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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 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 0-28194
DIGENE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 52-1536128
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9000 VIRGINIA MANOR ROAD 20705
BELTSVILLE, MARYLAND (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (301) 470-6500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K/A or any amendment to this Form 10-K/A. [ ]
Based upon the last sale price of the registrant's Common Stock on
September 10, 1999, the aggregate market value of the 9,514,504 outstanding
shares of voting stock held by non-affiliates of the registrant was
$132,013,743.
As of September 10, 1999, 14,585,655 shares of the registrant's Common
Stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this
Report on Form 10-K/A:
1) The registrant's definitive Proxy Statement for its Annual Meeting of
Stockholders to be filed not later than 120 days after the close of
the fiscal year (incorporated into Part III).
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 26
Item 3. Legal Proceedings........................................... 26
Item 4. Submission of Matters to a Vote of Our Stockholders......... 27
Executive Officers of Digene................................ 27
PART II
Item 5. Market For Our Common Equity and Related Stockholder
Matters..................................................... 28
Item 6. Selected Consolidated Financial Data........................ 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 31
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 35
Item 8. Financial Statements and Supplementary Data................. 36
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 52
PART III
Item 10. Directors and Executive Officers............................ 52
Item 11. Executive Compensation...................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 52
Item 13. Certain Relationships and Related Transactions.............. 52
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 52
Signatures............................................................ 55
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PART I
ITEM 1. BUSINESS
We develop, manufacture and market our proprietary DNA and RNA testing
systems for the screening, monitoring and diagnosis of human diseases. We have
developed and are commercializing our patented Hybrid Capture(R) Gene Analysis
System and tests in three areas: women's cancers and infectious diseases, blood
viruses, and pharmaceutical clinical research. Our primary focus is in women's
cancers and infectious diseases where our lead product is the only FDA approved
test for human papillomavirus, or HPV, which is the cause of greater than 99% of
cervical cancer cases. Our product portfolio also includes DNA tests for the
detection of chlamydia, gonorrhea and other sexually transmitted infections. We
believe our Hybrid Capture technology platform represents a significant
improvement over existing technologies because of its accuracy, speed, ease of
use and ability to quantitate DNA and RNA. In the United States, we market our
products through a direct sales force and in other countries through
distributors. Abbott Laboratories, one of the world's leading medical diagnostic
companies, markets and distributes all of our women's cancers and infectious
diseases products and certain of our blood virus products in Europe, Africa and
the Middle East.
Our commercial objective is to become the world leader in gene-based
testing for women's cancers and infectious diseases. We are working to establish
our HPV test as the standard for cervical cancer screening, the world's largest
cancer screening market. Virtually all cases of cervical cancer are preventable
if detected in the precancerous stage. Currently, the Pap smear is a test used
to screen for cervical cancer. The Pap smear is a subjective, labor intensive
test that has limited sensitivity and diagnostic accuracy leading to equivocal
test results and false negative diagnoses, which result in significant costs to
the healthcare system due to over-treatment or under-diagnosis.
Our HPV test allows physicians to identify women who are most at risk of
having or developing cervical disease and cervical cancer. We intend to
capitalize on our leadership position in HPV testing to obtain a significant
share of the global cervical cancer screening market, both as a primary
screening test and as a follow-up to the Pap smear. We are targeting this global
opportunity primarily by marketing our disease management strategy for cervical
cancer screening to managed care providers in the United States and
government-funded national screening programs outside the United States. In
addition, we have developed a network of women's health advocates, public health
providers and physician organizations to communicate the diagnostic and
cost-effective benefits of HPV testing to physicians, reimbursement providers,
testing laboratories and the public.
We have applied our Hybrid Capture technology to provide for the
simultaneous detection of chlamydia, gonorrhea and other sexually transmitted
infections, in addition to HPV, from a single patient sample. We also can use a
liquid-based Pap smear sample for our DNA tests and have FDA approval to use the
specimen provided by Cytyc Corporation's ThinPrep(R) Pap Test(TM) for our HPV
tests. We believe the ability to perform multiple tests from a single patient
specimen provides greater convenience to patients and their physicians and
reduces healthcare costs by decreasing the frequency of patient visits and
testing.
Our second major focus is in blood viruses where we have developed unique
testing products using our Hybrid Capture System to detect the presence of
hepatitis B virus (HBV) and cytomegalovirus (CMV). These blood viruses are
leading causes of morbidity and death. Our tests detect and measure the amount
of virus in a patient sample, helping physicians determine disease prognosis and
optimize the efficacy of the antiviral therapy. The sensitivity of our blood
virus tests, along with their ability to quantitate viral load, provide a
competitive advantage over other methods. Our CMV test is the only DNA test
cleared for the detection of CMV by the FDA. Abbott, one of the world's leading
providers of HBV tests, is selling our HBV and CMV products in Europe, Africa
and the Middle East where we believe that our HBV test is the leading HBV DNA
test.
