exv10w105








Exhibit 10.105




DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT




     This DEVELOPMENT, LICENSE, AND SUPPLY AGREEMENT (the “Agreement”) is entered into as
of the 16th day of October, 2000 (the “Effective Date”) by and between GEN-PROBE
INCORPORATED, a Delaware corporation having a principal place of business at 10210 Genetic Center
Drive, San Diego, California 92121 (“Gen-Probe”), and KMC SYSTEMS, INC., a Delaware
corporation having a principal place of business at 220 Daniel Webster Highway, Merrimack, New
Hampshire (“KMC”), with reference to the following:



RECITALS




     WHEREAS, Gen-Probe designs, develops and markets medical diagnostic products;



     WHEREAS, KMC is in the business of designing, developing and manufacturing medical
instruments;



     WHEREAS, Gen-Probe previously entered into design and manufacturing agreements with the Rela
division of Colorado MEDtech, Inc. (“Rela”) to have Rela design and develop an automated
instrument, sometimes referred to as the “TIGRIS Instrument”, for the processing and detection of
DNA/RNA probe-based assays intended for use in diagnostic and blood screening applications;



     WHEREAS, as an interim measure in anticipation of the negotiation of this Agreement, Gen-Probe
and KMC executed a Memorandum of Understanding, as of October 20, 2000, concerning the design and
manufacture of the Instrument (as hereinafter defined); and



     WHEREAS, Gen-Probe desires to have KMC complete certain aspects of the design of the
Instrument as set forth in the Project Plan (as hereinafter defined), as such Project Plan may be
modified from time to time hereafter in accordance with this Agreement, under Gen-Probe’s direction
and control, and to thereafter manufacture the Instrument, on a shared basis, all in accordance
with the terms and subject to the conditions set forth below.



     NOW, THEREFORE, in consideration of the mutual representations, warranties and covenants set
forth herein and other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:



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ARTICLE I




DEFINITIONS




     For purposes of this Agreement, the following words and phrases shall have the following
respective meanings:



     1.1 “Affiliate” means, with respect to a party, any person, corporation or other
business entity that directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, a party. For this purpose, control of a
corporation or other business entity shall mean direct or indirect beneficial ownership of fifty
percent (50%) or more of the voting interest in, or a fifty percent (50%) or greater interest in
the equity of, such corporation or other business entity.



     1.2 “Bill of Materials” shall have the meaning assigned to it in Section 6.2.



     1.3 “cGMP” means current good manufacturing practices, including without limitation
the FDA’s Quality System Regulations pursuant to Title 21 of the United States Code of Federal
Regulations, Part 820, as applicable to the manufacture of a Class 2 medical instrument to gain
510(k) approval by the FDA.



     1.4 “Design Engineering Phase” shall have the meaning assigned to it in Section 3.1



     1.5 “Design Scope Change” shall have the meaning assigned to it in Section 3.9.



     1.6 “Engineering Change Orders” or “ECO” shall have the meaning assigned to it in
Section 3.10.



     1.7 “FDA” means the United States Food and Drug Administration or any successor agency
thereof.



     1.8 “Gen-Probe Know-How” means any and all Information controlled by Gen-Probe that is
both: (i) disclosed to KMC by Gen-Probe under this Agreement (all such disclosures to be at
Gen-Probe’s sole discretion); and (ii) proprietary to Gen-Probe at the time of its disclosure to
KMC.



     1.9 “Gen-Probe Patents” means all Patent Rights controlled by Gen-Probe that are
necessary and/or useful for the work to be performed by KMC under this Agreement.



     1.10 “Gen-Probe Technology” means the Gen-Probe Patents and Gen-Probe Know-How.



     1.11 “Information” means any data, results, formulas, procedures, processes,
unpatented inventions, information, know-how, trade secrets, techniques, methods, development,
material, or compositions of matter of any type or kind.



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     1.12 “Instrument” means the automated instrument sometimes referred to by Gen-Probe as
the TIGRIS Instrument, for the processing and detection of DNA/RNA probe-based assays intended for
use in diagnostic and blood screening applications, the design of which was commenced by Rela and
will be modified and completed by KMC pursuant to this Agreement. “Instrument” includes future
upgrades, modifications and derivatives.



     1.13 “Long-Lead Materials” shall have the meaning assigned to it in Section
6.2.



     1.14 “MTBF” means mean time between failures of an Instrument. A failure is
considered to occur when the Instrument fails to operate in a satisfactory manner and/or cannot
produce satisfactory test results, and intervention by the operator is required to return the
Instrument to operation.



     1.15 “Patent Right” means: (i) an issued and existing letters patent, including any
extensions, supplemental protection certificates, registrations, confirmations, reissues,
reexaminations or renewals thereof; (ii) applications, including any provisional applications,
converted provisional applications, continuing prosecution applications and continuation,
divisional, substitution, or continuation-in-part applications thereof, for any of the foregoing;
and (iii) all counterparts to any of the foregoing issued by or filed in any country or other
jurisdiction.



     1.16 “Pilot Instruments” shall have the meaning assigned to it in Section 5.1.



     1.17 “Pilot Scope Changes” shall have the meaning assigned to it in Section 5.3.



     1.18 “Pilot Production Phase” shall have the meaning assigned to it in Section 5.1.



     1.19 “Product Requirements Document” or “PRD” means the specifications and
other requirements for Instruments, as set forth in Exhibit 7.



     1.20 “Production Instruments” shall have the meaning assigned to it in Section 6.1.



     1.21 “Production Phase” shall have the meaning assigned to it in Section 6.1.



     1.22 “Project Plan” means the tasks and schedules set forth in Exhibit 1 and
modifications, additions, or deletions thereto which are made from time to time hereafter in
accordance with the provisions of Section 3.10.



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     1.23 “Pro-Rated Discount Reimbursement” shall mean the pro-rated total of the
aggregate dollar amount of the following discounts provided hereunder by KMC:




(a) any discount actually applied pursuant to Section 3.9 during the
Design Engineering Phase;




(b) the Transition Phase discount of 33.5% shown on Exhibit
2, to the extent actually applied, together with any overrun
discounts actually applied pursuant to Section 4.6 during the
Transition Phase; and




(c) the Pilot Production Phase discount shown on Exhibit 2,
to the extent actually applied.


The discounts shall be pro-rated by multiplying the total actual dollar amounts of discounts
determined as above, by the difference (stated as a percentage) of (1-(Y/100)), where “Y” is the
number of completed Production Instruments for which Gen-Probe has paid (or pays) KMC the full
Transfer Price.




     1.24 “Purchase Order Cancellation Charges” shall mean the aggregate dollar amount of
the following charges related solely to the cancellation, in connection with a termination of this
Agreement permitted by Article 15, of all outstanding pending Gen-Probe purchase orders and
Long-Lead Materials and other parts authorizations issued pursuant to Sections 6.2 and 6.3, at the
following rates: (i) non-returnable parts and material in stock, at KMC’s full cost, including
general and administrative overhead; (ii) partially-built Production Instruments, at the Transfer
Price rate determined under Section 6.8 times the percentage each such Production Instrument has
been completed; (iii) for complete Production Instruments, at the Transfer Price determined under
Section 6.8; (iv) KMC labor costs directly and solely related to such termination (including, but
not limited to, working with vendors, packing items for shipment, and production cell tear-down) at
KMC’s then full normal and customary rates, including profit; and (v) any other direct costs
incurred by KMC as a sole result of such termination (including without limitation vendor
cancellation fees or non-cancelable vendor commitments) at the actual cost to KMC.



     1.25 “Scope Changes” shall mean Design Scope Changes, Transition Scope Changes and/or
Pilot Scope Changes.



     1.26 “Transition Phase” shall have the meaning assigned to it in Section 4.1.



     1.27 “Transition Scope Changes” shall have the meaning assigned to it in Section 4.6.



     1.28 “Unrecouped Cost Reduction Service Charges” shall mean all non-recurring expenses
related solely to cost reduction services by KMC pursuant to Section 6.14 that KMC has actually
incurred and not recouped pursuant to Section 6.14.



     1.29 “Work Statement” shall have the meaning assigned to it in Section 3.10.



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ARTICLE II




LICENSE GRANT




     Gen-Probe hereby grants to KMC a non-exclusive license, without the right to sublicense, under
the Gen-Probe Technology solely to design, use, make, or have made, Instruments pursuant to the
terms of this Agreement. No other rights in the Gen-Probe Technology are granted to KMC.



ARTICLE III




DESIGN ENGINEERING




     3.1 Purpose. The purpose of the work described in this Article III (the “Design
Engineering Phase”) is to permit KMC to acquire detailed information about the Instrument
design and development effort prior to the Effective Date and to then complete the hardware design
effort (initially in accordance with the Project Plan tasks identified in Exhibit 1),
including hardware design services that may be required in connection with integration of software
and chemistry. The initial goal of the Design Engineering Phase will be to identify and, subject
to the Scope Change provisions of Section 3.10 and the provisions of Section 3.3, to resolve all
hardware performance issues in order to achieve an overall MTBF of five hundred (500) hours while
maintaining existing Instrument functionality. Subject to the Scope Change provisions of Section
3.10 and the provisions of Section 3.3, the ultimate goal of KMC’s Design Engineering Phase
activities will be to enable the Production Instrument to meet Gen-Probe’s final requirements for
the Instrument, to be determined in the course of Instrument development. The parties recognize
that the Project Plan annexed hereto as Exhibit 1 may need to be amended from time to time
and Design Scope Changes may be required in order to improve Instrument functionality and/or
reliability and to accomplish the purpose and achieve the goals of the Design Engineering Phase.



     3.2 Instrument Requirements. The Instrument requirements, including without
limitation the specifications, are set forth in the Product Requirements Document. Gen-Probe shall
have the sole right to amend the PRD, in its sole discretion, during the term of this Agreement.
While KMC shall make recommendations throughout this project with regard to the PRD, the final
approval thereof shall be Gen-Probe’s; provided, however, that such right of approval shall not
relieve KMC of its duty to perform its services hereunder in a workmanlike manner.



     3.3 Hardware Design and Verification. KMC will use its best efforts to successfully
complete all hardware engineering design necessary to achieve the goals of Section 3.1 and the PRD
(it being recognized by the parties, however, that despite such best efforts certain goals may not
be achieved). The parties recognize that the Project Plan may need to be amended from time to time
and Design Scope Changes may be required in order to complete hardware engineering design. As part
of the Design Engineering Phase, KMC shall be responsible for hardware verification. KMC shall use
good workmanship in performing all Design Engineering Phase activities. KMC shall conduct its
activities in accordance with the design control sections of cGMP and ISO 9001.



