<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 1998.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________ to ____________.
Commission File Number: 0-22179
SPECTRX, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-2029543
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
6025A Unity Drive, Norcross, GA 30071
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (770) 242-8723
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
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
Indicate by check mark if disclosures of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $41.1 million as of February 28, 1999, based
upon the average of the high and low prices of the Registrant's Common Stock
reported for such date by the Nasdaq National Market. Shares of Common Stock
held by each executive officer and director and by each person who owns 5% or
more of the outstanding Common Stock have been excluded in that such persons may
be deemed to be affiliates. The determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of February 28, 1999, the Registrant had outstanding 8,014,080
shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE.
Parts of the following documents are incorporated by reference in Part
III of this Form 10-K Report: Proxy Statement for Registrant's 1999 Annual
Meeting of Shareholders -- Items 10, 11, 12 and 13.
DESCRIPTION OF AMENDMENT.
This Annual Report on Form 10-K/A is filed solely for the purpose of
filing Exhibits 10.19B and 10.24, for which certain pages were unintentionally
omitted from the Annual Report on Form 10-K filed on March 31, 1999.
<PAGE> 2
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- -------------------------------------------------------------
<S> <C>
3.1(2) Certificate of Incorporation of the Company, as amended, as
currently in effect.
3.2(1) Bylaws of the Company.
4.1(1) Specimen Common Stock Certificate.
10.1(1) 1997 Employee Stock Purchase Plan and form of agreement
thereunder.
10.2(1) 1995 Stock Plan, as amended, and form of Stock Option
Agreement thereunder.
10.3(1) Stock Purchase Agreement, dated June 30, 1994, between Mark A.
Samuels and the Company.
10.4(1) Stock Purchase Agreement, dated June 30, 1994, between Keith
D. Ignotz and the Company.
10.5(1) Assignment and Bill of Sale, dated February 29, 1996, between
Laser Atlanta Optics, Inc. and the Company.
10.6(1) Security Agreement, dated October 31, 1996, between Mark A.
Samuels and the Company.
10.7(1) Security Agreement, dated October 31, 1996, between Keith D.
Ignotz and the Company.
10.11A(1)* License Agreement, dated May 7, 1991, between Georgia Tech
Research Corporation and Laser Atlanta Optics, Inc.
10.11B(1) Agreement for Purchase and Sale of Technology, Sale, dated
January 16, 1993, between Laser Atlanta Optics, Inc. and the
Company.
10.11C(1) First Amendment to License Agreement, dated October 19, 1993,
between Georgia Tech Research Corporation and the Company.
10.12(1) Clinical Research Study Agreement, dated July 22, 1993,
between Emory University and the Company.
10.13A(1)* Development and License Agreement, dated December 2, 1994,
between Boehringer Mannheim Corporation and the Company.
10.13B(1)* Supply Agreement, dated January 5, 1996, between Boehringer
Mannheim and the Company.
10.14(1) Sponsored Research Agreement, No. SR95-006, dated May 3, 1995,
between University of Texas, M.D. Anderson Cancer Center and
the Company.
10.15(1) Sole Commercial Patent License Agreement, dated May 4, 1995,
between Martin Marietta Energy Systems, Inc. and the Company.
10.16A(1) License Agreement, dated November 22, 1995, between Joseph R.
Lakowicz, Ph.D. and the Company.
10.16B(1) Amendment of License Agreement, dated November 28, 1995,
between Joseph R. Lakowicz, Ph.D. and the Company.
10.16C(1) Second Amendment to License Agreement, dated March 26, 1997,
between Joseph R. Lakowicz, Ph.D. and the Company.
10.16D(4) Third Amendment to License Agreement, dated November 20, 1998,
between Joseph R. Lokawicz, Ph.D. and the Company.
10.16E**(4) Fourth Amendment to License Agreement, dated November 20,
1998, between Joseph R. Lakowicz, Ph.D. and the Company.
10.17(1) License and Joint Development Agreement, dated March 1, 1996,
between NonInvasive-Monitoring Company, Inc., Altea
Technologies, Inc. and the Company.
10.18(1)* Patent License Agreement, dated March 12, 1996, between the
Board of Regents of the University of Texas System, M.D.
Anderson and the Company.
10.19A(1)* Purchasing and Licensing Agreement, dated June 19, 1996,
between Respironics and the Company.
10.19B**(+) Amendment to Purchasing and Licensing Agreement, dated
October 21, 1998 between Respironics and the Company.
10.20(1) Research Services Agreement, dated September 3, 1996, between
Sisters of Providence in Oregon doing business as the Oregon
Medical Laser Center, Providence St. Vincent Medical Center
and the Company.
10.21A(1)* Research and Development and License Agreement, dated October
10, 1996, between Abbott Laboratories and the Company.
10.21B(3)* Letter Agreement, dated December 22, 1997, between Abbott
Laboratories and the Company.
10.22A(1) Lease, dated September 21, 1993, between National Life
Insurance Company d/b/a Plaza 85 Business Park and the
Company, together with amendments 1, 2 and 3 thereto and
Tenant Estoppel Certificate, dated September 20, 1994.
10.24**(+) Development and Commercialization Agreement, dated December
31, 1998, between Welch Allyn, Inc. and the Company
11.1(4) Calculation of earnings per share.
21.1(4) Subsidiaries of the Registrant.
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
23.1(4) Consent of independent accountants.
24.1 Power of Attorney (included at signature page.)
27.1(4) Financial Data Schedule. (for SEC use only)
</TABLE>
- ------------
* Confidential treatment granted for portions of these agreements.
** Confidential treatment requested for portions of these agreements.
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1 (No. 333-22429) filed February 27,
1997, and amended on April 24, 1997, June 11, 1997, and June 30, 1997,
which Registration Statement became effective June 30, 1997.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 filed
August 12, 1997.
(3) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997 filed
March 26, 1998.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998 filed
March 31, 1998.
(+) To be filed herewithin.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Norcross, State of Georgia, on the 8th day of April 1999.
SPECTRX, INC.
By: /s/ MARK A. SAMUELS
-----------------------------
Mark A. Samuels
Chairman and Chief Executive
Officer
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Mark A. Samuels and Thomas H.
Muller, Jr., jointly and severally, his or her attorneys-in-fact, and each with
the power of substitution, for him or her in any and all capacities, to sign any
amendments to this Annual Report on Form 10-K, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------------- -----------------------
<S> <C> <C>
/s/ MARK A. SAMUELS Chairman, Chief Executive Officer and Director April 8, 1999
- --------------------------------------- (Principal Executive Officer)
Mark A. Samuels
/s/ THOMAS H. MULLER, JR. Executive Vice President and Chief Financial April 8, 1999
- --------------------------------------- Officer (Principal Financial and Accounting
Thomas H. Muller, Jr. Officer)
/s/ KEITH D. IGNOTZ President, Chief Operating Officer and Director April 8, 1999
- ---------------------------------------
Keith D. Ignotz
/s/ CHARLES G. HADLEY Director April 8, 1999
- ---------------------------------------
Charles G. Hadley
/s/ EARL R. LEWIS Director April 8, 1999
- ---------------------------------------
Earl R. Lewis
</TABLE>
<PAGE> 1
EXHIBIT 10.19B
October 21, 1998
Respironics Georgia, Inc.
1255 Kennestone Circle
Marietta, GA 30066
RE: AMENDMENT TO PURCHASING AND LICENSING AGREEMENT
This letter serves to amend certain terms (the "Amendment") of the Purchasing
and Licensing Agreement (the "Agreement") dated June 19, 1996 by and between
Respironics Georgia, Inc., f/k/a/ Healthdyne Technologies, Inc. ("RIGA"), and
SpectRx, Inc. (SpectRx"). Capitalized terms used herein and not otherwise
defined shall have the meaning assigned to such terms in the Agreement.
The parties to this Amendment agree that the Agreement is hereby amended to
include or restate, as the case may be, the following terms and conditions.
1. A number of events have led to this Amendment and will be recited
below. First, RIGA merged with Respironics, Inc. effective February 11, 1998.
Second, the Milestone Deadline set forth in Section 14.5 of the Agreement has
passed without the milestone applicable thereto being achieved. Work to date
indicates that SpectRx will be able to complete a device that measures bilirubin
in accordance with the Revised PRD for use prior to phototherapy
("Pre-Phototherapy device"). The parties have agreed to utilize the
Pre-Phototherapy device in resetting certain milestones.
2. Immediately upon completion of the Pre-Phototherapy device meeting
the revised product requirement document dated September 15, 1998 and attached
hereto as Exhibit A ("Revised PRD"), [*]
3. If SpectRx is unable to achieve the performance goals for the [*] of
the Instrument as set forth in the Revised PRD, SpectRx will then enter into a
second amendment to the Agreement augmenting the marketing license provided for
therein to grant to RIGA an exclusive license (free of license fees and for the
Term set forth in Section 14.1) within the Territory for the following three
software and hardware application [*] to the extent these applications are
developed by SpectRx:
[*]
[*]
[*]
Although SpectRx intends to undertake a reasonable business effort development
program in [*] there is no assurance of success. If successful, [*] are
[*] to be redacted
<PAGE> 2
envisioned to encompass software and possibly a Disposable specific to the
application [*]
Although no license fees are due in respect of the upgrade products, RIGA agrees
to purchase the Instruments, Disposables and Accessories, in accordance with
Section 4 of the Agreement. The parties agree to negotiate price and other
similar terms in good faith, in a like manner to and consistent with the current
provisions contained in the Agreement governing the Instrument. In the event the
Disposable is developed, SpectRx and RIGA will follow the existing formula under
the Agreement for profit and expense distribution on disposable sales.
4. The first sentence of Section 14.5 of the Agreement is deleted and
replaced by the following:
In the event that RIGA or SpectRx has not filed a 510K submission for a
Pre-Phototherapy device and received regulatory clearance necessary for
the marketing and sale of that device in Canada by January 1, 1999
("Revised Section 14.5 Deadline"), RIGA shall have the right to assume
the Commercialization Efforts with respect to the Licensed Products as
set forth in Section 3.1 and on Exhibit E. The Revised Section 14.5
Deadline shall be extended by any delay caused by RIGA: (i ) in the
filing of such 510K submission; (ii) in the work preparatory thereto
required to be performed by RIGA, such as completion of clinical trials
and reporting as to same; or (iii) in the work required to be performed
by RIGA with respect to preparation for sales in Canada. RIGA
acknowledges that both of the conditions set forth in the first
sentence have been satisfied i.e., the referenced 510K submission has
been made and Canadian clearance has been obtained.
5. The transfer price in Section 6.1 is increased from [*]
6. The fourth sentence in Section 3.2 of the Agreement is deleted and
replaced by the following sentence:
Each such milestone payment shall be due and payable only upon
completion of the corresponding milestone as set forth in Exhibit E, as
amended.
7. The word "following" is deleted from the sixth sentence in Section
3.2 of the Agreement.
8. RIGA's address for notices in Section 16-8 of the Agreement is
changed as follows:
RIGA: Respironics, Georgia, Inc.
1255 Kennestone Circle
Marietta Georgia 30066
Attention: Group Vice President
[*] to be redacted
<PAGE> 3
With a copy to: Respironics, Inc.
1501 Ardmore Boulevard
Pittsburgh, Pennsylvania 15221
Attention: General Counsel
9. Everything in Exhibit E including and following the "FDA Approval"
milestone originally scheduled for May 15, 1997 is deleted and replaced by the
Amendment to Exhibit E attached hereto.
10. Exhibit G is deleted in its entirety and replaced by the Amendment
to Exhibit G attached hereto.
11. Except as expressly provided for herein, the Agreement shall remain
in full force and effect and nothing herein shall be construed as a modification
or waiver by RIGA or SpectRx of any rights or remedies under the Agreement.
Please countersign and return one copy of this letter as confirmation of RIGA's
agreement to all statements and amended terms herein.
Sincerely,
SPECTRX, INC.
- ---------------------------------
Mark Samuels
President and CEO
Accepted and agreed to:
RESPIRONICS GEORGIA, INC.
- ---------------------------------
Name
-----------------------------
Title
----------------------------
[*] to be redacted
<PAGE> 4
EXHIBIT 10.19B
EXHIBIT A
BILICHEK(TM)
PRODUCT REQUIREMENT DOCUMENT (PRD)
Rev. 1.4
This document describes application, market, intended use, end user, (and
predicate device) for serum chemistry with regard to BiliChek.
Following are the device related product requirements based on inputs from
various sources (see customer market research report).
1.0 ASSUMPTIONS
1.1 Dimensions and weight - see attached Specifications Sheet
1.2 RESPIRONICS, mutually agreed by SpectRx, Inc., has ultimate right to
make any changes to these requirements.
1.3 Schedule, cost specifications, quality or quantity goals may change by
mutual agreement of SpectRx and RESPIRONICS.
1.4 All other RESPIRONICS/SpectRx contractual agreements are met, including
ISO, FDA, other requirements.
1.5 BiliChek system has four components:
1) Hand-held device
2) Charger base with space for an extra battery
3) Disposable tip
4) Optional Printer (available after launch).
1.6 End user, RN, Nursing Assistants, RRT, Neonatal transport, Specialists,
Non-HCP (Health Care Professional)
5) Neonatologist
6) Pediatrician
7) Homecare phototherapy service - Non-HCP
1.7 Printer to be available after launch of product (delivery within one
year of final specifications).
2.0 FUNCTIONS AND FEATURES
2.1 Non-invasively read and display results in units of 0.1 mg/dL or 000
umol/L of total serum bilirubin prior to the initiation of phototherapy
or exchange transfusion. Note the conversion factor for umol/L is 17.1
x mg/dL.
2.2 Performance Specifications - Pre, During, and Post Phototherapy
1) Operating Range 0.0-20 mg/dL
2) Correlation
<PAGE> 5
Reference Methodology: HPLC
r > 0.90
RMSE < 1.5 mg/dL
SD < 1.5 mg/dL (Bland and Altman)
x 1.5 mg/dL
3) Precision (means of CV on three measurements from the same
baby) < 7%
4) There will be no statistical difference in performance between
the various populations segmented by race, gestational age,
weight, sex, post-natal age etc.
2.3 Optical radiation output will not cause retinal burn. Device shall not
exceed the optical radiation Threshold Limit Values (TLV's) as
determined by the American Conference of Governmental Industrial
Hygienists for light, near infrared radiation and UV radiation.
2.4 [*]. Total measurement time (including calibration) to obtain a reading
shall not exceed sixty (60) seconds.
2.5 Calibration good for five (5) applications after which device requires
another calibration and a replacement of disposable tip.
2.6 [*].
2.7 Does not require any input such as age, etc. of patient before
displaying a reading. (Requirements for phototherapy application to be
determined).
2.8 Simple, easy to follow user prompts and messages as described in the
User Flow (ATTACHMENT C).
2.9 Battery backed up time, date and last reading.
1) Battery life - minimum 100 tests on fully charged battery pack
2) Low battery LCD icon
3) When battery is discharged the device will not take a
measurement and a Discharged Battery icon will be displayed.