Our Hybrid Capture System utilizes signal amplification and combines the
accuracy of nucleic acid probe diagnostics with the ease of use and mass-market
capabilities of the antibody-based immunodiagnostic systems that are used
routinely by clinical labs today. Our Hybrid Capture technology uses RNA probes
to bind specific DNA sequences to create hybrid DNA:RNA molecules. The captured
hybrids are then reacted
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with our proprietary signal amplification system which uses antibodies to detect
DNA:RNA hybrids. The Hybrid Capture System and tests are sensitive, rapid,
accurate, objective, non-invasive and easy to use, and can be performed by
laboratory staff using standardized testing equipment. Recently, we have
developed an automated, microplate-based Hybrid Capture testing system. In the
pharmaceutical clinical research area, we are utilizing the capabilities of our
Hybrid Capture System to identify, develop and validate new gene-based testing
opportunities. As a result of the high throughput capability of the Hybrid
Capture System, PE Biosystems entered into an exclusive technology and marketing
partnership with us to address opportunities in high throughput gene expression
screening for pharmaceutical drug discovery.
We have established a strong proprietary position in our Hybrid Capture
technology. We have an exclusive license to a patent covering the use of the
monoclonal antibodies, which are central to the Hybrid Capture detection system.
Additionally, in July 1999, the European Patent Office allowed a broad patent
covering the entire Hybrid Capture System. We have exclusive licenses and
co-exclusive cross licenses with the Institut Pasteur to issued and pending
patents covering the use of HPV genetic sequences from six of the thirteen key
cancer causing HPV types. We believe that these patents create a unique
proprietary position for Digene in the HPV testing field.
We have achieved a number of important regulatory milestones over the last
year. Our next generation Hybrid Capture II HPV Test received premarket (PMA)
approval from the FDA in March 1999. In 1999, our portfolio of women's cancers
and infectious disease tests was cleared for sale in almost every major European
country and in Brazil and Argentina. In the blood virus area, our Hybrid Capture
CMV Test received 510(k) clearance from the FDA in October 1998. In addition, we
received ISO 9001 certification in June 1999.
We also have achieved a number of important commercial milestones over the
past year. We entered into a partnering arrangement with PE Biosystems in
October 1998 and into a marketing and distribution alliance with Abbott in May
1999. Our Hybrid Capture HPV Test was used in numerous clinical trials, and the
results of such trials were published in peer reviewed publications. We
developed a program to expand reimbursement coverage for our products, resulting
in coverage in the United States for our Hybrid Capture HPV Tests from
significant managed care providers. Our efforts and accomplishments over the
last year have resulted in continued revenue growth from $12.0 million in fiscal
1998 to $17.5 million in fiscal 1999.
WOMEN'S CANCERS AND INFECTIOUS DISEASES
We have initially focused on two major disease areas, cervical cancer and
sexually transmitted infections. Cervical cancer is the second most common
cancer among women worldwide. Currently, the primary cervical cancer screening
test is the Pap smear. Although the Pap smear has successfully reduced deaths
caused by cervical cancer in the United States, cervical cancer remains
prevalent in the United States. In addition, cervical cancer rates have remained
at high levels outside the United States. If detected in the precancerous stage,
virtually all cases of cervical cancer are preventable. The treatment of
cervical cancer after it reaches the invasive stage may require chemotherapy,
radiation treatment or surgery, including hysterectomy. These treatments are
expensive and often unsuccessful. Recently, it has been established that HPV, a
sexually transmitted virus, is the primary cause of cervical cancer and that 99%
of cervical cancers contain cancer-causing HPV sequences. The Pap smear cannot
detect HPV. Furthermore, the Pap smear is a subjective, labor intensive test
that has limited sensitivity and diagnostic accuracy leading to equivocal test
results and false negative diagnoses. These limitations have contributed to
continuing high rates of cervical cancer.
Chlamydia is the most common sexually transmitted disease in the United
States and is a major health problem worldwide, with approximately 89 million
new cases reported annually. Genital chlamydia infection, if left untreated, has
serious potential consequences, such as infertility, ectopic pregnancy,
cervicitis and pelvic inflammatory disease. Gonorrhea, which affects 62 million
people worldwide, is the second most common sexually transmitted disease in the
United States and may result in severe genital complications in both women and
men if left untreated. If properly detected, both chlamydia and gonorrhea are
easily treatable with low-cost antibiotic therapy. However, routine and
broad-based screening for chlamydia and gonorrhea has
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been limited by the insufficient sensitivity of some culture methods, the
invasive and cumbersome specimen collection methods frequently employed, and the
time and cost associated with performing these tests.