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     3.4 Integration and Validation. Gen-Probe shall perform, directly or through
subcontractors selected and retained by it, all chemistry work related to the Instrument.
Gen-Probe shall also perform, directly or through subcontractors selected and retained by it, all
software development related to the Instrument and shall provide KMC with periodic software
updates. KMC shall assist Gen-Probe as requested in developing plans for validation of software
related to the Instrument and shall undertake such other software validation activities as
specifically requested by Gen-Probe. Services rendered by KMC in connection with software
validation shall be deemed a Design Scope Change and arranged by the parties pursuant to the
provisions of Section 3.10.



     3.5 Coordination. Gen-Probe and KMC will closely cooperate to achieve the goals of the
Design Engineering Phase. The parties will set up a supervisory board to coordinate Design
Engineering Phase activities. The initial representatives of each party to the supervisory board
are as follows: For KMC: Pat McNallen, Frank Palowski, and Real Modore; For Gen-Probe: Niall
Conway, Walt Bochenko, Graham Lidgard, and Mat Longiaru. The supervisory board will meet
quarterly. The supervisory board shall also coordinate Transition Phase and Production Phase
activities, as set forth below.



     3.6 KMC Project Team. KMC shall assign the project team identified on Exhibit
3 to the Design Engineering Phase and such team shall be made available for as much time as
necessary to accomplish successful execution of the Design Engineering Phase. Such team personnel
shall remain assigned to the project team while employed by KMC unless KMC and Gen-Probe agree
otherwise in writing. In the event of a significant interruption of this phase, KMC shall give
Gen-Probe the option of maintaining the availability of KMC’s project team, at Gen-Probe’s expense.
The parties recognize that as a result of Design Scope Changes, and other Scope Changes and
related activities, it may be advisable to change and/or add certain project team personnel for the
Design Engineering Phase. Gen-Probe agrees to not unreasonably withhold its consent to any such
changes or additions.



     3.7 Project Plan; Schedule. KMC will generally execute the Design Engineering Phase
in accordance with the Project Plan and will use its best efforts to meet the schedule set forth in
the Project Plan, subject to Design Scope Changes, which currently provides for completion of the
Design Engineering Phase activities no later than May 14, 2001. KMC shall use all reasonable
commercial efforts to carry out the Design Engineering Phase work set forth in Design Scope
Changes. KMC shall provide Gen-Probe with regular periodic reports, no less than every two (2)
weeks, stating the current status of the Design Engineering Phase, describing the current status of
the key components of the Instrument, and updating the Project Plan.



     3.8 Payments; Invoices. KMC shall perform the Design Engineering Phase effort on a
time and materials basis. KMC shall invoice Gen-Probe monthly. KMC shall bill its Design
Engineering Phase services at the hourly rates set forth on Exhibit 2. Travel expenses
incurred by KMC will be invoiced to Gen-Probe at cost. Any third parties retained by KMC shall be
invoiced to Gen-Probe at their actual cost to KMC, plus fifteen percent (15%). The charges invoiced
by KMC under this Agreement are sometimes referred to herein as “costs.” Gen-Probe shall pay KMC’s
invoices within thirty (30) days of delivery of each invoice. Gen-Probe shall have the right to
review KMC’s records with regard to all invoiced charges (it being agreed, however, that any such
review shall not relieve Gen-Probe from its obligation to pay KMC’s



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invoices within thirty (30) days and, further, that payment by Gen-Probe shall not waive
Gen-Probe’s right to subsequently contest KMC’s charges).



     3.9 Cost Estimate. KMC estimates that the cost of its Design Engineering Phase
services, for the specific Project Plan tasks initially identified in Exhibit 1, to be
approximately $775,000. KMC shall use all reasonable commercial efforts to keep costs within this
estimate; provided, however, that the parties acknowledge and agree that because this project
entails, among other things, completion of a design and development effort commenced by a third
party, which design is presently substantially below the above-mentioned MTBF goal, it may be
necessary for: (a) KMC to provide services beyond the specific Project Plan tasks initially
identified in Exhibit 1 in order to complete the design and achieve the MTBF goal and other
goals of Gen-Probe to the satisfaction of Gen-Probe; and (b) Gen-Probe to change the specifications
of the Product Requirements Document. All changes and additions to the Design Engineering Phase
services initially identified in the Project Plan (other than non-material changes or additions to
the Project Plan tasks) shall be agreed upon by the parties pursuant to Section 3.10 as “Design
Scope Changes.” KMC shall provide Gen-Probe with regular periodic reports, no less than
monthly, stating the then-current aggregate costs of the Design Engineering Phase (including Design
Scope Changes) and updating KMC’s estimate of the costs to be incurred. If Design Engineering
Phase costs exceed the sum of KMC’s original $775,000 estimate plus the estimated cost of Design
Scope Changes (the “Revised Design Estimate”) by more than twenty five percent (25%), KMC’s
billing rates as set forth on Exhibit 2 for KMC Design Engineering Phase charges beyond one
hundred twenty five percent (125%) of the Revised Design Estimate shall be discounted by twelve and
a half percent (12.5%). If Design Engineering Phase costs are projected to or in fact exceed the
Revised Design Estimate by more than thirty five percent (35%), Gen-Probe may, at its option and
sole discretion, terminate this Agreement during the Design Engineering Phase. If the excess costs
referred to in the immediately preceding sentence result from KMC’s error or omission in the
estimating process Gen-Probe’s sole remedies against KMC shall be Gen-Probe’s right to take the
above cost estimate overrun discounts and Gen-Probe’s right to so terminate this Agreement, and KMC
shall have no other liability to Gen-Probe.



     3.10 Scope Changes. During any phase of the Project Plan, the parties may by
agreement approve Scope Changes and modify the Project Plan in order to achieve the design,
transition and production goals of Gen-Probe (as the case may be), changes in the specifications
and other elements of the PRD, Instrument improvement, quality improvement, cost reduction, and/or
other changes in the Project Plan tasks initially identified in Exhibit 1, on the following
terms:



          (a) Work Statements. During the term of this Agreement, KMC may propose, and
Gen-Probe may request, Scope Changes by delivering to the other party a proposed “Work Statement.”
A “Work Statement” shall mean a proposal of KMC or a purchase order of Gen-Probe, or another
written document labeled as a “Work Statement” that contains the following information: a
description of the services to be performed and deliverables; the estimated cost of such services
and the proposed payment schedule; the name of the person(s) who will be the points of contact
under the Work Statement for each party; the estimated time schedule for performance and delivery
of the deliverables; whether the proposed deliverables could be incorporated into existing Pilot
Instruments pursuant to the retrofit provisions of




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Section 5.7, and completion and acceptance criteria. In addition, when applicable, a Work
Statement may include: provisions for written and/or oral progress reports by KMC; detailed
functional and technical specifications and standards for all services and deliverables, including
quality standards; documentation standards; test plans; provisions for an analysis of the specific
effect of the Scope Change on the schedule, cost of materials, and the Transfer Price of the
Instrument.




          (b) Agreement on Compensation and Other Terms. Upon receipt of a proposed Work Statement,
the parties shall meet and negotiate to agree upon mutually acceptable terms and conditions for an
agreed Work Statement. The parties may agree to use one of the following pricing mechanisms, or
such other pricing mechanism as may be mutually agreed upon: fixed price; time-and-materials (at
KMC’s current rates at the time the work is performed); or time and materials subject to fixed
ceiling (KMC agreeing to use all reasonable effort to complete the specified services and/or
deliverables within the ceiling).




          (d) Performance. Upon the parties’ agreement to and execution of a Work Statement, KMC
shall use all commercially reasonable efforts to provide the design and development services and
other deliverables set forth in the Work Statement in accordance with the time schedule and other
provisions of the Work Statement. The parties’ agreement to contract for and provide such services
and deliverables shall be governed by the Work Statement and this Agreement, as applicable.




          (e) Modification of Production Specifications and Acceptance Test Procedures. Upon
completion of any redesign work under a Work Statement, the Instrument specifications shall be
modified accordingly. Within ten (10) working days of the completion of any such redesign work, KMC
shall deliver to Gen-Probe KMC’s proposal for changes to the acceptance test procedures.




          (f) Engineering Change Orders. Engineering changes suggested by KMC in the ordinary
course of production shall be distinguished from the redesign work described in subsections (a)
through (e), above. The manufacturing quality plan to be prepared by KMC and approved by Gen-Probe
will establish a process for prompt evaluation and implementation of engineering changes in the
course of production through means of Engineering Change Orders (“ECOs”). All ECOs must be
approved by Gen-Probe in writing. It is the intent of the parties that the ECO process be one
which permits expedited response to the circumstances giving rise to the ECO. Gen-Probe recognizes
that the ECO process may require changes in nonrecurring engineering charges, production schedules
and/or material costs and the Transfer Price of the Instrument.




ARTICLE IV




TRANSITION PHASE




     4.1 Purpose. The purpose of the work described in this Article IV (the
“Transition Phase”) will be to establish manufacturing processes and manufacturing
facilities at KMC in order to commence production of the Instrument (initially in accordance with
the Project Plan tasks identified in Exhibit 1). The security of KMC’s manufacturing
facilities shall be adequate



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to protect Gen-Probe’s Confidential Information (as hereinafter defined). KMC shall be responsible
for the successful completion of all Transition Phase activities in accordance with the terms and
subject to the conditions of this Agreement. The parties recognize that the Project Plan annexed
hereto as Exhibit 1 may need to be amended from time to time and Transition Scope Changes
may be required, pursuant to the Scope Change provisions of Section 3.10, in order to accomplish
the purpose and achieve the goals of the Transition Phase. KMC shall use good workmanship in
performing all Transition Phase activities.




     4.2 KMC Project Team. KMC shall assign the key members of the project team identified
on Exhibit 3 to the Transition Phase and such team shall be made available for as much time
as necessary to accomplish successful execution of the Transition Phase. Such key members of the
team shall remain assigned to the project team while employed by KMC unless KMC and Gen-Probe agree
otherwise in writing. In the event of a significant interruption of this project, KMC shall give
Gen-Probe the option of maintaining the availability of KMC’s project team, at Gen-Probe’s expense.
The parties recognize that as a result of Transition Scope Changes, other Scope Changes, and
related activities, it may be advisable to change and/or add certain project team personnel for the
Transition Phase. Gen-Probe agrees to not unreasonably withhold its consent to any such changes or
additions.



