TERMINATION OF OPTION TO DISTRIBUTE AGREEMENT

 

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OPTION TO DISTRIBUTE AGREEMENT

      THIS OPTION TO DISTRIBUTE AGREEMENT (this “Agreement”) is made and entered into as of July 21, 2003 (the “Effective Date”) between VOLCANO THERAPEUTICS, INC. (as defined below, “Volcano”), a Delaware corporation, and MEDTRONIC AVE, INC. (as defined below, “Medtronic”), a Delaware corporation.

RECITALS

      WHEREAS, Volcano has acquired substantially all of the assets associated with the functional measurement business and IVUS business of JOMED, Inc. and its affiliates (the “JOMED Acquisition”);

      WHEREAS, Volcano and Medtronic are simultaneously entering into a License Agreement (the “License Agreement”), a Supply Agreement and a Right of First Negotiation and First Refusal Agreement (the “ROFN/ROFR Agreement”) and a financing agreement pursuant to which Medtronic will purchase Series B Preferred Stock of Volcano; and

      WHEREAS, Volcano and Medtronic wish to enter into this Agreement pursuant to which Volcano grants to Medtronic an option to exclusively distribute certain products in Japan, as further set forth herein.

AGREEMENTS

      NOW THEREFORE, in consideration of the representations, warranties, covenants and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties mutually agree as follows:

ARTICLE 1

DEFINITIONS

      1.1     Specific Definitions. As used in this Agreement, the following terms shall have the meanings set forth or as referenced below:

      “Affiliate” of a specified person (natural or juridical) means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. “Control” shall mean ownership of more than 50% of the shares of stock entitled to vote for the election of directors in the case of a corporation, and more than 50% of the voting power in the case of a business entity other than a corporation.

      “Agreement” means this Agreement and all Exhibits and Schedules hereto.

      “Fukuda Distribution Agreement” means the distribution agreement between Volcano (including as successor to JOMED Inc.) and Fukuda Denshi Co., Ltd. (“Fukuda”), the rights to which Volcano will acquire in the JOMED Acquisition.

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        “Liquidity Event” means either of the following events: (i) the consummation by Volcano of a firm commitment underwritten public offering made pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Volcano common stock; or (ii) the closing of a sale to a person that is not an Affiliate of Volcano of all or substantially all of Volcano’s assets, whether by merger, combination, sale of assets, sale of shares, licensing or otherwise, provided that Volcano has complied with all of its obligations under the ROFN/ROFR Agreement.

        “Medtronic” means Medtronic, Inc. and its Affiliates.

        “Products” means all products acquired by Volcano in the JOMED Acquisition and any improvements thereon. For the avoidance of doubt, “Products” does not mean, or include, products developed utilizing or incorporating (i) the Philips Technology (as that term is defined in the License Agreement) and not covered by any Patent (as defined in the License Agreement) or (ii) any other technology or intellectual property of Volcano other than Patents, unless, in either case, on the Effective Date or at any time during the term of the Fukuda Distribution Agreement, and as of Medtronic’s exercise of the Japanese Distribution Option, Volcano determines to include such products as products to be distributed under the Fukuda Distribution Agreement, in which case “Products” shall include such products.

        “Volcano” means Volcano Therapeutics, Inc. and its Affiliates.

        1.2 Other Terms. Other terms may be defined elsewhere in the text of this Agreement and shall have the meaning indicated throughout this Agreement.

        1.3 Definitional Provisions.

ARTICLE 2

OPTION TO DISTRIBUTE

      2.1 General. Volcano hereby grants to Medtronic an option (the “Japanese Distribution Option”) to exclusively distribute in Japan Products commencing on the date of termination of the Fukuda Distribution Agreement.

      2.2 Exercise and Expiration of Option. Medtronic may exercise the Japanese Distribution Option by notifying Volcano in writing of such exercise on or before June 30, 2006 (the “Option Expiration Date”); provided, however, that Medtronic may not exercise the Japanese Distribution Option prior to the earlier to occur of (i) June 30, 2005 and (ii) to the extent possible, one year prior to any anticipated termination of the Fukuda Distribution Agreement, or, if it is not possible to give advance notice of any such termination, then upon the termination of the Fukuda Distribution Agreement. Volcano shall promptly notify Medtronic if Volcano becomes aware of any anticipated or actual termination of the Fukuda Distribution Agreement before its natural expiration date.