4) Last reading maintained until device is powers off or is
recalibrated.
2.10 Field upgradeable and serviceable by trained technicians or hospital
bio-meds, and trained personnel
1) Battery
2) [*]
3) [*]
2.11 Forty-eight hour turnaround for factory replacement.
2.12 Have built-in error messages, test point, diagnostic features for
minimal downtime in troubleshooting device failures, using
off-the-shelf test fixtures.
2.13 Can be used by end user with no special training required.
2.14 Operator and service manual.
1) Operator's manual by RESPIRONICS
2) Service manual by SpectRx
[*] To be redacted
<PAGE> 6
3.0 HAND HELD DEVICE PHYSICAL
3.1 General
3.1.1 Must meet FDA/EMC regulatory guidelines (Attachment A).
3.1.2 It will be a hand-held device, easily packaged and transportable using
off-the-shelf and easily available packaging materials.
3.1.3 User grip intuitive and comfortable.
3.1.4 Resistant to scratches and normal abuse including during transport.
3.1.5 Cleanable by specified off-the-shelf available agents, not prone for
infection hazards. Low stain risk. Smooth surface to reduce harboring
of bacteria.
1) Kleen-a-septic
2) Alcohol
3) 1% Bleach
3.2 Ports
3.2.1 IR Data port conforming to IRDA standards (IRDA Standards Version 1.0
[1994]).
3.3 Inputs
3.3.1 Electrical/Power Input
3.3.1.1 Input voltage through four (4) pins through housing from associated
battery pack.
3.3.1.2 Limit switch at disposable interface as unit triggers only with
disposable in place.
3.3.2 Terminal Input
3.3.2.1 Use standard, off-the-shelf, IRDA output port.
3.3.2.2 Bi-directional communication with IRDA compatible terminals.
3.3.3 Keypad Input
3.3.3.1 Three (3) "soft" keys per concept, linked to display prompts:
1) Top two soft keys:
a) turn power on
b) set the display configuration
c) escape error conditions
d) turn on the backlight display
e) send results through MA port
2) Bottom soft key used for calibration and skin measurements
3.3.4 Data Input
3.3.4.1 Ability to customize system time, date, automatic 'off' time, etc.
3.3.4.2 Ability to set parameters such as units of measure (mg/dL or umol/L),
date (MM/DD) or DD/MM) and time (12 hour or 24 hour format).
[*] To be redacted
<PAGE> 7
3.4 Outputs
3.4.1 Data Output
3.4.1.1 Output results with units of measure, measurement time and measurement
date via LCD display and/or external IRDA compatible printers or
terminals.
3.4.2 Display Output
3.4.2.1 High contrast, back-lit LCD with three digit readout for measurement,
low battery icon, discharged battery icon, time and date.
3.4.3 Annunciators, Advisories & Warnings
3.4.3.1 Audible annunciator with two distinct signals: one for valid, the other
for invalid entered, detected, displayed or transferred data.
3.4.3.2 Display indicates when calibration is required.
3.4.3.3 Display indicates when measurement sequence is ready.
3.4.3.4 Display indicates when batteries are low and when unit requires a
charge.
3.4.3.5 Display indicates invalid reading by returning an error code.
3.5 Bulb/Light Source
3.5.1 [*]
a) Easy to access and replace bulb assembly by end user.
b) No special tools, techniques, or skills needed to replace
bulb.
c) [*]
4.0 CHARGE BASE PHYSICAL
4.1 General
4.1.1 Must meet all regulatory requirements (per Attachment A).
4.1.2 It will be able to be mounted on a wall, or on a counter.
4.1.3 Resistant to scratches and normal abuse including during transport.
4.1.4 Cleanable by specified, off-the-shelf agents, not prone to infection
hazards (per 3.1.5).
4.2 Inputs
4.2.1 Electrical/Power Input
4.2.1.1 Input voltage from 87-250 Vac. 50/60 Hz.
4.2.1.2 Meets specifications for voltage fluctuations per regulatory standards
(Attachment A).
4.2.1.3 [*]
4.2.1.4 Meet CSA, UL, IEC 601 safety standard, and international symbol and
color requirements.
[*] To be redacted
<PAGE> 8
4.3 Outputs
4.3.1 Electrical Output
4.3.1.1 Output will be into a minimum of two charging pins on hand-held unit.
4.3.2 Display Output 4.3.2.1 LED indicates electrical contact.
4.3.2.2 LED indicates if hand held is currently under charge.
4.3.2.3 LED indicates charge is complete.
5.0 BATTERY
5.1 Unit will have a removable rechargeable battery pack ( similar to
cellular phone concept) which will allow an operator to replace the
battery with another battery.
5.2 Base will have the ability to charge an additional battery pack ( in
addition to pack that is located in the hand held unit)
5.3 Fully charging in less than [*] hours.
5.4 Battery will hold a charge (under normal circumstances) for 30 days
5.5 Base unit will have an option to do a deep discharge of the battery
prior to charging.
6.0 PRINTER
6.1 IR interface with device
6.2 [*]
6.3 [*]
6.4 Dimensions
a) weight (TBD)
b) height (TBD)
c) length (TBD)
d) width (TBD)
6.5 Battery life - minimum [*] on a full charge.
7.0 DISPOSABLE CALIBRATION TIP PHYSICAL
7.1 General
7.1.1 It will meet regulatory requirements. (See Attachment A).
7.1.2 It will be a stackable piece.
7.1.3 It will be single-use.
7.1.4 The calibration target will be backed with a protective peel away cover
that also serves to protect the patient contact surface from debris.
7.1.5 User grip and device attachment is intuitive and comfortable.
7.1.6 Resistant to scratches and normal abuse including during transport.
7.1.7 Shelf Life of the calibrator tip will be a minimum of 24 months
[*] To be redacted
<PAGE> 9
8.0 ENVIRONMENTAL CONDITIONS
8.1 Must meet all US and Canadian regulatory requirements. (See Attachment
A).
8.2 Operate within specifications between 5 degrees to 40 degrees C (41
degrees to 104 degrees F). Be undamaged and fully operational after
storage at -40 degrees to 60 degrees C (-40 degrees F to 140 degrees
F). Must not fail in such a way as to be a hazard to users.
8.3 Operate within specifications between [*]. Not be damaged by [*] for a
duration of at least 24 hours.
8.4 Meet CISPR11, Class B Radiated and Conducted Electromagnetic Emissions.
9.0 SHOCK, VIBRATION & DROP
(In no case will the device lose or corrupt stored data, or display
incorrect results).
9.1 Must meet all US and Canadian regulatory requirements. (See Attachment
A).
10.0 LABORATORY REGULATIONS
10.1 A simple, easy to use [*] method for checking [*], [*] will be
developed pending market/regulatory agencies requirements.
[*] To be redacted
<PAGE> 10
ATTACHMENT A
1. System will meet all US and Canadian regulatory requirements defined
below.
a. FDA Guidance, Nov 93, Reviewers Guidance for Premarket Notification
Submissions.
b. QSR 21 CFR, Code of Federal Regulations, Part TBD (NEED CONFIRMATION OF
CITATION).
c. UL 2601-1: 1993
d. CSA C22.2, No. 601.1
e. Office of Device Evaluations, Guidelines for Content for Pre-Market
Submission for Medical Devices containing Software, (Draft), 1997
<PAGE> 11
ATTACHMENT B
Specifications
<PAGE> 12
ATTACHMENT C
User Flow
<PAGE> 13
AMENDMENT TO EXHIBIT E
REMAINING MILESTONES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Original Estimated Date Revised Estimated Dollars(1) Milestone
Date (In Thousands)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[*] Fourth Qtr/98 [*] FDA approval of pre-phototherapy claim
- ---------------------------------------------------------------------------------------------------------------------------
[*] TBA [*] [*]
- ---------------------------------------------------------------------------------------------------------------------------
[*] TBA [*] Acceptance by RIGA of quantities delivered
pursuant to first purchase order pre-phototherapy
claim
- ---------------------------------------------------------------------------------------------------------------------------
[*] TBA [*] Acceptance by RIGA of quantities delivered
pursuant to first purchase order [*]
- ---------------------------------------------------------------------------------------------------------------------------
[*] TBA [*] First anniversary of acceptance of first purchase
order quantities pre-phototherapy claim delivered
by SpectRx
- ---------------------------------------------------------------------------------------------------------------------------
[*] TBA [*] First anniversary of acceptance of first purchase
order quantities [*] delivered by SpectRx
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
(1) Payment due at time of milestone completion
<PAGE> 14
AMENDMENT TO EXHIBIT G
MINIMUM UNIT SALES
INSTRUMENT
<TABLE>
<CAPTION>
Column A OR Column B
- ---------------------------------------------------------------------------------------------------------------------------
Year after 510K Clearance for Pre-Phototherapy [*]
Pre-Phototherapy device 510K Clearance
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
0-1 [*] [*]
- ---------------------------------------------------------------------------------------------------------------------------
Year 2 [*] [*]
- ---------------------------------------------------------------------------------------------------------------------------
Year 3 [*] [*]
- ---------------------------------------------------------------------------------------------------------------------------
Year 4 [*] [*]
- ---------------------------------------------------------------------------------------------------------------------------
Year 5 [*] [*]
- ---------------------------------------------------------------------------------------------------------------------------
After Year 5 [*] [*]
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The minimum unit sales for the Instrument will be the relevant total under
Column A until, if ever, the [*] has received 510K clearance. Thereafter, the
minimum unit sales shall be the total under Column B.
MINIMUM UNIT SALES DISPOSABLE
RIGA's minimum unit sales for Disposables from SpectRx will be:
Year 2 Following Commercialization: [*]
Year 3 Following Commercialization: [*]
Year 4 Following Commercialization: [*]
Year 5 Following Commercialization: [*]
Year 6 Following Commercialization
and Onward: [*]
-2-
<PAGE> 1
EXHIBIT 10.24
DEVELOPMENT AND COMMERCIALIZATION AGREEMENT
THIS DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (this "Agreement") is
entered into as of the 31st day of December, 1998, by and between SPECTRX, INC.,
a Delaware corporation ("SpectRx") and WELCH ALLYN, INC., a New York corporation
("Welch Allyn") (SpectRx and Welch Allyn are each referred to hereinafter as a
"Party" and collectively as the "Parties").
WITNESSETH:
WHEREAS, SpectRx owns or has rights to intellectual property related to
optical spectroscopy and other intellectual property rights that are applicable
to the diagnosis of cervical lesions and dermatologic lesions;
WHEREAS, Welch Allyn owns or has rights to intellectual property that
are applicable to the visualization of cervical lesions and dermatologic
lesions;
WHEREAS, the Parties desire to jointly develop, design, manufacture,
and market a spectroscopic device and related disposable element for use in the
In Vivo Diagnosis (defined below) of cervical lesions (the "Cervical Product");
WHEREAS, the Parties desire to enter into a joint venture or similar
relationship to effect the manufacture and marketing of the Cervical Product,
subject to Manufacturing and Supply Agreements and Marketing Agreements as
further provided herein;
WHEREAS, the Parties desire to provide Welch Allyn an option to enter
into a subsequent agreement with SpectRx for development and commercialization
of a spectroscopic device and related disposable element for use in the In Vivo
Diagnosis of dermatologic lesions (the "Skin Product");
WHEREAS, SpectRx and Welch Allyn wish to enter into a research and
development program that may result in commercialization of the Cervical Product
while understanding that there are technological and business risks that may not
be overcome in the commercialization effort;
WHEREAS, the Parties desire to set forth in this Agreement the terms
applicable to development and commercialization of the Cervical Product and the
option to collaborate in development and commercialization of the Skin Product;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
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I. DEFINITIONS
The following capitalized terms shall have the meanings given in this
Section. Other capitalized terms in this Agreement that are not defined below
but that are defined in this Agreement parenthetically, within quotations, shall
have such meanings.
1.1 "ACCOUNTING SERVICES PROVIDER" means that Party or a Third Party
selected by the Management Committee to serve the Parties as the "Accounting
Services Provider," who shall be responsible for creating and maintaining the
Profit and Loss Statement.
1.2 "APPLIED RESEARCH PHASE" means the joint research to be carried out
by the Parties specifically to prove the preliminary clinical and technical
feasibility of the Cervical Product. The Applied Research Phase, which commenced
prior to the Effective Date, shall end with the completion of a preliminary
engineering package and a preliminary clinical feasibility assessment report for
the Cervical Product.
1.3 "BUDGET" shall have the meaning set forth in Section 6.1(A) hereof.
1.4 "CASH EXPENDITURE EQUALIZATION PROCEDURE" shall mean the procedure
set forth in Section 6.2 hereof.
1.5 "CERVICAL PRODUCT" shall have the meaning set forth in the Recitals
hereto, and shall include, unless the usage thereof dictates otherwise, the
Disposable for such Product.
1.6 "DERIVED TECHNOLOGY" means Developed Patent Rights, Developed
Copyrights, Developed Trademarks and Trade Dress Rights and Developed Technical
Information (as those terms are defined in Section 1.7 hereof) that are derived
from or result as an improvement or other modification to either SpectRx
Intellectual Property or Welch Allyn Intellectual Property.
1.7 "DEVELOPED TECHNOLOGY" means any Developed Patent Rights, Developed
Copyrights, Developed Trademark and Trade Dress Rights, and Developed Technical
Information, all whether registrable or not, issued or pending, that do not
exist as of the Effective Date but that are jointly developed by the Parties, or
by a single Party in performance of its services provided for in the Statement
of Work, during the term of this Agreement, where such terms have the following
meanings, respectively:
(A) "Developed Patent Rights" means all rights to inventions,
proposed inventions, and patent applications, including any patents issuing from
such applications, all reissues or extensions thereof to be obtained in this or
any foreign country upon such applications, any divisional, continuation,
continuation-in-part or substitute applications that may be filed upon such
applications and any patents issued thereon in this or any foreign country, in
addition to the right to file such applications through the Paris Convention or
the Patent Cooperation Treaty;
(B) "Developed Copyrights" means all copyrights in works,
including, without limitation, product literature, brochures, catalogues,
drawings, advertisements, software, and
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other written or graphic materials, and all derivative works arising therefrom,
whether or not such copyrights are registered;
(C) "Developed Trademark and Trade Dress Rights" means all
statutory and common law rights in trademarks and the associated good will,
including, without limitation, company names, product names, and logos,
including all federal and state trademark application rights associated with
such marks, as well as rights regarding product shape, color, packaging, and
overall image; and
(D) "Developed Technical Information" means all know-how, data,
trade secrets, discoveries, inventions, product designs, models, prototypes,
schematics, copyrighted works, and technical information (including, without
limitation, ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), manufacturing and
production processes and techniques, research and development information,
drawings, blue prints, specifications, designs, bills of material, computer
software, and documentation), and embodiments thereof (in whatever form or
medium).
To the extent Developed Technology incorporates or includes SpectRx
Intellectual Property or Welch Allyn Intellectual Property (each as defined
below), or constitutes Derived Technology, such incorporated or included
intellectual property and such Derived Technology shall not be considered
Developed Technology.