We believe our Hybrid Capture HPV Tests could revolutionize cervical cancer
screening around the world by allowing early detection of HPV. Our Hybrid
Capture tests also represent the first effort to accurately detect HPV and the
other major sexually transmitted infections from a single specimen. This may
reduce the overall cost of patient management and help eliminate these serious
health threats. Our Hybrid Capture tests detect the presence of both chlamydia
and gonorrhea in women from cervical swabs, as well as in men through the
collection of urine samples. Preliminary clinical studies on women have
indicated that our Hybrid Capture II Chlamydia Test is capable of detecting
chlamydia in up to 98% of the cases in which the disease is present, while our
Hybrid Capture II Gonorrhea Test is capable of detecting gonorrhea in up to 92%
of the cases in which it is present.
To implement our strategy in the area of women's cancers and infectious
diseases, we intend to:
- create a marketing distribution infrastructure and marketing
communications program appropriate to each market;
- establish ourselves as the leader in single-sample testing for women's
cancers and infectious diseases;
- validate our products through clinical trials with respected academic
institutions and healthcare providers;
- communicate the diagnostic and cost-effective benefits of HPV testing to
managed care providers, physicians and government-funded national
screening programs and continue to develop a network of women's health
advocates, public health providers and physician organizations to help
communicate our message to physicians, testing laboratories and the
public; and
- expand reimbursement for our HPV tests from managed care organizations,
third party payors and government-funded insurance programs.
DISTRIBUTION INFRASTRUCTURE
A key element of our commercialization strategy is to partner our marketing
and sales efforts with established leaders in the field. We have established a
marketing alliance with Abbott for all of our women's cancers and infectious
diseases products and certain of our blood virus testing products. Under this
alliance, Abbott is responsible for sales and marketing of these Hybrid Capture
products in Europe, Africa and the Middle East and our Hybrid Capture II
Chlamydia and Gonorrhea Tests in the United States, when cleared by the FDA. We
are working together with Abbott to promote the use of HPV testing for primary
screening in the European market. In Europe, Abbott is responsible for marketing
activities directed toward obtaining laboratory endorsements and routine use of
HPV testing, and we are responsible for marketing activities directed toward
obtaining governmental endorsement of HPV testing, institutional reimbursement
and maximizing consumer awareness and education of the benefits of HPV testing.
The initial term of our marketing and distribution agreement with Abbott
extends until December 31, 2003 with respect to our HBV and HPV tests. The
initial term of the agreement with respect to our chlamydia and gonorrhea tests
expires at the end of the fifth full calendar year after the following events
occur: such tests receive 510(k) marketing clearance from the FDA; we are able
to deliver such tests to Abbott for resale in the United States; and such tests
satisfy designated specifications and are validated by us under applicable
protocols.
The agreement establishes net sales thresholds for each of our HBV, HPV
and chlamydia and gonorrhea tests. If the net sales thresholds are satisfied
for our HBV tests or chlamydia and gonorrhea tests, the term of the agreement
will be extended automatically with respect to such test for successive one
year periods.
With respect to our HPV tests, even if the applicable net sales thresholds
for our HPV tests have been satisfied, at a designated time we (or in one case,
Abbott) have the right to terminate the agreement or convert Abbott's
distribution rights to non-exclusive for a designated period if the net sales
fall within one of several specified ranges. In each such case, if the
agreement is terminated with respect to our HPV tests, we will be obligated to
make a residual payment to Abbott for a period of five years.
If Abbott fails to achieve the net sales thresholds at intervals specified
for our HBV tests or chlamydia and gonorrhea tests, then we may, in our sole
discretion, elect to convert Abbott's distribution rights from exclusive to
non-exclusive in the applicable territory with respect to such test for a
designated period of time thereafter. The agreement will terminate with respect
to any test for which Abbott acts as a non-exclusive distributor after the
expiration of the designated period. Abbott will not be required to satisfy any
net sales thresholds for our chlamydia and gonorrhea tests until after the
events described above are satisfied.
If Abbott does not meet the established net sales thresholds for our HBV
tests for calendar year 2003, or for our HPV tests in calendar years 2000,
2001, 2002 or 2003, we have the option, in our sole discretion, to terminate
the agreement with respect to the tests for which the applicable net sales
thresholds were not achieved.
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SINGLE-SAMPLE SYSTEM
We are the first to develop tests that detect HPV, chlamydia, gonorrhea and
herpes from a single patient specimen. We believe the ability to perform
multiple tests from a single specimen provides greater convenience to patients
and physicians and reduces healthcare costs by decreasing the frequency of
patient visits and testing. Our single-sample system is now available in Europe
and South America for the detection of HPV, chlamydia and gonorrhea, and upon
receipt of 510(k) clearance from the FDA, the system will be available in the
United States. Our tests also are cost efficient in that they can be performed
using commercial liquid-based Pap smear collection devices, such as the Cytyc
Corporation ThinPrep Pap Test.