      2.3 Definitive Distribution Agreement. Promptly upon Medtronic’s exercise of the Japanese Distribution Option, Volcano and Medtronic (or an Affiliate of Medtronic) shall enter into a definitive distribution agreement (the “Medtronic Distribution Agreement”) related to such Japanese exclusive distribution right, the term of which shall be at least five (5) years from the commencement of Medtronic’s distribution rights thereunder, and the other terms and conditions of which shall be substantially similar to the terms and conditions of the Fukuda Distribution Agreement as of the Effective Date, provided that the minimum sales volumes for the first year of the Medtronic Distribution Agreement shall be substantially similar to the minimum sales volumes in the last full year prior to the termination of the Fukuda Distribution Agreement (less the amount of Product that Fukuda is able to sell after the termination of the Fukuda Distribution Agreement); provided, however, that Volcano shall have the right to terminate the Medtronic Distribution Agreement at any time prior to December 31, 2006 in the event that, prior to such date, (i) a Liquidity Event occurs, and (ii) within three (3) business days following the consummation of such Liquidity Event, Volcano pays to Medtronic, in immediately available funds, $2,000,000 (the “Termination Fee”); provided, however, that in the event the Liquidity Event is the public offering of Volcano’s common stock (pursuant to subparagraph (i) of the definition of “Liquidity Event”), Volcano may terminate the Medtronic Distribution Agreement effective immediately prior to such consummation of the public offering provided that Volcano pays Medtronic the Termination Fee as provided above within 3 business days following the consummation of said public offering.

      2.4 Further Obligations of Volcano. Volcano agrees that it will not renew or extend the Fukuda Distribution Agreement and, until the expiration of the Japanese Distribution Option or any Medtronic Distribution Agreement, will not enter into any other agreements or arrangements to provide distribution rights in Japan with respect to any Product. Further, Volcano will exercise commercially reasonable efforts to obtain Japanese regulatory approvals in the name of Medtronic (or transfer the existing approvals to Medtronic) so as to ensure that such regulatory approvals are in Medtronic’s name at the commencement of any Medtronic Distribution Agreement.

ARTICLE 3

CERTAIN REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION

      3.1 Representations and Warranties of Volcano. Volcano represents and warrants to Medtronic that the execution and delivery by Volcano of this Agreement and the performance by Volcano of its obligations hereunder have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or Bylaws of Volcano, as amended, or any provision of any indenture, agreement or other instrument to which Volcano or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of Volcano. This Agreement has been duly executed and delivered by Volcano and constitutes the legal, valid and binding obligation of Volcano, enforceable in accordance with its terms, subject, as to the enforcement of remedies, to the discretion of the courts in awarding equitable relief and to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting the rights of creditors generally.

      3.2 Representations and Warranties of Medtronic. Medtronic represents and warrants to Volcano that the execution and delivery by Medtronic of this Agreement and the performance by Medtronic of its obligations hereunder have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Articles of Incorporation or Bylaws of Medtronic, as amended, or any provision of any indenture, agreement or other instrument to which Medtronic or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of Medtronic. This Agreement has been duly executed and delivered by Medtronic and constitutes the legal, valid and binding obligation of Medtronic, enforceable in accordance with its terms, subject, as to the enforcement of remedies, to the discretion of the courts in awarding equitable relief and to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting the rights of creditors generally.

      3.3 Indemnification. Each party shall indemnify, defend and hold harmless the other party and its subsidiaries, and their respective officers, directors, employees, shareholders and distributors from and against and in respect of any and all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, interest and penalties, costs and expenses (including, without limitation, reasonable legal fees and disbursements incurred in connection therewith and in seeking indemnification therefor, and any amounts or expenses required to be paid or incurred in connection with any action, suit, proceeding, claim, appeal, demand, assessment or judgment) finally awarded, resulting from, arising out of, or imposed upon or incurred by any person to be indemnified hereunder by reason of a breach of a representation, warranty or agreement of such party set forth in this Agreement.

