 is a list of Urologix
customers to whom the sale of Control Units is near completion. BSC will not be
entitled to receive the commission described in Section 3.1 with respect to the
sale of Control Units to any customer listed on Schedule 3.2 if such customer
signs a purchase order for the purchase of such Control Unit or Units within the
first 90 days of the first Contract Year. Schedule 3.2 is confidential
information of Urologix. BSC shall not distribute the Schedule (or its
contents) to anyone other
2
<PAGE>
than those persons who need to know such information for the purpose of entering
into and complying with this Agreement.
3.3 By the 25th day following the end of each calendar quarter,
Urologix will remit to BSC all commissions earned by BSC hereunder during such
calendar quarter, together with a complete and accurate accounting of all sales
of Control Units and Procedure Kits by Urologix during such quarter, and all
returns, credits or refunds granted during such quarter.
3.4 In the event any Control Unit or Procedure Kit is returned or a
credit or refund is given for any reason, in either case within ninety (90) days
of delivery, BSC must refund to Urologix any commission paid to BSC in
conjunction with that sale originally. Urologix may deduct the amount of any
such refund due Urologix from any commission payments due BSC under Section 3.1
and paid in accordance with Section 3.3.
3.5 [Confidential Treatment Requested]
4. Urologix Obligations.
4.1. [Confidential Treatment Requested]. Urologix will cause such
persons to vigorously pursue customer leads generated by BSC's sales persons
hereunder and to actively pursue the closing of sales to such customers. In the
event of Urologix' breach of this Section 4.1, BSC may, as its sole remedy for
such breach, at any time thereafter elect to terminate this Agreement. This
right of termination is in addition to the other termination rights specified in
Section 5.
4.2 Urologix will devote an aggregate of approximately [Confidential
Treatment Requested] days to train a core group of marketing, sales and
management personnel selected by BSC who will, in turn, be responsible for
training BSC's field sales force for promoting the Targis System. Additional
training will be provided as mutually agreed by BSC and Urologix.
4.3. Urologix will provide at no charge to BSC, [Confidential
Treatment Requested] copies of Urologix' basic product brochure and related
clinical sales literature for the Targis System. Urologix agrees to provide at
no charge a similar quantity of materials in the event that any such brochures
or literature are subsequently amended or updated. BSC will pay one-half of the
cost for any additional copies of these materials.
5. Term and Termination.
5.1. The term of this Agreement will be for a period of two "Contract
Years," unless sooner terminated in accordance with this Section 5. The first
Contract Year will commence on November 1, 1998 and end on October 31, 1999.
The second Contract Year will commence on November 1, 1999 and end on October
31, 2000.
3
<PAGE>
5.2. If either party is not fully satisfied with this Agreement during
the first Contract Year and does not wish for it to continue thereafter, it may
terminate this Agreement by written notice at least sixty (60) days prior to the
end of the first Contract Year. During the second Contract Year, either party
may terminate this Agreement for any reason upon 90 days' prior written notice.
5.3. In addition, if on the date which is 6 months following the
signing of this Agreement, Urologix' sales and purchase orders of Control Units
and Procedure Kits [Confidential Treatment Requested], either party may, within
the next 30 days thereafter, terminate this Agreement upon 45 days' written
notice.
5.4 Either party may terminate this Agreement upon 30 days' written
notice in the event of any material breach of this Agreement by the opposite
party, provided such material breach remains uncured after such 30 days.
5.5 In the event of termination of this Agreement prior to the
expiration of the second Contract Year, BSC will be entitled to its commissions
under Section 3.1 as follows:
(a) BSC will be entitled to the commissions under Section 3.1(a) and
3.1(b) for all Control Units and Procedure Kits sold prior to the effective
date of termination.
(b) [Confidential Treatment Requested]
5.6 Any termination of this Agreement pursuant to this Section 5 will
not affect any rights or obligations of the parties which have arisen prior to
the date of such termination.