CLINICAL TRIAL VALIDATION
Clinical evidence published in medical journals and presented at important
medical meetings has validated our products and technology platform, the Hybrid
Capture System, and the role of HPV in cervical cancer. These studies include:
- May 1999: a study involving 46,000 women conducted by Kaiser Permanente
and published in the Journal of the American Medical Association (JAMA)
which concluded that our HPV test identified 97% of women with high-grade
cervical disease compared with just 76% using the Pap smear alone;
- July 1999: a six-year study published in The Lancet which confirmed that
persistent HPV infection is the primary cause of cervical cancer and,
therefore, that new guidelines for cervical cancer screening should
include testing for HPV;
- July 1999: a study involving 1,518 European women published in The
British Journal of Cancer which confirmed the high sensitivity (98%) of
our HPV test;
- August 1999: a 22-country study completed by the International Agency for
Cancer Research confirming that HPV is the cause of cervical cancer in
99.7% of cases worldwide; and
- September 1999: a study involving 2,988 women in the United Kingdom
published in The British Journal of Cancer reported the high sensitivity
of our test (95%) compared to the Pap smear (79%) in screening women over
age 35 for cervical disease.
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In addition to these studies, we are currently participating in HPV
clinical trials involving more than 100,000 women on four continents. Successful
completion of these clinical trials should help to accelerate further adoption
of our HPV tests. The following is a summary of these trials:
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TARGET
COUNTRY LEAD INVESTIGATOR TRIAL DESCRIPTION SIZE COMPLETION DATE
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United States National Cancer Institute ALTS Borderline Pap Trial 7,000 Completed*
Canada Newfoundland Department HPV Primary Screening 3,000 Completed*
of Health
Mexico Johns Hopkins; Mexican HPV Primary Screening 7,500 December 1999
Government
Netherlands Free University of HPV Primary Screening 40,000 December 2001
Amsterdam
United Kingdom Imperial Cancer Research HPV Primary Screening 10,000 December 2000
Fund
Germany University of Tubingen HPV Primary Screening 8,000 June 2000
Russia University of Turku, HPV Primary Screening 12,000 December 2001
Finland
Brazil University of Rio Grande HPV Primary Screening 2,000 December 2000
do Sul
Argentina Institut Papincolau HPV Primary Screening 1,000 Completed*
Costa Rica National Cancer Institute HPV Primary Screening 10,000 Completed*
China Cleveland Clinic HPV Primary Screening 2,500 November 1999
Foundation
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* Trials have been completed and the results are being prepared for publication.
IMPROVING WOMEN'S HEALTH AWARENESS
We actively support the efforts of the American Medical Women's Association
and the National Cervical Cancer Public Education Campaign to inform women about
the link between HPV and cervical cancer. The HPV Summit 1999, a conference
dedicated to discussing HPV and related women's health issues and attended by
leading authorities, including physicians, researchers and women's health
advocates, was held in Chamonix, France in February 1999. The contribution of
our HPV test to the early detection of cervical cancer was a major theme of the
summit. As a result of these efforts and growing evidence supporting HPV
testing, an advocacy group of nationally recognized women called "Women for HPV
Testing," the London Express newspaper and Cosmopolitan magazine have all called
on the government of the United Kingdom to adopt HPV testing as part of the
national cervical cancer screening program. In the United States, the first
congressional hearing dedicated to addressing the need to better inform women
about the link between HPV infections and cervical cancer was held in
Washington, D.C. in March 1999, and the Centers for Disease Control (CDC) held
its first hearings about the HPV issue in April 1999.
INCREASING REIMBURSEMENT COVERAGE
We are working to expand reimbursement coverage for our HPV tests through
targeted clinical studies and outcome-oriented research. These studies are being
performed in conjunction with managed care organizations, university-based
clinicians and governmental authorities worldwide. Our efforts to increase
reimbursement coverage were boosted recently when an FDA advisory panel
recommended expanded labeling for our Hybrid Capture tests to incorporate the
signal amplification description. We expect this expanded labeling to provide a
distinct competitive advantage in the market, because reimbursement levels for
amplified tests are up to two times the level for non-amplified tests.
The Health Care Financing Administration (HCFA), administrator for Medicaid
and Medicare, has established reimbursement for our HPV test, and the American
Medical Association has assigned specific CPT codes (necessary for
reimbursement) for HPV testing. Third party payors and managed care entities
that provide health insurance coverage to 50 million people currently authorize
reimbursement for our HPV test.