     4.3 Project Plan; Schedule. KMC will generally execute all Transition Phase
activities in accordance with the Project Plan and shall use all reasonable commercial efforts to
meet the schedule set forth in the Project Plan, subject to Transition Scope Changes, which
currently provides for completion of Transition Phase activities by July 19, 2001. KMC shall use
all reasonable commercial efforts to minimize the time needed to complete the Transition Phase;
provided, however, that Scope Changes and changes to the specifications of the PRD, as well as
other agreed upon factors, could result in material changes or additions to the Project Plan tasks.
After the Transition Phase begins, KMC shall provide Gen-Probe with regular periodic reports, no
less than every two (2) weeks, stating the current status of the Transition Phase and updating the
Project Plan.



     4.4 Payments; Invoices. KMC shall perform the Transition Phase on a time and
materials basis at the rates set forth on Exhibit 2. Invoice and payment for services and
materials provided by KMC in the Transition Phase will be handled in the same manner as the Design
Engineering Phase pursuant to Section 3.8. Gen-Probe shall have the right to review KMC’s records
with regard to all invoiced charges (it being agreed, however, that any such review shall not
relieve Gen-Probe from its obligation to pay KMC’s invoices within thirty (30) days and, further,
that payment by Gen-Probe shall not waive Gen-Probe’s right to subsequently contest KMC’s charges).



     4.5 Tooling Costs. During the Transition Phase, KMC will acquire tooling for
production of Instruments as agreed upon by the parties. Gen-Probe shall pay KMC, within thirty
(30) days of delivery of invoices for all such tooling actually acquired by KMC, at a rate equal to
KMC’s actual cost plus ten percent (10%). Upon payment by Gen-Probe of the cost of such tooling,
the tooling and related assembly drawings shall be the sole property of Gen-Probe.



     4.6 Cost Estimate. KMC estimates that the cost of its Transition Phase services for
the specific Project Plan tasks initially identified in Exhibit 1 to be approximately
$610,000.



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KMC shall use all reasonable commercial efforts to minimize the costs of its Transition Phase
activities; provided, however, that Scope Changes, changes to the specifications of the PRD, as
well as other agreed upon factors could result in material changes or additions to the
above-referenced specific Project Plan tasks (such changes and additions to the Transition Phase
services are referred to as “Transition Scope Changes”). KMC shall provide Gen-Probe with
regular periodic reports, no less than monthly, stating the then-current aggregate costs of KMC’s
Transition Phase activities (including Transition Scope Changes) and updating KMC’s estimate of the
costs to be incurred. KMC’s charges for its Transition Phase services in excess of the sum of
KMC’s original $610,000 cost estimate plus the cost of the Transition Scope Changes (the
“Revised Transition Estimate”) shall be allocated between the parties as follows:




	 	 	 
	Overrun as a % of Revised Transition Estimate	 	Sharing Ratio
	10%
	 	KMC 100%
	 
	 	 
	10.1% - 20%
	 	Gen-Probe 90%; KMC 10%
	20.1% - 30%
	 	Gen-Probe 80%; KMC 20%
	30.1% - 40%
	 	Gen-Probe 70%; KMC 30%
	40.1% - 50%
	 	Gen-Probe 60%; KMC 40%






     The thirty three and a half percent (33.5%) discount for Transition Phase labor charges, set
forth in Exhibit 2, shall be applied in calculating and charging excess Transition Phase
costs for purposes of the sharing ratios set forth above.



ARTICLE V




PILOT PRODUCTION PHASE




     5.1 Purpose. The purpose of the work described in this Article V (the “Pilot
Production Phase”) will be to manufacture eight (8) pilot versions of the Instruments (the
“Pilot Instruments”) and to prepare to proceed with the manufacture of Production
Instruments pursuant to Article VI, initially in accordance with the Project Plan tasks identified
in Exhibit 1. KMC shall be responsible for manufacturing the Pilot Instruments in
accordance with the terms and subject to the conditions of this Agreement. The parties recognize
that the Project Plan annexed hereto as Exhibit 1 may need to be amended from time to time
and Pilot Scope Changes may be required, pursuant to the Scope Change provisions of Section 3.10,
in order to accomplish the purpose and achieve the goals of the Pilot Production Phase.



     5.2 KMC Project Team. KMC shall assign the key members of the project team identified
on Exhibit 3 to the Pilot Production Phase and such team shall be made available for as
much time as necessary to accomplish successful execution of the Pilot Production Phase. Such key
members shall remain assigned to the project team while employed by KMC unless KMC and Gen-Probe
agree otherwise in writing. In the event of a significant interruption of the project, KMC shall
give Gen-Probe the option of maintaining the availability of KMC’s project team, at Gen-Probe’s
expense. The parties recognize that as a result of Pilot Scope Changes, and the other Scope
Changes, and related activities, it may be advisable to change and/or add certain



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project team personnel for the Pilot Production Phase. Gen-Probe agrees to not unreasonably
withhold its consent to any such changes or additions.



     5.3 Project Plan; Schedule. KMC will generally execute all Pilot Production Phase
activities in accordance with the Project Plan tasks initially set forth in Exhibit 1 and
shall use all reasonable commercial efforts to meet the schedule set forth in the Project Plan,
subject to Pilot Scope Changes, which currently provides for manufacture of Pilot Instruments to
begin February 12, 2001, to be delivered commencing March 16, 2001. As currently scheduled, KMC
shall deliver the next three (3) Pilot Instruments to Gen-Probe by April 10, 2001. KMC shall use
all reasonable commercial efforts to minimize the time needed to complete the remaining four (4)
Pilot Instruments and to meet the schedule set forth in the Project Plan; provided, however, the
parties recognize that (a) the timing of production of Pilot Instruments will depend, in part, on
KMC’s receipt of parts and components as described in Section 5.4 and that the current Project Plan
schedule is based on KMC’s receipt of such parts and components not later than November 21, 2000,
and (b) Scope Changes, changes to the specifications of the PRD, as well as other agreed upon
factors could result in material changes or additions to the above-referenced specific Project Plan
tasks and schedule (such changes and additions to the Pilot Production Phase services are referred
to as “Pilot Scope Changes”). After production of the Pilot Instruments begins, KMC shall
provide Gen-Probe with regular periodic reports, no less than every two (2) weeks, stating the
current status of the Pilot Production Phase and updating the Project Plan.



     5.4 Delivery of Parts and Component Systems. Gen-Probe shall deliver to KMC, without
charge to KMC, eight (8) sets of the parts and components systems necessary for production of the
Pilot Instruments. In order for KMC to meet the current milestone dates set forth in the Project
Plan for the first four (4) Pilot Instruments to be assembled during the Pilot Production Phase, it
will be necessary for Gen-Probe to obtain and supply to KMC, no later than November 21, 2000, all
of the parts and component systems necessary for the assembly of four (4) Pilot Instruments. If
Gen-Probe is unable to deliver the four (4) parts sets by January 31, 2001, the assembly dates set
forth in the Project Plan shall be adjusted to compensate for the delayed delivery. If Gen-Probe
is unable to deliver the second group of four (4) parts sets by March 15, 2001, the assembly dates
set forth in the Project Plan shall be adjusted to compensate for the delayed delivery.



     5.5 Payments; Invoices. KMC shall build the eight (8) Pilot Instruments on a time and
materials basis. Gen-Probe shall pay KMC for the Pilot Instruments at the labor rates and discount
set forth on Exhibit 2 based on the hours of such work actually performed by KMC. Based
upon the current scope of the Project Plan tasks identified in Exhibit 1, and the timely
delivery of all parts and component systems, without charge to KMC, KMC estimates that the cost of
each Pilot Instrument will be approximately $78,500. The parties recognize that the Project Plan
may need to be amended from time to time and Pilot Scope Changes may be required, pursuant to the
Scope Change provisions of Section 3.10, in order to accomplish the purpose and achieve the goals
of the Pilot Production Phase and that the current cost estimate may change as a result. KMC shall
use all reasonable commercial efforts to manage costs within such estimate. KMC shall provide
Gen-Probe with regular periodic reports, no less than monthly, stating the then-current projected
costs of the Pilot Instruments and updating KMC’s estimate of the costs to be incurred. Gen-Probe
shall pay KMC’s invoices within thirty (30) days of delivery of invoice. Gen-Probe shall have the
right to review KMC’s records with regard to all



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invoiced charges (it being agreed, however, that any such review shall not relieve Gen-Probe from
its obligation to pay KMC’s invoices within thirty days and, further, that payment by Gen-Probe
shall not waive Gen-Probe’s right to subsequently contest KMC’s charges).



     5.6 Instrument Specifications and Quality Standards. The parties’ objective is that
Pilot Instruments will be manufactured to the same FDA QSR configuration control standards as
Production Instruments. KMC shall use good workmanship in performing all Pilot Production Phase
activities and the Pilot Instruments shall meet the applicable quality and regulatory requirements
of Article VII. The parties acknowledge that the PRD will not have been finalized before KMC
begins to assemble Pilot Instruments pursuant to the terms of this Article V. KMC shall use its
best efforts to assemble the Pilot Instruments in accordance with the configuration of PR 30, as
previously prescribed by Rela, together with those additional Design Engineering changes described
in Exhibit 1; provided, also, that KMC shall use its best efforts to achieve modifications
that may be adopted pursuant to the Scope Change provisions of Section 3.10. KMC shall advise
Gen-Probe if KMC concludes that any Design Engineering change described in Exhibit 1 or any
Scope Change cannot be incorporated into a Pilot Instrument, and in that event Gen-Probe will
decide, in its sole discretion, whether to proceed with assembly of such Pilot Instrument.
Gen-Probe may also, at its sole discretion, defer assembly of any Pilot Instrument if Gen-Probe
concludes that such delay is appropriate in order to increase Instrument reliability prior to
assembly of any Pilot Instrument. KMC shall develop, subject to Gen-Probe’s review and approval
(which approval or rejection shall be in its sole discretion), preliminary acceptance test
procedures (the “Preliminary ATP”) that each Pilot Instrument must pass before shipment by
KMC.



     5.7 Retrofit. KMC represents, to the best of its knowledge as of the date of
execution of this Agreement, that the Pilot Instruments, when assembled in accordance with Section
5.6, will be capable of being retrofitted once the final PRD and final hardware specifications are
approved. Upon Gen-Probe’s request and at Gen-Probe’s sole option, KMC shall use its best efforts
to retrofit any or all Pilot Instruments, on a time and materials basis at KMC’s then standard
rate, to meet the requirements of the final PRD and final hardware specifications.



