<PAGE>
EXHIBIT 10.8
Development and Supply Agreement
Duet II Meter
-------------
between
LXN Corporation
5830 Oberlin Drive
San Diego, CA 92121
U.S.A.
(hereinafter referred to as LXN)
and
LRE Technology Partner GmbH
Hofer StraBe 5
86720 Noerdlingen
Germany
(hereinafter referred to as LRE)
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Supply Agreement
Duet II Meter
16.01.1998
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Art. 1 Purpose of the Agreement
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Subject matter of the agreement is the development and supply of a
meter for measuring Glucose and Fructosamine using separate glucose
and fructosamine test strips which is defined in the specifications
attached to this agreement as Attachment A (hereinafter referred to as
D2-meter)
Art. 2 Development
-----------
2.1 LRE will develop for LXN the D2-meter in accordance with the
objectives and performance requirements as set out in the
specifications (Attachment A).
2.2 It is understood that development is completed with the delivery of
100 pre-series units of the D2-meter to LXN and its acceptance by LXN.
2.3 LRE agrees to deliver the first D-2 meters according to the time
schedule (see Attachment B) upon receipt of the approval by LXN of
the release for production.
Art. 3 Result of the Development Effort/Industrial Property Rights
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3.1 LRE agrees that the specific design work of the D2-meter and its
subsequent serial production will be exclusively made for and on
behalf of LXN.
LRE agrees furthermore to grant to LXN non exclusive, non transferable
licenses under such of its background patents which have been used for
the D2-meter with no extra cost to LXN.
LXN shall have the exclusive title to all patents or other proprietary
rights - concerning the D2-meter technology - created by LRE during
the development of the D2-meter.
LXN agrees to reimburse LRE for all incurring costs for preparing,
filing and maintaining such proprietary rights including the
inventor's fees of LRE's employees according to the german law
("Gesetz uber Arbeitnehmererfindungen").
LRE has the right to exploit ist own developments and inventions,
which are LXN's intellectual property as defined above, for future or
existing products, except for any instruments measuring in-vitro
Glucose and/or Fructosamine in humans.
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Supply Agreement
Duet II Meter
16.01.1998
<PAGE>
3.2 LXN shall own the exclusive rights to the product specific tooling of
the D2-meter, provided that the total development costs listed in
paragraphs 4.2.1 to 4.2.5 have been payed to LRE.
3.3 LRE will assist LXN's technical service in preparation of a service
manual by making available all helpful documentation and information.
3.4 LRE shall provide to LXN the code assignment software, which computes
for each new production lot of Glucose or Fructosamine test strips the
necessary code for the internal D2-meter software.
3.5 LRE shall provide to LXN all necessary design control documents
consistent with FDA regulations including Device Master Record and
Device History Records.
3.6 LXN agrees that LRE may use plastic parts produced with the existing
tooling for the current "Duet" meter for other applications, except
for any competitive product within the field of Diabetes care.
LRE will acquire any of such plastic parts directly and exclusively
from LXN.
3.7 LRE agrees not to manufacture or to give any third party support to
manufacture competitive test strips which are compatible with the LXN
Duet meters.
Art. 4 Development and Tooling Costs
-----------------------------
4.1 [***]
4.2 [***]
4.2.1 [***]
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Supply Agreement
Duet II Meter
16.01.1998
[***] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
4.2.2 [***]
4.2.3 [***]
4.2.4 [***]
4.2.5 [***]
4.3 Termination of Development
4.3.1 LXN may terminate the agreement during the development up to the
completion of Milestone #4 on 30 days prior written notice to LRE.
In case of termination by LXN during the development, LRE shall use
ist best efforts to limit or cancel any outstanding commitments in
connection with the development. Subject to paragraphs 4.2.1 to 4.2.4
LXN shall bear all costs incurred by LRE for all development work
performed through the effective termination date, and for all
outstanding obligations which were incurred by LRE in good faith in
advance and which cannot be cancelled.