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BLOOD VIRUSES
Blood viruses, such as HBV, CMV and HIV, are leading causes of morbidity
and death and, until recently, were untreatable. Rapid, accurate and ongoing
detection of blood viruses and monitoring of viral load is essential for
effective patient management. Over the last several years, antiviral therapies
have been developed to treat these diseases. To maximize the efficacy of these
expensive and sometimes toxic therapies, physicians rely on viral load
monitoring to measure the level of virus present in the patient's system. By
precisely measuring viral load and identifying patients who are not responding
to therapy early in their treatment, physicians are better able to tailor
antiviral therapies by more precisely monitoring individual responses,
recognizing when a patient develops drug resistance and projecting how quickly
the infection will progress to chronic disease.
The commercialization strategy for our blood virus business is to develop
tests for the hepatitis, transplant and AIDS testing markets where the
sensitivity and viral load monitoring capabilities of our Hybrid Capture System
provide a competitive advantage over other methods, and where our products can
be marketed to laboratories through an established market participant such as
Abbott in the case of HBV and CMV in Europe or through our own marketing and
sales efforts. Our Hybrid Capture System utilizes signal amplification and can
detect and quantitate as few as 100 molecules of the HIV virus and as many as
one billion copies of the hepatitis B virus.
We believe our Hybrid Capture HBV Tests are the leading HBV DNA tests in
the European market. These tests are used to monitor viral load to determine
disease prognosis and optimize the efficacy of the antiviral therapy. Currently,
our HBV tests are used by more than 250 laboratories worldwide. We expect that
demand for HBV DNA testing will continue to grow as new hepatitis treatment
guidelines incorporating viral load monitoring are implemented. Our second
important blood virus testing product is our Hybrid Capture CMV Test, which
delivers both qualitative and quantitative viral load information to accurately
differentiate active from latent CMV infection for AIDS, transplant and other
patients with impaired immune systems. We market our CMV test to patients
receiving CMV antiviral therapy, select transplant patients with active CMV
infection needing protective therapy, and AIDS patients at risk of developing
CMV-related organ disease who could benefit from preemptive therapy.
We are currently developing our Hybrid Capture HIV Test based on our Hybrid
Capture technology for HIV viral load monitoring. Our HIV test has been shown in
independent studies to provide highly sensitive, accurate, reproducible and
reliable measurements of HIV viral load. Our HIV test is the only system which
can detect 92% of the HIV genome.
PHARMACEUTICAL CLINICAL RESEARCH
We approach the pharmaceutical clinical research market by seeking to enter
into strategic partnerships that enable us to identify, develop and validate new
gene-based testing opportunities. The first such partnership is our exclusive
technology and marketing partnership with PE Biosystems, one of the world
leaders in this field. Our partnership was formed to address opportunities in
high-throughput gene expression screening for pharmaceutical drug discovery. In
addition, we are expanding our leadership position in cervical cancer disease
management through an active in-licensing program for potential new genetic
markers and through collaborations with vaccine and drug development programs of
major pharmaceutical companies. As part of this effort, we are working with
MedImmune, Inc. in the HPV vaccine area. In 1998, we also acquired Viropath
B.V., a leader in the HPV clinical research field, and we have obtained an
exclusive license to the p53arg gene, a potential risk assessment marker for
cervical disease progression.
PRODUCTS
Our Hybrid Capture System, which is the basis for all of our gene analysis
testing systems, is a rapid, accurate, easy to use, ultra-sensitive technology
that can be used in virtually any laboratory with standard equipment. We believe
that our Hybrid Capture System is a significant improvement over other detection
technologies because of its specificity, rapid processing time, improved
accuracy and ability to quantitate viral load. We have developed two versions of
our Hybrid Capture technology, the Hybrid Capture I and Hybrid
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Capture II Systems. The Hybrid Capture I System, our first generation DNA hybrid
detection system, which is currently being used at more than 600 laboratories
worldwide, tests samples individually in polystyrene tubes and has been approved
by the FDA for the follow-up screening of HPV in women with equivocal Pap
smears. The Hybrid Capture II System, which was approved by the FDA for the
detection of HPV in March 1999, uses a 96-well microtiter plate format that
permits simultaneous screening of multiple samples from a single plate and is
designed to be more efficient, less expensive and easier to use than the Hybrid
Capture I System.
The following table summarizes the commercial and regulatory status and
potential worldwide market of our Hybrid Capture tests:
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HYBRID CAPTURE TESTS(1)
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POTENTIAL
OUTSIDE WORLDWIDE
DISEASE TARGET UNITED STATES UNITED STATES MARKET
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Women's Cancers and
Infectious Diseases
HPV Approved and marketed as an Marketed as a primary test 150 million(2)
adjunct to Pap smears for cervical for cervical cancer
cancer screening. screening. Distributed in
Europe, Africa and the
Middle East by Abbott.