ARTICLE VI




PRODUCTION PHASE




     6.1 Manufacturing. KMC shall be responsible for manufacturing the Instruments ordered
by Gen-Probe (the “Production Instruments”) as set forth in the Project Plan and in this
Article VI (the “Production Phase”).



     6.2 Initial Long-Lead Materials. In order to meet its desired production schedule for
its initial order of the Production Instruments, Gen-Probe must provide KMC with authorization not
later than January 31, 2001 to purchase those materials that require long lead times to produce
(“Long-Lead Materials”) for twenty (20) Production Instruments. The parties shall discuss
in good faith and determine in writing no later than January 1, 2001 which Production Instrument
materials are Long-Lead Materials. Gen-Probe acknowledges that the design and specifications for
the Instrument may not be finalized by January 31, 2001 and, accordingly, some of the ordered
Long-Lead Materials may not be useable for Production Instruments. Gen-



12









 







Probe agrees to bear the full commercial and economic risk that any such Long-Lead Materials
ordered by KMC may not be useable. KMC shall place for bid with its vendors, no later than February
28, 2001, the order for all other materials (in addition to the Long-Lead Materials specified
above) necessary to manufacture the Production Instruments pursuant to the currently outstanding
PRD (the Long-Lead Materials and all such other materials are collectively referred to as the “Bill
of Materials”).



     6.3 Forecasts and Purchase Orders. Not later than January 15, 2001, Gen-Probe shall
provide KMC with its initial twelve-month forecast of Gen-Probe’s reasonably anticipated
requirements for the number of Production Instruments to be delivered by KMC during such
twelve-month period. Such forecast shall be updated each six months thereafter during the term of
this Agreement for the then succeeding twelve-month period. KMC shall provide Gen-Probe with a
definitive and final quote for the Bill of Materials (based upon Gen-Probe’s PRD) for 20-unit and
100-unit ordering increments by May 14, 2001. Not later than June 4, 2001, Gen-Probe shall deliver
to KMC its binding purchase order for the initial six-month period commencing with the delivery of
the first Production Instrument (currently anticipated to be on or about August 16, 2001) and,
subject to the provisions of Section 6.8 below, establishing the schedule for delivery of such
Production Instruments. Not later than delivery of each forecast after the initial forecast,
Gen-Probe shall provide KMC with its purchase order for the six-month period commencing six months
thereafter.



     6.4 Ordering and Payment for Parts. Gen-Probe shall be deemed to authorize KMC to
purchase parts comprised within the then current Bill of Materials by delivering its purchase
orders for Production Instruments (such parts being referred to hereafter as the “Authorized
Parts”). Prior to accepting Gen-Probe’s purchase order, (i) KMC will inform Gen-Probe of the
estimated cost of the Authorized Parts, (ii) KMC and Gen-Probe shall agree upon the delivery
schedule for the Production Instruments incorporating the Authorized Parts, and (iii) KMC will
provide Gen-Probe with KMC’s schedule for commitment to vendors and receipt of Authorized Parts in
connection with the agreed delivery schedule.



          In placing its orders with vendors for Authorized Parts KMC shall use its best efforts to
arrange “just in time” delivery of Authorized Parts consistent with the agreed delivery schedule.
KMC shall negotiate terms with vendors that provide the most advantageous quantity discounts from
vendors based on each accepted Gen-Probe purchase order. Subject to Gen-Probe’s desires respecting
quantity discounts referred to in the immediately preceding sentence and in the provisions of
Section 6.11 hereof, KMC shall also use its best efforts to obtain terms from vendors that permit
prospective cancellation of orders for Authorized Parts prior to their delivery to KMC. If there
are trade-offs between quantity discounts and the right to cancel, KMC will notify Gen-Probe and
Gen-Probe will elect between the alternatives.




          KMC shall use its best efforts to reasonably use parts transferred to KMC from Colorado
MEDtech, Inc. in assembling Production Instruments. As Gen-Probe has previously paid Colorado
MEDtech for such parts, the parties will agree on method by which such parts can be tracked and
accounted for when incorporated into Production Instruments.




     Nothing contained in this Section 6.4 herein shall modify the provisions of Section 6.11 of
this Agreement (“Transfer Price”).



13









 





     6.4.1 Contemporaneous Payment. If Gen-Probe does not provide either a letter of
credit, surety bond, or financial guarantee bond pursuant to Sections 6.5 in connection with any of
its purchase orders for Production Instruments, KMC will invoice Gen-Probe for the actual cost of
Authorized Parts at the time it orders such Authorized Parts from third party vendors. Gen-Probe
shall pay such KMC’s invoices within fifteen (15) days of receipt of invoice. If Gen-Probe does
not pay the invoice within fifteen (15) days of receipt, then, without limiting any other rights
and remedies that may be available to KMC under this Agreement, at law or in equity, KMC will be
entitled to cancel the Authorized Parts orders made with third party vendors (it being agreed,
however, that Gen-Probe shall not be liable for cancellation charges, if any, imposed by
third-party vendors as a result of such cancellations).



     6.4.2 Letter of Credit. If Gen-Probe provides KMC with a letter of credit pursuant to
Section 6.5, Gen-Probe will not be required to pay for Authorized Parts until the earlier of (i)
delivery of Production Instruments incorporating such parts (by payment of the invoice for such
Production Instruments pursuant to Section 6.16) or (ii) eleven (11) months from the date KMC
ordered such Authorized Parts. At Gen-Probe’s sole option, the parties will implement the parts
delivery, billing, and payment terms described in Section 6.4.3 below for use in circumstances
where Gen-Probe has provided a letter of credit.



     6.4.3 Surety Bond. If Gen-Probe provides KMC with a surety bond or financial
guarantee bond pursuant to Section 6.5, then upon KMC’s actual receipt of Authorized Parts from
third party vendors on a “just in time” basis, but in no event more than sixty (60) days prior to
the scheduled delivery of the Production Instruments incorporating such parts (other than those
parts set forth in Exhibit 9 annexed hereto) KMC will invoice Gen-Probe for the actual cost of such
Authorized Parts. As to the parts set forth in Exhibit 9 (“the Exhibit 9 Parts”), KMC will invoice
Gen-Probe for the actual cost of such Authorized Parts upon KMC’s actual receipt of Authorized
Parts from third party vendors on a “just in time” basis, but in no event more than one hundred
twenty (120) days prior to the scheduled delivery of the Production Instruments incorporating such
parts. KMC shall use its best efforts to limit the number of Exhibit 9 Parts. To the extent the
cost of Exhibit 9 Parts exceeds 20% of the cost of all Production Instrument parts, all on a “per
unit” basis, Gen-Probe shall be under no obligation to pay the amount of the actual costs of such
Authorized Parts that exceed the 20% limitation any earlier than sixty (60) days before the
scheduled delivery of the Production Instruments incorporating such parts; provided that if there
are trade-offs between quantity discounts and the number of Exhibit 9 Parts, KMC will notify
Gen-Probe and Gen-Probe will elect between the alternatives. Gen-Probe shall pay all invoices
issued by KMC in accordance with this Section 6.4.3 within thirty (30) days of receipt. Gen-Probe
shall be entitled to a credit against the invoiced price of delivered Production Instruments
incorporating such parts (as described in Section 6.16) for amounts paid pursuant to this
paragraph. This Section 6.4.3 shall not determine the liability of the surety on any surety bond,
as to which the provisions of section 6.5 shall apply.



     6.5 Security. Rather than being obligated to pay for Authorized Parts by
contemporaneous payment in the manner provided for in Section 6.4.1, Gen-Probe shall have the right
to provide KMC, concurrently with the issuance of its purchase order, a firm, irrevocable letter of
credit from Wells Fargo Bank, N.A., or comparable financial institution (in form,



14









 







amount and substance reasonably satisfactory to KMC), or a surety bond issued by a surety
company acceptable to KMC (the bond and associated indemnity agreement to be in form and substance
reasonably satisfactory to KMC), as security for the costs of such Authorized Parts, plus KMC’s
handling charges of fifteen (15%) percent (“together, the “Authorized Parts Charges”). (KMC agrees
that the form of bond attached as Exhibit 8 is generally acceptable to KMC. Such letter of
credit or surety bond will guarantee payment for the Authorized Parts Charges only and will not
provide coverage for any other aspect of this Agreement. Without in any manner releasing Gen-Probe
of its payment obligations under Section 6.4.3 or 6.16, if Gen-Probe has not paid for such
Authorized Parts (either by payment for Production Instruments incorporating such parts in
accordance with Section 6.16), or directly by payment for such parts themselves) within eleven (11)
months of the date that KMC ordered such parts (as ordered or authorized by Gen-Probe), then KMC
shall separately invoice Gen-Probe for the cost of the Authorized Parts Charges. If Gen-Probe
fails to pay such invoice in full, within thirty (30) days of issuance, then upon five (5) days
written notice to Gen-Probe KMC shall be entitled to draw upon the letter of credit. If a surety
bond is provided as security (rather than a letter of credit), KMC may make a claim against the
surety bond for the amount of the invoice with a copy of the invoice and KMC’s signed statement
that such invoice remain unpaid. The surety may take up to thirty (30) days to verify a claim is
valid after presentation of a claim by KMC. After verification of the validity of the claim, the
Surety shall make payment in a period not to exceed thirty (30) days.



     6.6 Interest. Failure to make full payment of any KMC invoice within the period set
forth in this Agreement shall constitute a material breach of this Agreement by Gen-Probe.
Furthermore, KMC may assess Gen-Probe interest at the rate of one (1%) percent per month or the
maximum rate allowed by applicable law, whichever is lower, on the past due amount and may recover
its reasonable costs of collection (including attorney’s fees and expenses). For purposes of
clarity, if Gen-Probe fails to timely pay any KMC invoice issued pursuant to Sections 6.4 or 6.16,
the subsequent payment for Authorized Part Charges under a letter of credit, surety bond or
financial guarantee pursuant to Section 6.5 shall not relieve Gen-Probe of its obligation to pay
KMC the foregoing interest or costs of collection.



