-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VlfSFLgHzjJwYpjj+awdYtG0/F20TC+txBuguMXn0r7o6vMKKdcm5TE471XBLLM/ iz5ZoXPE+KAMTppUuyniPA== 0000912057-99-005490.txt : 19991117 0000912057-99-005490.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-005490 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALYPTE BIOMEDICAL CORP CENTRAL INDEX KEY: 0000899426 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 061226727 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20985 FILM NUMBER: 99751487 BUSINESS ADDRESS: STREET 1: 1440 FOURTH STREET CITY: BERKELEY STATE: CA ZIP: 94710 BUSINESS PHONE: 5107495100 MAIL ADDRESS: STREET 1: 1265 HARBOR BAY PKWY CITY: ALAMEDA STATE: CA ZIP: 94502 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------ FORM 10-Q ------------------------ (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _____________ Commission file number: 000-20985 CALYPTE BIOMEDICAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 06-1226727 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) 1440 FOURTH STREET, BERKELEY, CALIFORNIA 94710 (Address of principal executive offices) (Zip Code) (510) 749-5100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The registrant had 20,415,650 shares of common stock outstanding as of November 10, 1999. - ------------------------------------------------------------------------------ CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY FORM 10-Q INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets at September 30, 1999 (unaudited) and December 31, 1998................................................................ 3 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1999 and 1998 (unaudited)........... 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 (unaudited)....................... 5 Notes to Condensed Consolidated Financial Statements (unaudited).............................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................................... 18 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds........................... 19 Item 5. Other Information................................................... 19 Item 6. Exhibits and Reports on Form 8-K.................................... 21
-2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS
9/30/99 12/31/98 ----------- ---------- (Unaudited) Current assets: Cash and cash equivalents .................................................... $ 4,883 $ 3,121 Securities held to maturity .................................................. 720 650 Accounts receivable .......................................................... 532 157 Inventories .................................................................. 1,590 1,748 Notes receivable - officers and employees .................................... 504 498 Note receivable - related party .............................................. - 768 Other current assets ......................................................... 270 666 ----------- ---------- Total current assets ................................................ 8,499 7,608 Property and equipment, net of accumulated depreciation of $3,908 at September 30, 1999 and $3,357 at December 31, 1998 ........................ 1,294 1,783 Intangibles, net of accumulated amortization of $11 at September 30, 1999 and $3 at December 31, 1998 ............................... 45 346 Other assets ...................................................................... 188 208 ----------- ---------- $ 10,026 $ 9,945 ----------- ---------- ----------- ---------- LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................................................. $ 930 $ 1,147 Accrued expenses ............................................................. 1,462 1,227 Note payable - current ....................................................... 900 - Capital lease obligations - current portion .................................. 121 290 Deferred revenue ............................................................. 500 500 ----------- ---------- Total current liabilities ........................................... 3,913 3,164 Deferred rent obligation .......................................................... 26 31 Capital lease obligations - long-term portion ..................................... 60 23 ----------- ---------- Total liabilities ................................................... 3,999 3,218 Mandatorily redeemable Series A preferred stock, $0.001 par ----------- ---------- value; no shares authorized, 100,000 shares issued and outstanding; aggregate redemption and liquidation value of $1,000 plus cumulative dividends .......................................... 2,186 2,096 Commitments and contingencies Stockholders' equity: Preferred Stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding ............................. - - Common Stock, $0.001 par value; 30,000,000 shares authorized; 20,415,650 and 13,870,453 shares issued and outstanding as of September 30, 1999 and December 31, 1998, respectively .......................................... 20 14 Common Stock subscribed ...................................................... - 3 Additional paid-in capital ................................................... 68,143 61,476 Deferred compensation ........................................................ (51) (107) Accumulated deficit .......................................................... (64,271) (56,755) ----------- ---------- Total stockholders' equity .......................................... 3,841 4,631 ----------- ---------- ----------- ---------- $ 10,026 $ 9,945 ----------- ---------- ----------- ----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -3- CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ---------------------------- 1999 1998 1999 1998 -------- ------- --------- --------- Revenues: Product sales ............................................ $ 1,077 $ 147 $ 2,825 $ 684 -------- ------- -------- --------- Operating expenses: Product costs ............................................ 1,266 454 3,382 1,503 Research and development costs ........................... 864 1,155 3,437 2,883 Selling, general and administrative costs ................ 1,317 1,190 3,663 2,953 -------- ------- -------- --------- Total expenses ......................................... 3,447 2,799 10,482 7,339 -------- ------- -------- --------- Loss from operations ................................. (2,370) (2,652) (7,657) (6,655) Interest income, interest expense and other income .......... 45 63 143 266 -------- ------- -------- --------- Loss before income taxes ............................. (2,325) (2,589) (7,514) (6,389) Income taxes ................................................ - - (2) (2) -------- ------- -------- --------- Net loss ........................................... (2,325) (2,589) (7,516) (6,391) Less dividends on mandatorily redeemable Series A preferred stock ........................................... (30) (30) (90) (90) -------- ------- -------- --------- Net loss attributable to common stockholders ................ $ (2,355) $(2,619) $ (7,606) $ (6,481) -------- ------- -------- --------- -------- ------- -------- --------- Net loss per share attributable to common stockholders (basic and diluted) ....................................... $ (0.12) $ (0.20) $ (0.40) $ (0.48) -------- ------- -------- --------- -------- ------- -------- --------- Weighted average shares used to compute net loss per share attributable to common stockholders (basic and diluted) .......................... 20,399 13,422 18,966 13,404 -------- ------- -------- --------- -------- ------- -------- ---------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -4- CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine Months Ended September 30, --------------------------- 1999 1998 -------- -------- Cash flows from operating activities: Net loss ............................................................................... $ (7,516) $ (6,391) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ...................................................... 559 390 Amortization of deferred compensation .............................................. 56 305 Forgiveness of note receivable from officer ........................................ - 57 Write-off of note and interest receivable to research and development costs ........ 890 - Changes in operating assets and liabilities: Accounts receivable ............................................................ (375) (65) Inventories .................................................................... 451 (686) Other current assets ........................................................... (112) (40) Other assets ................................................................... 20 18 Accounts payable, accrued expenses and deferred revenue ................................................................... 100 453 Deferred rent obligation ....................................................... (5) (5) -------- -------- Net cash used in operating activities ................................... (5,932) (5,964) -------- -------- Cash flows from investing activities: Purchase of equipment .................................................................. (62) (197) Notes receivable from officers ......................................................... (6) (346) Loan to Pepgen ......................................................................... (64) (768) Purchase of securities held to maturity ................................................ (1,450) (1,873) Proceeds from maturity of securities ................................................... 1,380 - -------- -------- Net cash used in investing activities ................................... (202) (3,184) -------- -------- Cash flows from financing activities: Proceeds from sale of stock ............................................................ 8,132 126 Expenses related to sale of stock ...................................................... (854) - Expenses related to purchase of certain assets of Cambridge Biotech .................... (68) - Principal payments on capital lease obligations ........................................ (214) (342) Principal payments on notes payable .................................................... (1,100) - Proceeds from notes payable ............................................................ 2,000 - -------- -------- Net cash provided by (used in) financing activities ..................... 7,896 (216) -------- -------- Net increase (decrease) in cash and cash equivalents ...................................... 1,762 (9,364) Cash and cash equivalents at beginning of period .......................................... 3,121 10,820 -------- -------- Cash and cash equivalents at end of period ................................................ $ 4,883 $ 1,456 -------- -------- -------- -------- Supplemental disclosure of cash flow activities: Cash paid for interest ............................................................... $ 154 $ 93 Cash paid for income taxes ........................................................... 2 2 Supplemental disclosure of noncash activities: Refinance of capital lease obligation ................................................ 82 - Acquisition of equipment through obligations under capital leases .................... - 34 Dividends accrued on mandatorily redeemable Series A preferred stock ................. 90 90 Revaluation of acquisition of certain assets of Cambridge Biotech .................... 293 - Conversion of common stock subscribed to common stock ................................ 3 - Deferred compensation attributable to stock grants ................................... - 50
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -5- CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) (1) THE COMPANY AND BASIS OF PRESENTATION Calypte Biomedical Corporation (the Company) was incorporated on November 11, 1989. The Company's primary activities are to sell its FDA-approved urine Human Immunodeficiency Virus Type I (HIV-1) enzyme immunoassay (EIA) screening test, its FDA-approved urine and serum HIV-1 Western Blot supplemental tests, perform research and development on new products and obtain FDA approval for its urine-based diagnostic tests. Prior to March 31, 1998, the Company was considered a development stage enterprise. On June 1, 1998, the Company announced that the U.S. Food and Drug Administration licensed the urine HIV-1 Western Blot test that confirms the presence of antibodies to HIV-1 in urine samples. The new test is used on samples that are repeatedly reactive in the Company's HIV-1 urine antibody screening test. The new test completes the only available urine-based HIV test method. Accordingly, the Company ceased being a development stage enterprise. In December 1998, Calypte acquired from Cambridge Biotech Corporation certain assets relating to the Western Blot product line for certain infectious diseases. The acquisition included the urine-based and serum-based HIV-1 Western Blot products, as well as a supplemental test for Lyme Disease and Human T-Lymphotropic Virus (HTLV). The accompanying unaudited condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), and reflect all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the Company's financial position as of September 30, 1999 and the results of its operations for the three and nine months ended September 30, 1999 and 1998 and its cash flows for the nine months ended September 30, 1999 and 1998. Interim results are not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Company's audited consolidated financial statements for each of the years in the three year period ended December 31, 1998 included in Form 10-K filed with the SEC on March 25, 1999. Certain information in footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to the rules and regulations of the SEC. (2) SIGNIFICANT ACCOUNTING POLICIES NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS Basic net loss per share attributable to common stockholders is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period presented. The computation of diluted earnings per common share is similar to the computation of basic net loss per share attributable to common stockholders, except that the denominator is increased for the assumed conversion of convertible securities and the exercise of dilutive options using the treasury stock method. The weighted average shares used in computing basic and diluted net loss per share attributable to common stockholders are equivalent for the periods presented. Options and warrants were excluded from the computation of loss per share as their effect is antidilutive. -6- CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) (3) INVENTORIES Inventories are stated at the lower of cost or market and the cost is determined using the first-in, first-out method. Inventories as of September 30, 1999 and December 31, 1998 consisted of the following (in thousands):
1999 1998 ---------- --------- Raw Materials $ 310 $ 300 Work-in-Process 1,092 1,134 Finished Goods 188 314 ---------- --------- Total Inventory $ 1,590 $ 1,748 ---------- --------- ---------- ---------
(4) ADJUSTMENT OF PURCHASE PRICE ALLOCATION On December 17, 1998, the Company acquired the assets relating to the Western Blot product line for certain infectious diseases from Cambridge Biotech Corporation for a total purchase price of $2,090,000. During the first quarter of 1999, management adjusted its estimates of the fair value of assets acquired in connection with the allocation of the purchase price. As a result, intangible assets were reduced and inventory was increased by $293,000. (5) NOTE RECEIVABLE - RELATED PARTY (PEPGEN CORPORATION) Pepgen Corporation is a development stage company in which Calypte has a minority equity interest. During 1998, the Company loaned Pepgen $768,000 at an interest rate of 10%. During the first quarter of 1999, the Company loaned Pepgen an additional $64,000 at an interest rate of 10%. The Company's note receivable from Pepgen totaling $832,000 as of March 31, 1999 was secured by all intellectual property of Pepgen. The entire loan plus interest was due July 1, 1999. In May 1999, Pepgen received a financing offer from a third party that was contingent upon Calypte converting its note receivable due from Pepgen into an additional equity interest in Pepgen. At a meeting of the Calypte Board of Directors, the Board agreed for such a conversion to take place. Effective March 31, 1999, the Company has written off its total investment in the note receivable from Pepgen including all accrued interest as research and development costs. Additional amounts of $63,000 were spent on research and development related to Pepgen during the second quarter of 1999. -7- CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) (6) LINE OF CREDIT In January 1999, the Company entered into a line of credit agreement to borrow up to $2.0 million at an interest rate of prime plus 1 1/4%. At September 30, 1999, the prime rate was 8.25%. The agreement requires the Company to maintain certain financial covenants and comply with certain reporting and other requirements. In addition, borrowings under the line of credit agreement are secured by Calypte's assets. In January 1999, Calypte drew down $2.0 million on the line of credit. During the third quarter of 1999, the Company repaid $1.1 million on the line of credit. The balance of the line of credit at September 30, 1999 of $900,000 is to be repaid in nine equal monthly installments of principal, plus accrued interest. (7) SUBSEQUENT EVENT On October 6, 1999, Calypte announced that its affiliated therapeutic company, Pepgen Corporation, secured $3.8 million in a new round of financing. Following the closing of the financing, Calypte owns 41 percent of Pepgen. -8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE STATEMENTS IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" THAT RELATE TO FUTURE PLANS, EVENTS OR PERFORMANCE ARE FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS, EVENTS OR PERFORMANCE MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A VARIETY OF FACTORS, INCLUDING THOSE SET FORTH UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS, EVENTS OR PERFORMANCE" BELOW. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. OVERVIEW Calypte's efforts are primarily focused on selling, developing and obtaining approval for Calypte's urine-based and serum-based diagnostic tests for sexually transmitted diseases. In August 1996, we received a product license and an establishment license from the U.S. Food and Drug Administration (FDA) to manufacture and sell Calypte's urine-based HIV-1 screening test for use in professional laboratory settings. In June 1998, we announced that the FDA had licensed the urine HIV-1 Western Blot supplemental test that confirms the presence of antibodies to HIV-1 in urine samples. The new test is used on samples that are repeatedly reactive in our HIV-1 urine antibody screening test. The new test completes the only available FDA-approved urine-based HIV test method. There can be no assurance the Company will have significant revenues from sales of the HIV-1 urine screening assay or the supplemental test. In December 1998, Calypte acquired from Cambridge Biotech certain assets relating to the Western Blot product line for certain infectious diseases. The acquisition included the urine-based and serum-based HIV-1 Western Blot products, as well as a supplemental test for Lyme Disease and Human T-Lymphotropic Virus (HTLV). The Company expects operating losses to continue as the Company continues its marketing and sales activities for its FDA-approved products and conducts additional research and development for subsequent products. Our marketing strategy is to use distributors, focused direct selling and marketing partners to penetrate certain targeted domestic and international markets. The Company plans to maintain a small direct sales force to sell the Company's urine-based HIV-1 test to laboratories serving the life insurance market. International and other U.S. markets will be addressed utilizing diagnostic product distributors. There can be no assurance that the Company's products will be successfully commercialized or that the Company will achieve significant product revenues. In addition, there can be no assurance that the Company will achieve or sustain profitability in the future. -9- RESULTS OF OPERATIONS The following represents selected financial data:
(in thousands) (in thousands) ------------------------ ----------------------- Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ----------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Total revenue $ 1,077 $ 147 $ 2,825 $ 684 -------- -------- -------- -------- Operating expenses: Product costs 1,266 454 3,382 1,503 Research and development 864 1,155 3,437 2,883 Selling, general and administrative 1,317 1,190 3,663 2,953 -------- -------- -------- -------- Total expenses 3,447 2,799 10,482 7,339 -------- -------- -------- -------- Loss from operations (2,370) (2,652) (7,657) (6,655) Interest income (net of interest expense) and other income 45 63 143 266 -------- -------- -------- -------- Loss before income taxes $ (2,325) $ (2,589) $ (7,514) $ (6,389) -------- -------- -------- -------- -------- -------- -------- --------
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 In the third quarter of 1999, revenue increased $930,000 or 633% to $1.1 million from $147,000 in the prior year's comparable period, due primarily to the acquisition of certain assets of Cambridge Biotech Corporation and the sale of products related to that acquisition. Product costs increased $812,000 or 179% to $1.3 million for the three months ended September 30, 1999 from $454,000 for the three months ended September 30, 1998. Product costs during the three months ended September 30, 1999 were higher due to the sale of products related to the acquisition of certain assets of Cambridge Biotech Corporation. Research and development expenses decreased $291,000 or 25% to $864,000 for the three months ended September 30, 1999 from $1.2 million in the corresponding period of the prior year. The decrease was due to research funding made to outside organizations and more personnel hired to complete research and development studies in 1998. Selling, general and administrative expenses increased $127,000 or 11% to $1.3 million for the three months ended September 30, 1999 from $1.2 million for the three months ended September 30, 1998. The increase was primarily related to general and administrative costs associated with assets acquired from Cambridge Biotech Corporation offset by a decrease in the use of outside consultants and sales conferences in 1999. Interest income (net of interest expense) and other income decreased $18,000 or 29% to $45,000 for the three months ended September 30, 1999 from $63,000 for the three months ended September 30, 1998. The decrease was primarily due to a decrease in the interest earned from cash reserves and securities held to maturity and the increase in interest expense related to borrowings on the bank line of credit. -10- NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 In the first nine months of 1999, revenue increased $2.1 million or 313% to $2.8 million from $684,000 in the prior year's comparable period due primarily to the acquisition of certain assets of Cambridge Biotech Corporation and the sale of products related to that acquisition. Product costs increased $1.9 million or 125% to $3.4 million for the nine months ended September 30, 1999 from $1.5 million for the nine months ended September 30, 1998. Product costs during the nine months ended September 30, 1999 were higher due to the sale of products related to the acquisition of certain assets of Cambridge Biotech Corporation. Research and development expenses increased $554,000 or 19% to $3.4 million for the nine months ended September 30, 1999 from $2.9 million in the corresponding period of the prior year. The increase was primarily due to the write-off of notes and interest receivable from a related party as research and development in 1999 offset by research funding made to outside organizations in 1998. Selling, general and administrative expenses increased $710,000 or 24% to $3.7 million for the nine months ended September 30, 1999 from $3.0 million for the nine months ended September 30, 1998. The increase was primarily related to general and administrative costs associated with assets acquired from Cambridge Biotech Corporation offset by a decrease in the use of outside consultants in 1999. Interest income (net of interest expense) and other income decreased $123,000 or 46% to $143,000 for the nine months ended September 30, 1999 from $266,000 for the nine months ended September 30, 1998. The decrease was primarily due to a decrease in the interest earned from cash reserves and securities held to maturity and the increase in interest expense related to borrowings on the bank line of credit. LIQUIDITY AND CAPITAL RESOURCES FINANCING ACTIVITIES The Company has financed operations from inception primarily through the private placement of preferred stock and common stock, the Company's Initial Public Offering (IPO) of common stock and, to a lesser extent, from payments related to research and development agreements, a bank line of credit, equipment lease financings and borrowings from notes payable. In January 1999, the Company completed a private placement of 3,102,500 shares of its Common Stock at $1.00 per share. The Company received net proceeds of approximately $2.8 million after deducting placement agent commissions and additional expenses associated with the private placement. In January 1999, the Company drew down $2.0 million on a line of credit with a bank. The borrowings under the line of credit agreement are secured by Calypte's assets. During the third quarter of 1999, the Company repaid $1.1 million on the line of credit. The balance of the line of credit at September 30, 1999 of $900,000 is to be repaid in nine equal monthly installments of principal, plus accrued interest. In April 1999, the Company completed a private placement of 3,398,000 shares of its Common Stock at $2.25 per share. The Company received net proceeds of approximately $7.0 million after deducting placement agent commissions and additional expenses associated with the private placement. -11- Although the Company believes current cash will be sufficient to meet the Company's operating expenses and capital requirements, the Company's future liquidity and capital requirements will depend on numerous factors, including market acceptance of its products, regulatory actions by the FDA and other international regulatory bodies, intellectual property protection and the ability to raise additional capital in a timely manner. There can be no assurance that the Company's products will be successfully commercialized or that the Company will achieve significant product revenue. In addition, there can be no assurance that the Company will achieve or sustain profitability in the future. There can be no assurance that the Company will not be required to raise additional capital or that such capital will be available on acceptable terms, if at all. Any failure to raise additional financing will likely place us in significant financial jeopardy. Therefore, the Company cannot predict the adequacy of its capital resources on a long-term basis. Our independent auditors have issued their report on our 1998 financial statements which states in part that we have suffered recurring losses and have limited liquidity, both of which raise substantial doubt about our ability to continue as a going concern. OPERATING ACTIVITIES For the nine months ended September 30, 1999 and September 30, 1998, the Company's cash used in operations was $5.9 million and $6.0 million, respectively. The cash used in operations was primarily for inventory, marketing the complete urine-based HIV-1 testing method and funding research and development, manufacturing, selling, and general and administrative expenses of the Company. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction and, if it is, the type of hedge transaction. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 delays the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company does not expect that the adoption of SFAS Nos. 133 and 137 will have a material impact on its consolidated financial statements because the Company does not currently hold any derivative instruments. -12- FACTORS THAT MAY AFFECT FUTURE RESULTS, EVENTS OR PERFORMANCE You should consider carefully the following risk factors, along with the other information contained or incorporated by reference in this Form 10-Q, in evaluating the Company. These factors, among others, may cause actual results, events or performance to differ materially from those expressed in any forward-looking statements we make in this Form 10-Q or in press releases or other public disclosures. UNCERTAIN MARKET ACCEPTANCE OF OUR NEW METHOD OF DETERMINING THE PRESENCE OF HIV ANTIBODIES. Our products incorporate a new method of determining the presence of HIV antibodies. There can be no assurance that we will obtain: - any significant degree of market acceptance among physicians, patients or health care payors; or - recommendations and endorsements by the medical community which are essential for market acceptance of the products. We have FDA approval to market our urine HIV-1 screening and confirmatory test in the United States and in July, 1998 we began marketing this product. However, to date this product has only generated limited revenues and not achieved significant market penetration. The failure of our products to obtain market acceptance would have a material adverse effect on us. WE HAVE LITTLE EXPERIENCE SELLING AND MARKETING OUR HIV-1 URINE-BASED SCREENING TEST. We have little experience marketing and selling our products either directly or through our distributors, since we only began such sales in the second half of 1998. The success of our products depends upon alliances with third-party distributors. There can be no assurance that: - our direct selling efforts will be effective; - our distributors will successfully market our products; or - if our relationships with distributors terminate, we will be able to establish relationships with other distributors on satisfactory terms, if at all. Any disruption in our distribution, sales or marketing network could have a material adverse effect on us. WE HAVE SUSTAINED LOSSES IN THE PAST AND WE EXPECT TO SUSTAIN LOSSES IN THE FUTURE. We have incurred losses in each year since our inception. Our net loss for the nine months ended September 30, 1999 was $7.5 million and our accumulated deficit as of September 30, 1999 was $64.3 million. We expect operating losses to continue as we continue our marketing and sales activities for our FDA-approved products and conduct additional research and development for subsequent products. OUR QUARTERLY RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY, MARKETING AND COMPETITIVE FACTORS OVER WHICH WE HAVE LITTLE OR NO CONTROL. The factors listed below, some of which we cannot control, may cause our revenues and results of operations to fluctuate significantly: - actions taken by the FDA or foreign regulatory bodies relating to our products; - the extent to which our products gain market acceptance; - the timing and size of distributor purchases; and - introductions by competitors of alternative means for testing for HIV. WE DEPEND UPON THE VIABILITY OF THREE PRODUCTS - OUR HIV-1 URINE-BASED SCREENING TEST AND OUR URINE AND BLOOD BASED SUPPLEMENTAL TESTS. Our HIV-1 urine-based screening test and urine and blood-based supplemental tests are our only products. Accordingly, we may have to cease operations if our screening and supplemental tests fail to achieve market acceptance or generate significant revenues. -13- OUR PRODUCT DEPENDS UPON RIGHTS TO TECHNOLOGY THAT WE HAVE LICENSED FROM THIRD PARTY PATENT HOLDERS AND THERE CAN BE NO ASSURANCE THAT THE RIGHTS WE HAVE UNDER THESE LICENSING AGREEMENTS ARE SUFFICIENT OR THAT WE CAN ADEQUATELY PROTECT THOSE RIGHTS. We currently have the right to use patent and proprietary rights which are material to the manufacture and sale of our HIV-1 urine-based screening test under licensing agreements with New York University, Cambridge Biotech Corporation, Repligen Corporation, and the Texas A&M University System. WE RELY ON SOLE SOURCE SUPPLIERS THAT WE CANNOT QUICKLY REPLACE FOR CERTAIN COMPONENTS CRITICAL TO THE MANUFACTURE OF OUR PRODUCTS. Any delay or interruption in the supply of these components could have a material adverse effect on us by significantly impairing our ability to manufacture products in sufficient quantities, particularly as we increase our manufacturing activities in support of commercial sales. WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR PRODUCTS AND LITTLE EXPERIENCE IN MANUFACTURING OUR PRODUCTS IN COMMERCIAL QUANTITIES. We may encounter difficulties in scaling-up production of new products, including problems involving: - production yields; - quality control and assurance; - raw material supply; and - shortages of qualified personnel. THE SUCCESS OF OUR PLANS TO ENTER INTERNATIONAL MARKETS MAY BE LIMITED OR DISRUPTED DUE TO RISKS RELATED TO INTERNATIONAL TRADE AND MARKETING AND THE CAPABILITIES OF OUR DISTRIBUTORS. We anticipate that international distributor sales will generate a significant portion of our revenues for the next several years. We believe that our urine-based test can provide significant benefits in countries that do not have the facilities or personnel to safely and effectively collect and test blood samples. The following risks may limit or disrupt our international sales; - the imposition of government controls; - export license requirements; - political instability; - trade restrictions; - changes in tariffs; - difficulties in managing international operations; and - fluctuations in foreign currency exchanges rates. Some of our distributors have limited international marketing experience. There can be no assurance that these distributors will be able to market successfully our products in foreign markets. WE FACE INTENSE COMPETITION IN THE MEDICAL DIAGNOSTIC PRODUCTS MARKET AND RAPID TECHNOLOGICAL ADVANCES BY COMPETITORS. Competition in our diagnostic market is intense and we expect it to increase. Within the United States, our competitors include a number of well-established manufacturers of HIV tests using blood samples, plus at least one system for the detection of HIV antibodies using oral fluid samples. Many of our competitors have significantly greater financial, marketing and distribution resources than we do. Our competitors may succeed in developing or marketing technologies and products that are more effective than ours. These developments could render our technologies or products obsolete or noncompetitive or otherwise have a material adverse effect on us. -14- OUR ABILITY TO MARKET OUR PRODUCT DEPENDS UPON OBTAINING AND MAINTAINING FDA AND FOREIGN REGULATORY APPROVALS. Numerous governmental authorities in the United States and other countries regulate our products. The FDA regulates our products under federal statutes and regulations related to pre-clinical and clinical testing, manufacturing, labeling, distribution, sale and promotion of medical devices in the United States. If we fail to comply with FDA regulations, or if the FDA believes that we are not in compliance with such regulations, the FDA can: - detain or seize our products; - issue a recall of our products; - prohibit marketing and sales of our products; and - assess civil and criminal penalties against us, our officers or our employees. We also plan to sell our products in certain foreign countries where they may be subject to similar local regulatory requirements. The imposition of any of the sanctions described above could have a material adverse effect on us. The regulatory approval process in the United States and other countries is expensive, lengthy and uncertain. We may not obtain necessary regulatory approvals or clearances in a timely manner, if at all. We may lose previously obtained approvals or clearances or fail to comply with regulatory requirements. The occurrence of any of these events would have a material adverse effect on Calypte. Before we begin to manufacture our product at our Alameda facility, we must obtain FDA approval for that facility. Delays in receiving the FDA's approval or other difficulties which we encounter in scaling-up our manufacturing capacity to meet demand could have a material adverse effect on us. WE HAVE RECEIVED WARNING LETTERS FROM THE FDA AND WE MUST SATISFY THE FDA'S CONCERNS IN ORDER TO AVOID REGULATORY ACTION AGAINST US. In November 1998, the Company received a Warning Letter from the FDA following an inspection by the FDA of the Company's manufacturing facility in Berkeley, California. On December 11, 1998, the Company responded in writing to each of the alleged deficiencies cited in the Warning Letter. Subsequently, the Company received a letter from the FDA in which the FDA requested further responses from the Company with regard to certain of such alleged deficiencies. The Company responded to the subsequent letter on June 1, 1999. On September 28, 1999, the FDA conducted a follow up inspection of the Company's Berkeley and Alameda, California facilities. If the FDA is not satisfied with the Company's responses and the Company's corrective actions, it could take regulatory actions against the Company including license suspension, revocation, or denial, seizure of products or injunction, or civil penalties or criminal sanctions. Any such FDA action would have a material adverse effect upon the Company's ability to conduct operations. In addition, failure of the Company to satisfy the FDA as to such Warning Letter could adversely affect the Company's pending FDA license application for the Alameda facility. In May 1999, the Company received a Warning Letter from the FDA following an inspection by the FDA of the Company's manufacturing facility in Rockville, Maryland. The Warning Letter was based upon an inspection of the Rockville manufacturing facility that was conducted between November 30 and December 11, 1998, which cited a number of significant observations. If the FDA is not satisfied with the Company's responses and the Company's corrective actions, it could take regulatory actions against the Company including license suspension, revocation, or denial, seizure of products or injunction, or civil penalties or criminal sanctions. Any such FDA action would have a material adverse effect upon the Company's ability to conduct operations. In addition, failure of the Company to satisfy the FDA as to such Warning Letter could adversely affect the Company's pending FDA license application for the Rockville facility. On May 24, 1999, the Company responded in writing to each of the