Chlamydia and Under review at FDA. Marketed. Distributed in 89 million(3)
Gonorrhea Europe, Africa and the (chlamydia)
Middle East by Abbott. 62 million(3)
(gonorrhea)
Herpes simplex Under development. Under development; expect 107 million(3)
to introduce in calendar
2000.
Blood Viruses
HBV Available for research use only. Marketed. Distributed in 300 million(4)
Europe, Africa and the
Middle East by Abbott.
CMV Cleared and marketed for Marketed. Distributed in 1 million(5)
diagnosing infection in organ Europe, Africa and the
transplant, bone marrow transplant Middle East by Abbott.
and HIV-positive AIDS patients.
HIV Available for research use only. Marketed. 41 million(6)
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(1) As described herein, certain of our products have not received marketing
approvals or clearance from the FDA or certain foreign authorities. There
can be no assurance that any such products will receive approvals on a
timely basis, if at all.
(2) Represents estimate of the total number of Pap smears performed annually.
(3) Represents estimated number of new cases worldwide on an annual basis.
(4) Represents estimated number of cases worldwide of chronic HBV infection.
(5) Represents estimated number of cases worldwide of active CMV infection.
(6) Represents estimated number of cases worldwide.
SALES AND MARKETING
Our sales and marketing strategy focuses on achieving broad market
acceptance of our Hybrid Capture technology in the areas of women's cancers and
infectious diseases and blood virus testing. We sell our Hybrid
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Capture products either directly, or through strategic partners or distributors,
to clinical laboratories and healthcare providers worldwide.
Acceptance of our Hybrid Capture technology requires improving awareness,
both in the United States and in international markets, of the prevalence and
the severity of cervical cancer and sexually transmitted diseases among women,
and, more importantly, identifying our Hybrid Capture tests as a cost-efficient
means of helping to prevent disease. We believe that increased education and
awareness will create a powerful consensus that diseases which are preventable
with the help of a commercially available and cost-effective test should be
targeted by physicians and managed care providers alike. We intend to promote
increased awareness through our active sponsorship of educational programs,
including programs with affiliated "Centers of Excellence," and through links to
the web sites of organizations dedicated to educating the public and physicians
about improvements in healthcare. Additionally, we intend to continue our public
relations campaign, conducted through our expanding network of women's health
advocates, public health providers and physicians organizations, carrying our
message of low cost prevention to physicians, laboratories and the public.
Currently, we sell our products either directly or through strategic
partners or distributors to more than 1,000 laboratories worldwide.
NORTH AMERICAN MARKET
We currently market our products in the United States and Canada to
substantially all clinical reference laboratories through a direct sales force
supported by technical and customer service representatives.
Adoption of our Hybrid Capture HPV Tests by managed care providers and the
laboratory testing market is essential for rapidly achieving broad based market
acceptance. We have made significant progress in both of these areas. HCFA has
established reimbursement for our HPV test, and the American Medical Association
has assigned specific CPT codes (necessary for reimbursement) for HPV testing.
Third party payors and managed care entities that provide health insurance
coverage to 50 million people currently authorize reimbursement for our HPV
test.
In addition, substantially all major clinical reference laboratories in the
United States offer our HPV test. We work closely with clinical reference
laboratories, third party payors, healthcare providers and their affiliated
physicians to help accelerate the adoption of our HPV test. As part of this
effort, we collaborated with Kaiser Permanente in the study described under
"Business -- Women's Cancers and Infectious Diseases -- Clinical Trial
Validation" above. We are marketing the data from that study and additional
clinical trial validation data to other managed care providers, physicians and
government-funded national screening programs. As part of this effort, we are
working to establish a "Centers of Excellence" program with a group of the top
academic medical centers in the United States. We are also participating in an
ongoing 7,200 patient National Cancer Institute study designed to establish the
clinical utility and the cost effectiveness of HPV testing of women with
equivocal Pap smear results. We expect that the results from this trial will be
released in our current fiscal year.
We market our HPV test to physicians through joint marketing programs with
clinical reference laboratories and through co-marketing arrangements with other
strategic partners. For example, we currently market our HPV test together with
Cytyc Corporation's ThinPrep Pap Test, a sample preparation system which allows
for the automated preparation of cervical cell specimens. The collaboration with
Cytyc is designed to provide physicians with a cost-effective and practical
procedure for better management of those patients with equivocal Pap smears. The
combined single-sample approach, approved by the FDA in September 1997, enables
the use of our HPV test with the Cytyc ThinPrep Pap Test to eliminate the need
for a return office visit to collect a second sample for HPV DNA testing.
INTERNATIONAL MARKETS
Internationally, we are working to establish HPV testing as the standard of
care for primary cervical cancer screening. We have entered into a marketing and
distribution agreement with Abbott for the
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distribution of certain of our products in Europe, Africa and the Middle East.