     6.7 No Waiver / KMC Rights. Nothing contained in Sections 6.4 or 6.5, nor any payment
under a letter of credit, surety bond, or financial guarantee bond shall release or waive any claim
or right of Gen-Probe in any action or proceeding brought after payment in full has been made to
KMC to contend that (i) such payment was not in fact due and/or (ii) to seek to recover (on its own
behalf or on behalf of any party making payment to KMC) the amount of the payment made to KMC, it
being the intention of the parties to prescribe the unconditional timing of payment to KMC and not
to waive, release, or extinguish substantive rights of Gen-Probe, the surety, or the financial
institution, which may be exercised and asserted after such payment has been made. Nothing
contained in Section 6.5, including the payment to KMC under a letter of credit, surety bond or
financial guarantee bond shall release or waive any claim or right of KMC for timely payment of
invoices issued pursuant to Sections 6.4 or 6.16. To the extent that KMC has not been paid its
Authorized Parts Charges in accordance with the terms of Sections 6.4 or 6.5 above, then KMC shall
be entitled to avail itself of all rights and remedies to which it may be entitled under this
Agreement, at law or in equity, including the cancellation of any or all outstanding material
orders and the termination of all work under this Agreement.



15









 





     6.8 Project Plan; Schedule. KMC shall use its best efforts to meet the production
schedule set forth in accepted Gen-Probe’s purchase orders. Within two weeks of KMC’s receipt of
each of Gen-Probe’s purchase orders, KMC shall inform Gen-Probe whether KMC can meet the proposed
delivery schedule set forth in the purchase order. If KMC informs Gen-Probe that it is unable to
meet such delivery schedule, then the purchase order shall not be binding on either party and KMC
shall make a counterproposal to Gen-Probe setting forth a delivery schedule, which schedule shall
be binding upon the parties if accepted by Gen-Probe. The Production Phase shall begin, and KMC
shall begin manufacturing the Production Instruments (subject to its receipt of Gen-Probe’s
purchase orders and security or payment referred to in Sections 6.5 and 6.6 above), as soon as the
Pilot Instruments are complete and the manufacturing readiness review has been conducted. KMC
shall take all actions necessary to develop, not later than September 1, 2002, the capacity to
produce fifteen (15) Production Instruments per month. KMC shall report to Gen-Probe at least
monthly on the status of its production capacity, such reports to commence one month after the
Effective Date.



     6.9 Inventory. Based upon Gen-Probe’s purchase orders for Production Instruments, KMC
shall order and maintain sufficient quantities of all materials required for the timely manufacture
and supply of Production Instruments ordered by Gen-Probe under such purchase orders.



     6.10 Repair Parts. KMC shall manufacture and supply repair parts for the Production
Instruments as required by Gen-Probe, pursuant to Gen-Probe’s purchase orders for such parts, to
support Gen-Probe’s United States and overseas field service. KMC and Gen-Probe shall agree upon a
repair parts list and a price list by August 30, 2001. Gen-Probe shall provide to KMC separate
forecasts and binding purchase orders (together with security substantially as provided for under
Section 6.5(in form and substance satisfactory to KMC) to secure payment for same) for such repair
parts.



     6.11 Transfer Price.



          (a) The transfer price for each Production Instrument (the “Transfer Price”) shall be
$124,500 per unit, based upon the following assumptions: (1) a commitment by Gen-Probe to order
Production Instruments in lots of one hundred (100) Production Instruments, which shall enable KMC
to order one hundred (100) complete sets of materials for such Production Instruments; (2) a Bill
of Materials price for each Production Instrument (“BOM Price”) of $89,584 for the purchase
of twenty (20) sets of materials (such BOM Price is primarily based upon the material and pricing
information provided to KMC by Gen-Probe directly or through Rela) ; and (3) a 93% learning curve
reducing the twenty-unit Bill of Materials cost. As set forth in Section 6.3, KMC shall provide
Gen-Probe the actual BOM Price for the Production Instruments by May 14, 2001.




          (b) If the actual BOM Price varies from the $89,584 price in the above paragraph, and/or if
Gen-Probe orders Production Instruments in lots of fewer than one-hundred (100) Production
Instruments, the Transfer Price shall be adjusted in accordance with the range of mark-ups used by
KMC in calculating the presently-estimated $124,500 Transfer Price, as set forth in Exhibit
5.




16









 








          (c) The labor content portion of the Transfer Price shall be adjusted by KMC for inflation,
based on the average combined change in the national Consumer Price Index and Medical Consumer
Price Index (or comparable indexes if no longer available), no more frequently than annually.




          (d) KMC shall use its best efforts to minimize the BOM Price and shall obtain at least two
competing bids wherever feasible. If, after receipt of vendor bids, the unit price of those
materials and components currently anticipated to comprise the Bill of Materials and, therefore,
used in arriving at the $89,584 estimate, is more than $100,000, Gen-Probe shall have the option to
purchase such Bill of Material itself, subject to the following conditions: (i) KMC will not
provide any warranty as to such materials; (ii) KMC will charge Gen-Probe a material handling fee
of fifteen percent (15%) of the total value of material purchased by Gen-Probe; and (iii) KMC will
reserve the right to reject any non-conforming material received in connection with material orders
placed directly by Gen-Probe. If, by agreement between Gen-Probe and KMC, the final Bill of
Materials contains materials and components other than those used to calculate the $89,584
estimate, the additional cost of such other materials and components shall not be considered for
purposes of the above $100,000 threshold.




     6.12 Delivery. All shipments of Production Instruments and repair parts pursuant to
this Article 6 shall be FOB KMC’s place of manufacture and Gen-Probe shall bear the risk of loss
and cost of transportation upon delivery by KMC to a carrier designated by Gen-Probe.



     6.13 Binding Orders. Gen-Probe expects to order one-hundred (100) Production
Instruments from KMC to be shipped during the initial eighteen (18) consecutive months of the
Production Phase and to purchase a total of two-hundred (200) Production Instruments from KMC
during the initial four (4) consecutive years of the Production Phase; provided, however, that a
binding obligation on Gen-Probe’s part to purchase Production Instruments from KMC shall be created
only as and when Gen-Probe issues purchase orders in accordance with terms set forth in this
Agreement, including without limitation Section 6.3.



     6.14 Cost Reduction and Redesign Services. If the cost reductions identified by KMC
in Exhibit 4 are implemented, then such reductions will be allocated eighty percent (80%)
to Gen-Probe and twenty percent (20%) to KMC. Gen-Probe will pay the associated tooling and
engineering costs to implement such reductions. KMC and Gen-Probe will share equally in any cost
reductions in addition to those referred to in Exhibit 4; provided, however, that before
Gen-Probe participates in such additional cost reductions, one hundred percent (100%) of such cost
reductions shall accrue to KMC’s benefit until KMC fully recoups all non-recurring expenses related
solely to such cost reductions.



     6.15 Production Instrument Inspection. Before KMC ships any Production Instruments to
Gen-Probe or its distributors or customers, KMC shall confirm that each such Production Instrument
passes the requirements of the acceptance test procedures set forth in Section 6.17 (the
“ATP”). Gen-Probe shall have the right to be present for any such Production Instrument
testing. KMC’s good-faith confirmation that a Production Instrument passes the requirements of the
ATP shall be considered acceptance of such Production Instrument by Gen-Probe for purposes of this
Agreement. Thereafter, any claims respecting such Production Instruments shall be pursuant to
KMC’s warranty set forth in Article VIII.



17









 





     6.16 Invoices. KMC shall invoice Gen-Probe for the Production Instruments and repair
parts upon KMC’s delivery to Gen-Probe (or its customer) of such Production Instruments or repair
parts. Gen-Probe shall pay KMC within thirty (30) days following receipt of Production Instruments
or repair parts and an invoice that lists each such Production Instrument and repair part together
with the price for each such item. The purchase price of any Production Instrument shall be
reduced to reflect any applicable credits due Gen-Probe for payments previously made pursuant to
Sections 6.4 and 6.5 for the Authorized Parts incorporated within such Production Instruments. If
Gen-Probe fails to pay a KMC invoice within the foregoing thirty (30) day period, KMC shall be
entitled to avail itself of all rights and remedies to which it may be entitled under this
Agreement, at law or in equity, including the cancellation of any or all outstanding material
orders and the termination of all work under this Agreement.



     6.17 Instrument Specifications and Quality Standards. The parties acknowledge that
the specifications for the Instrument have not been finalized by Gen-Probe. When it deems
appropriate, Gen-Probe shall commence validation of the Instrument’s design against its
then-current specifications. After Gen-Probe is satisfied with the validation of the Instrument’s
design to such specifications, Gen-Probe shall issue the PRD for Production Instruments. Gen-Probe
shall have full control, authority and responsibility for the design of the Instrument, including
during the Design Engineering Phase, and for the final specifications of the Instrument. Upon
finalization of the PRD, and based on the Instrument capabilities associated therewith, KMC shall
develop, subject to Gen-Probe’s review and approval (which approval shall be in Gen-Probe’s sole
discretion), the acceptance test procedures (the “ATP”) that each Production Instrument
must pass before shipment by KMC. Subject to all of the terms and conditions of this Agreement
(including, without limitation, necessary Scope Changes and issuance of related Work Statements),
KMC shall: (i) complete the Instrument design to meet Gen-Probe’s final specifications; (ii)
develop the ATP to insure that each Production Instrument meets certain performance criteria to be
agreed upon by the parties, reasonably and in good faith, after finalization of the PRD for
Production Instruments; and (iii) manufacture Production Instruments that comply with and pass the
entire ATP. The ATP will be summarized in a Gen-Probe Quality Control Specification (“QCS”)
document against which each Instrument will have a “Certificate of Release” provided to Gen-Probe
upon shipment of each Instrument.



     6.18 Manufacturing Inspection. Gen-Probe shall have the right, upon reasonable prior
notice, to inspect all phases of the Instrument manufacturing activities, during normal business
hours, in order to verify KMC’s compliance with production specifications and regulatory standards.
KMC agrees to give Gen-Probe access, during normal working hours and upon reasonable prior notice,
to such records as are reasonably necessary to confirm KMC’s compliance with its manufacturing
obligations hereunder including quality control records, test records, manufacturing records and
design records, and to permit Gen-Probe to review and copy such records. All such records shall be
held by Gen-Probe in accordance with the terms of the confidentiality provisions of Article XIII.



     6.19 Production Delays. In the event that KMC production activities under a purchase
order issued by Gen-Probe are substantially interrupted and /or delayed due to Gen-Probe decisions
or actions, for a continuous period in excess of thirty (30) days, then KMC reserves the right to
pass on to Gen-Probe a production delay charge. Such charge shall be limited to reimbursement of
actual expenditures by KMC for labor or materials associated with the



18









 







purchase order then in effect, and which such expenditures cannot be avoided. KMC will use all
reasonable efforts to minimize such charges, by reallocating internal resources and by negotiating
alternative arrangements with outside suppliers.