alleged deficiencies cited in the Warning Letter. -15- AS A SMALL MANUFACTURER OF A MEDICAL DIAGNOSTIC PRODUCT, WE ARE EXPOSED TO PRODUCT LIABILITY AND RECALL RISKS FOR WHICH INSURANCE COVERAGE IS EXPENSIVE, LIMITED AND POTENTIALLY INADEQUATE. We manufacture medical diagnostic products which subject us to risks of product liability claims or product recalls, particularly in the event of false positive or false negative reports. A product recall or a successful product liability claim or claims which exceed our insurance coverage could have material adverse effect on us. We maintain a $10,000,000 claims made policy of product liability insurance. However, product liability insurance is expensive. In the future we may not be able to obtain coverage on acceptable terms, if at all. Moreover, our insurance coverage may not adequately protect us from liability which we incur in connection with clinical trials or sales of our products. OUR CHARTER DOCUMENTS MAY INHIBIT A TAKEOVER. Certain provisions of our Certificate of Incorporation and Bylaws could: - - discourage potential acquisition proposals; - - delay or prevent a change in control of Calypte; - - diminish stockholders' opportunities to participate in tender offers for our common stock, including tender offers at prices above the then current market price; or - - inhibit increases in the market price of our common stock that could result from takeover attempts. INVESTOR'S ABILITY TO TRADE OUR COMMON STOCK MAY BE LIMITED BY TRADING VOLUME. The trading volume in our common shares has been relatively limited. A consistently active trading market for our common stock may not develop. WE HAVE ADOPTED A SHAREHOLDER RIGHTS PLAN THAT MAY HAVE CERTAIN ANTI-TAKEOVER EFFECTS. On December 15, 1998, the Board of Directors of Calypte declared a dividend distribution of one preferred share purchase right ("Right") for each outstanding share of Common Stock of the Company. The dividend is payable to the stockholders of record on January 5, 1999 with respect to share of Common Stock issued thereafter until a subsequent "distribution date" defined in a Rights Agreement and, in certain circumstances, with respect to share of Common Stock issued after the Distribution Date. The description and terms of the Rights are set forth in a Rights Agreement between the Company and ChaseMellon Shareholder Service, L.L.C. as Rights Agent, dated as of December 15, 1998. The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire the Company without conditioning the offer on the Rights being redeemed or a substantial number of Rights being acquired. However, the Rights should not interfere with any tender offer, or merger, which is approved by the Company because the Rights do not become exercisable in the event of a permitted offer or other acquisition exempted by the Board. WE MAY BE REMOVED FROM THE NASDAQ SMALLCAP MARKET IF WE FAIL TO MEET CERTAIN MAINTENANCE CRITERIA. The Nasdaq Stock Market inquired on one occasion whether we continue to meet the maintenance criterion for trading on the Nasdaq SmallCap Market. We currently meet the maintenance criterion but our ability to continue to do so will depend on whether we are able to maintain net tangible assets of at least $2,000,000 and whether the minimum bid price for our common stock exceeds $1.00 per share for at least ten consecutive business days during any period of 120 consecutive business days. The public trading volume of our common stock and the ability of our stockholders to sell their shares could be significantly impaired if we fail to meet the maintenance criteria and are removed from the Nasdaq SmallCap Market. In that case, our common stock would trade on either the OTC bulletin board, a regional exchange or in the pink sheets, which would likely result in an even more limited trading volume. -16- THE PRICE OF CALYPTE'S COMMON STOCK HAS BEEN HIGHLY VOLATILE DUE TO SEVERAL FACTORS WHICH WILL CONTINUE TO EFFECT THE PRICE OF OUR STOCK. Our common stock has traded as low as $1.00 and as high as $3.31 during the first nine months of 1999. Some of the factors leading to the volatility include: - - price and volume fluctuations in the stock market at large which do not relate to our operating performance; - - fluctuations in our operating results; - - announcements of technological innovations or new products which we or our competitors make; - - FDA and international regulatory actions; - - availability of reimbursement for use of our products from private health insurers, governmental health administration authorities and other third-party payors; - - developments with respect to patents or proprietary rights; - - public concern as to the safety of products that we or others develop; - - changes in health care policy in the United States or abroad; - - changes in stock market analysts' recommendations regarding Calypte, other medical products companies or the medical product industry generally; and - - issuance by us of additional shares of Common Stock in public or private financings. CALYPTE AND THE PRICE OF CALYPTE SHARES MAY BE ADVERSELY EFFECTED BY THE PUBLIC SALE OF A SIGNIFICANT NUMBER OF THE SHARES ELIGIBLE FOR FUTURE SALE. Nearly all outstanding shares of our common stock are freely tradable. Sales of common stock in the public market could materially adversely affect the market price of our common stock. Such sales also may inhibit our ability to obtain future equity or equity-related financing on acceptable terms. OUR RESEARCH AND DEVELOPMENT OF THE HIV-1 URINE-BASED TEST INVOLVES THE CONTROLLED USE OF HAZARDOUS MATERIALS. There can be no assurance that our safety procedures for handling and disposing of hazardous materials such as azide will comply with applicable regulations. In addition, we cannot eliminate the risk of accidental contamination or injury from these materials. We may be held liable for damages from such an accident and that liability could have a material adverse effect on us. WE MAY NOT BE ABLE TO RETAIN OUR KEY EXECUTIVES AND RESEARCH AND DEVELOPMENT PERSONNEL. As a small company with only 50 employees, our success depends on the services of key employees in executive and research and development positions. The loss of the services of one or more of such employees could have a material adverse effect on us. WE HAVE NOT COMPLETED OUR YEAR 2000 COMPLIANCE PROGRAM SO THE POTENTIAL COSTS AND COMPLICATIONS ASSOCIATED WITH YEAR 2000 COMPLIANCE CANNOT BE DETERMINED AT THIS TIME. Calypte has a formal Year 2000 Program focusing on five key readiness areas: 1) hardware, addressing information technology; 2) software, addressing business, research, financial, inventory planning, production control, product distribution and customer support; 3) firmware, addressing built-in microprocessors that control production and non-production equipment; 4) third party suppliers of critical inventory; and 5) third party service providers. Calypte established a Year 2000 Task Force earlier this year. The task force has systematically examined each of the five key readiness areas by 1) identifying items with Year 2000 compliance concerns; 2) assessing the risk and impact of noncompliance for each item identified; and 3) correcting non-compliant items and testing the corrections to ensure readiness at both component and system levels. We have completed risk assessment in each area for our California and Maryland facilities, and correction and testing and the development of contingency plans are in process. Calypte's key suppliers have informed us that they have achieved substantial Year 2000 compliance. We have also completed correction and testing in the Hardware readiness area and we believe that area to be Year 2000 compliant. Our assessment of our suppliers' Year 2000 readiness is based solely upon information received from our suppliers. Calypte does not have the means to independently verify the Year 2000 compliance of its suppliers. Based on the information from our key suppliers -17- and compliance in our Hardware area, Calypte has identified software and third party service providers as the remaining areas in which Year 2000 failures could reasonably occur. Our Year 2000 Task Force is currently in the process of developing contingency plans for those areas. We expect to complete the development and testing of our contingency plans by December 17, 1999. Until we have completed our contingency plans we will not be in a position to identify our most reasonably likely worst case Year 2000 scenario. As of September 30, 1999, we have spent a total of approximately $27,000 on our Year 2000 program. We estimate that total Year 2000 costs to upgrade systems for our California and Maryland facilities will range from $35,000 to $45,000 with the majority of total costs to be incurred in the next month. At this time we do not anticipate that Calypte will incur significant operating expenses or be required to invest heavily in computer system improvements because our manufacturing process does not rely heavily on automation and our existing computer hardware has proven to be Year 2000 compliant. However, Calypte is continuing to assess and develop alternatives that will require refinement of its cost estimate over time. There can be no assurance that there will not be a delay in, or increased costs associated with, our Year 2000 compliance program. Therefore, the potential impact of possible complications on Calypte's financial condition and results of operations cannot be determined at this time. If computer systems used by Calypte or its suppliers or the product integrity of products provided to Calypte by suppliers fail or experience significant difficulties related to the Year 2000, Calypte's operations and financial condition could be adversely effected. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Since December 31, 1998, there have been no material changes in the Company's market risk exposure. -18- PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Within the three years ended September 30, 1999, the Company completed three private placements of shares of its Common Stock. See "Financing Activities" in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section. The shares sold in each private placement were exempt from registration with the Securities and Exchange Commission pursuant to Rule 506 of Regulation D of the Securities Act of 1933 as amended ("Securities Act"). Shares were sold only to accredited investors as defined in Rule 501 of the Securities Act and were registered for resale by such investors on Forms S-3 filed on October 21, 1997, January 19, 1999 and March 30, 1999. The proceeds from each private placement have been used to finance operations. ITEM 5. OTHER INFORMATION ADVANCE OF 2000 ANNUAL MEETING OF STOCKHOLDERS The Company's 1999 annual meeting is scheduled to be held on November 18, 1999. The date of its 2000 annual meeting has been advanced to June 15, 2000. Under the rules of the Securities and Exchange Commission, stockholder proposals submitted for next year's Proxy Statement must be received by the Company no later than the close of business on January 14, 2000, to be considered. Proposals should be addressed to William A. Boeger, Secretary, Calypte Biomedical Corporation, 1440 Fourth Street, Berkeley, California 94710. Any stockholder who wishes to bring a proposal before the Calypte Biomedical Corporation 2000 Annual Meeting of Stockholders, but does not wish to include it in the Company's proxy materials, must provide written notice of the proposal to Calypte's Secretary, at the above address, by February 14, 2000. CHANGES TO SENIOR MANAGEMENT On September 24, 1999, Calypte announced changes in several key management positions. John DiPietro, chief operating officer and chief financial officer, left Calypte to pursue other business interests. Upon his departure, DiPietro agreed to continue his association with the Company through nomination to its board of directors. Dick Van Maanen, the Company's director of sales and marketing, was named acting general manager of Calypte's California operations. In addition, Don Kafader joined the Company as its director of regulatory affairs on September 21, 1999. -19- SUBSEQUENT EVENT On October 19, 1999, Calypte Biomedical announced further changes in several key management positions. Nancy Katz joined Calypte as president, chief operating officer, chief financial officer and as a member of its board of directors. David Collins, a member of the Company's board, assumed the role of chief executive officer. William A. Boeger, Calypte's former CEO, continues to serve as chairman of the board. Boeger, who has been chairman since 1994, was asked to take on the additional duties of president and CEO in 1997. During his tenure as president, Boeger helped Calypte obtain FDA approval for its urine HIV-1 tests, acquire the HIV testing assets from Cambridge Biotech, restructure its overseas distribution and sign a major domestic distributor. In addition to his role as chairman, Boeger will continue as a consultant to the Company, focusing on key projects to increase domestic and international adoption of Calypte's HIV-1 tests. Dave Collins brings to his new role at Calypte more than 30 years of experience in the pharmaceutical industry. Most recently, Collins was president of Schering-Plough HealthCare Products, Inc. This Schering-Plough subsidiary manufactures over-the-counter drugs like Drixoral Cold Medicine and Afrin Nasal Spray. Prior to working for Schering-Plough, Collins held a variety of positions during his 26-year career at Johnson & Johnson which included vice chairman, board of directors for Public Affairs & Planning, chairman, Consumer Products Sector, general counsel and corporate secretary. Nancy Katz brings more than 18 years of experience in pharmaceutical marketing and sales to Calypte. Prior to joining Calypte, Katz served as president of Zila Pharm Inc., a prescription and non-prescription oral health care products company. Prior to working for Zila Pharm Inc., Katz led sales and marketing efforts for LifeScan, the diabetes testing division of Johnson & Johnson. Katz also served as vice president of U.S. marketing, directing LifeScan's marketing and customer call center departments. During her seven-year career at Schering-Plough Healthcare Products, she held numerous positions including senior director and general manager, marketing director, Footcare New Products and product director, OTC New Products. -20- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibit 10.51* Non-Exclusive Patent License Agreement between the Registrant and Public Health Service, dated June 30, 1999. Exhibit 10.52* Distribution Agreement between the Registrant and Carter-Wallace, Inc., dated as of September 9, 1999. Exhibit 10.53 Letter Agreement between the Registrant and John D. DiPietro, dated as of September 17, 1999. Exhibit 10.54 Consulting Agreement between the Registrant and John D. DiPietro, dated as of September 17, 1999. Exhibit 27 Financial Data Schedule b. Reports on Form 8-K None ------------------------ *Confidential treatment has been granted as to certain portions of this exhibit. -21- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CALYPTE BIOMEDICAL CORPORATION ------------------------------- (Registrant) Date: 11/15/99 By: /s/ Nancy E. Katz ---------------------------- Nancy E. Katz PRESIDENT, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER (Principal Accounting Officer) EXHIBIT INDEX a. Exhibit 10.51* Non-Exclusive Patent License Agreement between the Registrant and Public Health Service, dated June 30, 1999. Exhibit 10.52* Distribution Agreement between the Registrant and Carter-Wallace, Inc., dated as of September 9, 1999. Exhibit 10.53 Letter Agreement between the Registrant and John D. DiPietro, dated as of September 17, 1999. Exhibit 10.54 Consulting Agreement between the Registrant and John D. DiPietro, dated as of September 17, 1999. Exhibit 27 Financial Data Schedule ------------------------ *Confidential treatment has been granted as to certain portions of this exhibit. EX-10.51 2 EXHIBIT 10.51 Exhibit 10.51 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PUBLIC HEALTH SERVICE PATENT LICENSE AGREEMENT--NONEXCLUSIVE COVER PAGE For PHS internal use only: Patent License Number: L-108-99/0 Serial Number(s) of Licensed Patent(s) and/or Patent Application(s): 06/602,945; 06/602946; 06/643,729; 06/785,638; 07/117,937 Licensee: Calypte Biomedical, Inc. Cooperative Research and Development Agreement (CRADA) Number (if applicable): N/A Additional Remarks: None Public Benefit(s): N/A This Patent License Agreement, hereinafter referred to as the "AGREEMENT", consists of this Cover Page, an attached AGREEMENT, a Signature Page, Appendix A (List of Patent(s) and/or Patent Application(s)), Appendix B (Fields of Use and Territory), Appendix C (Royalties), Appendix D (Modifications), Appendix E (Benchmarks), and Appendix F (Commercial Development Plan). The Parties to this AGREEMENT are: 1) The National Institutes of Health ("NIH"), the Centers for Disease Control and Prevention ("CDC"), or the Food and Drug Administration ("FDA"), hereinafter singly or collectively referred to as "PHS", agencies of the United States Public Health Service within the Department of Health and Human Services ("DHHS"); and 2) The person, corporation, or institution identified above and/or on the Signature Page, having offices at the address indicated on the Signature Page, hereinafter referred to as "LICENSEE". THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. PHS PATENT LICENSE AGREEMENT--NONEXCLUSIVE PHS and LICENSEE agree as follows: 1. BACKGROUND 1.01 In the course of conducting biomedical and behavioral research, PHS investigators made inventions that may have commercial applicability. 1.02 By assignment of rights from PHS employees and other inventors, DHHS, on behalf of the United States Government, owns intellectual property rights claimed in any United States and/or foreign patent applications or patents corresponding to the assigned inventions. DHHS also owns any tangible embodiments of these inventions actually reduced to practice by PHS. 1.03 The Secretary of DHHS has delegated to PHS the authority to enter into this AGREEMENT for the licensing of rights to these inventions. 1.04 PHS desires to transfer these inventions to the private sector through commercialization licenses to facilitate the commercial development of products and processes for public use and benefit. 1.05 LICENSEE desires to acquire commercialization rights to certain of these inventions in order to develop processes, methods, and/or marketable products for public use and benefit. 2. DEFINITIONS 2.01 "BENCHMARKS" mean the performance milestones that are set forth in Appendix E. 2.02 "COMMERCIAL DEVELOPMENT PLAN" means the written commercialization plan attached as Appendix F. 2.03 "FIRST COMMERCIAL SALE" means the initial transfer by or on behalf of LICENSEE or its sublicensees of LICENSED PRODUCTS or the initial practice of a LICENSED PROCESS by or on behalf of LICENSEE or its sublicensees in exchange for cash or some equivalent to which value can be assigned for the purpose of determining NET SALES. 2.04 "GOVERNMENT" means the Government of the United States of America. 