ARTICLE 4

TERM AND TERMINATION

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      4.1 Term. This Agreement shall take effect as of the date hereof and shall continue in force until the Option Expiration Date (if Medtronic has not exercised the Japanese Distribution Option) or until the parties have entered into the Medtronic Distribution Agreement (if Medtronic has exercised the Japanese Distribution Option) (the “Term”). Nothing contained in this Agreement will be interpreted as requiring either party to renew or extend this Agreement beyond the Term.

      4.2 Termination. This Agreement may be terminated by mutual consent of the parties. Further, Volcano shall have the right to terminate this Agreement (and all rights and obligations hereunder) at any time prior to December 31, 2006 in the event that, prior to such date, (i) a Liquidity Event occurs, and (ii) within three (3) business days following the consummation of such Liquidity Event, Volcano pays to Medtronic, in immediately available funds, the Termination Fee; provided, however, that in the event the Liquidity Event is the public offering of Volcano’s common stock (pursuant to subparagraph (i) of the definition of “Liquidity Event”), Volcano may terminate this Agreement immediately prior to such consummation of the public offering provided that Volcano pays Medtronic the Termination Fee as provided above within 3 business days following the consummation of said public offering.

ARTICLE 5

MISCELLANEOUS

      5.1 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and the successors or assigns of the parties hereto; provided, that (i) the rights and obligations of Volcano herein may not be assigned except to an Affiliate of Volcano or to any person who succeeds to substantially all of the assets and business of Volcano to which this Agreement relates, and (ii) the rights and obligations of Medtronic herein may not be assigned except to an Affiliate of Medtronic or to any person who succeeds to substantially all of that portion of Medtronic’s business to which this Agreement relates.

      5.2 Complete Agreement. This Agreement and the agreements referred to herein, and the Schedules and Exhibits hereto and thereto, constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior agreements whether written or oral relating hereto.

      5.3 Governing Law. The formation, legality, validity, enforceability and interpretation of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws thereof. Solely for the purposes of seeking interim injunctive relief, the parties hereby irrevocably consent to the exclusive jurisdiction and venue of any United States court or state court of competent jurisdiction located in San Francisco, California and waive any objections either may have at any time to such jurisdiction and venue. The parties agree to the personal jurisdiction of such courts and agree that service of process may be made pursuant to notice sent in accordance with Section 5.5.

      5.4 Waiver, Discharge, Amendment, Etc. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall not, absent an express written waiver signed by the party making such waiver specifying the provision being waived, be construed to

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be a waiver of any such provision, nor in any affect the validity of this Agreement or any part thereof or the right of the party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to be a waiver of any other or subsequent breach. Any amendment to this Agreement shall be in writing and signed by the parties hereto.

      5.5 Notices. All notices or other communications to a party required or permitted hereunder shall be in writing and shall be delivered personally or by facsimile (receipt confirmed electronically) to such party (or, in the case of an entity, to an executive officer of such party) or shall be sent by a reputable express delivery service or by certified mail, postage prepaid with return receipt requested, addressed as follows:

      if to Medtronic, to:

      with separate copies thereof addressed to

      if to Volcano to:

Any party may change the above-specified recipient and/or mailing address by notice to all other parties given in the manner herein prescribed. All notices shall be deemed given on the day

when actually delivered as provided above (if delivered personally or by facsimile) or on the day shown on the return receipt (if delivered by mail or delivery service).

      5.6 Expenses. Except as expressly provided herein, Volcano and Medtronic shall each pay their own expenses incident to this Agreement and the preparation for, and consummation of, the transactions provided for herein.

      5.7 Titles and Headings; Construction. The titles and headings to the Articles and Sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. This Agreement shall be construed without regard to any presumption or other rule requiring construction hereof against the party causing this Agreement to be drafted.

      5.8 Severability. If any provision of this Agreement is held invalid, illegal or unenforceable, such provision shall be enforced to the maximum extent permissible and the remaining provisions shall nonetheless be enforceable according to their terms.