Abbott is one of the world's leading diagnostic companies. We are working
together with Abbott to promote the use of HPV testing for primary screening in
the European market.
In Brazil, our products are sold by Digene do Brazil LTDA, a majority-owned
subsidiary. We use independent distributors in the rest of South America, Asia
and the remaining countries in which we sell our products. In Japan, Mitsubishi
Chemical Company acts as our distributor. Mitsubishi is working to obtain
regulatory approval and reimbursement for our Hybrid Capture HPV, Chlamydia and
Gonorrhea Tests.
TECHNOLOGY
Our Hybrid Capture System utilizes signal amplification and combines the
accuracy of nucleic acid probe diagnostics with the ease of use and mass-market
capabilities of antibody-based immunodiagnostic systems which are routinely used
by virology and immunology laboratories today. Our Hybrid Capture technology
uses RNA probes to bind specific DNA sequences to create hybrid DNA:RNA
molecules. The captured hybrids are then reacted with our proprietary signal
amplification system which uses antibodies to detect DNA:RNA hybrids. Our Hybrid
Capture technology offers a rapid, accurate and easy-to-use detection system
that can be performed in any laboratory with standard equipment. These
capabilities are particularly important in the commercial markets we have
targeted.
We have established a strong proprietary position in our Hybrid Capture
technology. We have an exclusive license to a patent covering the use of the
monoclonal antibodies that are central to the Hybrid Capture System.
Additionally, in July 1999, the European Patent Office granted us a broad patent
covering the entire Hybrid Capture System. We have exclusive licenses and
co-exclusive cross licenses with the Institut Pasteur to issued and pending
patents covering the use of HPV genetic sequences from six patented cancer
causing HPV types. We believe that these patents create a unique proprietary
position for us in the HPV testing field.
Our Hybrid Capture technology has been applied successfully to a number of
testing formats including: individual tubes (Hybrid Capture I); 96-well
microtiter plates (Hybrid Capture II); 384-well test arrays; and DNA gene chips.
Our Hybrid Capture I and II test formats are used in our commercially available
testing products. Using these test systems, it is possible to economically
process between 4 and 360 clinical specimens in a single technician shift. As
part of our partnership efforts, PE Biosystems offers high throughput gene
expression analysis products and services to the pharmaceutical drug discovery,
biotechnology and agricultural markets. The automated Hybrid Capture gene
expression screening service offered by PE Biosystems employs high capacity
automation capable of running 100,000 tests per day.
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The following diagram illustrates the key elements of the Hybrid Capture
System.
[Diagram with explanatory notes showing how our Hybrid Capture technology
platform allows for the detection of specific DNA and RNA sequences and
therefore has potential applications for a variety of diagnostic and
monitoring tests.]
RESEARCH AND DEVELOPMENT
One of our key goals is to expand continually our core technology and
expertise in molecular diagnostics in order to remain at the forefront of DNA
testing for infectious diseases and to capture new high-growth and high-margin
market opportunities. To achieve this goal, we have invested aggressively in
research and development and particularly in clinical trials to validate the
performance of our new products.
Our research programs are geared to deliver continuing improvements in the
detection of cervical cancer and sexually transmitted infections, including
chlamydia, gonorrhea and herpes, and we seek to increase our technological
leadership position in these areas. Further, we are working to make it possible
for a physician to order all four of these tests and cytology results
simultaneously. Our single-sample system is now available in Europe and South
America for the detection of HPV, chlamydia and gonorrhea. We expect to
introduce our herpes test internationally in calendar year 2000. We have
developed our tests so that they can be performed on samples collected for
routine Pap smears, and we have developed our proprietary single patient sample
system which we expect to introduce internationally in calendar year 2000.
We intend to continue our investment in the women's cancers and infectious
diseases and blood virus areas and to expand efforts to automate our existing
tests. We expect that the first of these tests, our automated chlamydia and
gonorrhea test, will be introduced in the United States by Abbott during
calendar year 2000, subject to clearance by the FDA.
MANUFACTURING
Manufacturing our products involves combining more than 200 biological
reagents, inorganic and organic reagents and kit components (such as vials and
packaging material) into finished test kits. Biological reagents include DNA and
RNA probes, antibodies and detection reagents. These biological reagents are
currently manufactured in our facility in Beltsville, Maryland. In December
1999, we expect to relocate our manufacturing operations to a new facility in
Gaithersburg, Maryland. We believe that we currently have sufficient
manufacturing capacity for our existing demand and that the new facility will
allow us to expand our production capability for the foreseeable future.
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We have established a quality control program, including a set of standard
manufacturing and documentation procedures intended to ensure that, where
required, our products are manufactured in accordance with quality service
regulations (QSR). We received ISO 9001 certification in June 1999.