2.05 "LICENSED FIELDS OF USE" means the fields of use identified in Appendix B. 2.06 "LICENSED PATENT RIGHTS" shall mean: a) Patent applications (including provisional patent applications and PCT patent applications) and/or patents listed in Appendix A, all divisions and continuations of these applications, all patents issuing from such applications, divisions, and continuations, and any reissues, reexaminations, and extensions of all such patents; b) to the extent that the following contain one or more claims directed to the invention or inventions disclosed in a) above: i) continuations-in-part of a) above; ii) all divisions and continuations of these continuations-in-part; iii) all patents issuing from such continuations-in-part, divisions, and continuations; iv) priority patent application(s) of a) above; and v) any reissues, reexaminations, AND EXTENSIONS OF ALL SUCH PATENTS; c) to the extent that the following contain one or more claims directed to the invention or inventions disclosed in a) above: all THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. counterpart foreign and U.S. patent applications and patents to a) and b) above, including those listed in Appendix A. LICENSED PATENT RIGHTS shall NOT include b) or c) above to the extent that they contain one or more claims directed to new matter which is not the subject matter disclosed in a) above. 2.07 "LICENSED PROCESS(es)" means processes which, in the course of being practiced would, in the absence of this AGREEMENT, infringe one or more claims of the LICENSED PATENT RIGHTS that have not been held invalid or unenforceable by an unappealed or unappealable judgment of a court of competent jurisdiction. 2.08 "LICENSED PRODUCT(s)" means tangible materials which, in the course of manufacture, use, sale, or importation would, in the absence of this AGREEMENT, infringe one or more claims of the LICENSED PATENT RIGHTS that have not been held invalid or unenforceable by an unappealed or unappealable judgment of a court of competent jurisdiction. 2.09 "LICENSED TERRITORY" means the geographical area identified in Appendix B. 2.10 "NET SALES" means the total gross receipts for sales of LICENSED PRODUCTS or practice of LICENSED PROCESSES by or on behalf of LICENSEE or its sublicensees, and from leasing, renting, or otherwise making LICENSED PRODUCTS available to others without sale or other dispositions, whether invoiced or not, less returns and allowances, packing costs, insurance costs, freight out, taxes or excise duties imposed on the transaction (if separately invoiced), and wholesaler and cash discounts in amounts customary in the trade to the extent actually granted. No deductions shall be made for commissions paid to individuals, whether they be with independent sales agencies or regularly employed by LICENSEE, or sublicensees, and on its payroll, or for the cost of collections. 2.11 "PRACTICAL APPLICATION" means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or GOVERNMENT regulations available to the public on reasonable terms. 3. GRANT OF RIGHTS 3.01 PHS hereby grants and LICENSEE accepts, subject to the terms and conditions of this AGREEMENT, a nonexclusive license under the LICENSED PATENT RIGHTS in the LICENSED TERRITORY to make and have made, to use and have used, to sell and have sold, to offer to sell, and to import any LICENSED PRODUCTS in the LICENSED FIELDS OF USE and to practice and have practiced any LICENSED PROCESSES in the LICENSED FIELDS OF USE. 3.02 This AGREEMENT confers no license or rights by implication, estoppel, or otherwise under any patent applications or patents of PHS other than LICENSED PATENT RIGHTS regardless of whether such patents are dominant or subordinate to LICENSED PATENT RIGHTS. 4. SUBLICENSING 4.01 LICENSEE has no right to sublicense. 5. STATUTORY AND PHS REQUIREMENTS AND RESERVED GOVERNMENT RIGHTS 5.01 Prior to the FIRST COMMERCIAL SALE, LICENSEE agrees to provide PHS reasonable quantities of LICENSED PRODUCTS or materials made through the LICENSED PROCESSES for PHS research use. 5.02 LICENSEE agrees that products used or sold in the United States embodying LICENSED PRODUCTS or produced through use of LICENSED PROCESSES shall be manufactured substantially in the United States, unless a written waiver is obtained in advance from THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. PHS. 6. ROYALTIES AND REIMBURSEMENT 6.01 [**] 6.02 [**] 6.03 [**] 6.04 [**] 6.05 [**] 6.06 [**] 6.07 [**] 6.08 [**] 6.09 [**] THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 6.10 [**] 7. PATENT FILING, PROSECUTION, AND MAINTENANCE 7.01 PHS agrees to take responsibility for the preparation, filing, prosecution, and maintenance of any and all patent applications or patents included in the LICENSED PATENT RIGHTS. 8. RECORD KEEPING 8.01 LICENSEE agrees to keep accurate and correct records of LICENSED PRODUCTS made, used, sold, or imported and LICENSED PROCESSES practiced under this AGREEMENT appropriate to determine the amount of royalties due PHS. Such records shall be retained for at least five (5) years following a given reporting period and shall be available during normal business hours for inspection at the expense of PHS by an accountant or other designated auditor selected by PHS for the sole purpose of verifying reports and payments hereunder. The accountant or auditor shall only disclose to PHS information relating to the accuracy of reports and payments made under this AGREEMENT. If an inspection shows an underreporting or underpayment in excess of five percent (5%) for any twelve (12) month period, then LICENSEE shall reimburse PHS for the cost of the inspection at the time LICENSEE pays the unreported royalties, including any late charges as required by Paragraph 9.07 of this AGREEMENT. All payments required under this Paragraph shall be due within thirty (30) days of the date PHS provides LICENSEE notice of the payment due. 8.02 LICENSEE agrees to have an audit of sales and royalties conducted by an independent auditor at least every two (2) years if annual sales of the LICENSED PRODUCT or LICENSED PROCESSES are over two (2) million dollars. The audit shall address, at a minimum, the amount of gross sales by or on behalf of LICENSEE during the audit period, terms of the license as to percentage or fixed royalty to be remitted to the GOVERNMENT, the amount of royalty funds owed to the GOVERNMENT under this AGREEMENT, and whether the royalty amount owed has been paid to the GOVERNMENT and is reflected in the records of the LICENSEE. The audit shall also indicate the PHS license number, product, and the time period being audited. A report certified by the auditor shall be submitted promptly by the auditor directly to PHS on completion. LICENSEE shall pay for the entire cost of the audit. 9. REPORTS ON PROGRESS, BENCHMARKS, SALES, AND PAYMENTS 9.01 Prior to signing this AGREEMENT, LICENSEE has provided to PHS the COMMERCIAL DEVELOPMENT PLAN at Appendix F, under which LICENSEE intends to bring the subject matter of the LICENSED PATENT RIGHTS to the point of PRACTICAL APPLICATION. This COMMERCIAL DEVELOPMENT PLAN is hereby incorporated by reference into this AGREEMENT. Based on this plan, performance BENCHMARKS are determined as specified in Appendix E. 9.02 LICENSEE shall provide written annual reports on its product development progress or efforts to commercialize under the COMMERCIAL DEVELOPMENT PLAN for each of the LICENSED FIELDS OF USE within sixty (60) days after December 31 of each calendar year. These progress reports shall include, but not be limited to: progress on research and development, status of applications for regulatory approvals, manufacturing, marketing, importing, and sales during the preceding calendar year, as well as plans for the present calendar year. PHS also encourages these reports to include information on any of LICENSEE's public service activities that relate to the LICENSED PATENT RIGHTS. If reported progress differs from that projected in the COMMERCIAL DEVELOPMENT PLAN and BENCHMARKS, LICENSEE shall explain the reasons for such differences. In any such annual report, LICENSEE may propose amendments to the COMMERCIAL DEVELOPMENT PLAN, acceptance of which by PHS may not be denied unreasonably. LICENSEE agrees to THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. provide any additional information reasonably required by PHS to evaluate LICENSEE's performance under this AGREEMENT. LICENSEE may amend the BENCHMARKS at any time upon written consent by PHS. PHS shall not unreasonably withhold approval of any request of LICENSEE to extend the time periods of this schedule if such request is supported by a reasonable showing by LICENSEE of diligence in its performance under the COMMERCIAL DEVELOPMENT PLAN and toward bringing the LICENSED PRODUCTS to the point of PRACTICAL APPLICATION. 9.03 LICENSEE shall report to PHS the dates for achieving BENCHMARKS specified in Appendix E and the FIRST COMMERCIAL SALE in each country in the LICENSED TERRITORY within thirty (30) days of such occurrences. 9.04 [**] 9.05 Royalties due under Article 6 shall be paid in U.S. dollars. For conversion of foreign currency to U.S. dollars, the conversion rate shall be the New York foreign exchange rate quoted in THE WALL STREET JOURNAL on the day that the payment is due. All checks and bank drafts shall be drawn on United States banks and shall be payable, as appropriate, to "NIH/Patent Licensing." All such payments shall be sent to the following address: NIH, P.O. Box 360120, Pittsburgh, PA 15251-6120. Any loss of exchange, value, taxes, or other expenses incurred in the transfer or conversion to U.S. dollars shall be paid entirely by LICENSEE. The royalty report required by Paragraph 9.04 of this AGREEMENT shall accompany each such payment, and a copy of such report shall also be mailed to PHS at its address for notices indicated on the Signature Page of this AGREEMENT. 9.06 LICENSEE shall be solely responsible for determining if any tax on royalty income is owed outside the United States and shall pay any such tax and be responsible for all filings with appropriate agencies of foreign governments. 9.07 Interest and penalties may be assessed by PHS on any overdue payments in accordance with the Federal Debt Collection Act. The payment of such late charges shall not prevent PHS from exercising any other rights it may have as a consequence of the lateness of any payment. 9.08 All plans and reports required by this Article 9 and marked "confidential" by LICENSEE shall, to the extent permitted by law, be treated by PHS as commercial and financial information obtained from a person and as privileged and confidential, and any proposed disclosure of such records by the PHS under the Freedom of Information Act (FOIA), 5 U.S.C. ' 552 shall be subject to the predisclosure notification requirements of 45 CFR ' 5.65(d). 10. PERFORMANCE 10.01 LICENSEE shall use its reasonable best efforts to bring the LICENSED PRODUCTS and LICENSED PROCESSES to PRACTICAL APPLICATION. "Reasonable best efforts" for the purposes of this provision shall include adherence to the COMMERCIAL DEVELOPMENT PLAN at Appendix F and performance of the BENCHMARKS at Appendix E. 10.02 Upon the FIRST COMMERCIAL SALE, until the expiration of this AGREEMENT, LICENSEE shall use its reasonable best efforts to make LICENSED PRODUCTS and LICENSED PROCESSES reasonably accessible to the United States public. THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 11. INFRINGEMENT AND PATENT ENFORCEMENT 11.01 PHS and LICENSEE agree to notify each other promptly of each infringement or possible infringement of the LICENSED PATENT RIGHTS, as well as any facts which may affect the validity, scope, or enforceability of the LICENSED PATENT RIGHTS of which either Party becomes aware. 11.02 [**] 12. NEGATION OF WARRANTIES AND INDEMNIFICATION 12.01 PHS offers no warranties other than those specified in Article 1. 12.02 PHS does not warrant the validity of the LICENSED PATENT RIGHTS and makes no representations whatsoever with regard to the scope of the LICENSED PATENT RIGHTS, or that the LICENSED PATENT RIGHTS may be exploited without infringing other patents or other intellectual property rights of third parties. 12.03 PHS MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY SUBJECT MATTER DEFINED BY THE CLAIMS OF THE LICENSED PATENT RIGHTS OR TANGIBLE MATERIALS RELATED THERETO. 12.04 PHS does not represent that it will commence legal actions against third parties infringing the LICENSED PATENT RIGHTS. 12.05 LICENSEE shall indemnify and hold PHS, its employees, students, fellows, agents, and consultants harmless from and against all liability, demands, damages, expenses, and losses, including but not limited to death, personal injury, illness, or property damage in connection with or arising out of: a) the use by or on behalf of LICENSEE, its directors, employees, or third parties of any LICENSED PATENT RIGHTS; or b) the design, manufacture, distribution, or use of any LICENSED PRODUCTS, LICENSED PROCESSES or materials by LICENSEE, or other products or processes developed in connection with or arising out of the LICENSED PATENT RIGHTS. LICENSEE agrees to maintain a liability insurance program consistent with sound business practice. 13. TERM, TERMINATION, AND MODIFICATION OF RIGHTS 13.01 This AGREEMENT is effective when signed by all parties and shall extend to the expiration of the last to expire of the LICENSED PATENT RIGHTS unless sooner terminated as provided in this Article 13. 13.02 In the event that LICENSEE is in default in the performance of any material obligations under this AGREEMENT, including but not limited to the obligations listed in Article 13.05, and if the default has not been remedied within ninety (90) days after the date of notice in writing of such default, PHS may terminate this AGREEMENT by written notice and pursue outstanding amounts owed through procedures provided by the Federal Debt Collection Act. 13.03 In the event that LICENSEE becomes insolvent, files a petition in bankruptcy, has such a THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. petition filed against it, determines to file a petition in bankruptcy, or receives notice of a third party's intention to file an involuntary petition in bankruptcy, LICENSEE shall immediately notify PHS in writing. Furthermore, PHS shall have the right to terminate this AGREEMENT immediately upon LICENSEE's receipt of written notice. 13.04 LICENSEE shall have a unilateral right to terminate this AGREEMENT in any country or territory by giving PHS sixty (60) days written notice to that effect. 13.05 [**] 13.06 [**] 13.07 [**] 13.08 [**] 14. GENERAL PROVISIONS 14.01 Neither Party may waive or release any of its rights or interests in this AGREEMENT except in writing. The failure of the GOVERNMENT to assert a right hereunder or to insist upon compliance with any term or condition of this AGREEMENT shall not constitute a waiver of that right by the GOVERNMENT or excuse a similar subsequent failure to perform any such term or condition by LICENSEE. 14.02 This AGREEMENT constitutes the entire agreement between the Parties relating to the subject matter of the LICENSED PATENT RIGHTS, and all prior negotiations, representations, agreements, and understandings are merged into, extinguished by, and completely THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. expressed by this AGREEMENT. 14.03 The provisions of this AGREEMENT are severable, and in the event that any provision of this AGREEMENT shall be determined to be invalid or unenforceable under any controlling body of law, such determination shall not in any way affect the validity or enforceability of the remaining provisions of this AGREEMENT. 14.04 If either Party desires a modification to this AGREEMENT, the Parties shall, upon reasonable notice of the proposed modification by the Party desiring the change, confer in good faith to determine the desirability of such modification. No modification will be effective until a written amendment is signed by the signatories to this AGREEMENT or their designees. 14.05 The construction, validity, performance, and effect of this AGREEMENT shall be governed by Federal law as applied by the Federal courts in the District of Columbia. 14.06 All notices required or permitted by this AGREEMENT shall be given by prepaid, first class, registered or certified mail or by an express/overnight delivery service provided by a commercial carrier, properly addressed to the other Party at the address designated on the following Signature Page, or to such other address as may be designated in writing by such other Party. Notices shall be considered timely if such notices are received on or before the established deadline date or sent on or before the deadline date as verifiable by U.S. Postal Service postmark or dated receipt from a commercial carrier. Parties should request a legibly dated U.S. Postal Service postmark or obtain a dated receipt from a commercial carrier or the U.S. Postal Service. Private metered postmarks shall not be acceptable as proof of timely mailing. 14.07 This AGREEMENT shall not be assigned by LICENSEE except: a) with the prior written consent of PHS, such consent not to be withheld unreasonably; or b) as part of a sale or transfer of substantially the entire business of LICENSEE relating to operations which concern this AGREEMENT. LICENSEE shall notify PHS within ten (10) days of any assignment of this AGREEMENT by LICENSEE, and LICENSEE shall pay PHS, as an additional royalty, one percent (1%) of the fair market value of any consideration received for any assignment of this AGREEMENT within thirty (30) days of such assignment. 14.08 LICENSEE agrees in its use of any PHS-supplied materials to comply with all applicable statutes, regulations, and guidelines, including PHS and DHHS regulations and guidelines. LICENSEE agrees not to use the materials for research involving human subjects or clinical trials in the United States without complying with 21 CFR Part 50 and 45 CFR Part 46. LICENSEE agrees not to use the materials for research involving human subjects or clinical trials outside of the United States without notifying PHS, in writing, of such research or trials and complying with the applicable regulations of the appropriate national control authorities. Written notification to PHS of research involving human subjects or clinical trials outside of the United States shall be given no later than sixty (60) days prior to commencement of such research or trials. 14.09 LICENSEE acknowledges that it is subject to and agrees to abide by the United States laws and regulations (including the Export Administration Act of 1979 and Arms Export Control Act) controlling the export of technical data, computer software, laboratory prototypes, biological material, and other commodities. The transfer of such items may require a license from the cognizant Agency of the U.S. GOVERNMENT or written assurances by LICENSEE that it shall not export such items to certain foreign countries without prior approval of such agency. PHS neither represents that a license is or is not required or that, if required, it shall be issued. 14.10 LICENSEE agrees to mark the LICENSED PRODUCTS or their packaging sold in the United States with all applicable U.S. patent numbers and similarly to indicate "Patent Pending" status. All LICENSED PRODUCTS manufactured in, shipped to, or sold in other countries shall be marked in such a manner as to preserve PHS patent rights in such countries. 