      5.9 Relationship. This Agreement does not make either party the employee, agent or legal representative of the other for any purpose whatsoever. Neither party is granted any right or authority to assume or to create any obligation or responsibility, express or implied, on behalf of or in the name of the other party. In fulfilling its obligations pursuant to this Agreement, each party shall be acting as an independent contractor.

      5.10 Benefit. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

      5.11 Survival. All of the representations, warranties, and covenants made in this Agreement, and all terms and provisions hereof intended to be observed and performed by the parties after the termination hereof, shall survive such termination and continue thereafter in full force and effect, subject to applicable statutes of limitations.

      5.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed as original and all of which together shall constitute one instrument.

      5.13 Execution of Further Documents. Each party agrees to execute and deliver without further consideration any further documents, and to perform such other lawful acts, as the other party may reasonably require to fully secure and/or evidence the rights or interests granted herein.

      5.14 Arbitration. Any dispute arising out of or relating to this Agreement, including the formation, interpretation or alleged breach hereof, shall be settled in accordance with the Exhibit A attached hereto. The results of such arbitration proceedings shall be binding upon the parties hereto, and judgment may entered upon the arbitration award in any court having jurisdiction thereof. Notwithstanding the foregoing, either party may seek interim injunctive

relief (including, without limitation, as expressly provided in Section 5.15 below) from any court of competent jurisdiction as provided in Section 5.3.

      5.15 Public Announcement. Neither party will publicly disclose or divulge any provisions of this Agreement nor the transactions contemplated hereby without the other party’s written consent, except as may be required by applicable law or stock exchange regulation, and except for communications to such party’s employees or customers or investors or prospective investors (subject to appropriate confidentiality obligations); provided that, prior to disclosure of any provision of this Agreement that either party considers particularly sensitive or confidential to any governmental agency or stock exchange, the parties shall cooperate to seek confidential treatment or other applicable limitations on the public availability of such information. In particular, prior to such disclosure, each party shall use its best efforts to redact the payment terms specified herein and each party shall provide the other the opportunity to redact other information and seek confidential treatment of any such disclosure. The parties expressly agree that any Medtronic Distribution Agreement shall include this Section 5.15, or a confidentiality provision substantially similar to this Section 5.15. Medtronic expressly acknowledges, solely for purposes of Volcano’s ability to seek injunctive or equitable relief, that its failure to comply with this Section 5.15 or disclosure of the provisions of this Agreement or the transactions contemplated hereby will have an immediate, irreparable and significant detrimental effect to Volcano’s business and business relationships and agreements in Japan. Medtronic therefore agrees that in the event of such failure to comply with this Section 5.15 or disclosure of the provisions of this Agreement, or threatened breach of this Section 5.15, and in addition to any remedies available at law, Volcano shall have the right to seek injunctive relief, without bond, in connection with such failure to comply, disclosure or threatened breach, or such equitable relief as may be determined by a court of competent jurisdiction, after taking into consideration all the facts related to such failure to comply, disclosure, or threatened breach.

      5.16 Medtronic Guaranty. Medtronic, Inc. hereby guaranties the performance by Medtronic AVE, Inc. of Medtronic AVE, Inc.’s obligations under this Option to Distribute Agreement.

      IN WITNESS WHEREOF, each of the parties has caused this Option to Distribute Agreement to be executed in the manner appropriate to each, as of the date first above written.

Attachments:

                    Exhibit A — Alternative Dispute Resolution

      IN WITNESS WHEREOF, each of the parties has caused this Option to Distribute Agreement to be executed in the manner appropriate to each, as of the date first above written.

Attachments:

                    Exhibit A — Alternative Dispute Resolution

      IN WITNESS WHEREOF, each of the parties has caused this Option to Distribute Agreement to be executed in the manner appropriate to each, as of the date first above written.