These costs may include extra expenditures (starting after Milestone
#3) for the product specific production tooling and software up to a
maximum of US$ [***]
4.3.2 LRE may terminate the agreement during the development upon 30 days
prior notice to LXN, if the parties mutually determine in course of
one of the development phases (milestones) that the intended result of
the development cannot be achieved or, for reasons beyond the
reasonable control of LRE, can only be achieved at expenditure by LRE,
significantly in excess of the costs described in paragraphs 4.2.1 to
4.2.5, for which LXN is unwilling to reimburse LRE.
Art. 5 Serial production
-----------------
5.1 Upon completion of the development efforts, LRE agrees to produce the
D2-meter for LXN and to adjust its production capacities to the agreed
upon requirements of LXN.
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Supply Agreement
Duet II Meter
16.01.1998
[***] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
LRE shall have the exclusive right to manufacture the entire product
covered by this agreement.
5.2 LXN agrees to submit firm orders for three months' periods broken down
to the monthly installments to be supplied by LRE.
LXN will provide LRE with the preliminary estimate of the shipments to
be made by LRE for nine months following the firm order period.
This procedure will be renewed every month (rolling order/forecast).
5.3 LXN hereby authorizes LRE to order or to acquire options to be
supplied, according to the estimated volumes listed in the rolling
forecasts (para. 5.2), with long-lead parts identified by LRE in the
Attachment C.
LRE agrees, however, to use its best efforts to minimize purchase of
parts. In case of termination of the Attachment by LXN, LXN shall
reimburse LRE for all components of the D2-meter that LRE had to order
- according to LXN's forecasts - and that could not be returned to the
supplier.
5.4 Delivery by LRE will be made at least monthly, provided that LXN has
issued purchase orders for three consecutive months. The minimum
order quantity is 1000 units, which will be shipped four weeks after
receipt of the respective order.
LRE shall use its best effort to adapt its production capacity as
quickly as possible to LXN's requirements of D2-meter so that LXN may
increase the monthly installments to cover higher D2-meter demand.
5.5 LRE will ship the D2-meter in bulk packaging. In the event of lots
being rejected by LXN's quality control, LRE shall be entitled to
supply such repaired or exchanged lots with the old serial number
after having sorted out defective instruments. The warranty period
starts at the date when the instruments are accepted by LXN.
Art. 6 Supply price
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6.1 The parties agree that the price for each unit of D2-meter shall be:
6.1.1 in case of a production quantity of min. [***] D2-meters/year
OTP-Version US$ [***]
Mask-Version US$ [***]
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Supply Agreement
Duet II Meter
16.01.1998
[***] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
6.1.2 in case of a production quantity of min. [***] D2-meters/year
US$ [***] (Mask version)
6.1.3 in case of a production quantity of min. [***] D2-meters/year
US$ [***] (Mask version)
6.1.4 Prices do not include the German value added tax or any US taxes. For
supplies made directly to German customers, the value added tax shall
be due in addition.
Prices are free on board Munich or Frankfurt airport for the D2-meters
in adequate bulk packing for overseas shipment. LXN shall be
responsible to designate the method and carrier for the subsequent
shipment. LXN shall be responsible for duties and freight costs.
Sales packaging which is fit for sale to the final customer, can be
offered by LRE at an increased price.
6.2 LXN agrees that LRE has the option to have the D2-meters produced and
shipped through UMM Electronics - which is under common control with
LRE - at the same prices and according to all provisions of this
agreement.
LXN, however, shall have the right to determine the date of the
transfer of production and the respective quantities of supplies to be
made by UMM Electronics.
6.3 It is further agreed that economies of scale, location of production
as well as the decrease of cost of parts will be reasonably reflected
in future supply prices as this will contribute to a successful
marketing.
6.4 Payment of each delivery shall be made within 30 days net from receipt
of shipment and the corresponding invoice.