14.11 By entering into this AGREEMENT, PHS does not directly or indirectly endorse any product THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. or service provided, or to be provided, by LICENSEE whether directly or indirectly related to this AGREEMENT. LICENSEE shall not state or imply that this AGREEMENT is an endorsement by the GOVERNMENT, PHS, any other GOVERNMENT organizational unit, or any GOVERNMENT employee. Additionally, LICENSEE shall not use the names of NIH, CDC, PHS, or DHHS or the GOVERNMENT or their employees in any advertising, promotional, or sales literature without the prior written consent of PHS. 14.12 The Parties agree to attempt to settle amicably any controversy or claim arising under this AGREEMENT or a breach of this AGREEMENT, except for appeals of modifications or termination decisions provided for in Article 13. LICENSEE agrees first to appeal any such unsettled claims or controversies to the designated PHS official, or designee, whose decision shall be considered the final agency decision. Thereafter, LICENSEE may exercise any administrative or judicial remedies that may be available. 14.13 Nothing relating to the grant of a license, nor the grant itself, shall be construed to confer upon any person any immunity from or defenses under the antitrust laws or from a charge of patent misuse, and the acquisition and use of rights pursuant to 37 CFR Part 404 shall not be immunized from the operation of state or Federal law by reason of the source of the grant. 14.14 Paragraphs 8.01, 9.06-9.08, 12.01-12.05, 13.07, 13.08, and 14.12 of this AGREEMENT shall survive termination of this AGREEMENT. SIGNATURES BEGIN ON NEXT PAGE THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. PHS PATENT LICENSE AGREEMENT--NONEXCLUSIVE SIGNATURE PAGE For PHS: /s/ Jack Spiegel 6/30/99 - --------------------------------------------- --------------- Jack Spiegel, Ph.D. Date Director, Division of Technology Development and Transfer Office of Technology Transfer National Institutes of Health Mailing Address for Notices: Office of Technology Transfer National Institutes of Health 6011 Executive Boulevard, Suite 325 Rockville, Maryland 20852-3804 U.S.A. For LICENSEE (Upon, information and belief, the undersigned expressly certifies or affirms that the contents of any statements of LICENSEE made or referred to in this document are truthful and accurate.): by: /s/ William A. Boeger 6/23/99 - --------------------------------------------- --------------- Signature of Authorized Official Date William A. Boeger - --------------------------------------------- Printed Name CEO - --------------------------------------------- Title Official and Mailing Address for Notices: William A. Boeger President and CEO Calypte Biomedical 1265 Harbor Bay Pkwy. Alameda, CA 94502 Any false or misleading statements made, presented, or submitted to the GOVERNMENT, including any relevant omissions, under this AGREEMENT and during the course of negotiation of this AGREEMENT are subject to all applicable civil and criminal statutes including Federal statutes 31 U.S.C. '' 3801-3812 (civil liability) and 18 U.S.C. ' 1001 (criminal liability including fine(s) and/or imprisonment). THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. APPENDIX A--PATENT(s) OR PATENT APPLICATION(s) PATENT(s) OR PATENT APPLICATION(s): USPA SN 06/602,945, filed April 23, 1984, (USPN 4,520,113, issued May 28, 1985) "Serological Detection of Antibodies to HTLV-III in Sera of Patients with AIDS and Pre-AIDS Conditions" USPA SN 06/602,946, filed April 23, 1984, (USPN 4,647,773, issued March 3, 1987) "Method of Continuous Production of Retrovirus (HTLV-III) from Patients with AIDS and Pre-AIDS" USPA SN 06/643,729, filed August 24, 1984, (USPN 4,652,599, issued March 24, 1987) "Method of Continuous Production of Retrovirus (HTLV-III) from Patients with AIDS and Pre-AIDS Using Permissive Cells" USPA SN 06/785,638, filed October 8, 1985, (USPN 4,708,818, issued November 24, 1987) "Human Immunodeficiency Viruses Associated with Acquired Immune Deficiency Syndrome (AIDS), A Diagnostic Method for AIDS and Pre-AIDS and a Kit Therefor" USPA SN 07/117,937, filed November 5, 1987, (USPN 5,135,684, issued August 4, 1992) "Human Immunodeficiency Viruses Associated with Acquired Immune Deficiency Syndrome (AIDS), A Diagnostic Method for AIDS and Pre-AIDS and a Kit Therefor" THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. APPENDIX B--LICENSED FIELDS OF USE AND TERRITORY [**] THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. APPENDIX C--ROYALTIES [**] THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. APPENDIX D--MODIFICATIONS PHS and LICENSEE agree to the following modifications to the Articles and Paragraphs of this AGREEMENT: (Amended) 6.02 [**] (Amended) 13.01 This AGREEMENT is effective AUGUST 6, 1996 when signed by all parties and shall extend to the expiration of the last to expire of the LICENSED PATENT RIGHTS unless sooner terminated as provided in this Article 13. THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. APPENDIX E--BENCHMARKS AND PERFORMANCE LICENSEE agrees to the following BENCHMARKS for its performance under this AGREEMENT and, within thirty (30) days of achieving a BENCHMARK, shall notify PHS that the BENCHMARK has been achieved. None. THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. APPENDIX F--COMMERCIAL DEVELOPMENT PLAN The COMMERCIAL DEVELOPMENT PLAN shall be as described in the license application. THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. EX-10.52 3 EXHIBIT 10.52 Exhibit 10.52 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. DISTRIBUTION AGREEMENT EFFECTIVE on the 9th day of September, 1999 (the "Effective Date"), by and between CALYPTE BIOMEDICAL CORPORATION, a corporation having an office at 1440 Fourth Street, Berkeley, California 94710 (hereinafter referred to as "SUPPLIER") and CARTER-WALLACE, INC., a corporation organized and existing pursuant to the laws of the State of Delaware, U.S.A., and having its principal office at 1345 Avenue of the Americas, New York, New York 10105 (hereinafter referred to as "CW"). W I T N E S S E T H: THAT ------------------- WHEREAS, SUPPLIER desires to supply CW with the Products (as hereinafter defined) for use and sale by CW, and CW desires to purchase, market, distribute and sell the Products on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter set forth, SUPPLIER and CW mutually agree as follows: ARTICLE I - --------- DEFINITIONS ----------- The following terms as used in this Agreement shall have the following meanings: THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 1 1. "Affiliate" shall mean a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the designated party, but only for so long as the relationship exists. 2. "Territory" shall mean the United States, its territories, possessions and Puerto Rico. 3. "Third Party" shall mean any person, association of any kind, or body corporation other than CW or its Affiliates or SUPPLIER or its Affiliates. 4. "Contract Year" shall mean the period commencing on the Effective Date of this Agreement and ending twelve (12) months after the Effective Date and subsequent twelve (12) month periods commencing on the anniversary of the day immediately following the end of the first Contract Year during the term of this Agreement. 5. "Information and Data" shall mean information, know-how, secret process, technical data, patents and techniques regarding the Products, their method of formulation and manufacture and their use and application presently owned or possessed by SUPPLIER or hereafter developed, acquired or possessed by SUPPLIER. 6. "Products" shall mean collectively the products listed on Schedule A, attached to this Agreement and incorporated herein by reference, and any improvements to those products and any additional products added to this THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 2 Agreement in accordance with its terms or as a result of the mutual written agreement of the parties hereto. 7. "Average Selling Price" shall mean the actual revenues received by CW for sales of the Products after allowance for trade and cash discounts, rebates, allowances, returns, free goods and replacements actually granted, shipping costs and taxes and other governmental charges, except income taxes, applicable to sales divided by the total number of units sold. ARTICLE II - ---------- RIGHTS ------ 1. During the term hereof, CW and its Affiliates shall have the exclusive right to market, promote, distribute and sell the urine-based Products, and the co-exclusive right, along with SUPPLIER, to market, promote, distribute and sell the serum-based Products, in all markets in the Territory, excluding life insurance testing and blood bank screening. CW shall have the right to sublicense its rights hereunder and to subcontract its activities hereunder with the prior written approval of SUPPLIER, which shall not be unreasonably withheld. Any sublicense agreement between CW and a sublicensee hereunder shall require that the sublicensee comply with the terms related to promotion, advertising and complaint documentation, as described in Article IV 5 and 6 hereof. The Products distributed by CW and its Affiliates in the Territory will initially be sold under the SUPPLIER'S THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 3 label, and the Product box shall bear a label provided to SUPPLIER by CW and affixed by SUPPLIER, which identifies the Product as one distributed by Wampole Laboratories. [**] In the event that Product is sold with Wampole Laboratories labeling, there shall be an acknowledgement on the label that SUPPLIER is the manufacturer/developer of the Products, which acknowledgement shall be in the form, shall have the content and shall be placed on the labels for the Products as set forth on Schedule B. 2. [**] THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 4 2. (Continued) [**] 3. [**] THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 5 3. (Continued) [**] 4. [**] THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 6 4. (Continued) [**] 5. Notwithstanding anything provided herein to the contrary, SUPPLIER shall not have the right to terminate CW'S exclusivity or co-exclusivity for failure of CW to purchase quantities which CW would have had to purchase in order for CW to maintain exclusivity or co-exclusivity, as the case may be, if the reason for CW'S failure to purchase such quantities is that SUPPLIER has failed to supply to CW the Products ordered by CW as provided in this Agreement or if CW'S failure to purchase such quantities is as a result of recall or as a result of failure of the Products to perform properly in accordance with Supplier's published specifications therefore(but excluding customer misuse) when used by CW customers. 6. Notwithstanding any provision in this Agreement to the contrary, nothing herein shall be deemed to grant SUPPLIER or its Affiliates or any Third Party any rights in or to any of CW'S or CW'S Affiliates' patent rights or other intellectual property rights; nor, except as specifically provided herein, to grant to CW or its Affiliates any rights in or to any of Supplier's or Supplier's Affiliates' patent rights or other intellectual property rights to CW or its Affiliates. THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 7 ARTICLE III - ----------- PURCHASE OF PRODUCTS AND SUPPLY OF SAMPLES ------------------------------------------ 1. During the term of this Agreement, SUPPLIER shall manufacture the Products at its plants at 1440 Fourth Street Berkeley, California 94710 and/or 1500 East Gude Drive, Rockville, MD 20850 or such other location as shall be mutually agreed to in writing by the parties, and shall sell to CW such quantities of Products as CW orders from SUPPLIER from time to time as provided herein, labeled and packaged by SUPPLIER as specified by CW, provided such labeling and packaging is commercially reasonable and not excessive in cost to SUPPLIER, and conforms to FDA and other applicable regulations. 2. SUPPLIER shall sell the Products to CW in fully labeled packaged form at the prices set forth in Schedule C hereto incorporated herein by reference, F.O.B. SUPPLIER'S plant in Berkeley, California or Rockville, MD as the case may be. In the event CW requests in writing that Product be sold in bulk packaged form, SUPPLIER shall use its best efforts to sell the Product to CW in this form, subject to the approval of the US FDA, if such approval is required. The price of the Products to be used as samples is also set forth on Schedule C. Except as provided below with respect to any agreement between CW and a Third Party, SUPPLIER shall be responsible for any royalty due a Third Party in connection with the Products which SUPPLIER supplies to CW hereunder. THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 8 3. Within ninety (90) days after receipt by SUPPLIER of a written order from CW for Products, SUPPLIER shall ship the Products to CW's warehouse in Cranbury, New Jersey, but on an exceptions basis if requested by CW in writing, SUPPLIER shall make commercially reasonable efforts to ship Products directly to CW'S customers, in accordance with the shipping instructions received by SUPPLIER from CW. Shipping charges will be prepaid by SUPPLIER and will be charged on the invoices by SUPPLIER to CW. Supplier shall be responsible for establishing shelf life subject to CW'S approval. SUPPLIER shall ship Products with the best shelf life possible, with CW'S understanding that such shelf life may be influenced by factors beyond SUPPLIER'S control, including, but not limited to, FDA lot release procedures and orders from CW which were not forecasted to SUPPLIER by CW. In any event, SUPPLIER will not ship EIA test products or Western Blot test products to CW with less than six (6) months and three (3) months remaining shelf life, respectively, without CW'S written consent. SUPPLIER shall be responsible for establishing SHELF life subject to CW'S approval. SUPPLIER shall invoice CW for the Products upon the shipment of the Products by SUPPLIER as directed by CW in writing. In the event the Products supplied by SUPPLIER hereunder are found by CW not to conform to the specifications agreed to between the parties and set forth in Schedule D, as such failure to conform is determined by CW following the quality control tests set forth in Schedule E attached hereto and incorporated herein as reference, or shall otherwise be found to be defective, CW shall so notify SUPPLIER THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 9 and SUPPLIER shall after verifying the defect with its own testing, at SUPPLIER'S cost, replace such defective quantity of the Products and at SUPPLIER'S cost, ship such replacement Products to CW to the location to which such defective Products were shipped, or such other location specified by CW, as quickly as commercially feasible after the giving of such notice to SUPPLIER by CW. If SUPPLIER'S quality assurance personnel disagree with CW'S assessment, the parties shall mutually agree upon an independent testing laboratory and the parties agree to abide by the decision of such laboratory as to whether the Products are defective. If the independent testing laboratory determines that the Products are defective, the cost of such testing shall be paid for by SUPPLIER. If the independent testing laboratory determines that the Products are not defective, the cost of such testing shall be paid for by CW. CW shall accept or reject the Products within thirty (30) days following its receipt of each shipment of the Products. In the event that CW does not reject in writing any portion of a shipment within thirty (30) days after its receipt of such shipment, such lack of response shall be deemed acceptance of the Products not so rejected. Products may be rejected only due to defects in the Products or their failure to meet specifications set forth in Schedule D which failure can be ascertained at such time by the quality control tests specified on Schedule E hereto. Such acceptance or rejection shall not apply to defects or failure of the Products to meet specifications which do not become apparent until a later date (hereinafter referred to as "Non-apparent Defects"). CW shall have a reasonable THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 10 period of time after it learns of such Non-apparent Defects to reject such Products by so notifying SUPPLIER in writing thereof. Following SUPPLIER'S or an independent testing laboratory's verification of such defects, SUPPLIER may issue a Returned Goods Authorization Number to CW so that some or all rejected Products can be returned by CW to SUPPLIER at SUPPLIER'S expense. Alternatively, SUPPLIER may request that CW destroy, at SUPPLIER'S expense, some or all of the affected Products at SUPPLIER'S expense. Under no circumstance shall CW return Product to SUPPLIER without a SUPPLIER issued Return Goods Authorization Number. The costs of testing by such independent testing laboratory to determine whether such Products are defective shall be paid by CW or SUPPLIER as determined under this section with respect to other defects discovered by CW. The terms of all purchase orders shall be consistent with the terms of this Agreement and, in the event of any inconsistency, the terms provided herein shall prevail. 4. [**] 5. Monthly, by the 8th day of each month, CW shall provide SUPPLIER with a twelve (12) month rolling forecast of CW'S projected requirements of the Products for the Territory, the first three (3) months of which shall be binding. SUPPLIER shall produce and ship to CW and if requested by CW, in writing, shall ship directly to CW'S customers or CW'S Affiliates, sufficient Products so as to meet CW'S firm monthly commitment. SUPPLIER shall use its best efforts to produce and ship to CW, or if requested by CW in writing to ship directly to CW'S THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 11 customers Products ordered by CW over CW'S forecast. Products shipped by SUPPLIER that are requested by CW, in writing, but which were not in the relevant CW forecast may be not CW-labeled and/or may have less shelf life than CW requested, but only with CW'S written agreement in each such instance. 6. During the term of this Agreement, SUPPLIER shall maintain on hand sufficient quantities of qualified raw materials for the Products as necessary to produce and deliver within the required time frames the quantities of the Products in the Territory as specified in CW'S latest twelve (12) month rolling forecast. 7. [**] ARTICLE IV - ---------- MANUFACTURE, PACKAGING, APPROVALS AND TECHNICAL SERVICE ------------------------------------------------------- 1. The Products supplied by SUPPLIER hereunder shall meet the specifications set forth in Schedule D attached hereto and shall pass the quality control tests set forth in Schedule E hereto. 2. SUPPLIER shall arrange for the performance and reporting to CW of quality control tests on the Products and provide CW the results in the form of the THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 12 Certificate of Analysis set forth in Schedule F. 3. SUPPLIER shall grant access to its facilities and request that its product materials and manufacturing testing subcontractors and contract manufacturers grant access to their facilities to CW'S manufacturing, quality control and compliance inspectors or their designees and such other inspectors as determined by CW from time to time, at times during normal working hours requested in advance by CW during the term of this Agreement, and shall allow such inspectors to inspect the manufacturing and quality control testing operations and compliance procedures relating to the Products and all manufacturing and quality control records relating thereto. Such inspectors shall conduct their inspection in such a manner as not to unreasonably interfere with normal business operations. 