Attachments:

          Exhibit A — Alternative Dispute Resolution

EXHIBIT A

Alternative Dispute Resolution

      1) Negotiations. If any dispute arises between Volcano and Medtronic with respect to the Option to Distribute Agreement (the “Agreement”), or any alleged breach thereof, any party may, by written notice to the other party, have such dispute referred to their respective designees listed below or their successors for attempted resolution by good faith negotiations within 30 days after such notice is received. Such designees are as follows:

      Any settlement reached by the parties under this Section 1 shall not be binding until reduced to writing and signed by the above-specified designees of Medtronic and Volcano. When reduced to writing, such settlement agreement shall supersede all other agreements, written or oral, to the extent such agreements specifically pertain to the matters so settled. If the designees are unable to resolve such dispute within such 30-day period, any party may invoke the provisions of Section 2 below.

      2) Arbitration. All claims, disputes, controversies, and other matters in question arising out of or relating to the Agreements, including claims for Indemnifiable Losses and disputes regarding the making of the Agreements, including claims of fraud in the inducement, or to the alleged breach hereof, shall be settled by negotiation between the parties as described in Section 1 above or, if negotiation is unsuccessful, by binding arbitration in accordance with procedures set forth in Section 3 and 4 below.

      3) Notice. Notice of demand for binding arbitration shall be given in writing to the other party and shall be delivered personally or by facsimile (receipt confirmed) to an executive officer of such party or shall be sent by a reputable express delivery service or by certified mail, postage prepaid with return receipt requested, addressed as provided in the Agreement.

      Any party may change the above-specified recipient and/or mailing address by notice to the other party given in the manner herein prescribed. All notices shall be deemed given on the day when actually delivered as provided above (if delivered personally or by facsimile (upon appropriate electronic confirmation of successful transmission)) or on the day shown on the return receipt (if delivered by mail or delivery service). In no event may a notice of demand of any kind be filed more than two years after the date the claim, dispute, controversy, or other matter in question was asserted by one party against another, and if such demand is not timely filed, the claim, dispute, controversy, or other matter in question referenced in the demand shall be deemed released, waived, barred, and unenforceable for all time, and barred as if by statute of limitations.

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      4) Binding Arbitration. Upon filing of a notice of demand for binding arbitration by any party hereto, arbitration shall be commenced and conducted as follows:

      Notwithstanding any contrary foregoing provisions, the arbitrators shall have the power and authority to, and to the fullest extent practicable shall, abbreviate arbitration discovery in a manner that is fair to all parties in order to expedite the arbitration proceeding and render a final decision within six months after the pre-hearing conference.

      (e) Pre-hearing Conference. Within 45 days after filing of notice of demand for binding arbitration, the arbitrators shall hold a pre-hearing conference to establish schedules for completion of discovery, for exchange of exhibit and witness lists, for arbitration briefs, for the hearing, and to decide procedural matters and all other questions that may be presented.

      (f) Hearing Procedures. The hearing shall be conducted to preserve its privacy and to allow reasonable procedural due process. Rules of evidence need not be strictly followed, and the hearing shall be streamlined as follows:

      (g) Governing Law. This arbitration provision shall be governed by, and all rights and obligations specifically enforceable under and pursuant to, the rules of the Federal Arbitration Act and the laws of the State of California shall be applied, without reference to the choice of law principles thereof, in resolving matters submitted to such arbitration.

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      (h) Consolidation. No arbitration shall include, by consolidation, joinder, or in any other manner, any additional person not a party to this Agreement (other than affiliates of any such party, which affiliates may be included in the arbitration), except by written consent of the parties hereto containing a specific reference to this Agreement.

      (i) Award. The arbitrators shall be required to render their final decision within six months after the pre-hearing conference. The arbitrators are empowered to render an award of general compensatory damages and equitable relief (including, without limitation, injunctive relief), but are not empowered to award punitive or presumptive damages. The award rendered by the arbitrators (1) shall be final; (2) shall not constitute a basis for collateral estoppel as to any issue; and (3) shall not be subject to vacation or modification, except in the event of fraud or gross misconduct on the part of the arbitrators.

      (j) Confidentiality. The parties hereto will maintain the substance of any proceedings hereunder in confidence and make disclosures to others only to the extent necessary to properly conduct the proceedings.

      (j) Entry of Judgment. The rulings of the arbitrators and allocation of fees and expenses shall be binding, non-reviewable, and non-appealable, and may be entered as a final judgment in any court having jurisdiction hereunder.

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