ARTICLE VII




REGULATORY COMPLIANCE




     KMC will manufacture the Production Instruments, Pilot Instruments and repair parts in
accordance with each and every applicable requirement of the: (a) Federal Food, Drug and Cosmetics
Act, as amended, including without limitation, the then current Quality Systems Regulations
(“QSR”) as established by the United States Food and Drug Administration in accordance with
cGMPs covering devices regulated by each FDA Center governing the intended use of the
Instrument, i.e., blood screening and diagnostic testing; (b) Canadian CSA Standards; (c)
applicable standards of the Underwriters Laboratories; (d) international electrical safety
approval, meeting the IEC-1010 Medical Electrical Equipment Standards; and (e) European CE
Standards for which KMC will secure the “CE” mark on the Instrument. KMC shall maintain a change
control process that meets the requirements of the Center for Biologics Evaluation and Research of
the FDA for all services performed by KMC under this Agreement. (This process shall include a
requirement for prior approval by Gen-Probe of all changes or improvements to the
Instrument.) Gen-Probe will use its best efforts, with the assistance of KMC, to obtain historical
change control documentation from Colorado MEDtech/Rela for all Instrument-related services
performed by Colorado MEDtech/Rela for Gen-Probe and KMC shall integrate such documentation, when
such documentation is obtained, KMC will incorporate such information into its change control
process documentation and the Instrument Design History File. The parties recognize that the
incorporation of such documentation by KMC is a Scope Change and will result in additional costs,
and the parties will provide for such services by KMC pursuant to the issuance of an agreed upon
Work Statement pursuant to the provisions of Section 3.10. KMC shall retain all necessary
documents, including without limitation device history records, device master records and other
manufacturing quality records, in accordance with any applicable QSR including, without limitation,
cGMP regulations. At the end of the retention period and subject to payment in full of all KMC
invoices, KMC shall send all such records to Gen-Probe. KMC shall make Gen-Probe aware, within two
(2) weeks of KMC becoming aware, of any known issues believed to require regulatory attention on
either KMC’s or Gen-Probe’s part.



ARTICLE VIII




WARRANTY AND SERVICE




     8.1 Warranty and Service. KMC warrants that the Production Instruments and Pilot
Instruments manufactured by it will be free, under normal use and maintenance, from defects in
material and workmanship for a period of twelve (12) months following installation at Gen-Probe’s
customer or eighteen (18) months following delivery, whichever is earlier (the “Warranty
Period”). (If delay in delivery of any Instrument results solely from action or inaction of
Gen-Probe, then the 18-month warranty period for such Instrument shall commence on the scheduled
delivery date or on completion of the Instrument by KMC, whichever is later.) Any



19









 







materials provided by or on behalf of Gen-Probe as customer-furnished material shall be excluded
from the warranty provided by KMC under this Section 8.1. As Gen-Probe’s sole and exclusive remedy
for any defects in KMC manufactured Instruments (provided, however, that nothing contained in this
sentence shall affect Gen-Probe’s right of indemnity as to third party claims pursuant to Section
9.1), KMC shall, at its option (subject to the reasonable requirements of Gen-Probe’s customers as
to which KMC has been given notice), reimburse Gen-Probe for the cost of field service (subject to
KMC’s right to approve such field service costs, pursuant to a standard policy or on an individual
basis, before field service is provided), provide factory service of such defective Instrument
(without charge to Gen-Probe), or replace the defective Instrument (without charge to Gen-Probe);
provided, however, that KMC must be notified in writing by Gen-Probe of the defect within the
Warranty Period. As set forth in Section 6.10, KMC shall sell to Gen-Probe an inventory of repair
parts to be used by Gen-Probe in performing field service on Instruments. During the Transition
Phase, Gen-Probe and KMC shall establish mutually agreed-upon factory service programs, for service
both during the Warranty Period and thereafter



     8.2 WARRANTY LIMITATIONS. OTHER THAN AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER
PARTY MAKES ANY GUARANTEE OR WARRANTY WHATSOEVER, AND THE WARRANTY SET FORTH IN THIS ARTICLE VIII
IS IN LIEU OF ALL OTHER WARRANTIES BY KMC, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE.



     8.3 Limitation of Liability/Damages. Except as to rights of indemnity under Article
IX, in no event will either party be liable to the other in contract, tort or otherwise for any
lost profits, or special, incidental or consequential damages, regardless of whether such party has
been advised of the possibility of such damages. KMC’s liability to Gen-Probe on any claims of
any kind (including negligence) for any loss or damage arising out of, or connected with, or
resulting from this Agreement or the performance of breach hereof shall not in the aggregate,
exceed the total amount of insurance coverage available for such claims under insurance maintained
by KMC; provided, however, that if insurance coverage is not available for the full amount of any
such claims, then and in such event, KMC’s liability for all such claims, or portions thereof, in
the aggregate, shall not exceed the amount provided by KMC’s insurance plus the total amount paid
to KMC hereunder by Gen-Probe for services and Instruments. Nothing contained in the immediately
preceding sentence shall limit KMC’s liability to Gen-Probe pursuant to the indemnity provisions of
Section 9.1(ii).



ARTICLE IX




INDEMNITY




     9.1 Indemnification by KMC. KMC shall indemnify and save Gen-Probe, its affiliated
entities and their respective officers, directors, employees and agents (collectively, the
“Gen-Probe Indemnitees”), harmless from any and all claims, actions, losses, damages,
liabilities, costs and expenses (including reasonable attorneys’ fees and disbursements) incurred
by the Gen-Probe Indemnitees as a result of: (i) any breach by KMC of the provisions of



20









 




Sections 10.1 and 12.1; or (ii) any injury to persons or damage to property caused by any
Production Instrument or Pilot Instrument manufactured, sold or serviced by KMC to or for Gen-Probe
or Gen-Probe’s customers, where the injury or damage is a direct result of KMC’s negligence,
failure to manufacture such Instrument in accordance with Gen-Probe’s specifications, or failure to
comply with the requirements of Article VII.




     9.2 Indemnification by Gen-Probe. Gen-Probe shall indemnify and save KMC, its
affiliated entities and their respective officers, directors, employees and agents (collectively,
the “KMC Indemnitees”), harmless from any and all claims, actions, losses, damages,
liabilities, costs and expenses (including reasonable attorneys’ fees and disbursements) incurred
by the KMC Indemnitees as a result of: (i) any breach by Gen-Probe of the provisions of Sections
10.1, 10.2 or 12.1; or (ii) any injury to persons or damage to property arising out of or in any
way connected with the Instruments, Gen-Probe’s acts or omissions, or the services provided by KMC
pursuant to this Agreement (other than where the cause of the claim, action, loss, damage,
liability, cost and/or expenses results from a cause identified in Section 9.1 hereof); or (iii)
without limiting the provisions of subsection (i) above, any claims, actions or proceedings brought
by or on behalf of Colorado MedTECH or Rela or their Affiliates to the extent any such claims,
actions or proceedings result from, arise out of, relate to, or are in connection with this
Agreement.



     9.3 Indemnification Procedures. The parties shall promptly notify each other of any
claims or suits with respect to which indemnification is sought. The party requesting
indemnification shall permit the indemnifying party to assume the defense, at the indemnifying
party’s sole expense, of such claims or suits giving rise to the request. The requesting party
shall cooperate with the indemnifying party in such defense when reasonably requested to do so. No
settlement or compromise shall be binding on a party to this Agreement without such party’s prior
written consent, such consent not to be unreasonably withheld. Costs, expenses, and/or fees
incurred by a party and as to which that party has a right of indemnity hereunder shall be
periodically reimbursed to the indemnified party by the indemnifying party as they are incurred.



ARTICLE X




REPRESENTATIONS AND WARRANTIES




     10.1 Mutual Representations and Warranties. Each of KMC and Gen-Probe represents and
warrants to the other that its execution, delivery and performance of this Agreement (a) has been
duly authorized and represents its legal, valid and binding obligation, enforceable in accordance
with its terms; and (b) does not result in a breach of or constitute (with or without notice or
lapse of time or both) a default under any contract or arrangement to which it is a party.



     10.2 Additional Representations and Warranties of Gen-Probe. Gen-Probe further
represents and warrants to KMC that, as of the Effective Date: (i) to the best of Gen-Probe’s
belief, the execution, delivery and performance of this Agreement does not in any way contravene
any obligation to, or rights of Colorado MEDtech/Rela or any of its affiliates, under any
agreements or otherwise; and (ii) if and to the extent the Instrument or Production Instrument
incorporates any proprietary or confidential information of Rela or Colorado



21









 







MEDtech, Gen-Probe, together with its designees (including, for the purposes of this provision,
KMC) has the unrestricted right to incorporate and use such information in the Instruments and
Production Instruments.



ARTICLE XI




OWNERSHIP




     11.1 Design Ownership. Subject to its payment of all sums due to KMC hereunder and to
Section 11.2, Gen-Probe shall solely own the right to any and all technology, discoveries,
inventions or processes, whether patentable or not, that are first reduced to practice by KMC in
its performance of this Agreement. Subject to its payment of all sums due to KMC hereunder and to
Section 11.2, Gen-Probe and KMC shall jointly own the rights to any and all technology,
discoveries, inventions or processes, whether patentable or not, that are first conceived, but not
reduced to practice, by KMC in its performance of this Agreement.



     11.2 Production Processes Ownership. Subject to its payment of all sums due to KMC
hereunder, Gen-Probe shall jointly own with KMC any production process technology first conceived
or first reduced to practice by KMC in its performance of this Agreement if that production process
technology has any substantial use other than in the manufacture of the Instrument. For the
avoidance of doubt and subject to Gen-Probe’s payment of all sums due KMC hereunder and pursuant to
Section 11.1, Gen-Probe shall own any production process technology first conceived or first
reduced to practice by KMC in its performance of this Agreement if that production process
technology does not have any substantial use other than in the manufacture of the Instrument.



ARTICLE XII




INFRINGEMENT




     12.1 Claims by Third Parties. KMC and Gen-Probe shall each use its best efforts to
not, with actual knowledge, incorporate into any Instrument any proprietary or confidential
technical information of any third party. Each party shall be obligated to promptly notify the
other party of any claims or circumstances concerning infringements, misappropriations, imitations
or unauthorized possession, knowledge or use of technology used in the design or manufacturing
process for the Instrument.



     12.2 Defense. Gen-Probe shall have the sole right to defend, at its sole cost and
expense (subject to the indemnification provisions of Article 9), any and all claims that any
Instrument infringes or misappropriates any third party’s intellectual property rights. If
Gen-Probe elects not to defend such claim, or if it fails to assume the defense within ninety (90)
days of receiving written notice of such claim, then KMC shall have the right, at its sole cost and
expense, to defend such claim.