1.8 "DEVELOPMENT PHASE" means the joint work to be carried out by the
Parties specifically to develop the Cervical Product for commercialization,
including without limitation, design, engineering, clinical evaluation,
regulatory clearance and all pre-production activity. The Development Phase
shall commence on the completion of the Applied Research Phase and shall end on
the First Shipment Date of the Cervical Product.
1.9 "DISPOSABLE(S)" means a single or multiple use component or
components that are distributed with labeling or instructions identifying it for
use with the Products.
1.10 "EFFECTIVE DATE" means the date of this Agreement set forth in the
first paragraph hereof.
1.11 "EXPENDITURES" means actual cash payments of Project expenses,
that have been approved by the Management Committee specifically or as part of
an approved Budget, made by a Party to Third Parties in bona fide, arms-length
transactions, including compensation of any kind (including benefits) to
employees or independent contractors working on the Project (or on a pro rata
basis to the extent such employees or independent contractors are not engaged
full-time on the Project) and all direct rent expense and other direct fixed or
variable facility usage or Project-related costs or expenses (i.e., utilities,
materials, supplies, travel, etc.), but not including all or any portion of
overhead expenses that a Party would have incurred in the absence of the
Project, such as general administrative expenses.
1.12 "FILING" means any documentation, application, filing,
recordation, registration, or the like perfecting, enhancing or ensuring
proprietary rights to intellectual property under any statute, law, or
governmental rule or regulation, whether U.S. or foreign, including without
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limitation copyright, trademark, and patent laws.
1.13 "FIRST SHIPMENT DATE" means the date of the first shipment of the
Cervical Product, other than Cervical Products used for clinical studies, after
receipt of regulatory approval in a country, to the extent required, and which
is sold by or on behalf of the Parties to a Third Party. For purposes of Section
15.2, the First Shipment Date will not occur until a minimum aggregate of one
hundred (100) units of Cervical Product have been shipped and sold.
1.14 "IN VIVO DIAGNOSIS" means the process of determining by
examination and analysis, the nature and circumstances of the diseased
condition, in a living organism and the conclusion reached from such a process.
1.15 "LETTER OF INTENT" means that certain Letter of Intent, including
the proposed terms, entered into by the Parties dated October 21, 1998.
1.16 "MANAGEMENT COMMITTEE" shall have the meaning set forth in Section
2.1 hereof, and shall include any successor committee or body established by
agreement of the Parties.
1.17 "MANUFACTURING AND SUPPLY AGREEMENTS" shall have the meaning set
forth in Section 8.5 hereof.
1.18 "MARKET OPPORTUNITY" means for a given country, the total expected
retail sales (measured in the U.S. Dollars) for a Product during both
introduction into the market and thereafter, in such country, all as determined
using customary methods of market research, particularly as employed for
innovative products, as mutually and reasonably determined by the Parties.
1.19 "MARKETING AGREEMENTS" shall mean the agreements referred to in
Section 9.4 hereof.
1.20 "MILESTONES" means the milestones set forth in the Statement of
Work.
1.21 "NON-PRODUCT FIELD" means all non-In Vivo Diagnosis applications
and all applications using In Vivo Diagnosis of cancer that are not related to
the Products, including, without limitation, colposcopy, video colposcopy,
cancer cell collection devices, endoscopically detectable cancers (e.g.,
colorectal, bladder), phototherapy, electropotential or ionic markers of cancer,
and all in vitro analysis of cells and/or use of biomolecular markers.
1.22 "OPTICS MODULE" means a subassembly which provides a portion of
the system's optical functionality, including excitation, collection and
reference channels. The Module consists of electro-optical components and
detector electronics and may include associated source. The Module requires
power and control signals as inputs and provides the probe opto-mechanical
interface and analog or digital data outputs. The Module as delivered, will be
fully aligned and tested and ready for installation in the final assembly.
1.23 "EQUALIZING PAYMENTS" means the periodic payments to be made by
one Party to
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the other, in accordance with the Cash Expenditure Equalization Procedure and
the provisions of Sections 6.2 and 6.3 hereof.
1.24 "PRODUCTS" means the Cervical Product and the Skin Product, and
shall include, unless the context of such usage dictates otherwise, the
Disposable in respect of each such Product.
1.25 "PRODUCT FIELD" means the use of spectroscopy without agents,
except for agents that the Management Committee has agreed are required to
enable the Products to perform at an acceptable level for commercial use and
then only to those agents, for In Vivo Diagnosis of cervical lesions and
dermatologic lesions, including the products that constitute the Products.
1.26 "PROFIT AND LOSS STATEMENT" means the special purpose income
statement generated by the Accounting Services Provider in accordance with the
methodology set forth in Exhibit 1.26 attached hereto, which shall serve as the
basis for allocating between the Parties the profits and losses generated from
sales of the Cervical Product.
1.27 "PROJECT" means the design, development, completion, manufacture,
marketing, sale, and support of the Cervical Product, together with any other
obligations of the Parties contained herein.
1.28 "PROPRIETARY INFORMATION" means any technical or non-technical
information, financial information, compilations, devices, methods, manuals,
business plans, names and lists of actual or potential customers, in any
tangible or intangible form, which is not generally known to the public.
1.29 "SKIN PRODUCT" shall have the meaning set forth in the Recitals
hereto, and shall include, unless the usage thereof dictates otherwise, the
Disposable for such Product.
1.30 "SPECIFICATIONS" means the specifications of the Cervical Product
as such specifications may be initially or later established or are later
revised or modified, from time to time, pursuant to Section 3.2 hereof.
1.31 "SPECTRX'S INTELLECTUAL PROPERTY" means SpectRx's Patent Rights,
SpectRx's Technical Information and SpectRx's Copyrights embodied in or relating
to the Products, which have the following meanings, respectively:
(A) "SpectRx's Patent Rights" means SpectRx's rights in the
issued patents and pending patent applications owned by SpectRx listed on
Exhibit 1.31(A); any divisionals, reissues, reapplications, continuations,
continuations-in-part, substitutes, foreign counterparts, or any patents issued
thereon in a foreign country; and any other patents or patent applications
containing claims necessary to make, use and sell Products in possession of
SpectRx or based on inventions reduced to practice by SpectRx before the
Effective Date.
(B) "SpectRx's Technical Information" means all know-how,
data, trade secrets, discoveries, inventions, product designs, information
(including, without limitation, ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not
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reduced to practice), manufacturing and production processes and f techniques,
research and development information, computer software, and documentation), and
embodiments thereof (in whatever form or medium) of SpectRx, and that are known
to or possessed by SpectRx as of the Effective Date; and
(C) "SpectRx's Copyrights" means SpectRx's rights in works,
including, without limitation, literature, brochures, catalogues, drawings,
advertisements, software, and other written or graphic materials, and all
derivative works arising therefrom, which are known to or possessed by SpectRx
as of the Effective Date.
1.32 "STATEMENT OF WORK" means the schedule of Milestones and
responsibilities, including payments to be made by one Party to the other, that
comprise the Applied Research Phase and the Development Phase for the
development of the Cervical Product, as such Statement of Work may be initially
or later established or is later revised or modified from time to time pursuant
to Section 3.2 hereof. The Statement of Work for the Cervical Product containing
a schedule in respect of the Applied Research Phase, and a general description
of the Development Phase is attached hereto as Exhibit 3.1.
1.33 "THIRD PARTY" means any individual, corporation, partnership,
trust or other business organization or entity, and any other recognized
organization other than the parties hereto and their affiliates.
1.34 "US PRIMARY CARE" means all front line primary care providers
(MD's, DO's, Physician's Assistants, Nurse Practitioners, etc) including family
medicine, internal medicine, pediatricians, obstetricians and gynecologists,
plastic surgeons and any other general care providers in the United States and
Canada. US Primary Care shall not include, however, dermatologists and their
assistants such as physician assistants and nurse practitioners.
1.35 "WELCH ALLYN'S INTELLECTUAL PROPERTY" means Welch Allyn's Patent
Rights, Welch Allyn's Technical Information and Welch Allyn's Copyrights
embodied in or relating to the Products, which have the following meanings,
respectively:
(A) "Welch Allyn's Patent Rights" means Welch Allyn's rights
in the issued patents and pending patent applications owned by Welch Allyn
listed on Exhibit 1.35(A); any divisionals, reissues, reapplications,
continuations, continuations-in-part, substitutes, foreign counterparts, or any
patents issued thereon in a foreign country; and any other patents or patent
applications containing claims necessary to make, use and sell Products in
possession of Welch Allyn or based on inventions reduced to practice by Welch
Allyn before the Effective Date.
(B) "Welch Allyn's Technical Information" means all know-how,
data, trade secrets, discoveries, inventions, product designs, information
(including, without limitation, ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
manufacturing and production processes and techniques, research and development
information, computer software, and documentation), and embodiments thereof (in
whatever form or medium) of Welch Allyn, and that are known to or possessed by
Welch Allyn as of the Effective Date; and
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(C) "Welch Allyn's Copyrights" means Welch Allyn's rights in works,
including, without limitation, literature, brochures, catalogues, drawings,
advertisements, software, and other written or graphic materials, and all
derivative works arising therefrom, which are known to or possessed by Welch
Allyn as of the Effective Date.
II. MANAGEMENT COMMITTEE
2.1 MANAGEMENT COMMITTEE. The Parties shall establish a management
committee comprised of six (6) primary members, and two (2) alternate members,
with each Party designating three (3) primary members and one (1) alternate
member (the "Management Committee"). Each Party's alternate member shall have
the right to attend all meetings, but shall vote only in the absence of a
primary member designated by that Party. Should a vacancy arise at any time on
the Management Committee, the Party appointing the member leaving the Management
Committee shall appoint such member's successor.
(A) Meetings; Action. The Management Committee shall meet not less
than once every quarter on a date designated by the Management Committee and on
the request of a Party as provided in Section III. The location of such
Management Committee meeting shall alternate between SpectRx's office and Welch
Allyn's office, unless otherwise agreed to by the Parties. Any action by the
Management Committee shall require the approval of a majority of its members,
with a quorum of six members required for convening a meeting of the Management
Committee. Members may participate in and vote during a Management Committee
meeting via means of telecommunication, so long as all members can
simultaneously hear each other, participate in discussions held during the
meeting, and are in possession of any tangible deliverables or submissions being
evaluated.
(B) Responsibilities. The Management Committee shall have
responsibility for the following activities:
(1) establishing the rules and procedures governing the
proceedings of the Management Committee;
(2) establishing the Budget and further related approvals
as provided in Section 7.1 hereof;
(3) approving modifications to the Statement of Work or
to the Specifications;
(4) defining functional requirements and performance
criteria;
(5) planning logistics and strategy;
(6) selecting distribution channels;
(7) regularly reporting to management of both Parties,
including monthly progress reports and monthly reports of Expenditures against
Budget;
(8) managing the preparation and approval of the Profit
and Loss Statement and ongoing management in respect thereof;
(9) determining action to be taken by the Parties to
protect Developed Technology; and
(10) performing the other activities assigned to the
Management Committee pursuant to this Agreement, or as otherwise undertaken by
the Management Committee.
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III. STATEMENT OF WORK; SPECIFICATIONS
3.1 GENERAL. Attached hereto as Exhibit 3.1 is the Statement of Work
for the Cervical Product containing a schedule in respect of the Applied
Research Phase and a general description of the Development Phase.
3.2 MODIFICATIONS AND ADDITIONS TO THE STATEMENT OF WORK. Due to the
preliminary nature of the information currently available to the Parties, it is
anticipated that the Statement of Work will, from time to time, require
modification in light of developments pursuant to the Project, including without
limitation modification of the schedule for completion of Milestones,
delineation of tasks to be completed for each Phase of the Project, and revision
of the estimate of Expenditures. Further, the Specifications will be prepared
subsequent to the Effective Date, and from time to time thereafter, may require
revision to make them technologically and commercially feasible and reasonable
in light of the progress of the Project. Either Party may propose and submit to
the Management Committee a modification to the Statement of Work, the initial
Specifications, or a revised version of the Specifications and request a meeting
of the Management Committee to consider the proposal. The Management Committee
shall act on the foregoing matters submitted to it in accordance with its
operating rules and procedures and this Agreement.
3.3 COMPLETION OF MILESTONES. The Management Committee shall determine
when Milestones have been satisfactorily completed in accordance with the
Statement of Work. Substantial completion of all material requirements of a
Milestone shall be deemed to be satisfactory completion of the Milestone for
purposes of: 1) determining when payments associated with the Milestone are due,
and 2) initiating the next phase of the Project as set forth in the Statement of
Work. Upon completion of a Milestone by the Party(ies) responsible for its
performance, such Party(ies) shall notify and request a meeting of the
Management Committee and submit for its evaluation all deliverables required by
the Statement of Work. The Management Committee will evaluate the deliverables
using the criteria / requirements provided in the Statement of Work and act on
the matter of acceptance or rejection of the Milestone deliverables in
accordance with its operating rules and procedures and this Agreement.
3.4 MANAGEMENT COMMITTEE PROCEDURES. The Management Committee shall
schedule a meeting to act on matters submitted to it pursuant to Sections 3.2
and 3.3 within fifteen (15) days of receipt of a request for meeting. A majority
vote of a quorum of the Management Committee shall be sufficient for accepting,
rejecting, or otherwise acting on any matter submitted to the Management
Committee. If the Management Committee rejects any proposal relating to the
Specifications, Statement of Work, or the Project, or any request for acceptance
of a Milestone, it shall state its rationale, specify deficiencies to be
addressed in a resubmittal, and schedule the time for resubmittal. If the
Management Committee fails to take action because of a deadlock in the voting of
members, the following shall apply:
(A) Partisan Deadlock. If deadlock has been created by all
Management Committee members designated by one Party voting affirmatively and
all members designated by the other Party dissenting (a "Partisan Deadlock"),
the dissenting Party shall, within 15 days after occurrence of the Partisan
Deadlock, prepare a written rationale for its decision. The
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rationale shall specify any deficiencies that must be remedied or further
information that must be submitted to procure the dissenter's affirmative vote.
Each Party shall use commercially reasonable efforts to cooperatively address
the issues identified by the dissenting Party and product and submit to the
Management Committee any additional deliverables, or revisions to deliverables,
requested by the dissenting Party. The Management Committee shall convene a
meeting to reconsider the matter, within forty-five (45) days of occurrence of
the Partisan Deadlock, in light of all additional material submitted to the
Management Committee. If the Management Committee fails to break the deadlock or
extend the time for reconsideration at the second meeting, the Party seeking
approval of the Management Committee may thereafter submit the matter for
Dispute Resolution in accordance with Section 18.1 of this Agreement.