Art. 7 Quality control / inspections
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7.1 LRE shall subject the D2-meter to regular in process controls and
perform a final check of each D2-meter to be supplied, in accordance
with the written specifications, keeping complete records of the
results of each inspection which will be readily accessible to LXN.
The testing procedures and the permissible variations and tolerances -
if any - shall be agreed upon separately and shall be a component of
the final specifications.
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Supply Agreement
Duet II Meter
16.01.1998
[***] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
LRE will furnish LXN with inspection reports for all D2-meter units
delivered.
7.2 Within 5 working days from receipt of any shipment, LXN will conduct
the acceptance inspection. Such inspection will be carried out in
accordance with the Incoming Quality Control Specifications layed out
in Attachment D to this Agreement.
In the event that such inspection through LXN shall reveal any defect
or deficiency, LXN shall have the right to refuse acceptance of the
defective or deficient individual meters and/or the entire lot and to
request that the lot or the individual meters be replaced or corrected
free of charge or to make a hundred per cent control of the lot
provided for shipment at LRE's cost and expense and to replace the D2-
meters found to be defective.
LRE shall be responsible for all direct related costs associated with
returning and replacing individual meters.
7.3 LRE shall inform LXN immediately of any intended changes of the
specifications LRE wishes to make during the term of the agreement.
Such changes shall be subject to LXN's written consent before
implementation.
7.4 LXN shall have the right to inspect production and Quality control
processes at LRE with written notice and acknowledgement from LRE five
working days in advance of the inspection.
Art. 8 Warranty / Liability
--------------------
8.1 LRE warrants that as of the date of shipment the D2-meter developed,
made and delivered for medico-diagnostic purposes meet the
specifications agreed upon, will be free of defects in material,
workmanship and design and will perform as per specifications, quality
control agreement and intended use for a period of 24 months from the
date of delivery by LRE.
Warranty does not cover any battery related defects.
8.2 LRE shall replace at its own expense instruments, that exhibit defects
as defined in article 8.1 during the period of warranty.
LXN shall provide to LRE regularly service reports giving information
about serial no., failure code and fail date. This information shall
reach LRE 4 months after the fail at the latest.
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Supply Agreement
Duet II Meter
16.01.1998
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Within two months LRE has the right to order instruments having
defects defined in Art 8.1. LRE agrees to pay costs for shipping and
direct related charges as documentation, customs and returning such
instruments from the customer to LRE.
In case of LXN's warranty claims proof to be unjustified, LXN agrees
to pay directly related costs for returning such instruments from the
customer to LRE as described above.
8.3 LRE warrants that neither the sale, resale nor use of the D2-meter
will infringe the industrial property rights of any third party. LRE
shall directly substitute at its own expense any features or
components of the D2-meter which should infringe upon industrial
property rights of third parties and agrees to safe LXN harmless with
respect to any claims of such third parties.
8.4 LRE agrees that the D2-meter will be manufactured and sold LXN in
compliance with all applicable laws, ordinances, standards, rules and
regulations including the provisions of FDA/GMP, MedGV, TuV, TNO, ISO
9001 and CE.
Art. 9 Confidentiality
---------------
9.1 Both parties agree to hold in strict confidence any and all
information disclosed under this agreement and to restrict access to
such information to those persons entrusted to carry out the
activities provided for hereunder and who are subject to the same
secrecy obligation. Excepted from such use and secrecy obligations
shall be such information which
a) is in the public domain at the time of disclosure
b) is published or otherwise becomes part of the public domain
through no fault of the respective party
c) was in the possession of the respective party at the time of
disclosure, as shown by prior written records, or becomes
available from a third party who has the right to disclose it.
Companies which LRE or LXN control or which are under common control
with LRE or LXN by holding directly or indirectly as least ninety
percent of the voting share capital are not regarded as third parties
and may be given access to such information, provided they have
accepted the terms of this agreement as binding on them.
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Supply Agreement
Duet II Meter
16.01.1998
<PAGE>
Art. 10 Term
----
10.1 This agreement shall be valid for one calendar year and will be
renewed automatically without termination by either party. It may be
terminated by either party by giving 6 months' prior notice, for the
first time, however, with effect to December 31, 1999.