5.7 Upon termination or expiration of this Agreement, BSC agrees to
immediately cease using all advertising and promotional matters, forms, manuals,
lists, applications, software programs and any other materials, including copies
thereof, provided by Urologix to BSC in conjunction with this Agreement, and BSC
will promptly deliver all such materials remaining in BSC's possession to
Urologix.
6. Non-Competition. [Confidential Treatment Requested].
7. Confidential Information. Urologix and BSC may exchange information
each considers confidential in carrying out the terms of this Agreement.
"Confidential Information" means any information, marked as "Confidential," that
is not generally known, including trade secrets, outside of that disclosing
party and that is proprietary to that party, relating to any phase of that
party's existing or reasonably foreseeable business which is disclosed to the
receiving parties during the term of this Agreement. "Confidential Information"
does not include information that (i) is or becomes publicly available through
no fault of the receiving parties, (ii) is in the possession of the receiving
parties prior to the receipt from the disclosing party, (iii) is developed by
the receiving party independently of the Confidential Information, or (iv) is
given to the receiving party by someone else who has the right to do so. Each
party specifically agrees to keep confidential and not to disclose to others any
and all Confidential Information. Upon the
4
<PAGE>
request of the disclosing party, or in the event of the expiration or other
termination of this Agreement, the receiving party shall promptly return all
such Confidential Information to the disclosing party, except for the retention
of one archival copy solely for use by the receiving party in defending itself
in the event of litigation involving this Agreement. Each party agrees not to
use any such Confidential Information except in conjunction with the purposes of
this Agreement. The duty not to disclose or use (other than in conjunction with
the performance of this Agreement) such Confidential information will survive
the termination of this Agreement.
8. Public Announcement. Urologix and BSC may each issue a public
announcement following the execution of this Agreement. The terms of any such
announcement shall be mutually agreed upon prior to any public announcement,
except that either party may issue an announcement without prior agreement of
the other party if such party determines in good faith that it has a legal
obligation to do so and the other party's agreement is not available on a timely
basis.
9. Independent Contractor. Each of the parties is an independent
contractor and nothing contained herein will 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 a joint
marketing relationship. Neither BSC nor Urologix will have, and will 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 consents thereto in
writing. Neither party will have any authority to bind the opposite party in
any respect. All persons engaged by either party will be that party's
employees, legal representatives, agents or independent contractors and not
those of the opposite party. Each party will be responsible for its own
expenses in connection with the performance of its responsibilities under this
Agreement.
10. Force Majeure. Urologix assumes no liability and shall not be liable
to BSC for any failure to fill, or delay in filling, orders received and
accepted by Urologix from customers, to the extent any such event is caused, in
whole or in part, directly or indirectly, by any strike, fire, flood, act of
God, accident, explosion, sabotage, embargo, war, riot, act or order of any
government or governmental agency, inability to obtain or delay in the delivery
of raw material, parts, or completed merchandise by the supplier thereof, or any
other cause beyond the control of, or occurring without the fault of Urologix.
11. Notice. All notices to be given hereunder must be in writing, given
either by personal delivery, facsimile transmission or registered mail, return
receipt requested. Such notices will be deemed to have been made when
personally delivered, when the sender receives a transmission confirmation or
the date of receipt indicated by the return verification provided by the U.S.
postal service. Notices must be given or sent to the parties at the following
addresses:
5
<PAGE>
If to BSC: Boston Scientific Corporation
1 Boston Scientific Place
Natick, MA 01760-1537
Attn: Chief Financial Officer
Fax: (508) 650-8922
With a copy to: General Counsel
Boston Scientific Corporation
1 Boston Scientific Place
Natick, MA 01760-1537
Fax: (508) 650-8956
If to Urologix: Urologix, Inc.
14405 - 21st Avenue North
Minneapolis, MN 55447
Attn: President
Fax: (612) 475-1443
Either party may designate any other address for notices given it by
written notice to the other party given at least ten (10) days prior to the
effective date of such change.