(B) Non-Partisan Deadlock. If deadlock has been created by
non-partisan voting of the members of the Management Committee (a Non-Partisan
Deadlock), the Management Committee shall first utilize any applicable internal
procedures in an attempt to break the deadlock. If the Non-Partisan Deadlock is
not resolved within fifteen (15) days, the Management Committee members
designated by each Party will confer with their respective corporate management,
and within 10 days determine the manner in which the unanimous vote of that
Party's Committee members will be cast. If the Non-Partisan Deadlock is not
broken, but rather converted to a Partisan Deadlock, the procedure of Section
3.4 A shall apply.
3.5 ALTERNATE COMMERCIALIZATION. If the Parties mutually determine that
the planned development and commercialization of the Cervical Product is not
feasible, they undertake to pursue with reasonable diligence an exploration of
utilization of the Developed Technology for other applications related to the
diagnosis of cervical lesions, although any decision to pursue same will require
the written mutual agreement of the Parties.
IV. OBLIGATIONS OF WELCH ALLYN DURING APPLIED RESEARCH AND DEVELOPMENT
PHASES
4.1 GENERAL OBLIGATIONS. Welch Allyn shall use all reasonable
commercial efforts to perform the work assigned to it in the Statement of Work,
to cause the Project to meet the Milestones set forth therein, and to develop
the Cervical Product so that it is economically viable for manufacture,
distribution, and sale. Such efforts include the following commitments:
(A) Specified Staffing. Welch Allyn shall devote such staffing to
the Project, through Welch Allyn's own employees and/or Welch Allyn's commitment
of independent contractors, as is reasonably necessary to perform such work.
(B) Contributions and Expenditures. Welch Allyn shall pay one
half of the cost of development of the Cervical Product by making Expenditures
and contractual payments to SpectRx pursuant to this Agreement. The Parties
shall utilize the Cash Expenditure Equalization Procedure described in Section
6.2 of this Agreement to balance and equalize the Expenditures made by each
Party and the contractual payments made between the Parties for development of
the Cervical Product under this Agreement. The parties estimate Welch Allyn's
share of the cost to develop the Cervical Product to be [*] allocated to Phases
1 and 2 of the Applied Research Phase of the Project and [*] allocated to the
Development Phase of the
[*] to be redacted
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Project, as more specifically described in the Statement of Work.
4.2 WELCH ALLYN CONTRACT PAYMENTS TO SPECTRX FOR THE APPLIED RESEARCH
PHASE. Welch Allyn shall make the following contract payments to SpectRx with
respect to Expenditures made by SpectRx and development of the Cervical Product
performed by SpectRx with respect to the Applied Research Phase of the Project
as described in the Statement of Work:
(A) SpectRx acknowledges receipt from Welch Allyn of [*] as a down
payment toward the contract payments for Phase 1 of the Applied Research Phase;
(B) Welch Allyn shall pay SpectRx [*] contemporaneously with
execution of this Agreement; [*] for Expenditures incurred by SpectRx
prior to December 31, 1998, in performance of Phase 1 of the Applied Research
Phase, and [*] for progress achieved as of the Effective Date in
development of the Cervical Product;
(C) Welch Allyn shall pay SpectRx [*] Dollars [*] as an advance
against performance of work under Phase 2 of the Applied Research Phase of the
Project upon completion of Phase 1 of the Applied Research Phase (determined in
accordance with Section 3.3 of this Agreement and the Statement of Work);
(D) Welch Allyn shall pay SpectRx the amount calculated by
application of the following formula upon receipt of a report from SpectRx
documenting that development of the Cervical Product has progressed to the
mid-point of Phase 2 of the Applied Research Phase. The amount of this payment
shall equal [*] of the difference between: (i) the total remaining Expenditures
then estimated to be incurred for the second half of Phase 2 of the Applied
Research Phase (estimated as of the Effective Date to be [*] and (ii)
Expenditures then estimated to be incurred by Welch Allyn in respect of its
performance of the second half of Phase 2 of the Applied Research Phase.
All contractual payments from Welch Allyn to SpectRx described
in this Section shall be subject to the balancing / equalization process
described as the Cash Expenditure Equalization Procedure.
4.3 EXPENDITURES AND CONTRACT PAYMENTS FOR THE DEVELOPMENT PHASE.
Welch Allyn shall, during the Development Phase of the Project, make
Expenditures for development of the Cervical Product or contractual payments to
SpectRx for development of the Cervical Product in such amounts and at such
times as shall be set forth in the Statement of Work. All such Expenditures and
contractual payments shall be subject to the balancing / equalization process
described as the Cash Expenditure Equalization Procedure defined in Section 6.2
of this Agreement.
4.4 TECHNOLOGY ACCESS FEE PAYABLE BY WELCH ALLYN TO SPECTRX. In
addition to the Expenditures and contract payments set forth above, Welch Allyn
shall pay to SpectRx [*] in installments as set forth in the Statement of Work
in exchange for and as additional consideration due SpectRx for access to
[*] to be redacted
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SpectRx's Intellectual Property. This technology access fee shall not be taken
into account in respect of, or provide Welch Allyn any credit to be used for,
the Cash Expenditure Equalization Procedure.
V. OBLIGATIONS OF SPECTRX DURING APPLIED RESEARCH AND DEVELOPMENT PHASES
5.1 GENERAL OBLIGATIONS. SpectRx shall use all reasonable commercial
efforts to perform the work assigned to it in the Statement of Work, to cause
the Project to meet the Milestones set forth therein, and to develop the
Cervical Product so that it is economically viable for manufacture, distribution
and sale. Such efforts include the following commitments:
(A) Specified Staffing. SpectRx shall devote such staffing to
the Project through SpectRx's own employees and/or SpectRx's commitment of
independent contractors as is reasonably necessary to perform such work.
(B) Contribution and Expenditures. SpectRx shall pay one half
of the cost of development of the Cervical Product by making Expenditures or
contractual payments to Welch Allyn for work completed as provided in the
Statement of Work as revised from time to time, subject to the Cash Expenditure
Equalization Procedure. The Parties estimate SpectRx's share of the cost to
develop the Cervical Product to be [*] allocated to Phases 1 and 2 of the
Applied Research Phase of the Project and [*] allocated to the Development Phase
of the Project, as more specifically described in the Statement of Work. SpectRx
is presently not expected to make any contract payments to Welch Allyn with
respect to the Applied Research Phase of the Project.
VI. BUDGETS, EXPENDITURES AND PAYMENTS DURING THE PROJECT
6.1 CALENDAR YEAR BUDGETS.
(A) As soon as possible after the execution of this Agreement,
the Management Committee shall meet and establish a budget for calendar year
1999 relating to the Applied Research Phase and the Development Phase (for any
year, the "Budget"). Budgets shall also be established for years after
commercialization of the Cervical Product under this Agreement if the Parties
have not previously formed a joint venture to carry out the commercialization.
Thereafter, on or before December 1st immediately preceding the beginning of
each calendar year, commencing with the calendar year 2000, the Management
Committee shall determine the Budget for the succeeding calendar year relating
to the development or commercialization of the Cervical Product. Notwithstanding
the foregoing, the Management Committee may at any time amend the Budget.
(B) Each Budget may provide annual limits, monthly limits,
task-specific, or other "line-item" limits on Expenditures or subject some or
all Expenditures to further specific approval by the Management Committee. These
limitations may include limitations as to use of personnel and staffing, and in
any event shall not permit Expenditures with respect to non-technical personnel
and related support staff during the Applied Research Phase of the Project,
[*] to be redacted
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except for personnel performing specifically-approved project management and
market research functions. Expenditures for market research, marketing, and
preparation for manufacturing incurred prior to the first commercial sale of the
Cervical Product shall be included in the Budget(s) for the Development Phase of
the Project as determined by the Management Committee. No Expenditure shall be
subject to reimbursement pursuant to the Cash Expenditure Equalization Procedure
unless it is consistent with the Budget therefor and any specific further
approval required by the Management Committee.
6.2 CASH EXPENDITURE EQUALIZATION PROCEDURE. The Parties shall employ
the Cash Expenditure Equalization Procedure to share equally the operating
expenses and cost of capital assets employed in the Project on a periodic basis.
The Cash Expenditure Equalization Procedure generally shall be based on the
methodology defining the Profit and Loss Statement (see Exhibit 1.26), omitting
revenue. During the Applied Research Phase and Development Phase of the Project,
each party will report to the Accounting Services Provider on a monthly basis
its Expenditures and capital employed and receipt of contract payments under
this Agreement. The Accounting Services Provider will maintain accounts for each
of the Parties documenting each Party's Expenditures, receipts of contract
payments under this Agreement, and the net balance of the accounts. As provided
in Section 6.4, the Accounting Services Provider periodically shall compare the
net balances of the Parties' accounts and determine the Equalizing Payment
payable from the Party with the lower net account balance of Expenditures to the
other Party to equalize the balances of the accounts.
6.3 CASH EXPENDITURE EQUALIZATION PROCEDURE AFTER COMMERCIALIZATION.
Subsequent to commercialization of the Cervical Product and prior to formation
by the Parties of a joint venture to manufacture and sell the Cervical Product,
the Parties shall equally share the revenues and expenses of making and selling
the Cervical Product in accordance with the methodology defining the Profit and
Loss Statement, and subject to the provisions of this Agreement relating to
Manufacturing and Marketing the Cervical Product. Upon commercialization of the
Cervical Product, the Cash Expenditure Equalization Procedure shall be expanded
include revenues generated from sales of the Cervical Product. The parties shall
report to the Accounting Services Provider, on a periodic basis to be agreed
upon by the Parties, the revenue, operating expenses, cost of capital assets and
working capital, and other items required by and in accordance with the
methodology required for the Profit and Loss Statement. The Accounting Services
Provider will post to each party's account the items reported by the Parties
under this Section and calculate the net balance of each Party's account. As
provided in Section 6.4, the Accounting Services Provider periodically shall
compare the net balances of the Parties' accounts and determine the Equalizing
Payment payable from the Party with the greater account balance of net revenue
to the other Party to equalize the balances of the accounts.
6.4 INVOICING; PAYMENTS.
(A) The Accounting Services Provider will determine the Equalizing
Payments as of the end of each quarter, and additionally at 1) the midpoint of
Phase 2 of the Applied Research Phase, and 2) the end of Phase 2 of the Applied
Research Phase. After each determination of an Equalizing Payment, the
Accounting Services Provider shall notify the Parties respectively, to invoice
and pay the Equalizing Payments. The Party to whom an Equalizing Payment is due
shall invoice the other Party, and submit supporting documentation in
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<PAGE> 13
reasonable detail. Invoices shall be payable within thirty (30) days after the
date of the invoice to a bank account to be specified in the invoice.
(B) Each Party shall maintain, in accordance with sound accounting
practices, accounting records to document all Expenditures and other items of
revenue and expense required by the Profit and Loss Statement methodology which
are reported to the Accounting Services Provider for purposes of the Cash
Expenditure Equalization Procedure. The records shall be retained for at least
three (3) years. Each Party may audit the other Party's records upon reasonable
notice, solely for the purpose of verifying the items reported to the Accounting
Services Provider. Records for any designated period may not be audited more
than once.
6.5 MONTHLY REPORTS. Within twenty (20) days after the end of each
month, each Party shall provide the other Party with a written report describing
all matters material to the submitting Party's work required under the Statement
of Work, including the submitting Party's prospects for completing the work
necessary for meeting the next unfulfilled Milestone. Such report shall also
include a statement certified by a responsible official of the submitting Party
showing, in reasonable detail, all Expenditures made by such Party for the
Project during the previous month.
6.6 JOINT VENTURE. During the Development Phase, the Parties' agree to
enter into good faith negotiations for entering into a joint venture or other
relationship for purposes of carrying out the commercialization of the Cervical
Product. Any such relationship will permit each Party to realize one-half of the
revenue, expenses, profits, and losses of the joint venture or other
relationship and incorporate the principles of joint management.
6.7 OWNERSHIP OF PROPERTY ACQUIRED FOR THE PROJECT. Capital assets and
equipment purchased with Expenditures will be jointly owned by the Parties,
including without limitation, capital assets and equipment purchased during
Phase 1 of the Applied Research Phase.
VII. INTELLECTUAL PROPERTY
7.1 SPECTRX'S INTELLECTUAL PROPERTY. SpectRx shall remain the sole
owner of (i) SpectRx's Intellectual Property, which SpectRx possessed as of the
Effective Date, whether or not the subject matter of such intellectual property
is related to the Product Field, (ii) Developed Technology that was developed
solely by SpectRx (and not in performance of its services hereunder as provided
for in the Statement of Work), and (iii) Derived Technology in respect of
SpectRx's Intellectual Property. Developed Technology shall not include any of
the foregoing.
7.2 WELCH ALLYN'S INTELLECTUAL PROPERTY. Welch Allyn shall remain the
sole owner of (i) Welch Allyn's Intellectual Property, which Welch Allyn
possessed as of the Effective Date, whether or not the subject matter of such
intellectual property is related to the Product Field, (ii) Developed Technology
that was developed solely by Welch Allyn (and not in performance of its services
hereunder as provided for in the Statement of Work), and (iii) Derived
Technology in respect of Welch Allyn's Intellectual Property. Developed
Technology shall not include any of the foregoing.
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<PAGE> 14
7.3 DEVELOPED TECHNOLOGY. All right, title, and interest in all
Developed Technology created jointly by the Parties through the performance of
work contemplated by this Agreement, whether such technology is related to the
Product Field or a Non-Product Field, shall be jointly owned by the Parties. The
Parties are each entitled to use the Developed Technology in Non-Product Fields
without restriction, and without accounting to each other for profits from such
use.
(A) Cooperation in Protecting Developed Technology. The Parties
shall consult and cooperate with one another through the Management Committee to
make appropriate Filings deemed reasonably necessary to provide legal protection
of Developed Technology. The Management Committee shall determine the scope,
content, claims, and jurisdiction of the Filings. The costs incurred for Filings
shall be deemed Expenditures subject to the Cash Expenditure Equalization
Procedure. Notwithstanding Section 3.4 of this Agreement, either Party may, at
its discretion and expense, File an application with respect to Developed patent
rights, if the Management Committee deadlocks and fails to act to make a joint
Filing in any jurisdiction in which the Party desires protection. In that event,
the other Party shall cooperate with the applicant so that the applicant can
make all Filings necessary to obtain rights to an issued patent. Such
cooperation shall include obtaining assignments from employees, and giving all
reasonable assistance in connection with the preparation and prosecution of any
such patent applications including execution of all instruments or documents
reasonably requested by the applicant.
(B) Employee and Contractor Assignment Agreements. Each Party
agrees that it shall require its employees and independent contractors to enter
into its standard form assignment of inventions and confidentiality agreement, a
copy of which has been provided to the other Party.
(C) Limitation on Use. Notwithstanding the foregoing, should
Welch Allyn decline to participate in development of the Skin Product or if the
Parties do not agree on the Skin Product Contract Terms, the use by Welch Allyn
of the Developed Technology will be limited as provided in Section 10.3 hereof.
(D) Cooperation In Enforcing Developed Technology. The Parties
shall also consult and cooperate with one another through the Management
Committee regarding enforcement of the Developed Technology against infringement
by any Third Parties. Should the Management Committee determine to file a
lawsuit or other claim or enforcement action as to any such infringement
("Enforcement Action"), the costs incurred in respect of same shall be deemed to
be Expenditures subject to the Cash Expenditure Equalization Procedure, and the
proceeds from same, if any, such as judgments, settlements, royalties or the
like ("Enforcement Proceeds") shall be paid equally to each Party.