10.2 Either party has the right to terminate this agreement forthwith,
without previous notice for cause, in particular in the event that
a) the other party commits or permits a material breach of any of
the covenants and terms herein contained and has not, within 60
days after having been required in writing to do so, commenced
all necessary actions in good faith promptly to remedy such
breach; or
b) a petition is filed by or against the other party under any
bankruptcy or insolvency laws; provided that if the other party
gives adequate assurance of contesting any such petitions and
such petitions are in fact dismissed within 90 days of filing,
such filing shall not constitute a cause of termination; or
c) LRE makes any changes to the D2-meter of the specifications,
without LXN's prior written approval; or
d) LXN does not issue purchase orders for D2-meters for more than
three consecutive months.
10.3 Notice of termination shall be served by registered letter.
Art. 11 Final Provisions
----------------
11.1 This agreement shall be construed and interpreted in all respects in
accordance with the laws of the State of California.
11.2 Any dispute arising out of or in relation to this agreement including
disputes regarding its validity shall be referred to the courts
sitting in San Diego.
11.3 This agreement and its schedules embody the entire and standing
agreements among the parties and supersede all previous negotiations,
representations, writings and agreements, written or oral, with
respect to the development and sale of the D2-meter.
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Supply Agreement
Duet II Meter
16.01.1998
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11.4 Modifications of and amendments to this agreement as well as the
suspension of its provisions shall become effective only when approved by
both parties in writing.
The specifications enclosed in Attachment A are an integrated part of
this agreement.
11.5 In the event of one of more provisions of this agreement becoming void,
the remaining provisions contained herein shall remain in full force and
effect. The parties agree to have provisions having become void shall be
deemed as severable and be replaced by valid provisions which maintain
the intentions of the invalid provisions as far as possible.
San Diego, Jan 19, 1998 Nordlingen, Jan 16, 1998
------------------------ ------------------------
LXN Corporation LRE Technology Partner GmbH
/s/ John Burd /s/ Ulrich Schroder /s/ Jurgen Denker
John Burd Ulrich Schroder Jurgen Denker
President President VP Marketing/R&D
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Supply Agreement
Duet II Meter
16.01.1998
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Attachment A
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Supplement of the Supply Agreement D2-meter
System Specification
--------------------
Version 1.1 released on March 2, 1998
San Diego, ___________________________ Munchen, ____________________________
LXN Corporation LRE Technology Partner GmbH
Paul Williams Johann Stapfner Martin Eisenmann
Director of Engineering Manager R&D Project Manager
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Supply Agreement
Duet II Meter
16.01.1998
<PAGE>
Attachment B
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Supplement of the Supply Agreement D2-meter
Time Schedule
<TABLE>
<CAPTION>
-------------------------------------------------------------
milestone week/year
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<S> <C>
#1) Initiation of Project January 1, 1998
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#2) Agreement on final March 2, 1998
specifications
-------------------------------------------------------------
#3) Completion and July 1, 1998
acceptance by LXN of 20
prototype units
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#4) Completion and September 1, 1998
acceptance by LXN of 100 pre-
production units
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#5) Release for production November 1, 1998
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P1 delivery first 1000 units 5-6 months after initial
purchase order
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P2 delivery next 2000 units next month following P1
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P3 delivery next 5000 units next month following P2
-------------------------------------------------------------
</TABLE>
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Supply Agreement
Duet II Meter
16.01.1998
<PAGE>
Attachment C
Supplement of the Supply Agreement D2-meter
Long lead time parts: (may be incomplete)
Part Delivery time
1) LCD 14 weeks
2) PCB 12 weeks
3) (Mask)-Micro 14 weeks
4) ASIC 14 weeks
5) Wafer (Me(beta)-LED) 12 weeks
6) EE-Prom 12 weeks
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Supply Agreement
Duet II Meter
16.01.1998