12. Assignability. This Agreement is personal to the parties hereto and
may not be sold, assigned, or transferred by either party, by operation of law
or otherwise, without the prior written consent of the other party.
13. Remedies. The parties acknowledge that money damages may not be an
adequate remedy for any breach of Section 6 (Non-Competition) and Section 7
(Confidential Information) of this Agreement and that, in addition to any other
relief afforded by law, an injunction against such violation may be issued
against it and every other person concerned thereby, it being understood that
both damages and an injunction will be proper modes of relief and are not to be
considered mutually exclusive remedies. In the event of any such violation, the
parties agree to pay, in addition to the actual damages sustained by the other
parties as a result thereof, the reasonable attorneys' fees incurred by such
party in pursuing any of its rights under this Agreement.
14. Applicable Law and Forum Selection. This Agreement will be governed
and construed in accordance with the laws of the State of Minnesota, without
regard to the rules or principles of any jurisdiction with respect to conflict
of laws. Any disputes between the parties arising out of this Agreement must be
resolved before the United States federal district court for the District of
Minnesota, located in Minneapolis, Minnesota, and jurisdiction is hereby
conferred upon such court. Each party hereby agrees to and consents to submit
to the exclusive jurisdiction, venue and process of said court for all actions,
suits, or proceedings arising out of this Agreement.
6
<PAGE>
15. Miscellaneous. The waiver of any party of a breach of any provisions
of this Agreement will not operate or be construed as a waiver of any other
breach. If any provision of the Agreement is held unlawful or unenforceable in
any respect, such illegality or unenforceability will not affect any other
provision hereof, and this Agreement will be construed as if the unlawful or
unenforceable provision had never been contained herein. This Agreement
contains the entire agreement and understanding of the parties and supersedes
and replaces all prior agreements, understandings, writings and discussions
between the parties with respect to co-marketing activity in the United States.
This Agreement does not supersede the International Distribution Agreement dated
as of June 26, 1996 between Urologix and BSC. This Agreement will not be
amended or modified nor may any of its terms be waived except by a writing
signed by all other parties hereto. Only the parties to the Agreement may bring
an action to enforce its terms or seek a remedy for a breach thereof. No
obligations or rights with respect to any third parties are intended or created
by this Agreement. The section and other headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Counterparts. This document may be executed in counterparts, each of
which will be deemed to be an original and all of which together will be deemed
to be one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed effective as of the day and year first above written.
UROLOGIX, INC.
By: /s/ Wesley E. Johnson, Jr.
------------------------------------------
Wesley E. Johnson, Jr., Chief Financial
Officer
BOSTON SCIENTIFIC CORPORATION
By: /s/ Paul A. LaViolette
-----------------------------------------
Paul A. LaViolette, Senior Vice President
8
<PAGE>
CONFIDENTIAL
============
SCHEDULE 3.2
EXCLUDED TRANSACTIONS
---------------------
* [Confidential Treatment Requested]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UROLOGIX FDS
FOR QUARTER ENDED 12/31/98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,087,543
<SECURITIES> 30,572,939
<RECEIVABLES> 1,628,031
<ALLOWANCES> 281,952
<INVENTORY> 2,912,997
<CURRENT-ASSETS> 36,666,580
<PP&E> 4,349,815
<DEPRECIATION> 1,951,396
<TOTAL-ASSETS> 43,666,528
<CURRENT-LIABILITIES> 3,257,353
<BONDS> 0
0
0
<COMMON> 113,632
<OTHER-SE> 91,066,801
<TOTAL-LIABILITY-AND-EQUITY> 43,666,528
<SALES> 1,233,947
<TOTAL-REVENUES> 1,233,947
<CGS> 896,291
<TOTAL-COSTS> 896,291
<OTHER-EXPENSES> 3,725,373
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,909
<INCOME-PRETAX> (2,936,706)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,936,706)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,936,706)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