Notwithstanding Section 3.4 of this Agreement, either party may, at its
discretion, file and pursue an Enforcement Action, if the Management Committee
deadlocks and fails to act to file and pursue any Enforcement Action which has
accrued. In that event, the costs incurred for the Enforcement Action shall be
paid by the initiating Party only, and shall not be deemed to be Expenditures
subject to the Cash Expenditure Equalization Procedure. All Enforcement Proceeds
shall be paid only to such initiating Party, and the declining Party shall have
no interest or claim to the Enforcement Proceeds.
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<PAGE> 15
7.4 ACCESS TO SPECTRX AND WELCH ALLYN INTELLECTUAL PROPERTY.
(A) Use Of Intellectual Property In The Project. Each Party
shall make available to the other Party those items of its Intellectual Property
which the recipient Party needs to conduct its work on the Project according to
the Statement of Work, except that no Party shall be obligated to contribute any
Intellectual Property relating to the Cervical Product which is acquired or
reduced to practice after the Effective Date, unless a separate license for such
Intellectual Property on commercially reasonable terms is agreed to by the
Parties. The recipient Party shall return the originals and all copies of
documentation of such Intellectual Property to the contributing Party within
thirty (30) days after the termination of this Agreement.
(B) Use Of Intellectual Property For Commercialization. Upon
entering into any Manufacturing and Supply Agreement or Marketing Agreement,
each Party (a "licensing Party") will provide the other Party (or its
subcontractor), to the extent reasonably necessary for performance of the
relevant Agreement, a non-exclusive, royalty-free license to use the
Intellectual Property of such licensing Party within the territory covered by
any such Manufacturing and Supply Agreement or Marketing Agreement.
7.5 THIRD PARTY INTELLECTUAL PROPERTY. To the extent either Party has,
as of the Effective Date, a license or similar right to use intellectual
property owned by a Third Party which is necessary or desirable to make, use,
and sell the Cervical Product (the "Third Party Intellectual Property"), then
such Party shall use commercially reasonable efforts to obtain a license to use
such Third Party Intellectual Property for such purpose, subject to Management
Committee approval of the terms of the license. A list identifying Third Party
Intellectual Property for each Party is attached hereto as Exhibit 7.5, and each
Party represents and warrants that its list of Third Party Intellectual Property
as well as the copies of agreements related thereto provided to the other Party,
are true, correct and complete. All royalties, license fees based on sales of
products (quantified in price or units), or other similar payments payable to
the Third Party in respect of the Third Party Intellectual Property obtained for
use in the Project ("Third Party License Payments") shall be deemed Expenditures
subject to the Cash Expenditure Equalization Procedure. Third Party License
Payments shall not include minimum royalties or patent or other intellectual
property maintenance expenses required to be paid by a Party for its Third Party
Intellectual Property. Each Party agrees to maintain its Third Party
Intellectual Property Rights to the extent such rights are used by Parties in
respect of the Project, or may reasonably be anticipated to be so used.
7.6 OTHER ACTIVITIES. Subject to the provisions of Article X as to
further agreements as to the Skin Product, each Party retains the right to
perform research, and develop and commercialize products for its own account in
Non-Product Fields.
VIII. MANUFACTURING AND SUPPLY
8.1 EXCLUSIVE MANUFACTURING RIGHTS. Welch Allyn shall have the
exclusive right to manufacture and supply, or direct the manufacture and supply
of, the Cervical Product, other than the [*]. SpectRx will have the
exclusive right to manufacture and supply, or direct the manufacture and supply
of, the [*] for the Cervical Product.
[*] to be redacted
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<PAGE> 16
(A) Relinquishing Manufacturing Rights. A Party shall
relinquish its exclusive manufacturing rights if it declines to match a
Qualified Offer received by either Party from a Third Party to manufacture the
Cervical Product or the Optics Module within thirty (30) days of receipt of the
Qualified Offer. A Qualified Offer is a written offer that documents in
reasonable detail the following:
1) The Third party offeror must be a qualified, reputable,
ISO 9000 - approved manufacturer;
2) The average price of the Cervical Product or Optics
Module must be at least [*] less than the then-current average price at which
the Cervical Product or Optics Module is being manufactured by a Party pursuant
to this Agreement;
3) The offer must contain terms and conditions, including
without limitation, quality assurance, performance standards, and delivery
capability, at least as favorable as those pursuant to which a Party is
manufacturing the Cervical Product or Optics Module pursuant to this Agreement;
4) The Third Party offeror must not be a direct competitor
of the Parties with respect to the Cervical Product and must agree to customary
confidentiality terms protecting the Parties; and
5) The cost of transferring production must not exceed
the value of the cost savings that would be realized by accepting the Qualified
Offer.
(B) Implementing A Third Party Manufacturer. Disputes
regarding whether an offer is a Qualified Offer shall be resolved by the
Management Committee or the Dispute Resolution provisions of Article XVIII of
this Agreement, as the case may require. Any manufacturing and supply by a Third
Party shall be effected pursuant to a Manufacturing and Supply Agreement. Use of
a Third Party for manufacturing pursuant to this Section shall not modify the
Parties' other obligations under this Agreement.
8.2 MANUFACTURE OF THE DISPOSABLE. The Disposable may be
manufactured by SpectRx, Welch Allyn, or a Third party, based on criteria of
lowest cost while meeting quality expectations as described in Section 8.1 (A).
The Party or Third Party manufacturing the disposable may be changed based on
the procedure for evaluating Qualified Offers described in Sections 8.1 (A) and
8.1 (B).
8.3 MANAGEMENT OF MANUFACTURING AND SUPPLY. If any manufacturing
and supply is to be performed by a Third Party, the Party identifying and
submitting the Third Party's proposal to manufacture and supply shall be
responsible to manage and oversee the Third Party's performance of its
Manufacturing and Supply Agreement, although in any event SpectRx shall manage
and oversee any manufacturing or supply of the Disposable by any Third Party.
8.4 MANUFACTURING MARGINS. The Parties shall agree on a reasonable
manufacturing margin for the Cervical Product, [*], and Disposable (the
"Manufacturing Margin"). The Party that manufactures the Cervical Product, [*],
or Disposable will realize the Manufacturing Margin related thereto without a
corresponding profit allocation to the other Party. In such instances, the
transfer price paid to the Manufacturing Party shall be reported to the
Accounting Services Provider as an Expenditure for cost of goods sold. If a
Third Party manufactures the Cervical Product, [*] or Disposable, the transfer
price paid to such Third Party shall be reported to the Accounting Services
Provider as an Expenditure for cost of
[*] to be redacted
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goods sold.
8.5 MANUFACTURING OR SUPPLY AGREEMENTS. The terms and conditions,
including price, quality assurance, performance standards, delivery, and other
customary terms and conditions applicable to the manufacture or supply of the
Cervical Product, [*], and Disposable, whether such manufacture or supply is to
be performed by a Party or a Third Party, shall be set forth in an agreement,
consistent with the provisions of this Article 8 and the other provisions of
this Agreement. The form of the Agreement shall be approved by the Management
Committee.
IX. MARKETING
9.1 MARKETING RIGHTS. The Party to whom marketing rights are assigned
for the Cervical Product as to any particular territory shall have the right to
market and sell, or direct the marketing and sale of, the Cervical Product in
such territory, and shall be responsible, using all commercially reasonable
efforts, for effecting or managing such marketing and selling efforts. Marketing
shall include packaging, transportation and distribution of the Cervical
Product, including shipping logistics and collection of receivables generated by
sales of the Cervical Product. The rights described herein are referred to as
the "Marketing Rights."
9.2 ASSIGNMENT OF MARKETING RIGHTS. Welch Allyn shall have exclusive
Marketing Rights for the Cervical Product for the territory [*]. Marketing
Rights for the Cervical Product for remaining territories in the World, shall be
allocated pursuant to the provisions of Section 9.3 hereof.
9.3 MARKETING PLAN. Welch Allyn shall have the initial and ongoing
responsibility to develop and present a marketing and sales plan for the
Cervical Product [*] which it shall revise from time to time and submit to the
Management Committee for its consideration. Such Marketing Plan shall assess the
most effective distribution channels based on the relative strength of the
Parties' respective distribution networks as evidenced by similar products in
distribution, sales force, expertise in market, and forecasts. The Marketing
Rights in any country or region of the World (outside of [*] shall be assigned
between the Parties as determined by the Management Committee (subject to
Section 3.4 of this Agreement regarding deadlock). The Management Committee may
also redirect or modify the assignment of the Marketing Rights, including
without limitation, making selections of Third Parties to conduct or assist in
marketing. The Parties acknowledge that marketing will involve co-branding the
Cervical Product with the trademarks of both Parties. The trademark of the Party
with Marketing Rights to the Cervical Product in the relevant Territory will
have dominance in such branding (the "dominant Party") such that the trademark
of the non-dominant Party shall be proximate to and approximately two-thirds in
size and overall prominence of the trademark of the dominant Party. The
marketing plans to be approved by the Management Committee pursuant to this
Section 9.3 shall include measures of diligence of sales, including forecasts
and minimum sales targets. Third Party marketing research may be employed to
assist in the preparation for such marketing plans and forecasts.
9.4 MARKETING AGREEMENTS. The Parties shall enter into Marketing
Agreements
[*] to be redacted
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between themselves, or with Third Parties, that shall detail all terms and
conditions relating to marketing and sales efforts, and the payments,
collection, shipping, packaging, delivery, and distribution of the Cervical
Product.
X. OPTION REGARDING THE SKIN PRODUCT
10.1 Feasibility Assessment. During a period estimated to be [*] months
after the Effective Date, SpectRx will use commercially reasonable efforts to
prove the feasibility of the Skin Product. If SpectRx determines that further
efforts to prove feasibility are not warranted, it may discontinue same and
notify Welch Allyn, but if SpectRx thereafter renews its efforts to prove
feasibility at any time before the first to occur of: i) expiration of [*] after
termination of this Agreement and any joint venture formed pursuant to Section
6.6 of this Agreement, or ii) expiration of [*] after the Effective Date of this
Agreement, then Welch Allyn shall have the option to participate in the
development of the Skin Product as provided in this Section. If SpectRx
determines that it has reasonably proved feasibility of the Skin Product it
shall prepare and deliver a submission (the "Feasibility Assessment") to Welch
Allyn. The Feasibility Assessment shall include:
(A) a report in reasonable detail of its feasibility work,
comprised of the items specified in Exhibit 10.1 attached hereto;
(B) a preliminary statement of work for the Skin Product
sufficient to commence the Applied Research Phase (similar to the Statement of
Work for the Cervical Product);
(C) estimates of the Market Opportunity for the Skin Product
in the US Primary Care Market and the total Market Opportunity for the Skin
Product;
(D) a description in reasonable detail of its Expenditures
incurred in respect of proving feasibility and preparing the Feasibility
Assessment (the "Skin Product Feasibility Expenditures"); and
(E) a proposal as to the various terms and conditions
(covering generally the terms and conditions governed by this Agreement as to
the Cervical Product) to which the Parties would be subject and which would
govern development and commercialization of the Skin Product ("Skin Product
Contract Terms").
Welch Allyn shall have [*] to review the Feasibility Assessment and
either accept same, request negotiation of the Skin Product Contract Terms, or
decline to participate in development of the Skin Product.
10.2 Skin Product Contract Terms. If Welch Allyn requests negotiation
of the proposed Skin Product Contract Terms, the Parties will negotiate in good
faith for up to [*] after the request to negotiate unless the Parties agree to
extend the time for completion. If the Skin Product Contract Terms are agreed
upon, the parties shall jointly develop the Skin Product in accordance with the
statement of work therefor including the Feasibility Assessment and subject to
the Skin Product Contract Terms. The Skin Product Contract Terms shall be
consistent with the following: (i) payments required by Welch Allyn shall be
limited to sharing of costs of development of the Skin Product, and no further
technology access fee (see Section 4.4 of this Agreement) shall be required;
(ii) Welch Allyn shall have, at minimum, exclusive rights to market the Skin
Product in the [*]; (iii) costs of
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[*] to be redacted
<PAGE> 19
developing the Skin Product subsequent to the Feasibility Assessment shall be
allocated between the Parties in the same percentage determined for the
Feasibility Assessment (see Section 10.4); and (iv) the Skin Product shall not
be designed in such a manner as to be precluded from sale in the [*] due to
regulatory requirements, notwithstanding different or lesser requirements for
the dermatology market or foreign primary care markets.
10.3 Effects of No Participation. If Welch Allyn declines to
participate in development of the Skin Product or if the Parties do not agree on
the Skin Product Contract Terms, (i) all Developed Technology created or
developed by SpectRx during Feasibility Assessment for the Skin Product shall be
deemed solely owned by SpectRx, (ii) the non-competition covenant provided for
in Section 12.1 hereof as it relates to the Skin Product shall no longer apply
to the Parties, (iii) Welch Allyn may not use in any manner any of the Developed
Technology to develop or commercialize in any manner, directly or indirectly,
the Skin Product, and (iv) all Skin Product Feasibility Expenditures will be
paid by SpectRx.
10.4 Payments For the Skin Product. If Welch Allyn accepts the
Feasibility Assessment, it shall promptly pay SpectRx a percentage of the Skin
Product Feasibility Expenditures equal to a fraction, the numerator of which is
the estimate of the Market Opportunity for the Skin Product for US Primary Care
and the denominator of which is the total worldwide Market Opportunity, both as
reported in the Feasibility Assessment, but in any event such percentage shall
not be less than [*] nor more than [*]. The total to be paid by Welch Allyn
shall not exceed [*] unless Welch Allyn has given prior approval for total
Expenditures to exceed [*].
XI. CONFIDENTIALITY
11.1 Mutual Duty of Confidentiality.
(A) The Parties shall retain in confidence and not disclose to
any Third Party nor use (except as expressly permitted herein) each other's
Proprietary Information, including but not limited to Proprietary Information
independently acquired during the term of this Agreement, and each others'
marketing concepts and financial concepts related to the Products or the
Project.
(B) In order to faithfully perform their obligations under
this Section, each Party shall limit access to the other Party's Proprietary
Information to only those officers, employees, agents, and independent
contractors who shall have a need to receive or have access to such Proprietary
Information.
(C) The Parties shall not publish any studies, results, or
reports relating to the Products, or reproduce any printed or written
information received from each other without the other's prior written
permission, which permission shall not be unreasonably withheld.
(D) This Article shall not extend to any information or to any
portion of information that (i) is in the public domain or becomes generally
available to the public through no fault of Welch Allyn or SpectRx or (ii)
corresponds to information furnished to Welch Allyn or SpectRx by a Third Party
having a bona fide right to do so.