4. SUPPLIER shall at its cost and expense use diligent efforts to obtain and maintain approvals for CW to distribute and sell the Products throughout the Territory. SUPPLIER shall provide to CW all information and data used by SUPPLIER to obtain and maintain approval to market the Products from the appropriate governmental agencies. CW shall have the right to use all such information and data except Supplier's confidential manufacturing information in connection with the marketing of the Products throughout the Territory, as CW believes in good faith to be necessary, and CW shall have the right to refer to all information and data which SUPPLIER has filed with any governmental agency relating to the Products. THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 13 5. SUPPLIER shall supply to CW copies of all data on the Products SUPPLIER has, including raw data, which CW requires and requests of SUPPLIER in good faith, in order to support claims for the Products, the claims in the Products inserts and in order to support advertising and promotional claims for the Products. CW shall not release any promotional materials for the Products without prior written approval of SUPPLIER, which approval shall not be unreasonably withheld or delayed. 6. CW and SUPPLIER shall maintain complaint files in accordance with all applicable laws and regulations and shall promptly and fully communicate with each other with respect thereto. CW shall instruct its customers, sublicensees, and subcontractors to direct inquiries regarding Product failure to CW'S Technical Services staff. In the event that CW Technical Services efforts fail to rectify the alleged failure, then SUPPLIER'S Technical Services staff shall be notified by CW and SUPPLIER'S Technical Services staff shall diligently investigate the alleged failure and if a Product failure is confirmed, diligently rectify it. CW and SUPPLIER shall investigate each complaint reported to it of a failure of the Products and shall maintain a written record of each such investigation. CW and SUPPLIER shall, immediately after receiving each such complaint and promptly after completing each investigation, send the other party a copy of each such complaint, a full report on each investigation conducted by or on behalf of the sending party, and a copy of any medical device report submitted to the FDA under the Medical Device THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 14 Reporting regulations. Supplier shall conduct on going Product surveillance in accordance with all applicable laws and regulations and shall retain sufficient Product with which to carry out such Product surveillance program. 7. SUPPLIER shall promptly notify CW of any FDA or other governmental inspection of SUPPLIER or any of SUPPLIER'S contract manufacturers that relates in any manner to the Products, including without limitation their manufacturing operations, disposal of the Products and the safety, and health of employees engaged in the manufacture, storage or distribution of the Products, and SUPPLIER shall promptly provide CW with a written report of the results of each such inspection. In addition, SUPPLIER shall immediately request an unpurged copy of the inspection report from the FDA or any other governmental authority under the Freedom of Information Act, and immediately after receiving it, forward the report to CW. Each of the parties will promptly send the other a copy of any notices, reports or other communications it receives from the FDA or any other governmental authority, including without limitation any foreign governmental authority, anywhere in the world concerning the Products. 8. If, as a result of an FDA inspection or as a result of any complaints or for any other reason SUPPLIER or any of its contract manufacturers decide to alter the Products, or any components of the Products, or materially alter manufacturing procedures, quality control testing operations and/or compliance procedures relating to any of the Products, CW shall be given written notice of such proposed THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 15 alteration at least ninety (90) days prior to its implementation or such shorter period agreed to in writing by CW, and such notice shall be accompanied by a written report which justifies the contemplated change(s) and no alteration shall be made without CW'S written approval which CW shall not unreasonably withhold. In the event such changes are mandated by the FDA, SUPPLIER will provide written notice to CW, but such changes will not require the written approval of CW. 9. Copies, notices and reports under Article IV 6, 7 and 8 above shall be sent to CW'S Vice President of Quality Control, Vice President of Safety, Health and Environmental Affairs and Vice President of Compliance at the following address: Carter-Wallace, Inc. P. O. Box #1001 Half Acre Road Cranbury, New Jersey 08512 10. In the event that CW'S inspectors or their designees find that SUPPLIER'S manufacturing operations are not reasonably in conformance with Quality System Regulations of the Federal Food and Drug Administration ("QSR's") or any other pertinent laws or regulations, SUPPLIER shall promptly, after receiving written notice thereof from CW, correct them to the mutual satisfaction of CW and SUPPLIER so as to bring them into compliance with QSR's or other pertinent laws or regulations. THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 16 11. CW shall provide technical service CW determines is appropriate to its customers of the Products. SUPPLIER shall provide to CW without additional cost all technical support which CW reasonably requires in order for CW to provide technical service to CW'S customers. ARTICLE V - --------- TERM OF AGREEMENT ----------------- This Agreement shall commence on the Effective Date and, unless sooner terminated as provided in Article XII, shall remain in effect for an initial term of five (5) years after the Effective Date (the "Initial Term"). Not less than ninety (90) days prior to the end of the initial five (5) year term, the parties will determine and agree in writing the terms and conditions under which the Agreement may be extended. If the parties have not so agreed in writing by ninety (90) days prior to the end of the Initial Term, this Agreement will terminate automatically at the end of the Initial Term. ARTICLE VI - ---------- LABELS, INSERTS, PACKAGING MATERIALS AND MARKETING -------------------------------------------------- 1. Subject to Article II and Article IV 5, CW shall determine in its sole discretion but after consultation with SUPPLIER as to relevant regulatory matters, how the Products are to be marketed, promoted and distributed and the labels, THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 17 labeling, inserts, packaging materials for the Products including the graphic elements on them as well as the copy, artwork and layout provided all labels are compatible with SUPPLIER'S packaging equipment and are in accordance with applicable laws and regulations. Notwithstanding the above, the shipping cartons and containers and the labeling and markings thereon used in the transportation of the Products from SUPPLIER to CW or its designees shall be the responsibility of SUPPLIER and shall conform to all applicable laws and regulations, including applicable governmental marketing authorizations. ARTICLE VII - ----------- IMPROVEMENTS AND CLAIMS ----------------------- Promptly upon completing the development of any change or improvement to the Products and promptly upon acquiring any change or improvement (hereinafter all changes and/or improvements shall be referred to as "Improvements") to the Products, SUPPLIER shall provide CW with the information listed in Schedule G hereto, incorporated herein by reference, regarding such Improvements. All such Improvements shall automatically be included in the rights granted to CW hereunder and CW shall have exclusive or co-exclusive rights, as the case may be, to market, promote, distribute and sell the Products incorporating such Improvement in the Territory under the terms and conditions of this Agreement as apply to the Products. If CW desires to purchase the Products with THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 18 such Improvements, CW shall notify SUPPLIER in writing, and SUPPLIER shall supply to CW such quantities of the Products with such Improvements as CW shall order from SUPPLIER. The price of the Products with Improvements shall be the same price as provided in Schedule C except that SUPPLIER may increase the price by an amount equal to the amount which permits SUPPLIER to maintain the same gross profit margins with respect to the Product to which the price increase applies as SUPPLIER was achieving with respect to such Product during the one year period prior to the introduction into such Product of the relevant Improvement. On written request by CW, SUPPLIER will provide verification to the reasonable satisfaction of CW that such increase is necessary to maintain the same gross profit margins with respect to the Product to which that price increase applies as SUPPLIER was achieving with respect to such Product in the one year period prior to the introduction into such Product of the relevant Improvement. Determination of such increase in costs shall be in accordance with generally accepted accounting principles consistently applied in the manner in use by SUPPLIER at the time of executing this Agreement. SUPPLIER will maintain records of such costs for a minimum of three (3) years after the period to which such records pertain and CW shall have the right to audit such costs. Those records shall be open during reasonable business hours to CW'S accountants and to a certified public accounting firm selected by CW and acceptable to SUPPLIER, which acceptance shall not be unreasonably withheld, who shall, at CW'S expense, have access to THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 19 such cost records for the purpose of verifying whether the increase in costs are calculated in accordance with this Article VII. Such accountants shall treat as confidential, subject to the provision of Article XIII hereof, any information about SUPPLIER to which they are exposed in the course of such audit other than the aforesaid costs (provided that neither such accountants nor CW will publicly reveal such costs except to the extent legally required to do so or necessary to enforce CW's rights hereunder) and such accountants' opinion as to their accuracy. In the event a controversy arises concerning said costs, the SUPPLIER shall retain its books and records relating to such costs until the resolution of the controversy. ARTICLE VIII - ------------ RIGHT OF FIRST REFUSAL ------------------------------ [**] THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 20 RIGHT OF FIRST REFUSAL (Continued) --------------------------------------- [**] THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 21 ARTICLE IX - ---------- WARRANTY, INDEMNITY AND INSURANCE --------------------------------- 1. SUPPLIER guarantees and warrants with respect to the Products it manufactures or has manufactured for it and supplies or has supplied to CW and its Affiliates hereunder: (a) that the Products supplied hereunder shall conform to, and be manufactured and delivered to CW in accordance with the specifications set forth in Schedule D, and pass the quality control tests set forth on Schedule E and will be manufactured in plants which have been registered with the United States Food and Drug Administration which are in compliance with, and that the Products shall at all times be manufactured in accordance with, the applicable QSR's and shall be in compliance with all other applicable Federal, State and local Laws and Regulations; (b) that the Products when delivered by SUPPLIER to CW, CW's Affiliates or CW's customers will not be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act and regulations thereunder, nor within the meaning of any substantially similar state or municipal law, nor is any such Product one which may not under such Act or other law be introduced into interstate or intrastate commerce, and shall conform with the applicable laws and regulations administered by the Environmental Protection Agency, Consumer THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 22 Product Safety Commission, the Department of Transportation, Occupational Safety and Health Administration or Interstate Commerce Commission, as applicable; (c) that the Products have been manufactured in accordance with the provisions of the Fair Labor Standards Act of 1938, as amended, to the extent applicable; (d) that SUPPLIER has not received significant complaints relating to the Products either with respect to the number of complaints received or the kind of complaints received such that a reasonable person would question the safety, efficacy, accuracy or reliability of the Products or the methods for manufacturing or testing them; and (e) that SUPPLIER owns and/or has the right to sublicense all rights to the Products, that it owns and/or has the rights to sublicense to SUPPLIERS subcontractors, the manufacturing of the Products and has all information necessary to manufacture the Products and that SUPPLIER has the right to enter into this Agreement and to license CW to distribute and sell the Products as provided herein. 2. (a) SUPPLIER shall protect, defend, indemnify and hold CW and its Affiliates and their officers and directors, employees, agents, successors and assigns, harmless from all demands, claims, actions, liability, loss, damage, costs and expenses including without limitation reasonable fees and costs of attorneys THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 23 incurred by CW or its Affiliates resulting or arising from any claim of injury or death to any Third Party or injury or damage to property of any Third Party, (1) caused by or claimed to be caused by any defects in the Products supplied by SUPPLIER to CW or its Affiliates or CW'S customers, (2) caused by or claimed to be caused by any error, omission, intentional misconduct or a failure or regulatory non-compliance by SUPPLIER, its Agents or Affiliates in the manufacturing, labeling or packaging of any of the Products, or (3) caused by or claimed to be caused by the development, manufacturing, packaging or supplying of the Products by SUPPLIER under this Agreement, or (4) caused by or claimed to be caused by the breach of any warranty in Article IX hereof, whether said demands, claims, liability, loss, damage, costs and expense is sustained by SUPPLIER or CW or its Affiliates or any Third Party, except to the extent such claimed injury or death or damage is caused by CW or its agents or Affiliates. In the event of any claim arising under Article IX, prompt written notice of such claim shall be given by CW to SUPPLIER. SUPPLIER shall have the right to conduct the defense in respect thereof but CW may have counsel present at its own expense and shall be entitled, at CW'S expense to participate in the defense of any such claim. CW shall cooperate with SUPPLIER in such defense at the expense of SUPPLIER. No settlement of any such matter where CW is a party to the claim or is a defendant with respect thereto, shall be made without the written approval of CW which shall not be unreasonably withheld. THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 24 (b) SUPPLIER shall protect, defend, indemnify and hold CW and its Affiliates and their respective directors, officers, employees, agents, successors and assigns harmless from and against any and all demands, claims, actions, liability, loss, damage, cost and expense (including without limitation reasonable fees and costs of attorneys incurred by CW or its Affiliates) resulting or arising out of any claim by a Third Party that the Products or the manufacture or processing used in or in connection with the Products infringes any valid and enforceable patents or other intellectual property rights of such Third Party or to the extent that any other claim or action is made or brought against CW or its Affiliates or SUPPLIER by a Third Party, whether or not a director, officer, employee or agent of SUPPLIER, relating to SUPPLIER'S manufacture of the Products. CW shall give SUPPLIER prompt written notice of any such claim asserted against CW or CW'S Affiliates. SUPPLIER shall have the right to conduct the defense in respect of such claim, but CW may have counsel present at CW'S own expense and shall be entitled, at CW'S expense, to participate in the defense of any such claim. No settlement of any such matter, where CW is a party to the claim or is a defendant, with respect thereto, shall be made without the written approval of CW which shall not be unreasonably withheld. (c) SUPPLIER shall protect, defend, indemnify and hold harmless CW and its Affiliates against any liability, loss, damage, cost and expense (including without limitation, reasonable fees and the costs of attorney's incurred by THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 25 CW or its Affiliates), incurred by CW or its Affiliates to effect, or as a result of, a recall of any Products that is requested by the FDA (including a recall or safety alert effected by CW or its Affiliates voluntarily to forestall regulatory or other action by the FDA or other governmental authority, including without limitation any foreign governmental authority, anywhere in the world, provided that, if time and circumstances permit, CW shall consult with Supplier reasonably in advance of initiating any such voluntary recall), provided that the reason for such recall is attributable to a defect or failure of the Products or an error, omission, intentional misconduct, failure or regulatory non-compliance by SUPPLIER in the manufacture, labeling, or packaging of the Products. To the extent that time and circumstances permit, CW shall give SUPPLIER notice of a recall or safety alert requested or imposed by any regulatory body affecting the Products. (d) Provided the Environmental Conditions (as hereinafter defined) were not caused by CW, SUPPLIER shall to defend, indemnify and save harmless CW, its officers, directors, employees, agents, successors and assigns, from and against any damage, liability, loss, claims, cost or expense (including without limitation reasonable fees and costs of attorneys' incurred by CW or its Affiliates), arising out of any claim by any person, government or other entity, however arising for personal injury, wrongful death, property damage, economic loss, costs of abatement, costs of remediation, damage to natural resources, civil penalties, or any other claim, demand, notice, or expense arising out of or relating to: THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 26 ( i) the presence, generation, handling, treatment, storage, disposal, discharge, or release of any solid waste, hazardous waste, hazardous substance, toxic substance, petroleum, contaminant or pollutant, or any other environmental condition, on, at, beneath, or near SUPPLIER'S facility; and, (ii) the presence, generation, handling, treatment, storage, disposal, discharge, or release of any solid waste, hazardous waste, hazardous substance, petroleum, toxic substance, contaminant or pollutant, from SUPPLIER'S facility to another facility, site, or property not owned or controlled by CW or its Affiliates. The items listed in (i) and (ii) are referred to as the "Environmental Conditions". (e) [**] THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 27 [**] SUPPLIER shall provide CW with Certificates of Insurance coverage showing that SUPPLIER possesses the above insurance at the stated limits and which provides that said insurance cannot be cancelled except after at least thirty (30) days' prior written notice to CW. SUPPLIER shall immediately notify CW in writing of any erosion in the above stated limits. SUPPLIER hereby waives any rights of subrogation. 