     12.3 Enforcement. If either party becomes aware of any actual or threatened
infringement or misappropriation of Gen-Probe Technology, that party shall promptly notify the



22









 







other party of such infringement or misappropriation. Gen-Probe shall have the sole right, at its
sole cost and expense, to enforce the Gen-Probe Technology.



ARTICLE XIII




CONFIDENTIALITY




     13.1 Confidentiality Obligations. During the term of this Agreement and thereafter,
each party: (i) shall treat as confidential all Confidential Information provided to the receiving
party by the disclosing party, (ii) shall not use such Confidential Information except as expressly
permitted under the terms of this Agreement or otherwise authorized in writing by the disclosing
party, (iii) shall implement reasonable procedures to prohibit the disclosure, unauthorized
duplication, misuse or removal of such Confidential Information, and (iv) shall not disclose such
Confidential Information to any third party unless it is necessary to fulfill one or more
obligations expressly required by this Agreement, and provided that such third party agrees in
writing to be bound by terms of confidentiality at least equivalent to those set forth in this
Article XIII. Without limiting the foregoing, each of the parties shall use at least the same
procedures and degree of care to prevent the disclosure of Confidential Information as its uses to
prevent the disclosure of its own confidential information of like importance, and shall in any
event use no less than reasonable procedures and a reasonable degree of care. For purposes of this
Article XIII, “Confidential Information” means any and all non-public and proprietary
information that is specifically designated as such and that is disclosed by either party to the
other (including, without limitation, pricing information) in any form in connection with this
Agreement and that, if orally disclosed, shall be identified in writing within thirty (30) days of
such disclosure.



     13.2 Permitted Disclosure. The obligations set forth in Section 13.1 shall not apply
to any information to the extent it can be established by the receiving party that such
information:



          (a) was generally known and available to the public domain at the time it was disclosed, or
becomes generally known and available to the public domain through no fault of the receiver;




          (b) was known to the receiver at the time of disclosure as shown by the written records in
existence at the time of disclosure, or was independently developed by the receiving party or its
Affiliates without benefit of Confidential Information;




          (c) is disclosed with the prior written approval of the disclosing party;




          (d) becomes known to the receiving party from a third party without breach of this Agreement
by the receiving party and in a manner that is otherwise not in violation of the disclosing party’s
rights; or




          (e) is disclosed by the receiving party pursuant to the order or requirement of a court,
administrative agency, or other governmental body; provided, however, that the receiving party
shall provide reasonable advance notice to enable the disclosing party, with the cooperation of the
receiving party, to seek a protective order, confidential treatment order, or otherwise prevent or
restrict such disclosure.




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     13.3 Agreement and Terms Confidential. Unless otherwise agreed to in writing or as
necessary to comply with a valid legal order of a court of law or agency of competent jurisdiction,
both the existence and terms of this Agreement shall be deemed Confidential Information. If either
party is required by the United States Securities Exchange Commission (or other similar State or
non-United States governmental agency) to disclose this Agreement or any of its terms, such party
shall consult with the other party, and give due consideration to such party’s comments regarding
which terms the disclosing party may make the subject of a confidential treatment request.



ARTICLE XIV




LIMITED GUARANTEE BY EFW, INC.




     If, (1) during the Initial 4 Years (as hereinafter defined) KMC becomes insolvent or
undergoes a change of control that results in its (or its successors) inability to perform its
obligations under this Agreement with respect to the manufacture and service of Production
Instruments under this Agreement; (2) for the period of not less than six (6) months prior to such
insolvency or change of control, all world-wide requirements for Production Instruments were being
supplied by KMC and Gen-Probe does not have an existing second source supplier for the Production
Instruments; and (3) KMC fails to provide Gen-Probe with at least nine (9) months prior
written notice of such insolvency or change or control (the date of any such notice is hereby
referred to herein as the “Notification Date”), then, and only in such event, EFW, Inc. (“EFW”),
the indirect parent of KMC, guarantees to Gen-Probe the due and timely performance of all of KMC’s
obligations hereunder until the earlier of (a) the manufacture of the Production Instrument for
Gen-Probe is transferred to a new manufacturer selected by or reasonably satisfactory to Gen-Probe,
(b) the date six months after the Notification Date, or (c) the end of the Initial 4 Years. The
period between the Notification Date and the date determined in accordance with the preceding
sentence is referred to herein as the “Guarantee Period.” During the Guarantee Period, EFW shall
also assist Gen-Probe in the transition of manufacturing of the Production Instruments to the new
manufacturer. EFW shall bear or pay all reasonable out-of-pocket costs associated with the
transfer of manufacturing during the Guarantee Period. EFW’s guarantee shall only be for those
specific items set forth above and will not provide coverage for any other aspect of this
Agreement.



ARTICLE XV




TERM AND TERMINATION




     15.1 Term. Unless terminated earlier pursuant to the terms of Sections 15.2, 15.3,
15.4 or 15.5, the term of this Agreement shall commence on the Effective Date and continue until
the later of (a) the date four (4) years after the date of the delivery by KMC of the first
Production Instrument (the “Initial 4 Years”) or (b) the date of the delivery by KMC of the 200th
Production Instrument hereunder. If Gen-Probe does not purchase at least 100 Instruments during the
Initial 4 Years, then KMC will have the right to terminate this Agreement on nine (9) months
written



24









 







notice to Gen-Probe. If Gen-Probe purchases at least 200 Production Instruments during the Initial
4 Years, then Gen-Probe will have the right to extend the term for up to five (5) additional
periods of one (1) year each, subject to agreement by the parties to minimum irrevocable purchase
commitments not later than one year prior to the expiration of the then-existing term, such
agreement not to be unreasonably withheld by KMC.



     15.2 Termination for Material Breach. Upon any material breach of this Agreement by
either party, the non-breaching party may terminate this Agreement upon forty-five (45) days
written notice to the breaching party (such forty-five (45) day period shall, for the purposes of
this Section 15.2, be fourteen (14) business days with respect to the failure to timely pay any
invoice hereunder). Such termination notice shall become effective at the end of the forty-five
(45) day period unless (a) within such period the breaching party cures such breach to the
reasonable satisfaction of the non-breaching party, or (b) if the non-breaching party is KMC, and
following the issuance of a termination notice by KMC, Gen-Probe issues a notice of termination
pursuant to Sections 15.3, 15.4 or 15.5, then, in such event, the above forty-five (45) day cure
period shall end not later than one day prior to the effective termination date under said Section
15.3, 15.4 or 15.5 (as the case may be). Without limiting such other rights or remedies that may
be available to KMC as a result of Gen-Probe’s breach, upon the date of termination by KMC
hereunder Gen-Probe shall pay to KMC the total of the Purchase Order Cancellation Charges,
Pro-Rated Discount Reimbursement and the Unrecouped Cost Reduction Service Charges.



     15.3 Termination In Favor of Lower-Cost Manufacturer. If Gen-Probe obtains an offer
by a qualified third party unaffiliated with Gen-Probe (the “Third Party Manufacturer”) to produce
Production Instruments at a transfer price that is at least fifteen percent (15%) less than the
Transfer Price then being charged by KMC (the “Offered Transfer Price”), on terms and conditions
which are otherwise substantially the same as those set forth in this Agreement (a “Third Party
Agreement”), Gen-Probe shall have the right, not more frequently than annually, to request that KMC
meet such offer. If KMC does not agree in writing to meet such offer within thirty (30) days after
receipt of written notice of such offer from Gen-Probe (together with a copy of the proposed Third
Party Agreement), then Gen-Probe shall have the right to terminate this Agreement within thirty
(30) days thereafter, provided Gen-Probe enters into the Third Party Agreement (at the Offered
Transfer Price) with such Third Party Manufacturer during such thirty (30) day period. If KMC
agrees in writing within the initial thirty (30 ) day period provided above to meet the Offered
Transfer Price, then such price shall become the new Transfer Price on all purchase orders issued
by Gen-Probe thereafter. If Gen-Probe terminates this Agreement pursuant to this Section 15.3,
then Gen-Probe shall pay KMC within thirty (30) days of such termination the total of the Purchase
Order Cancellation Charges and the Unrecouped Cost Reduction Service Charges; provided, however, if
such termination occurs after the purchase of 200 Production Instruments from KMC, then Gen-Probe
shall only pay the Purchase Order Cancellation Charges to KMC. Gen-Probe shall have no other
liability to KMC for such termination under this Section 15.3.



     15.4 Termination of Instrument Manufacturing. Gen-Probe shall have the right to
permanently cease the development and/or production of the Instrument and Production Instrument,
and in connection therewith terminate this Agreement upon thirty (30) days written notice to KMC.
If Gen-Probe terminates this Agreement pursuant to this Section 15.4, then Gen-Probe shall pay KMC
within thirty (30) days of such termination the total of the Purchase



25









 







Order Cancellation Charges and the Unrecouped Cost Reduction Service Charges. If Gen-Probe resumes
the manufacture of the Instrument or Production Instrument within 1 year thereafter or the balance
of the Initial 4 Years, whichever is later, with a manufacturer other than KMC (including itself),
then Gen-Probe shall pay to KMC the Pro-Rated Discount Reimbursement within thirty (30) days of
such resumption. Gen-Probe shall have no other liability to KMC for such termination under this
Section 15.4.



     15.5 Termination for Convenience. Gen-Probe shall have the right to terminate this
Agreement for its convenience (e.g., for any reason other than those referred to in Sections 15.2,
15.3, and 15.4) upon thirty (30) days written notice to KMC. If Gen-Probe terminates this
Agreement for its convenience pursuant to this Section 15.5, then Gen-Probe shall pay KMC within
thirty (30) days of such termination the total of the Purchase Order Cancellation Charges, the
Pro-Rated Discount Reimbursement, and the Unrecouped Cost Reduction Service Charges. Gen-Probe
shall have no other liability to KMC for such termination under this Section 15.5.



     15.6 Rights Upon Termination. Notwithstanding anything contained in this Agreement to
the contrary, termination of this Agreement shall not relieve the parties of their respective
obligations or liability to the other accrued hereunder prior to the effective date of termination,
including, without limitation, under Sections 6.3, 6.4, 6.5, 6.6, 6.16, 15.3, 16.3, 16.6, 16.8, and
16.11 through 16.17 (inclusive) and Articles I, VIII, IX, XI, XIII, and XIV).