19
[*] to be redacted
<PAGE> 20
(E) Notwithstanding the foregoing, this Article shall not
restrict publicity or disclosure by any Party, in general terms (and to the
extent confidentiality can reasonably be maintained as to specific Proprietary
Information) of information concerning this Agreement, either in research or
development, financial performance, or otherwise, which is reasonably determined
by such Party to be required to fulfill its disclosure obligations to its
shareholders under applicable securities laws or as otherwise customarily
provided by such Party to its shareholders. To the extent reasonably
practicable, each Party intending to make any such disclosure shall provide the
other Party the opportunity to review such disclosure prior to its issuance and
shall make any reasonable changes requested by the other Party which are not
inconsistent with applicable securities laws.
(F) General public press releases relating to the Project or
this Agreement shall not be issued by either Party unless reviewed by the other
Party prior to issuance, and provided any reasonable changes requested by the
other Party are made which are not inconsistent with applicable securities laws.
XII. COVENANT NOT TO COMPETE AND NON-SOLICITATION
12.1 Covenant Not To Compete. During the term of this Agreement, each
Party agrees that it shall not, anywhere in the world, without the prior written
approval of the other Party, engage, directly or indirectly, in the prosecution
of the Project or commercialization of the Products, or products within the
Product Field (apart from its joint commercialization with the other Party
provided in and pursuant to this Agreement), whether as partner, shareholder,
consultant, agent, independent contractor, trustee, or in any other manner. This
covenant not to compete shall extend for a period of five (5) years after
termination of this Agreement pursuant to Section 15.3 with respect to the Party
in breach of performing this Agreement. Each Party agrees that it shall not
engage in any disparagement, whether direct or indirect, through innuendo or
otherwise, of the other Party or any of its employees, agents, officers,
directors, shareholders, or affiliates.
12.2 Non-Solicitation. During the term of this Agreement and for a
period of two (2) years thereafter, neither Party hereto shall, anywhere in the
world, without the prior written approval of the other Party, solicit or
otherwise encourage any employee, independent contractor or consultant of the
other Party to terminate his or her employment with the other Party or to enter
into employment with any other person, firm or corporation.
12.3 Blue-Penciling. If any provision or part of this Article is held
to be unenforceable because of the duration of such provision or the area
covered thereby, the Parties agree to modify the provision to reduce the
duration or area affected by such provision, or to delete specific objectionable
words or phrases ("blue-penciling"), and such provision shall then be enforced
in its reduced or blue-penciled form.
XIII. WELCH ALLYN'S REPRESENTATIONS AND WARRANTIES
13.1 Welch Allyn hereby represents and warrants that:
(A) Welch Allyn is the owner of all right, title, and interest
in and to Welch
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Allyn's Intellectual Property, free and clear of all liens, security interests,
encumbrances, financing statements, or other pledges or restrictions;
(B) Welch Allyn is not aware of any challenges to the validity
of Welch Allyn's Intellectual Property; Welch Allyn has the right to license the
same; and Welch Allyn has no knowledge of any infringement by any Welch Allyn
product embodying Welch Allyn's Intellectual Property of any intellectual
property rights owned by any Third Party, or any allegations thereof;
(C) There are no actions, suits, or proceedings, pending or,
to Welch Allyn's knowledge, threatened, that may have an adverse effect on Welch
Allyn's ability to fulfill its obligations under this Agreement;
(D) Welch Allyn is a New York corporation duly formed and
validly existing under the laws of the State of New York; has the power and
authority to own its property and to carry on its business as now conducted or
as presently contemplated; and has full power and authority to execute, deliver
and perform this Agreement;
(E) Welch Allyn's execution, delivery, and performance of this
Agreement: (i) have been duly authorized by all requisite action on the part of
Welch Allyn, including any requisite approval of its board of directors; (ii) do
not violate any provision of law, the certificate of incorporation of Welch
Allyn or any applicable order of any court or other governmental agency; and
(iii) do not breach or conflict with the terms of any agreement, document, or
instrument to which Welch Allyn is a party or which is binding upon Welch Allyn
or its property; and
(F) This Agreement constitutes a legal, valid, and binding
obligation of Welch Allyn, enforceable against Welch Allyn in accordance with
its terms.
XIV. SPECTRX'S REPRESENTATIONS AND WARRANTIES
14.1 SpectRx hereby represents and warrants that:
(A) SpectRx is the sole owner of all right, title, and
interest in and to SpectRx's Intellectual Property, free and clear of all liens,
security interests, encumbrances, financing statements, or other pledges or
restrictions;
(B) SpectRx is not aware of any challenges to the validity of
SpectRx's Intellectual Property; SpectRx has the right to license the same; and
SpectRx has no knowledge of any infringement by any SpectRx product embodying
SpectRx's Intellectual Property of any intellectual property rights owned by any
Third Party, or any allegations thereof;
(C) There are no actions, suits, or proceedings, pending or,
to SpectRx's knowledge, threatened, that may have an adverse effect on SpectRx's
ability to fulfill its obligations under this Agreement;
(D) SpectRx is a Delaware corporation duly formed and validly
existing under
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the laws of the State of Delaware; has the power and authority to own its
property and to carry on its business as now conducted or as presently
contemplated; and has full power and authority to execute, deliver and perform
this Agreement;
(E) SpectRx's execution, delivery, and performance of this
Agreement: (i) have been duly authorized by all requisite action on the part of
SpectRx, including any requisite approval of its board of directors; (ii) do not
violate any provision of law, the certificate of incorporation of SpectRx, or
any applicable order of any court or other governmental agency; and (iii) do not
breach or conflict with the terms of any agreement, document, or instrument to
which SpectRx is a party or which is binding upon SpectRx or its property; and
(F) This Agreement constitutes a legal, valid, and binding
obligation of SpectRx, enforceable against SpectRx in accordance with its terms.
XV. TERM; TERMINATION; BREACH; REMEDIES
15.1 Term. The term of this Agreement will begin on the Effective Date
and continue indefinitely, notwithstanding the expiration of any patents
licensed hereunder, until it is terminated pursuant to this Article or by mutual
written agreement of the Parties. Should the Parties terminate this Agreement by
such agreement the covenant not to compete contained in Section 12.1 shall not
apply, and the agreement shall provide for the other effects of termination.
15.2 Termination Due To Deadlock On Certain Matters. If the Parties are
not able to resolve a dispute regarding modifying the Statement of Work,
establishing or modifying Specifications, or satisfactory completion of
Milestones, as set forth in Sections 3.2 and 3.3 hereof respectively, by a
majority decision of the Management Committee or pursuant to Dispute Resolution
as defined in Section 18.1 hereof, then, unless each Party agrees to the
contrary within ten (10) days of conclusion of Dispute Resolution, the matter
will be submitted to arbitration in accordance with the procedures of Section
18.2 hereof. The decision of the arbitrator shall be non-binding on the Parties.
SpectRx shall have thirty (30) days after receipt of the arbitrator's written
decision to elect to be bound by the arbitrator's decision or to terminate this
Agreement subject to the terms and conditions of this Section.
(A) General Terms and Conditions. If this Agreement is terminated
pursuant to this Section the following provisions shall govern: (i) both Parties
shall be entitled to use the jointly-owned Developed Technology, including
access to information, documents, prototypes, materials and other such items
that are necessary to utilize the Developed Technology; (ii) the noncompetition
covenant contained in Section 12.1 hereof shall not apply; and (iii) all
Equalizing Payments accrued prior to the effective time of such termination will
remain due and payable, all in accordance with the Cash Expenditure Equalization
Procedure.
(B) Royalties and Payments. If this Agreement is terminated
pursuant to this Section and one Party commercializes the Cervical Product
(embodying the Developed Technology), as defined by occurrence of the First
Shipment Date (the Developing Party), while the other Party does not
commercialize the Cervical Product (the Non-Developing Party), the Developing
Party shall make the payments described herein to the Non-Developing Party, upon
written request containing a certification that the Non-Developing Party has
ceased efforts to
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commercialize the Cervical Product, and provided that any preconditions have
been satisfied.
(1) If this Agreement is terminated subsequent to
acceptance of the engineering document package by Welch Allyn and payment of the
[*] initial installment of the Technology Access Fee, then the Developing Party
shall pay to the Non-Developing Party an annual royalty ("Contingent Royalty"),
to be paid within 60 days of the end of each calendar year, equal to the
percentage of net sales of the Cervical Product designated on Exhibit 15.2 B (1)
attached hereto received by the Developing Party in commercialization of the
Cervical Product for the relevant year. Net sales means gross sales less
returns, customary trade discounts, and separately stated amounts for freight,
insurance, excise taxes , and tariffs. If the Developing Party discontinues
commercialization of the Cervical Product accrued but unpaid Contingent
Royalties shall be paid, and Contingent Royalties shall cease on termination of
sales of the Cervical Product.
(2) In addition to the Contingent Royalty, the Developing
Party will make payments to the Non-Developing Party in an amount determined by
the date of termination of this Agreement in accordance with the schedule on
Exhibit 15.2 B (1). The amount of the payment will be made in two installments;
one payable within 30 days of the occurrence of the First Shipment Date and one
payable within one (1) year from that date; provided, however, that if the
Developing Party discontinues commercialization of the Cervical Product prior to
the payment of the second of such installments, the second installment shall be
eliminated and canceled.
(3) If the Non-Developing Party commercializes the
Cervical Product (embodying the Developed Technology), as defined by occurrence
of the First Shipment Date, subsequent to sending notice and certification to
the Developing Party that it had ceased efforts to commercialize the Cervical
Product, the Non-Developing Party will thereupon repay to the Developing Party
all installment payments and Contingent Royalties described in this Section, and
no such further payments will be due to either Party.
15.3 Remedies For Breach. In the event of a material breach of this
Agreement by either Party, the other Party may, at its option, pursue any or all
of the following remedies after twenty (20) days' written notice describing the
breach:
(1) So long as the breach continues, the non-breaching Party
may perform or cause to be performed by a Third Party all or any part of the
obligations that the breaching Party has failed to timely perform, and in that
event, the breaching Party shall reimburse the non-breaching Party upon demand
for any and all reasonable costs, expenses and other charges of any kind
reasonably incurred by the non-breaching Party or paid to another party in
connection with the substituted performance;
(2) Discontinue making any further payments that may be
required hereunder to the breaching Party (subject to resumption upon cure of
the breach, including payment of discontinued payments) and offset against any
obligations owed to the breaching Party any sums payable to the breaching Party;
(3) Assert a claim for damages or enforce specific
performance; and
23
[*] to be redacted
<PAGE> 24
(4) Terminate this Agreement; provided, however, that termination
may be made pursuant to this Section only after the non-breaching Party has
given not less than sixty (60) days' prior written notice (in lieu of the twenty
(20) days' notice provided above) to the breaching Party, specifying such breach
and stating that the Agreement is to be terminated if the breaches are not cured
within the sixty (60) day period. The 60-day period may be extended up to an
additional one hundred and twenty (120) days if and so long as the Party in
breach has commenced cure of the breach within the 60-day period and
continuously and diligently pursues cure during and after such period.
15.4 Effects Of Termination For Breach. In the case of termination
pursuant Section 15.3: (i) the breaching party will provide the terminating
Party a non-exclusive, worldwide, royalty-free (except for Third Party License
Payments) license to use the breaching party's Intellectual Property and Third
Party Licensed Intellectual Property for the development, design, use,
manufacturing and marketing of the Cervical Product, such license to be in a
form containing customary provisions as reasonably proposed by the terminating
Party, including access to documents and similar provisions, and (ii) Section
12.1 shall survive termination of this Agreement but only in favor of the
terminating Party against the breaching Party.
15.5 Remedies Cumulative. All remedies provided hereunder, at law and
in equity, are cumulative.
15.6 Survival; Certain Effects of Termination.
Articles X, XI, XIII, XIV, XVI, XVII, and XVIII hereof and
Sections 7.1, 7.2, 7.3, and 12.2 shall survive termination of this Agreement
whether pursuant to Section 15.2 or Section 15.3 hereof.
XVI. LIMITATION OF LIABILITY AND REMEDIES
16.1 Liability Limitations. Except for Third Party Liability arising
under Article XVII, in no event shall either Party be liable for indirect,
incidental, penal, consequential, or other similar damages arising out of this
Agreement.
16.2 Exclusive Remedies. The remedies set forth in this Agreement shall
constitute the sole and exclusive remedies of the Parties hereunder, and the
Parties shall not avail themselves of any other remedies, whether in equity or
at law, except that either Party may seek injunctive relief and/or damages for
violation of Article XII.
XVII. INDEMNIFICATION
17.1 By Welch Allyn. Welch Allyn shall indemnify, defend, and hold
SpectRx, its directors, employees, agents, representatives, and licensors
harmless from and against all claims, causes of action, settlement costs
(including, but not limited to, reasonable attorney fees and expenses), losses
or liabilities ("Liabilities") of any kind (i) that are asserted by a Third
Party (including, without limitation, product liability claims) to the extent
arising from the development, manufacture, sale, or use of the Cervical Product,
to the extent arising out of or
24
<PAGE> 25
attributable to any negligent act or omission or willful misconduct exclusively
on the part of Welch Allyn, its employees, agents, or representatives or arising
from any other theory of liability (except to the extent such Liabilities arise
from SpectRx's directors', employees', agents' or representatives' negligence or
willful misconduct); or (ii) to the extent arising from a breach of a
representation or warranty in Section 13.1.
17.2 By SpectRx. SpectRx shall indemnify, defend, and hold Welch Allyn,
its directors, employees, agents, representatives, and licensors harmless from
and against all Liabilities of any kind (i) that are asserted by a Third Party
to the extent arising from the development, manufacture, sale, or use of the
Cervical Product, to the extent arising out of or attributable to any negligent
act or omission or willful misconduct exclusively on the part of SpectRx, its
directors, employees, agents, or representatives or arising from any other
theory of liability (except to the extent such Liabilities arise from Welch
Allyn's directors', employees', agents' or representatives' negligence or
willful misconduct); or (ii) to the extent arising from a breach of a
representation or warranty in Section 14.1.
17.3 Reimbursable Liabilities. To the extent a Liability asserted by a
Third Party and incurred by a Party (including, without limitation, a product
liability claim) is not attributable to any independent negligent act or
omission or willful misconduct of a Party (and thus not subject to
indemnification pursuant to Section 17.1 or Section 17.2 hereof), but rather
results from the joint activity of the Parties pursuant to this Agreement, or
activities provided for in any Manufacturing and Supply Agreement or Marketing
Agreement, then such Liability shall be deemed to be an Expenditure which shall
be subject to the Cash Expenditure Equalization Procedure. The Parties shall
presume, absent clear and convincing evidence to the contrary, that any
Liability asserted by a Third Party and incurred by a Party shall be
attributable to the joint activity of the Parties or otherwise contemplated by
this Agreement.