3. This Article IX shall survive termination of this Agreement. ARTICLE X - --------- PRODUCT REPRESENTATION ---------------------- Any statements, representations, promotional materials or advertisements concerning the Products which are not made in reliance on or supported by information or data supplied in writing by SUPPLIER shall be the sole responsibility of CW, and CW shall protect, defend, indemnify and hold harmless SUPPLIER and its directors, officers, employees, agents, successors and assigns from and against any and all demands, claims, actions, liability, loss, damage, cost and expense (including reasonable fees and costs of attorney's) resulting or arising, directly or THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 28 indirectly, out of any such statements, representations, promotional materials or advertisements covering the Products which are not made in reliance on or supported by information or data supplied by SUPPLIER, whether such demands, claims, actions, liability, loss, damage, cost and expense is sustained by SUPPLIER or CW or any Third Party. In the event of any claim arising under this covenant of indemnity, prompt written notice of the claim shall be given to CW which shall have the right to conduct the defense in respect thereto, but SUPPLIER may have counsel present at SUPPLIER'S own expense and shall be entitled at SUPPLIER'S expense to participate in the defense of any such claim. SUPPLIER shall cooperate with CW in such defense at the expense of CW. No settlement of any such matter shall be made without the written approval of SUPPLIER and CW, which shall not be unreasonably withheld. ARTICLE XI - ---------- TRADEMARKS ---------- During the term hereof, and thereafter solely in connection with selling of remaining inventory of Products, CW and its Affiliates shall have the right to use for the Products and the marketing and sale of the Products hereunder, trademarks owned by CW and/or its Affiliates, and/or licensed to CW and/or its Affiliates by third parties, and SUPPLIER shall have no rights with respect to said trademarks whatsoever. In the event CW desires, during the term hereof and to the extent THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 29 necessary for CW and its Affiliates to sell off their remaining inventory of Products after termination or expiration of this Agreement, CW shall have the right but not the obligation to use SUPPLIER'S trademarks and copyrights and if CW uses such trademarks and/or copyrights, CW shall use in customary size and placement on the Products and their packaging, -Registered Trademark- or - -TM- symbols and customary copyright notice with respect to such trademarks or copyright, also indicating SUPPLIER'S ownership thereof. If SUPPLIER advises CW, IN WRITING, that SUPPLIER has obtained a patent covering a particular Product, CW shall, at SUPPLIER'S written request, include an appropriate notice or symbol as requested by SUPPLIER indicating that such patent covers the Product. ARTICLE XII - ----------- TERMINATION FOR BREACH, ETC. ---------------------------- 1. After termination of this Agreement, CW shall have the right to market, distribute and sell the Products purchased from SUPPLIER pursuant to the terms hereof during the term of this Agreement. 2. Notwithstanding any provision in this Agreement to the contrary, failure by CW or SUPPLIER to comply substantially with any of their respective material obligations and conditions contained in this Agreement shall entitle the other party to give to the party in default written notice requiring such other party to cure good such default. If such default is not cured within forty-five (45) days after THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 30 giving of such notice, the notifying party shall be entitled (without prejudice to any of its other's rights under this Agreement) to terminate this Agreement by giving at least forty-five (45) days written notice of termination to the other party, except that a default in payment must be cured within thirty (30) days after the giving of notice requiring the defaulting party to cure such default, and the Agreement shall terminate thirty (30) days after said notice is given, if such payment default is not timely cured. The right of either party to terminate this Agreement as herein provided shall not be affected in any way by the terminating party's waiver of or failure to take action with respect to any previous default of the other party. Termination of this Agreement shall not relieve either party of its obligations incurred prior to termination and not fully discharged by the date of such termination. 3. Within thirty (30) days after termination of this Agreement, CW shall pay SUPPLIER any and all amounts still owed SUPPLIER for all Products either (a) ordered by CW and delivered to and accepted by CW or (b) shipped by SUPPLIER to CW'S customers at CW'S request, in each case prior to such termination. ARTICLE XIII - ------------ CONFIDENTIALITY --------------- During the term of this Agreement and subsequent thereto, CW and SUPPLIER each shall exercise at least the same degree of care to safeguard the confidentiality of confidential, or proprietary and trade secret information disclosed THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 31 to it by the other party and any intellectual and proprietary rights therein as it would exercise to safeguard the confidentiality of its own confidential, proprietary or trade secret information. Any confidential, proprietary or trade secret information, designated as such, disclosed hereunder: (i) orally and then promptly reduced to writing and provided by the disclosing party to the other party or (ii) in writing by the disclosing party at the time of disclosure shall be maintained in confidence by the party receiving the disclosure and shall not be utilized for any purpose except for the purposes contemplated by this Agreement and shall not be disclosed to any Affiliate or Third Party unless they have executed a writing obligating themselves to the terms of this Article XIII. These obligations to maintain in confidence and not use the aforesaid confidential, proprietary or trade secret information shall not apply to: (a) any such information in the public domain at the time of disclosure or which falls into the public domain otherwise than through breach of this Article, (b) any such information which, at the time of disclosure, was demonstrably already known to or in the possession of the party receiving disclosure, without breach of this Agreement, (c) any such information which, following such disclosure, is obtained by the party receiving disclosure from a Third Party not under an obligation of confidentiality with respect to such information to the disclosing party, or (d) which is independently developed by employees of the party receiving the disclosure or affiliated companies who have not had access to the relevant confidential, proprietary or trade secret information of the other party hereto THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 32 provided hereunder. Notwithstanding any provision in this Agreement to the contrary, confidential, proprietary or trade secret information which must by law be divulged to governmental authorities in connection with the performance of this Agreement or otherwise can be disclosed to such governmental authorities provided that the disclosing party follows applicable governmental regulations and/or procedures to seek to require that the governmental authorities hold such information in confidence and notifies the other party, in writing, of such disclosure, if feasible, reasonably prior to such disclosure. This Article XIII shall survive termination of this Agreement. ARTICLE XIV - ----------- INTERPRETATION -------------- The construction, validity and performance of this Agreement shall be governed in all respects by the laws of the State of New York. The validity, construction, and interpretation of this Agreement shall be governed by the internal laws of the State of New York. In connection with any dispute or controversy arising out of or relating to this Agreement, both parties consent to the jurisdiction of and venue in the United States Federal District Court for the Southern District of New York. THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 33 ARTICLE XV - ---------- FORCE MAJEURE ------------- If the performance of this Agreement or of any obligations hereunder, except for the payment of monies, is prevented, restricted or interfered with by reason of any cause beyond the reasonable control of the affected party, except for the payment of monies, the party so affected upon prompt notice to the other party shall be excused from such performance to the extent of such prevention, restriction or interference, provided that the party so affected shall use its best efforts to avoid or remove such cause of non-performance and shall continue performance hereunder with the utmost dispatch whenever such causes are removed. ARTICLE XVI - ----------- NOTICES ------- Any notice required or permitted to be given under this Agreement shall be mailed by express mail with a reputable carrier including national couriers such as Fed Ex, registered or certified first-class mail, postage prepaid, or by facsimile with confirmed answerback, addressed to the party to be notified at its address stated at the beginning of this Agreement (with facsimile numbers on the signature page hereof), or at such other address as may hereafter be furnished in writing to the notifying party, except those copies, notices and reports under Article IV 6, 7 and 8 THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 34 hereof shall be addressed as specified in Article IV 9 hereof. ARTICLE XVII - ------------ WAIVER ------ The failure on the part of SUPPLIER or CW to exercise or enforce any rights conferred upon such party hereunder shall not be deemed to be a waiver of any such rights nor operate to bar the exercise or enforcement thereof by such party at any time or times thereafter. ARTICLE XVIII - ------------- ASSIGNABILITY ------------- This Agreement, and all rights and obligations hereunder, are personal as between the parties, and except as provided below, shall not be assigned in whole or in part by either of the parties to any other person or company without the prior written consent of the other party except by a party to the successor or assignee of substantially all such party's business relating to diagnostic products for professional use. CW may assign this Agreement or any of its rights or obligations hereunder to an Affiliate, acceptable to SUPPLIER, which acceptance Supplier shall not, acting in good faith, unreasonably withhold, which has agreed in writing to be bound hereby. THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 35 ARTICLE XIX - ----------- ENTIRE AGREEMENT ---------------- This Agreement constitutes the entire agreement between the parties with respect to the specific subject matter hereof, and replaces and supersedes any other previous understandings and agreements between them with respect thereto including those understandings and agreements that may be contained in correspondence or in verbal interchanges between the parties and their attorneys. Neither party shall be bound by any definition, condition, warranty or representation other than as expressly stated in this Agreement. No waiver or modification of this Agreement shall be valid except by written agreement executed by the parties hereto. ARTICLE XX - ---------- SEVERABILITY ------------ If any provision of this Agreement should be proven unlawful or non-enforceable, such provision will be considered a nullity, but such nullity will not affect the validity of the remaining terms and conditions of this Agreement, and the parties shall substitute, to the extent lawfully permissible, a new provision embodying the intentions of the parties. THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 36 ARTICLE XXI - ----------- INDEPENDENT CONTRACTOR ---------------------- The parties are independent contractors as to each other, and neither is an agent, employee or legal representative of the other and neither party shall execute any agreement or other instrument purporting to bind the other or hold themselves out as an agent, employee, or legal representative of the other party. This Agreement shall not be deemed to establish an agency relationship, joint venture or partnership between SUPPLIER and CW. ARTICLE XXII - ------------ MISCELLANEOUS ------------- 1. Neither party may disclose the terms and conditions of this Agreement to any Third Party, person or company, except as may be required by law or except that either party may disclose such terms to a prospective successor or assignee of substantially all its business relating to diagnostic products, without the prior written consent of the other party, or to such party's principal shareholders, current and future banks and prospective investors provided that, if reasonably feasible, in each case of such disclosure the recipient is bound by a written obligation to the disclosing party hereto, to keep such information confidential. 2. As used in this Agreement, the singular includes the plural and plural includes the singular, wherever so required by fact or context. The headings THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 37 appearing at the beginning of the numbered articles hereof have been inserted for convenience only and do not constitute a part of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their representative duly authorized officers as of the effective date. CALYPTE BIOMEDICAL CORPORATION By: /s/ William A. Boeger ---------------------------- Title: CEO ------------------------- Facsimile: 510-814-8408 CARTER-WALLACE, INC. By: /s/ Ralph Levine ---------------------------- Ralph Levine Title: President ------------------------- Facsimile: 212-339-5200 THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 38 Schedules A - G [**] THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 39 EX-10.53 4 EXHIBIT 10.53 Exhibit 10.53 [CALYPTE BIOMEDICAL CORPORATION LETTERHEAD] September 17, 1999 John J. DiPietro 5615 Morningside Drive San Jose, CA 95138 Re: YOUR SERVICE AS A DIRECTOR OF CALYPTE Dear John: Upon your signature at the end of this letter where indicated, this letter will be the binding agreement (the "AGREEMENT"), effective as of September 17, 1999 (the "EFFECTIVE DATE"), between Calypte Biomedical Corporation ("CALYPTE") and you with respect to the matters set forth herein. 1. RESIGNATION AS AN EMPLOYEE, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER OF CALYPTE; ELECTION AS DIRECTOR OF CALYPTE. (a) RESIGNATION AS AN EMPLOYEE, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER OF CALYPTE. You hereby resign, as of the Effective Date, as an employee of Calypte and as Chief Financial Officer and as Chief Operating Officer of Calypte. You and Calypte acknowledge that such resignation is mutually amicable and results from your desire to pursue other interests. You will receive payment of all accrued salary and vacation as required by law, and you will continue to receive any benefits accorded to you as a departed employee under the terms of the Company's benefits plans or applicable law (e.g., option to elect continued health coverage under COBRA). (b) ELECTION AS DIRECTOR OF CALYPTE. At the meeting of Calypte's Board of Directors (the "BOARD") held next after the Effective Date, the Board will elect you as a Director of Calypte. The Company will place your name for election as a Director of the Company with respect to any election of Directors, and you will serve as a Director of the Company, in each case until the earliest of the date of your death, your written resignation from the Board, or the date upon which you have not been re-elected as a Director by the stockholders of the Company, or the date upon which the Board determines in good faith that such nomination would not be in the best interests of the Company or its stockholders. During your service as a Director of Calypte you will be entitled to such indemnification, stock and/or stock options and other benefits from the Company as are made available from time to time by the Company to other Directors. 2. GENERAL. This Agreement may be executed in counterparts, each of which will be deemed an original, but both of which together will constitute one and the same instrument. This Agreement will be governed by the laws of the State of California without regard to its body of law controlling conflict of laws. This Agreement is the complete and exclusive agreement between you and Calypte regarding the specific subject matter of this Agreement and supersedes in their entirety all prior agreements, understandings and communications, oral or written, between us regarding the specific subject matter of this Agreement, will be binding upon and inure to our respective successors and assigns, and upon your heirs, executors and administrators, and may only be amended by a writing signed by each of us or our respective successors, assigns or authorized representatives. We acknowledge that you and the Company are, simultaneously with execution and delivery of this agreement, executing and delivering a Consulting Agreement of even date herewith. Sincerely, /s/ William Boeger ------------------------------------- William Boeger President and Chief Executive Officer ACCEPTED AND AGREED: /s/ John DiPietro - ------------------------------------- John J. DiPietro Date signed: September 17, 1999 ------------ EX-10.54 5 EXHIBIT 10.54 [CALYPTE BIOMEDICAL CORPORATION LETTERHEAD] September 17, 1999 John J. DiPietro 5615 Morningside Drive San Jose, CA 95138 Re: CONSULTING AGREEMENT WITH CALYPTE Dear John: Upon your signature at the end of this letter where indicated, this letter will be the binding agreement (the "AGREEMENT"), effective as of September 17, 1999 (the "EFFECTIVE DATE"), between Calypte Biomedical Corporation ("CALYPTE") and you with respect to your provision of service as a consultant to Calypte as provided in this letter (the services described in Sections 1(a) and (b) hereof are referred to herein as the "SERVICES"), from and after your resignation, as of the date hereof, as an employee of and as Chief Operating Officer and Chief Financial Officer of the Company. 