ARTICLE XVI




GENERAL




     16.1 Gen-Probe Representative On-Site. Gen-Probe, at its own cost and expense, shall
have the right to have a reasonable number of its own employees on location at KMC’s facilities on
a full-time or part-time basis, at Gen-Probe’s election, to interact with the KMC personnel
involved in the performance of KMC’s obligations under this Agreement. KMC shall make available to
such Gen-Probe personnel a shared office, and reasonable office support and facilities (including
without limitation telephone, e-mail access, and facsimile facilities). KMC shall cooperate with
such Gen-Probe personnel and provide them with reasonable working access to KMC’s work performed
under this Agreement, including without limitation to production work areas and facilities. KMC
shall not be liable for any injury to or death of Gen-Probe’s employees, or damage to, or loss of
such employees’ property, unless such injury, death, damage or loss to property is attributable to
KMC’s negligence. Gen-Probe shall at all times remain responsible for the acts and omissions of
its employees.



     16.2 Non-competition. Without Gen-Probe’s consent (which consent shall not be
unreasonably withheld), during the term of this Agreement KMC will not enter into any new
agreements to design, manufacture, supply or service any instrument that includes DNA probe testing
for infectious disease or cancer for any person or entity other than Gen-Probe. The foregoing
restriction shall not apply to DNA probe instruments that are the subject of existing contracts (or
renewals or extensions thereof) under which KMC is presently providing design, manufacturing,
supply or service activities; provided, however, that a complete list of the companies for which
KMC presently performs such work is set forth in Exhibit 6.



26









 





     16.3 Insurance. Each of Gen-Probe and KMC shall secure and maintain, during the term
of this Agreement and for a period of five (5) years thereafter, adequate general liability,
property damage and product liability insurance with coverage of at least $1,000,000 for each
occurrence and $2,000,000 in the aggregate.



     16.4 Schedule. Gen-Probe acknowledges and agrees that in addition to the other
factors set forth in this Agreement, KMC’s undertakings hereunder with respect to various
schedules, goals and tasks referred to herein are also subject to the timely performance and
cooperation of Gen-Probe.



     16.5 Disclosure of Financial Information. KMC and Gen-Probe shall each provide upon
the request of the other party reasonable financial information periodically throughout the term of
this Agreement; provided, however, that in lieu of disclosing such financial information to KMC,
Gen-Probe shall have the right to provide KMC with adequate and appropriate security that is
reasonably acceptable to KMC for the due and timely performance of Gen-Probe’s financial
obligations to KMC under this Agreement. Such financial information shall be treated by the
parties as Confidential Information in accordance with the terms of Article VIII.



     16.6 Governing Law; Dispute Resolution. This Agreement shall be construed and
enforced in accordance with the laws of the State of California, without giving effect to its
principles of conflicts of law. Any dispute or claim arising out of or in connection with this
Agreement shall be resolved as follows: (i) for a period of thirty (30) days after a party receives
from the other party written notice of a dispute, the respective appropriate officers of the
parties shall negotiate in good faith in an effort to resolve the dispute, and (ii) if the dispute
has not been resolved at the close of such thirty (30) day period, the matter will be finally
settled by arbitration under the rules then in effect of the American Arbitration Association. If
KMC commences any such arbitration proceedings, arbitration shall occur at San Diego, California
and if Gen-Probe commences any such arbitration proceedings, arbitration shall occur at New York,
New York.



     16.7 Independent Contractors. Gen-Probe and KMC shall be independent contractors and
shall not be deemed to be partners, joint venturers or each other’s agents or employees, and
neither party shall have the right to act on behalf of the other except as is expressly set forth
in this Agreement.



     16.8 Entire Agreement. This Agreement (together with its exhibits) sets forth the
entire agreement and understanding between the parties and supersedes all previous agreements,
promises, representations, understandings, and negotiations, whether written or oral between the
parties with respect to the subject matter hereof, including, without limitation, the Memorandum of
Understanding dated as of October 20, 2000, Gen-Probe’s Request for Proposal, and KMC’s proposal.
There shall be no amendments or modifications to this Agreement, except by a written document
signed by both parties. Any terms or conditions contained on a purchase order or any other
documents issued by Gen-Probe or KMC which are in addition to or contrary to the terms and
conditions of this Agreement shall be of no force and effect unless both of the parties expressly
agree in a signed writing that such terms and conditions shall apply to (and to the extent
necessary, modify) the terms of this Agreement.



27









 





     16.9 Assignment. This Agreement shall not be assigned by either party without the
prior written consent of the other party, except as part of a sale or transfer, by way of merger or
otherwise, of all or substantially all of the business or assets of such party to which this
Agreement relates, and provided further that the assignee agrees to be bound in writing by all the
terms of this Agreement, and the assignor agrees to remain responsible for the obligations of the
assignee pursuant to the terms set forth herein. Any purported assignment in violation of this
Section 16.9 shall be void.



     16.10 Binding Upon Successors and Assigns. Subject to the provisions of Section 16.9,
this Agreement shall be binding upon and inure to the benefit of successors in interest and assigns
of Gen-Probe and KMC.



     16.11 Severability. If any provision of this Agreement is finally held to be invalid,
illegal or unenforceable by a court or agency of competent jurisdiction, that provision shall be
severed or shall be modified by the parties so as to be legally enforceable (and to the extent
modified, it shall be modified so as to reflect, to the extent possible, the intent of the parties)
and the validity, legality and enforceability of the remaining provisions shall not be affected or
impaired in any way.



     16.12 No Waiver. Any delay in enforcing a party’s rights under this Agreement or any
waiver as to a particular default or other matter shall not constitute a waiver of a party’s right
to the future enforcement of its rights under this Agreement.



     16.13 Attorneys’ Fees. In the event of a dispute under this Agreement between the
parties, or in the event of any default, the party prevailing in the resolution of any such dispute
or default shall be entitled to recover, in an arbitration proceeding pursuant to Section 16.6, its
reasonable attorneys’ fees and disbursements. For the sake of clarity, in the event that KMC files
an action to collect on a claim against any letter of credit or surety bond provided under Section
6.5, and KMC prevails in such action, then KMC shall be entitled to recover its reasonable
attorney’s fees in connection with such action from Gen-Probe.



     16.14 Notices. Any notice required or permitted by this Agreement to be given to
either party shall be in writing and shall be deemed given when delivered personally with a signed
receipt, by confirmed telecopy to a fax number designated in writing by the party to whom notice is
given, or by registered, recorded or certified mail, return receipt requested, and addressed to the
party to whom such notice is directed, at:



	 	 	 
	If to Gen-Probe:
	 	President and CEO
	 
	 	Gen-Probe Incorporated
	 
	 	10210 Genetic Center Drive
	 
	 	San Diego, California  92121-1589
	 
	 	Telephone: (858) 410-8000
	 
	 	Fax: (858) 410-8625






28









 






	 	 	 
	with a copy to:
	 	General Counsel
	 
	 	Gen-Probe Incorporated
	 
	 	10210 Genetic Center Drive
	 
	 	San Diego, California  92121-1589
	 
	 	Telephone: (858) 410-8000
	 
	 	Fax: (858) 410-8625
	 
	 	 
	If to KMC:
	 	President
	 
	 	KMC Systems, Inc.
	 
	 	220 Daniel Webster Highway
	 
	 	Merrimack, New Hampshire  03054-4844
	 
	 	Telephone: (603) 880-7746
	 
	 	Fax: (603) 594-7022
	 
	 	 
	with copies to:
	 	Ira Schreger, Esq.
	 
	 	Goodwin Proctor LLP
	 
	 	599 Lexington Avenue
	 
	 	New York, New York  10022
	 
	 	Telephone:  (212) 813-8863
	 
	 	Fax:  (212) 355-3333
	 
	 	 
	 
	 	General Counsel
	 
	 	EFW, Inc.
	 
	 	4700 Marine Creek Parkway
	 
	 	Post Office Box 136969
	 
	 	Ft. Worth, Texas 76136-6969
	 
	 	Telephone:  (817) 234-6600
	 
	 	Fax:  (817) 234-6768





or at such other address or telecopy number as such party to whom notice is directed may designate
to the other party in writing.




     16.15 Force Majeure. If the performance of this Agreement or any obligations
hereunder is prevented, restricted or interfered with by reason of fire or other casualty or
accident, strikes or labor disputes, war or other violence, any law, order, proclamation,
ordinance, demand or requirement of any government agency, or any other act or condition beyond the
control of the parties hereto (“Force Majeure”), the party so affected, upon giving prompt notice
to the other party shall be excused from such performance (other than the obligation to pay money
hereunder) during such prevention, restriction or interference. If the Force Majeure continues for
more than ninety (90) days, then the other party may, on thirty (30) days written notice to the
affected party, terminate this Agreement, subject to the right of the affected party to preclude
such termination by compensating the other party for its reasonable costs incurred as a result of
the delay due to the Force Majeure. The parties agree that in the event of a termination under
this Section 16.15 by either party, KMC’s reasonable costs will include the Purchase Order
Cancellation Charges.



29









 





     16.16 No Right of Publicity. Except as otherwise provided herein, no right, express
or implied, is granted by this Agreement to either party to use in any manner the name of Gen-Probe
or KMC or any other trade name or trademark of the other party in connection with the performance
of this Agreement.



     16.17 Counterparts. This Agreement shall be fully executed in two (2) original
counterparts, each of which shall be deemed an original.



30









 





     IN WITNESS WHEREOF, authorized officers of each of Gen-Probe Incorporated and KMC Systems,
Inc. have executed this Agreement as of the date first set forth above.



	 	 	 	 	 	 	 
	GEN-PROBE INCORPORATED	 	KMC SYSTEMS, INC.
	 
	 	 	 	 	 	 
	By:

	 	/s/ Henry L. Nordhoff
	 	By:
	 	/s/ Patrick W. McNallen
	 

	 	 
	 	 	 	 
	 

	 	Henry L. Nordhoff 

President and 

Chief Executive Officer
	 	 	 	Patrick W. McNallen 

President
	 
	 	 	 	 	 	 
	Date: October 23, 2001	 	Date: November 19, 2001
	 
	 	 	 	 	 	 
	 	 	 	 	The undersigned, EFW, Inc. is a party to the
foregoing agreement solely with respect to the
provisions of Article XIV.
	 
	 	 	 	 	 	 
	 	 	 	 	EFW, INC.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	Date: September __, 2001






31









 






EXHIBITS TO

DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT

BETWEEN GEN-PROBE INCORPORATED AND

KMC SYSTEMS, INC.




[Intentionally Omitted]





32