17.4 Conditions of Indemnification. If either Party expects to seek
indemnification under this Article, such Party shall promptly give notice to the
indemnifying Party of the basis for such claim of indemnification. If
indemnification is sought as a result of any Third Party claim or suit, the
Party seeking indemnification shall send notice to the indemnifying Party within
fifteen (15) days after receiving notice of the Third Party claim or suit, or
within a longer time period which does not materially prejudice the rights of
the indemnifying Party. Each Party shall cooperate fully with the other Party in
the defense of all such claims or suits. No settlement or compromise shall be
binding on a Party without its prior written consent (which consent will not be
unreasonably withheld) unless such settlement fully releases the Party without
any liability, loss, cost, or obligation to such Party.
XVIII. DISPUTE RESOLUTION
18.1 Decisions and Dispute Resolution. The Management Committee, by
majority vote, shall first attempt to make decisions and resolve disputes about
all matters related to the interpretation, application, and performance of this
Agreement and all other matters pertaining to the Cervical Product or the
Project . If the Management Committee fails to act, then either Party may send
written notice of the decision or dispute to the other Party for informal
resolution between the Parties' respective chief executive officers or their
respective designees (the "Parties' Representatives") within thirty (30) days
after such notice is received ("Dispute Resolution"). If
25
<PAGE> 26
the decision or dispute is not resolved by Dispute Resolution, or if the
Parties' Representatives fail to meet within the thirty (30) day period, the
decision or dispute shall be settled by binding arbitration in accordance with
Section 18.2; provided, however, that the disputes referenced in Section 15.2
relating to deadlock pursuant to Sections 3.2 and 3.3 shall not be submitted to
or settled by binding arbitration pursuant to Section 18.2. Further, any failure
to agree as to alternate commercialization of Developed Technology as referred
to in Section 3.5 hereof shall not be submitted to or settled by binding
arbitration pursuant to Section 18.2.
18.2 Arbitration. Except as specifically provided in Section 18.1, if
any deadlock or dispute is not resolved by Dispute Resolution, the decision or
dispute shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof, including an injunction. The arbitration shall be
conducted by a single arbitrator in Washington, D.C. The expenses of the
arbitration shall be borne between the Parties as determined by the arbitrator,
except that each Party shall bear the cost of its own experts, evidence, and
legal counsel.
XIX. MISCELLANEOUS
19.1 Addresses and Notice. All notices and other communications
required or desired to be served, given, or delivered hereunder shall be made in
writing or by a telecommunications device capable of creating a written record
and shall be addressed to SpectRx or Welch Allyn to be notified as follows:
(A) If to SpectRx: SpectRx, Inc.
Attention: Chief Executive Officer
6025A Unity Drive
Norcross, GA 30071
Telephone Number: (770) 242-8723
Telecopy Number: (770) 242-8639
(B) If to Welch Allyn: Welch Allyn, Inc.
Attention: Corporate Counsel
4341 State Street Road
P.O. Box 220
Skaneateles Falls, New York 13153-0220
Telephone Number: (315) 685-4100
Telecopy Number: (315) 685-1769
or, at such other address designated by such Party in a written notice to the
other Party. Notices shall be deemed to have been duly given (i) if delivered
personally or otherwise actually received, (ii) if sent by overnight delivery
service, (iii) if mailed by first class United States mail, postage prepaid,
registered or certified, with return receipt requested, or (iv) if sent by
telecopy for which confirmation of receipt is recorded. Notice mailed as
provided in clause (iii) above shall be effective upon the expiration of three
(3) business days after its deposit in the United States mail, and notice sent
as provided in clause (iv) above shall be effective upon successful
transmission. Notice given in any other manner described in this paragraph shall
be effective
26
<PAGE> 27
upon receipt by the addressee thereof. Changes in addresses, addressees, phone
numbers, and telecopy numbers may be specified by written notice.
19.2 Avoidance of Infringement. In performing services under this
Agreement, both SpectRx and Welch Allyn shall avoid knowingly designing or
developing any items that infringe any patents or other intellectual property
rights of any Third Party. If either Party becomes aware of any possible
infringement in the course of performing work hereunder, it shall immediately
notify the other Party in writing.
19.3 Relationship of the Parties. The relationship of the parties under
this Agreement is that of independent contractors. Nothing contained in this
Agreement shall be construed to constitute the Parties as partners or joint
venturers, or either Party as an agent or employee of the other. Neither Party
has any express or implied right under this Agreement to assume or create any
obligation on behalf of or in the name of the other, or to bind the other Party
to any contract, agreement or undertaking with any Third Party, and no conduct
of the parties shall be deemed to infer such right.
19.4 Section Headings; Exhibits. The section and subsection headings
used herein are for reference and convenience only, and shall not enter into the
interpretation of this Agreement. The exhibits referred to in this Agreement and
attached, or to be attached hereto, are incorporated herein by reference.
19.5 Required Approvals. Where agreement, approval, acceptance, or
consent by either Party is required by any provision of this Agreement, such
action shall not be unreasonably delayed or withheld.
19.6 No Waiver. No delay or omission by either Party in exercising any
right or power occurring upon any noncompliance or default by the other Party
with respect to any of the terms of this Agreement shall impair any such right
or power or be construed to be a waiver thereof. A waiver by either Party of any
obligation to be performed by the other shall not be construed as a waiver of
any succeeding breach of this Agreement. Unless stated otherwise, all remedies
provided for in this Agreement shall be cumulative and in addition to any
remedies available at law, in equity, or otherwise.
19.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of Georgia, excluding its conflict of laws.
19.8 Entire Agreement. This Agreement and the other agreements
specifically referred to herein constitute the entire agreement between the
Parties, and supercedes all prior agreements or understandings, including
without limitation the Letter of Intent. No change, waiver, or release relating
to this Agreement shall be valid unless it is in writing and executed by the
Party against whom it is to be enforced.
19.9 No Assignment. Neither Party may, without the prior written
consent of the other Party, assign or transfer this Agreement or any obligation
incurred hereunder, except by merger, reorganization, consolidation, or sale of
all or substantially all of such Party's assets.
27
<PAGE> 28
19.10 Severability. If any term or provision of this Agreement shall
for any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term or
provision hereof, and there shall be substituted for the provision at issue a
valid and enforceable provision as similar as possible to the invalid provision.
19.11 Force Majeure.
(A) Delay or failure on the part of either Party in performing
its obligations under this Agreement shall not subject such Party to any
liability to the other if such delay or failure is caused by or results from
acts such as but not limited to acts of God, fire, explosion, flood, drought,
war, riot, sabotage, embargo, strikes or other labor trouble, or compliance with
any law, order or regulation of any government entity acting under color of
right.
(B) Upon occurrence of an event of force majeure, the affected
Party shall promptly notify the other Party in writing, setting forth the
details of the occurrence, and make every attempt to resume the performance of
its obligations as soon as practicable after the force majeure event ceases. If
such event prevents or will prevent performance of a material provision of the
Agreement by one Party for more than six (6) months, then the other Party may
immediately terminate this Agreement upon written notice to the non-performing
Party, in accordance with Section 15.3 hereof.
SPECTRX, INC. WELCH ALLYN, INC.
By: Mark A. Samuels By: Lew F. Allyn
--------------------------------- ---------------------------------
Mark A. Samuels, Lew F. Allyn
President and Chief Executive Officer Executive Vice President
By: Kelley E. Murphy
---------------------------------
Kelley E. Murphy
Business Manager Endoscopy
28
<PAGE> 29
EXHIBIT 1.26
Profit and Loss Methodology
The Management Committee shall establish the components of the Profit
and Loss Statement. Both parties will be required to track and report expenses
on the same basis. The Accounting Services Provider will record all Cervical
Product revenues and expenses of both parties in the Profit and Loss Statement
which will be reported to Welch Allyn and SpectRx on a quarterly basis or more
frequently, depending on each Party's specific needs. This statement will
determine Adjusted Operating Profits and Losses which are defined as; Net sales
(net of returns and allowances) less all operating costs directly attributable
to the Project. Costs attributable to the Project will include all
variable/directly assignable manufacturing costs, selling/marketing costs,
research and development costs, and an appropriate allocation of indirect costs
(manufacturing, selling, and administrative expense). These indirect costs of
manufacturing, selling and administration attributable to the Cervical Product
will be estimated and expensed through the Profit and Loss Statement. SpectRx's
and Welch Allyn's allocations will be agreed to by the Parties during the annual
budgeting process during the fourth quarter of the year preceding the budget
year. The Adjusted Operating Profit and Loss statement will reflect the profit
or loss generated by the Project. Adjusted Operating Profits And Losses will be
shared equally by Welch Allyn and SpectRx. The Accounting Services Provider will
equally distribute the profits to SpectRx and Welch Allyn or equally allocate to
SpectRx and Welch Allyn the losses as part of the Cash Expenditure Equalization
Procedure.
29
<PAGE> 30
EXHIBIT 1.31(A)
SpectRx Patents and Patent Applications
[*]
[*] To be redacted
<PAGE> 31
EXHIBIT 1.35(A)
Welch Allyn Patents and Patent Applications
Issued Patents
<TABLE>
<CAPTION>
Patent No. Patent Title
<S> <C>
Des.391,360 COLPOSCOPE WITH A SWING ARM SUPPORTING FIXTURE
Des.395,084 VIDEO COLPOSCOPE WITH VERTICAL POLE SUPPORTING FIXTURE
5,840,012 DIAGNOSTIC INSTRUMENT SUPPORTING SYSTEM
</TABLE>
Pending Applications
<TABLE>
<CAPTION>
Serial No. Patent Title
<S> <C>
29/062,355 VIDEO COLPOSCOPE
08/748,374 DIAGNOSTIC INSTRUMENT ILLUMINATION SYSTEM
08/700,299 APPARATUS AND METHOD FOR VIDEO COLPOSCOPE WITH ELECTRONIC GREEN FILTER
</TABLE>
31
<PAGE> 32
EXHIBIT 3.1
-----------
Statement of Work
Statement of Work
-----------------
SpectRx/Welch Allyn
Cervical Cancer Product
Appendix "A"
Page 1
<PAGE> 33
<TABLE>
<CAPTION>
REV. DESCRIPTION M.C. M.C. M.C. M.C. M.C.
#1 #2 #3 #4 #5
Initial release
<S> <C> <C> <C> <C> <C> <C>
A
B
C
D
E
F
G
H
I
J
</TABLE>
Page 2
<PAGE> 34
1. Introduction and STATEMENT OF WORK overview
SpectRx and Welch Allyn will jointly develop a Cervical Product as defined in
this Statement of Work and the associated Agreement. This Statement of Work
outlines the responsibilities of the parties, milestones and, associated
deliverables, payment schedules, and development process guidelines to be used
throughout the product development. Each party will assign a Program Manager to
oversee the completion of its respective responsibilities as well as to ensure
the appropriate level of interaction between the companies is achieved. The
Management Committee will support the research and development process and
development of this Statement of Work. The program will be implemented by a
cross functional team consisting of both SpectRx and Welch Allyn people. An
organizational chart for the team and a list of Management Committee members is
shown in attachment A. In general, the responsibilities are allocated as
follows. Attachment B is an attempt to indicate the general breakdown of
responsibility including the use of outside resources.
SpectRx
- - Applied Research Phase---perform the design, prototyping, clinical
trials, program management and related work focused on proving clinical
and technical feasibility, culminating with the delivery of an
engineering package and clinical feasibility assessment report to WA.
- - Development Phase---design, development and preparation for manufacture
of the optics module and disposable and calibration mechanism (further
definition required), detection algorithm development, coordination and
execution of clinical trials (validation, pivotal as required), support
overall product development process with WA. Development of
manufacturing for the optics module and other applicable components and
assemblies. Additional responsibilities as defined by future revisions
to the Statement of Work.
Welch Allyn
- - Applied Research Phase---responsible for market research and strategy
as required, and supporting SpectRx's research, design and clinical
efforts, program management.
- - Development Phase---design, development and preparation for manufacture
of the product assembly and other applicable components. Development of
manufacturing for the product assembly and other applicable components
and assemblies. Development of sales, marketing, and promotional plans
for applicable countries and/or markets. Support SpectRx development
efforts. Additional responsibilities as defined by future revisions to
the Statement of Work.
This Statement of Work outlines major milestones constituting the major phases
of the program and certain sub-phase milestones. Associated with these
milestones are specific technical, clinical, marketing and business deliverables
and, in some cases, references to the appropriate Gate deliverables outlined in
Attachment C. Major milestones are formal points which will require sign-off by
the Management Committee indicating their willingness to proceed into the next
phase. Certain phases have associated payments. Other costs will be shared per
the procedures defined in the Agreement.
The functions and responsibilities of this Management Committee as they relate
to the maintenance of the Statement of Work are further defined in Section 4.
Page 3
<PAGE> 35
The program will be conducted in accordance with the Welch Allyn Product
Development process (Attachment C) and signoff sheet (Attachment F) and the
Welch Allyn Software Development process (Attachment D) to insure that the FDA
and ISO requirements are met.
2. Definitions
2.1 TERMS DEFINED IN THE AGREEMENT ARE UNDERLINED IN THIS
STATEMENT OF WORK.
2.2 Product Requirements/Definition----(needs to be
defined in detail including performance, cost
targets, configuration related requirements etc).
3. Program Phases, Milestones, Deliverables, and Acceptance
3.1 Phases, milestones and deliverables The program has
been subdivided into a series of phases with
milestones, associated deliverables, schedule and
payments. The program phases and milestones are
summarized below in Table 1. More specific overall
Phase I deliverables are defined in attachment E1.
Overall Phase II deliverables and project schedule
are included in attachment E2 (fiber optic based
system) and E3 (camera based system).
Table 1 - Program Phases and Milestones
<TABLE>
<CAPTION>
Phase Specific Deliverables Gate Sign- Timing/ SpectRx Spend WA WA
Off Duration Estimated Spend Perform
Req'd Estimated Pay
<S> <C> <C> <C> <C> <C> <C> <C>
Applied Prototype & Clinical
Research Feasibility Assessment
Phase 1 * Deliverables per Estimated [*] [*]
attachment E1. Completion
* SpectRx to supply [*] [*]
report for WA
approval.
Phase 2 * Deliverables per [*] [*] [*]
attachment E2 and
E3 (Advance at
* Spextrx to supply ([*] total estimated start of Phase
report for WA Phase II cost) II)
approval. [*]
[SpectRx to incur 1/2 (Mid-point%r*%r of
of Phase II total cost] Phase II)
[WA to pay 1/2
of Phase II
total cost]
</TABLE>
[*] To be redacted
Page 4
<PAGE> 36
<TABLE>
<CAPTION>
Phase Specific Deliverables Gate Sign- Timing/ SpectRx Spend WA WA
Off Duration Estimated Spend Perform
Req'd Estimated Pay
<S> <C> <C> <C> <C> <C> <C> <C>
Product Dev. Product Development [*] 50% Split costs 50% Split
Expenses per approved Statement [*] Costs
of Work (Total Phase cost Est [*]
[*] (Total Phase
cost Est
[*]
Product Dev. Performance Payment 1 Upon [*]
Performance acceptance of
Payments Phase II
[*] by WA
and agreement
to proceed with
development
Performance Payment 2 [*] [*]
Performance Payment 3 [*] [*]
Performance Payment 4 [*] [*]
Performance Payment 5 [*] [*]
Performance Payment 6 [*] [*]
Overall [*] [*] [*] [*]
Program (Estimated) (Estimated) (Estimated) MM
total
</TABLE>
*SpectRx/WA to agree on what "Mid-point" means.