1. SERVICES. (a) BASIC RETAINED SERVICES. Subject to the terms and conditions of this Agreement, you hereby are retained by Calypte as a consultant to Calypte from the Effective Date until terminated as provided herein, to provide up to an aggregate of sixteen (16) hours of Services per calendar month during the term hereof (or such additional hours as you may agree with Calypte as provided in Section 1(b) hereof), with travel time counted as one-half time (I.E., one hour of travel time will be counted as one-half hour of time spent consulting hereunder), with respect to (i) financial and operational matters and projects relating to Calypte's current and/or future products, and (ii) assisting in the selection, recruitment and integration with Calypte of a Controller and of a Chief Financial Officer, all as may be requested from time to time during the term hereof orally or in writing by an officer (President, Chief Executive Officer, Chief Financial Officer, Vice President) or member of the Board. The number of hours spent by you hereunder as rendering Services to Calypte will be in addition to time you spend to discharge your customary duties as a Director of Calypte, including time to prepare for and attend meetings of the Board and of Board Committees upon which you serve, during such time as you are serving as a Director of Calypte. You will not receive any compensation hereunder for your services as a Director of Calypte, but will be entitled to such indemnification, stock, and/or stock options and other benefits from the Company as are made available from time to time by the Company to other Directors. (b) ADDITIONAL SERVICES. At the request of Calypte, and upon written agreement between you and Calypte (each of which agreements will be in the form of EXHIBIT A attached hereto and incorporated herein by reference, and each of which will be considered as a part of this Agreement when so mutually executed), and in addition to the basic retained Services John J. DiPietro September 22, 1999 Page 2 rendered as described in Section 1(a) hereof, you will render such number of hours of Services as are specified therein (with a "day of consulting" being considered for such purposes as eight (8) hours, and with travel time being counted as one-half time). You will be paid at the rate of $100.00 per hour for any such additional hours rendered. (c) SCHEDULING; LOCATION. The days upon which Calypte will require your services will be based upon mutually agreeable dates and times. Calypte will provide as much advance notice as possible to you of the dates and times required, and you will make every reasonable effort to make yourself available during such dates. You will not be called upon to render such hours in excess of two days in any particular month (eight hours per day) without your prior written approval, and Calypte will not require you to render such services at dates, times or places that would reasonably interfere with other work commitments you may have. You may render the Services by telephone and/or e-mail, and/or on-site at Calypte's headquarters in the San Francisco Bay Area, and/or at other locations, as determined in good faith by Calypte after consultation with you as to mutual convenience and the particular Services required. (d) REPORTING. You will report to the President or Chief Executive Officer, and to the Board, and will perform such activities as are set forth in this Agreement, provided that Calypte may give you direction through such other officers as specified in Section 1(a) hereof. You may not assign or subcontract your duties or rights under this Agreement without the prior written consent of Calypte signed by its President or Chief Executive Officer. (e) OTHER ACTIVITIES. Calypte acknowledges and agrees that, while you will devote such time and effort as is necessary to discharge your duties hereunder, you will not be providing your full-time services to Calypte, and that you may consult with or become an employee of other entities as you wish (including but not limited to accepting full time employment), subject to your obligations as to confidential and proprietary information of Calypte as set forth in this Agreement. 2. COMPENSATION AND EXPENSES. (a) NO CASH COMPENSATION; AMENDMENT OF SECTION 7(D) OF EMPLOYMENT AGREEMENT WITH RESPECT TO SEVERANCE PAY AND CONTINUED VESTING OF OPTION. Calypte will pay no cash amount to you for your services rendered under this Agreement. Instead, Calypte and you hereby agree, pursuant to Section 8 of the Employment Agreement dated as of October 28, 1998 between you and Calypte (the "EMPLOYMENT AGREEMENT"), that Section 7(d) of your Employment Agreement hereby is amended to read as follows, effective as of the day before the Effective Date; except as herein amended, neither your Employment Agreement nor such options referred to in said section are amended: "The Executive may voluntarily terminate his employment at any time beginning July 1, 1999, in which event he shall receive severance pay of Fifty-Five Thousand Dollars ($55,000.00). If in connection with the Executive's voluntary termination of employment hereunder, the Executive and the Company enter into a John J. DiPietro September 22, 1999 Page 3 written agreement under which the Executive is to render consulting services to the Company, then from and after the date of such voluntary termination, vesting (exerciseability) of Executive's currently outstanding incentive stock option from the Company which was originally granted to Executive on October 27, 1998, for a total of 300,000 shares of Common Stock of the Company, originally vesting over a 24-month period beginning October 27, 1998, at the rate of 12,500 shares per month, will not cease and such option is hereby amended to provide that it shall continue after such termination date to vest (become exerciseable) at the rate of four thousand (4,000) shares at the end of each monthly anniversary of the date of such termination, through the earlier of the date of termination of such consulting agreement or the twelfth (12th) monthly anniversary of the date of such termination. In addition, if in connection with any other Calypte stock option plan or grant, other than a plan or grant provided to directors of Calypte, Executive has any obligation that requires Executive to exercise an option to purchase Calypte stock within a specific period of time, such period of time will not begin until the date of termination of the Consulting Agreement with Calypte dated September 17, 1999." (b) EXPENSE REIMBURSEMENT. Calypte will reimburse you for all reasonable, ordinary and necessary travel and entertainment expenses incurred by you in conjunction with your services to Calypte hereunder, consistent with Calypte's then-standard reimbursement policy, and, as applicable, travel policy, provided, as to a given expense, you have submitted commercially customary support documentation to Calypte therefor. 3. OUR RELATIONSHIP. (a) INDEPENDENT CONTRACTOR. In performance of your services under this Agreement, you will be an independent contractor of, and are not an agent or employee of, and have no authority to bind, Calypte by contract or otherwise. (b) EMPLOYMENT TAXES AND BENEFITS. You will report as self-employment income all compensation you received pursuant to this Agreement, including the fair market value of the Shares. You will indemnify Calypte and hold it harmless from and against all claims, damages, losses and expenses, relating to any obligation imposed by law on Calypte to pay any withholding taxes, social security (except for employer's share of social security, if any), unemployment or disability insurance, or similar items in connection with compensation received by you pursuant to this Agreement. You will not be entitled to receive any vacation or illness payments, or to participate in any plans, arrangements, or distributions by Calypte pertaining to any bonus, stock option, profit sharing, insurance or similar benefits for Calypte's employees, except as provided herein or as otherwise specifically approved by the Board. (c) NO REMUNERATION AS TO PRODUCTS. You will receive no royalty or other remuneration on the production or distribution of any products developed by the Company or by you in connection with or based upon the Services. 4. INDEMNIFICATION. John J. DiPietro September 22, 1999 Page 4 (a) BY YOU. To the extent determined by a tribunal of competent jurisdiction (arbitral or judicial), not subject to further appeal, you will indemnify Calypte and hold it harmless from and against all claims, damages, losses and expenses, including court costs and reasonable fees and expenses of attorneys, expert witnesses, and other professionals, arising out of or resulting from: (i) Any action by a third party against Calypte to the extent based on any claim that any Services performed under this Agreement, or their results, to your actual knowledge (A) infringe a patent, trademark, copyright or other proprietary right, and/or (B) violate a trade secret of such third party; and (ii) Any action by a third party to the extent based on any conduct by you in performing Services under this Agreement which results in any of the following and for which such tribunal determines you to be liable to Calypte under applicable law: (i) any bodily injury, sickness, disease or death; (ii) any injury or destruction to tangible or intangible property (including computer programs and data) or any loss of use resulting therefrom; or (iii) any violation of any statute, ordinance, or regulation. (b) BY CALYPTE. To the extent legally permitted, and not in derogation of your obligations under Section 4(a) hereof: (i) you will be considered as subject to the indemnity provisions of Calypte's Certificate of Incorporation and Bylaws, a copy of which will be furnished to you upon request, and (ii) Calypte will indemnify you and hold you harmless from and against all claims, damages, losses and expenses, including court costs and reasonable fees and expenses of attorneys, expert witnesses, and other professionals, arising out of or resulting from any action by a third party against Calypte or you, or both, in connection with or based upon the performance by you of the Services, or their result. 5. PROPERTY OF CALYPTE. (a) DEFINITIONS. For the purposes of this Agreement: (i) "INVENTIONS" means any and all inventions, ideas, designs, circuits, schematics, formulas, algorithms, trade secrets, works of authorship, mask works, developments, methods, processes, techniques, improvements, and related know-how in the field of research, development and commercialization in which Calypte is engaged, and which are made by you, alone or in combination with others, which result from or relate to the services you perform for Calypte hereunder, and whether made on behalf of Calypte under this Agreement, or with the use of or as a result of access to Confidential Information, including but not limited to any derivative work which constitutes an improvement or modification to any tangible form of Confidential Information, as hereinafter defined, such as any design, drawing, or product that embodies Confidential Information. (ii) "DESIGNS AND MATERIALS" means all designs, discoveries, inventions, products, computer programs, procedures, improvements, developments, drawings, notes, John J. DiPietro September 22, 1999 Page 5 documents, information and materials made, conceived or developed by you alone or with others which result from or relate to the services you perform for Calypte hereunder. (iii) "MORAL RIGHTS" means any right to claim authorship of a work, any right to object to any distortion or other modification of a work, and any similar right, existing under the law of any country in the world, or under any treaty. (b) ASSIGNMENT OF OWNERSHIP. You agree that all the Inventions, Designs and Materials that (i) are developed using equipment, supplies, facilities or trade secrets of Calypte, (ii) result from work performed by you for Calypte or (iii) relate to Calypte's business or current or anticipated research and development, will be the sole and exclusive property of Calypte. You hereby irrevocably transfer and assign any and all of your right, title, and interest in and to Inventions, Designs and Materials, including but not limited to all patent rights, copyrights, trademarks and trade secrets, to Calypte. All Inventions, Designs and Materials will be the sole property of Calypte and Calypte will have the sole right to determine the treatment of any Inventions, Designs and Materials, including the right to keep them as trade secrets, to file and execute patent applications on them, to use and disclose them without prior patent application, to file registrations for copyright or trademark on them in its own name, or to follow any other procedure that Calypte deems appropriate. You acknowledge that copyrightable works prepared by you within the scope of your service hereunder are "works for hire" under the federal Copyright Act and that Calypte will be considered the author thereof. If Calypte files an original United States patent application covering any invention of which you are a named inventor, you will receive in each case from Calypte an inventor's fee of One Hundred Dollars $100.00 in cash as full compensation therefor. You will: (i) Disclose promptly in writing to Calypte all Inventions, Designs and Materials; and (ii) Cooperate with and assist Calypte to apply for, and to execute any applications and/or assignments reasonably necessary to obtain, any patent, copyright, trademark or other statutory protection for Inventions, Designs and Materials in Calypte's name as Calypte deems appropriate, provided that Calypte will reimburse you for any reasonable costs incurred by you, and your normal billing rate for reasonable time incurred, in connection therewith; and (iii) Otherwise treat all Inventions, Designs and Materials as "Confidential Information," as defined below. Your obligations to so disclose, assist, and execute will survive until the earlier of your death or disability or five years following any expiration or termination of this Agreement. (c) MORAL RIGHTS WAIVER. You hereby irrevocably transfer and assign to Calypte any and all Moral Rights that you may have in any services you render hereunder, or in any Inventions, Designs and Materials or products of Calypte. You also hereby forever waive and agree never to assert against Calypte, its successors or licensees any and all Moral Rights you may John J. DiPietro September 22, 1999 Page 6 have in any such services, Inventions, Designs and Materials or such products, even after expiration or termination of this Agreement. (d) COMPANY PROPERTY. All papers, records, data, notes, drawings, files, documents, samples, devices, products, equipment, and other materials, including copies and in whatever form, relating to the business of Calypte that you possess or create as a result of your service to Calypte, whether or not confidential, are the sole and exclusive property of Calypte. 6. CONFIDENTIAL INFORMATION. You acknowledge that you will acquire information and materials from Calypte and knowledge about the business, products, programming techniques, experimental work, customers, clients and suppliers of Calypte and that all such knowledge, information and materials acquired, the existence, terms and conditions of this Agreement, and the Designs and Materials, are and will be the trade secrets and confidential and proprietary information of Calypte (collectively "CONFIDENTIAL INFORMATION"). Confidential Information will not include, however, any information which is or becomes part of the public domain through no fault of your own or that Calypte regularly gives to third parties without restriction on use or disclosure. You will hold all such Confidential Information in strict confidence, and will not disclose it to others or use it in any way, commercially or otherwise, except in performing your services hereunder, and will not allow any unauthorized person access to it, either before or after expiration or termination of this Agreement. You will take all action reasonably necessary and satisfactory to protect the confidentiality of the Confidential Information in your possession, including, without limitation, implementing and enforcing operating procedures to minimize the possibility of unauthorized use or copying of the Confidential Information. 7. TERM OF SERVICE; TERMINATION; EFFECT OF TERMINATION. (a) TERM OF SERVICE; TERMINATION. This Agreement is for a period of twelve (12) months from and after the Effective Date, subject to earlier termination as provided in Section 7(b) hereof. (b) TERMINATION; EFFECT OF TERMINATION. This Agreement will terminate automatically upon the earliest of (i) your death, (ii) such date as you voluntary terminate service, by written notice to Calypte, or the date upon which Calypte terminates your service hereunder for cause by giving written notice thereof to you, stating therein that such termination is for cause and specifying in reasonable detail such cause. For purposes of this Agreement, "cause" is defined as your willful failure to follow lawful and commercially reasonable directives of the Board, and/or intentional damage to the tangible or intangible property of Calypte, and/or conviction of a crime involving moral turpitude, and/or the performance of any dishonest or fraudulent act which is or would be, in each case as determined in good faith by the Board, materially detrimental to the interest of Calypte and its other stockholders. Upon termination of your service with Calypte for any reason, Calypte will pay you all of your accrued and unpaid expenses, if any, provided, as to a given expense, you have submitted commercially customary support documentation to Calypte therefor. Your obligations of confidentiality hereunder will survive any such termination, and termination hereof will not have any effect on any other binding John J. DiPietro September 22, 1999 Page 7 agreement between Calypte and you except to the extent specifically so stated in such other agreement or agreements. 8. PRIOR CONTRACTS. You represent that except as disclosed in writing to Calypte, (a) there are no other contracts to assign Inventions, Designs or Materials that are, as of the Effective Date, in existence between you and any other person or entity, and (b) as of the Effective Date, you have no employment, consultancies or undertakings which would restrict or impair your performance of this Agreement. 9. GENERAL. This Agreement may be executed in counterparts, each of which will be deemed an original, but both of which together will constitute one and the same instrument. This Agreement will be governed by the laws of the State of California without regard to its body of law controlling conflict of laws. This Agreement is the complete and exclusive agreement between you and Calypte regarding the specific subject matter of this Agreement and supersedes in their entirety all prior agreements (except the Employment Agreement, as applicable, and outstanding stock options), understandings and communications, oral or written, between us regarding the specific subject matter of this Agreement, will be binding upon and inure to our respective successors and assigns, and upon your heirs, executors and administrators, and may only be amended by a writing signed by each of us or our respective successors, assigns or authorized representatives. We look forward to continuing to work with you, as a consultant, as part of our team for the success of Calypte. Sincerely, /s/ William Boeger ------------------------------------- William Boeger President and Chief Executive Officer ACCEPTED AND AGREED: /s/ John DiPietro - ------------------------------------- John J. DiPietro Date signed: September 17, 1999 ------------ EX-27 6 EXHIBIT 27
5 1,000 9-MOS DEC-31-1999 SEP-30-1999 4,883 720 532 0 1,590 8,499 5,202 (3,908) 10,026 3,913 60 2,186 0 20 3,821 10,026 2,825 2,825 3,382 3,382 7,100 0 (156) (7,514) (2) (7,516) 0 0 0 (7,606) (0.40) (0.40)
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