3.2 ACCEPTANCE TESTING
3.3.1 OVERVIEW
The following section describes the possible
methods employed by the project team in an
effort to assess to what extent deliverables
and/or key milestones have been completed.
The Management Committee will be responsible
to review findings and determine whether or
not a deliverable has been completed and/or
additional action is required.
3.3.2. ACCEPTANCE TESTING METHODS
May include any or all of the following activities:
1. Review of technical descriptions, testing
results, clinical results, statistical
analysis, design documentation, etc.
2. Participation in technical discussions,
design reviews, code walkthroughs, clinical
use, etc.
3. Witness of demonstrations, tests, in process
design activities, etc.
[*] To be redacted
Page 5
<PAGE> 37
4. Independent testing of designs, prototypes,
models, etc.
5. Inspection of physical items including
prototypes, finished designs, test and
measurement setups, etc.
6. Other methods and activities which emerge as
the program progresses and that are agreed
upon by the parties.
Welch Allyn will apply any or all of the above
methods to assess whether any deliverable or
demonstration has met its requirements.
3.3.3 ACCEPTANCE TESTING IMPACT ON PROJECT
SCHEDULE
It is assumed that SpectRx project activities will
continue in parallel with acceptance testing
activities and that the project schedule will not be
impacted.
3.3.4 ACCEPTANCE TESTING PROCESS
3.3.4.1 APPLICABILITY OF ACCEPTANCE TESTING
The following acceptance process
applies to deliverables from
SpectRx to Welch Allyn.
3.3.4.2 INITIAL REVIEW
Welch Allyn will review any
deliverable(s) and respond with
comments and questions to SpectRx
within 10 working days of receipt
of the deliverable(s). If comments
and/or questions are not provided
by Welch Allyn within 10 working
days of deliverable receipt, the
deliverable will be considered
accepted, subject to the provisions
of Paragraph 3.3.3.3 below.
3.3.4.3 REVIEW PERIOD EXTENSIONS
In some cases, Welch Allyn may
require longer than 10 working days
to review and respond to a
deliverable. If additional time
is required:
1. The WA Program Manager will
notify SpectRx during the first
10 days of the review period
that an extension to the review
period is needed.
2. WA will take no longer than an
additional 15 working days for
the review extension.
3. WA will work with SpectRx to
prioritize the order of review
to eliminate or minimize any
schedule impact. If a schedule
impact cannot be avoided, the
parties will work together to
appropriately adjust the
schedule.
3.3.4.4 DELIVERABLE REVISIONS
Revisions to the deliverable(s) may
be required by the comments and
questions. Revisions to
deliverables in response to
comments will be generated within
10 working days of receipt of the
comments and questions. Upon
receipt of the revisions, Welch
Allyn will review the revisions and
send any additional comments and
questions to SpectRx within 5
working days of receipt of the
revisions. Any additional comments
will only address the revisions
received. If the additional
comments are not provided by
Welch Allyn within 5 working days
of revision receipt, the
revisions will be considered
accepted.
Page 6
<PAGE> 38
4. PRODUCT DEVELOPMENT RESPONSIBILITIES
This section provides additional information on Welch Allyn and SpectRx
responsibilities. Also see attachment B.
4.1 RESPONSIBILITIES OF THE MANAGEMENT COMMITTEE
As defined in the Agreement.
4.2 PROJECT COST ACCOUNTING PROCEDURES (TO BE DEFINED)
(SpectRx and WA will meet to solidify the accounting practices
necessary to track and manage the project)
4.3 MANUFACTURING AND SUPPLY
SpectRx and Welch Allyn will have ultimate responsibility for
the components/assemblies they are responsible to manufacture.
Both parties will make efforts to select the appropriate
supplier based on evaluation with respect to product quality,
core competence compatability, product cost, delivery,
inventory, and general manufacturing qualifications. Suppliers
must be in compliance or are certified through the Welch Allyn
Supplier Certification Process or similar SpectRx process.
Manufacturing rights, supply, margins, and supply agreements
are per the Agreement.
4.4 TOOLING AND AUTOMATIC TEST EQUIPMENT
Welch Allyn and SpectRx will have ultimate responsibility for
the development and implementation of tooling and test
equipment applicable to the components or assemblies that they
manufacture and/or source. Both Welch Allyn and SpectRx are
expected to give input to the requirements for all components
and assemblies as part of overall design review of the product
in general.
4.5 TECHNICAL INFORMATION FROM WELCH ALLYN TO SPECTRX
Technical information will be required by SpectRx of Welch
Allyn in the form of discussion or documentation in order to
complete deliverables for the program. SpectRx will inform
Welch Allyn of the information needed and when it is needed.
Welch Allyn will provide the information in a timely manner.
SpectRx will review the information in a timely manner.
4.6 PROTOTYPES
SpectRx will be responsible for the completion of all Applied
Research Phase prototypes. (Responsibility for prototypes
beyond the Applied Research Phase are tbd)
4.7 DOCUMENTATION TOOLS AND FILE TRANSFER
4.7.1 MECHANICAL DESIGN TOOLS AND FILE TRANSFER
SpectRx and Welch Allyn will use pro/ENGINEER for all
solid modeling and drawings. SpectRx will follow
Welch Allyn drafting standards and will use Welch
Allyn drawing formats for those components and
assemblies related to Welch Allyn manufacturing or
sourcing.
4.7.2 ELECTRICAL DESIGN TOOLS AND FILE TRANSFER
SpectRx and Welch Allyn will use ????(OrCAD,
Cadence?, rev.level?)
4.7.3 SOFTWARE DESIGN TOOLS AND FILE TRANSFER
Page 7
<PAGE> 39
Where applicable, SpectRx will release software to
Welch Allyn consistent with Attachment D.
5. Intellectual property ownership and technology application
Both SpectRx and Welch Allyn bring technologies and know-how to the Program.
During the program it is likely that new technology and know-how will be
developed by both SpectRx and Welch Allyn. The intent of the following sections
is to clarify the basis of ownership and rights to use the technology and
know-how which emerges from the project.
5.1 PATENTS
It is to the advantage of both Welch Allyn and SpectRx to
generate as many patents as possible during the program. A
robust wall of patents will help establish this product's
place in the market and provide both Welch Allyn and SpectRx
with a competitive advantage in developing follow-on products.
The following paragraphs augment the discussions of derived
technology and developed technology in the Agreement.
5.5.1 IDEA DOCUMENTATION
Both Welch Allyn and SpectRx will keep and maintain
patent notebooks to record ideas that emerge from the
program.
5.5.2 WELCH ALLYN DERIVED TECHNOLOGY
The following are background technologies which Welch
Allyn brings to the project. IP per the Agreement.
Know-how to be defined.
5.5.3 SPECTRX DERIVED TECHNOLOGY
The following are background technology which SpectRx
brings to the project in addition to the patents
described in attachment D. IP per the Agreement.
Know-how to be defined.
Page 8
<PAGE> 40
ATTACHMENT B
The following is a general indication of level of responsibility and
contribution for the development, manufacturing and sale of the cervical cancer
detection product.
<TABLE>
<CAPTION>
WA% SpectRx% outside%
--- -------- --------
<S> <C> <C> <C>
core technology development [*] [*] [*]
software/algorithm develop. [*] [*] [*]
electrical engineering [*] [*] [*]
mechanical engineering [*] [*] [*]
industrial engineering [*] [*] [*]
clinical evaluations [*] [*] [*]
statistical analysis [*] [*] [*]
quality control [*] [*] [*]
regulatory/agency [*] [*] [*]
manufacturing [*] [*] [*]
marcom (US) [*] [*] [*]
</TABLE>
[*] To be redacted
<PAGE> 41
ATTACHMENT C:
WELCH ALLYN PRODUCT DEVELOPMENT PROCESS
(REV. H)
[*]
[*] To be redacted
<PAGE> 42
ATTACHMENT D:
WELCH ALLYN SOFTWARE DEVELOPMENT PROCESS SUMMARY
[*]
Page 1
[*] To be redacted
<PAGE> 43
ATTACHMENT E1:
SPECTRX PHASE I DELIVERABLES
1. Staff project. Develop team organizational structure and define roles.
Define staff needs going forward, including internal staff and
necessary consultants etc.
2. Complete systems analysis for the [*].
3. Complete equipment procurement for the [*]. and order all components
for the [*].
4. Build [*](complete system ready for use in Phase II clinical
evaluations).
5. Complete lab testing for the [*]/Develop and evaluate test calibration
standards and phantoms. (Demonstrate repeatability with respect to
validated calibration system).
6. Complete pilot study protocol for [*] may or may not have the same
protocol) and submit to IRB. SpectRx and WA to agree on content to
promote flexibility in running the study while including the critical
elements. SpectRx and WA to agree on and implement additional documents
and/or methods in an effort to outline additional detail beyond the IRB
approved protocol that is important to the clinical trial.
7. Complete clinical SOP's:
a. CL-001: Clinical Development
b. CL-002: Clinical Trial Master Plan
c. CL-003: Investigator Selection
d. CL-004: Site Initiation Visit
e. CL-005: Internal Training Certification
f. CL-006: Study Coordinator Training
g. CL-007: Adverse Events Reporting
h. CL-008: Study Close Out
8. SpectRx/WA agreement on IP strategy.
a. SpectRx to complete a claim-by-claim comparison of at
least [*] of the [*] key patents defined in the Nov.
4%gth%g meeting.
b. Develop specific strategy on if and/or how [*].
[*] To be redacted
<PAGE> 44
ATTACHMENT E2: PHASE II DELIVERABLES (F/O CERVICAL CANCER [*] SYSTEM)
PILOT STUDY PATIENT DATA COLLECTION FOR TRIAL SET.
Train and work with clinician. Equipment support and support of data collection
efforts.
Assess and implement hardware changes [*] dictated by study. Complete all
modifications/revisions.
Assess and implement measurement sequence and protocol changes. Determine the
need and the feasibility of introducing a [*].
Complete safety study.
[*]
Complete design and development of [*] capable of [*].
Phase in new [*] into the pilot study.
SECOND [*] SYSTEM FOR SECOND CLINICAL SITE.
Design, develop and commission second [*] probe system. Commission second
clinical site (site selection, IRB approval etc.)
DATA ANALYSIS.
Process incoming data for [*].
Principle component analysis:
Determine best [*]
Determine best [*].
Develop and test [*].
[*] To be redacted
<PAGE> 45
DEVELOPMENT OF [*].
Evaluate new [*] materials for [*].
Evaluate Gretag/Macbeth reflectance standards for disposable calibrant.
CELL LINE STUDIES.
Studies on [*].
INTELLECTUAL PROPERTY.
Continued Assessment of IP landscape with appropriate disclosures and filings
based [*].
[*] To be redacted
<PAGE> 46
ATTACHMENT F:
PRODUCT DEVELOPMENT SIGN OFF SHEET
1.0 Required Signatures
The attached sign-off sheet is consistent with the signatures
that are required for each Gate and are intended to reflect
the signatures required for the product development phase
only.
2.0 Team Representation
2.0.1 Welch Allyn team representation
Program Manager: Scott Spanfelner
Technical Rep.: Al Krauter
Marketing Rep.: Sue Reilly
Medical Director: Bob Corona
Manufacturing Rep.: tbd
Purchasing Rep.: tbd
Planning Rep.: tbd
Quality Rep.: tbd
2.0.2 SpectRx team representation
Program Manager*: Mark Faupel
Technical Rep. #1: Shabbir Bambot
Technical Rep. #2: Tim Harrell
Marketing Rep.*: Keith Ignotz
Manufacturing Rep.: tbd
Purchasing Rep.: tbd
Planning Rep.: tbd
Quality Rep.: tbd
* the signature of the SpectRx program manager and marketing
representative are assumed to also represent approval by the intellectual
property, clinical trials and biostatistics managers.
3.0 Management Committee Representation
Welch Allyn #1: Scott Spanfelner, R&D and Mfg manager/Endoscopy and
Medical Lighting
Welch Allyn #2: Kelley Murphy, Business Manager/Endoscopy and Medical
Lighting
Welch Allyn #3: Rich Newman, VP of R&D
Welch Allyn #4: Bob Corona, Medical Director
SpectRx #1: Mark Faupel, VP of R&D
SpectRx #2: Keith Ignotz, COO
SpectRx #3: Shabbir Bambot, Senior Research Scientist
SpectRx #4: Tim Harrell, Director of Technology Development
<PAGE> 47
<TABLE>
<CAPTION>
Project Title: Cervical Cancer Detection Device PROJECT #:
GATE 1 2 3 4 5 6
<S> <C> <C> <C> <C> <C> <C>
TEAM
Welch Allyn: program manager
technical rep.
marketing rep.
medical director
manufacturing rep. na
purchasing rep. na
planning rep. na
quality rep. na
SpectRx: program manager
technical rep.#1
technical rep.#2
marketing rep.
manufacturing rep. na
purchasing rep. na
planning rep. na
quality rep. na
MANAGEMENT COMMITTEE
Welch Allyn #1
Welch Allyn #2
Welch Allyn #3
Welch Allyn #4
SpectRx #1
SpectRx #2
SpectRx #3
SpectRx #4
EXECUTIVE COMMITTEE
Welch Allyn: Finance manager (Horan) na na
QA Manager (Watkins) na na na
Operations Manager (Geihe) na na na
Nat'l Sales Manager (Moran) na na na na
Int'l Sales Manager (Chung) na na na na
Division R&D Manager (Pingel) na na
</TABLE>
<PAGE> 48
<TABLE>
<S> <C> <C> <C> <C>
Division General Manager (Soderberg) na na na
SpectRx: Finance Manager (Muller) na na
Operations Manager ( ) na na
Chief Operating Office (Ignotz) na na
President, CEO (Samuels) na na na
</TABLE>
<PAGE> 49
EXHIBIT 7.5
Third Party Intellectual Property
SpectRx:
[*]
Welch Allyn: None
[*] To be redacted
33
<PAGE> 50
EXHIBIT 10.1
Activities and Other Items Re: Report on Feasibility of Skin Product
1. Preliminary market assessment report.
2. Preliminary listing of customer based performance and functional
requirements.
3. Initial technical feasibility report based on literature review.
4. Initial intellectual property report.
5. Core team, infrastructure, staffing and responsibilities report.
6. Preliminary device prototype design report.
7. Identification of initial clinical site for pilot research.
8. Proposed tasks and timelines (Gantt Chart) for project.
9. Report of preliminary laboratory experimentation defining [*]
expected to be found in pigmented lesions.
[*] to be redacted
<PAGE> 51
EXHIBIT 15.2 (B)
The Contingent Royalty percentage and payments referenced in Section
18.5(D) will be determined on and by reference to the status of the Project at
the time when the Agreement is terminated, as follows:
[*]
[*] to be redacted
35