COMPETITION
The medical diagnostics and biotechnology industries are subject to intense
competition. Our competitors in the United States and abroad for gene-based
diagnostic probes include Roche Diagnostics, Bayer Corporation, Chiron
Corporation and Gen-Probe Incorporated. We also compete with Abbott, even though
they act as our marketing partner in Europe, Africa and the Middle East.
We believe the primary competitive factors in the market for gene-based
probe diagnostics and other screening devices are clinical performance and
reliability, ease of use, cost, proprietary position, the competitor's share of
the existing market, regulatory approvals and availability of reimbursement.
Other companies, including large pharmaceutical and biotechnology
companies, may enter the market for gene-based probe diagnostics. Some of our
products compete against existing screening, monitoring and diagnostic
technologies, including the tissue culture and antigen-based diagnostic
methodologies. In marketing our HPV tests for the follow-up screening of women
with equivocal Pap smears in the United States, we compete with well-established
follow-up procedures, such as Pap smear re-testing, colposcopy and biopsy, which
are widely accepted and have a long history of use. Additionally, in the event
we are able to obtain FDA and applicable foreign approvals to market our HPV
tests for primary cervical cancer screening, either in conjunction with or
separate from the Pap smear, our products will compete against the Pap smear,
which is widely accepted as an inexpensive and, with regular use, adequate
screening test for cervical cancer. Future technological advancements, designed
to improve quality control over sample collection and preservation and to reduce
the Pap smear test's susceptibility to human error, may serve to increase
physician reliance on the Pap smear and solidify its market acceptance. Further,
if marketed as an adjunct to the Pap smear test for primary screening in the
United States, our HPV tests may be seen as adding unnecessary expense to the
accepted cervical cancer screening methodology. Consequently, our HPV tests may
not be able to attain market acceptance as a primary screening test.
We face competition from a variety of technologies in the blood virus area.
There are several advanced technologies commercially available for the detection
and viral load measurement of HBV and HIV. Additionally, there are several
emerging DNA probe amplification technologies to detect CMV being developed by
competitors. Thus, our tests for HBV, CMV or HIV may not be able to gain market
acceptance.
Our existing and potential competitors may be in the process of seeking FDA
or foreign regulatory approval for their respective products or may also enjoy
substantial advantages over us in terms of research and development expertise,
experience in conducting clinical trials, experience in regulatory matters,
manufacturing efficiency, name recognition, sales and marketing expertise and
distribution channels. In addition, many of these companies may have established
third-party reimbursement for their products. We may not be able to compete
effectively against existing or future competitors, which may have a material
adverse effect on our business, financial condition and results of operations.
GOVERNMENT REGULATION
The medical devices to be marketed and manufactured by us are subject to
extensive regulation by the FDA and, in some instances, by foreign governments.
Pursuant to the Federal Food, Drug, and Cosmetic Act and the related
regulations, the FDA regulates the clinical testing, manufacture, labeling,
distribution and promotion of medical devices. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recalls or seizures of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing approvals, and criminal
prosecution. The FDA also has the authority to request repair, replacement, or
refund of the cost of any device that we manufacture or distribute.
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In the United States, medical devices and diagnostics are classified into
one of three classes (class I, II or III), on the basis of the controls deemed
necessary by the FDA to reasonably assure their safety and effectiveness. Under
FDA regulations, class I devices are subject to general controls (for example,
labeling and adherence to QSR), and class II devices are subject to general and
special controls (for example, performance standards, postmarket surveillance,
patient registries and FDA guidelines). Generally, class III devices are those
which must receive premarket approval (PMA) by the FDA to ensure their safety
and effectiveness (for example, life-sustaining, life-supporting and implantable
devices, or new devices which have not been found substantially equivalent to
legally marketed devices).
Before a new device can be introduced into the market, the manufacturer
generally must obtain marketing clearance through the filing of either a 510(k)
notification or a PMA application. A 510(k) clearance will be granted if the
submitted information establishes that the proposed device is "substantially
equivalent" to a legally marketed class I or II medical device or to a
preamendment class III medical device (i.e., on the market on or before May 28,
1976) for which the FDA has not called for a PMA. It generally takes from four
to twelve months from submission to obtain a 510(k) clearance, but it may take
longer. The FDA may determine that a proposed device is not substantially
equivalent to a legally marketed device or that additional information or data
is needed before a substantial equivalence determination can be made, either of
which could delay market introduction of a new product. A request for additional
data may require that clinical studies of the device's safety and effectiveness
be performed. Additionally, modifications or enhancements that could
significantly affect the safety or effectiveness of the device or that
constitute a major change to the intended use of the device will require new
510(k) submissions.
A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed class I or class II device or if it is a
preamendment class III device for which the FDA has called for a PMA. A PMA
application must be supported by valid scientific evidence, including
preclinical and clinical trial data, to demonstrate the safety and effectiveness
of the device. The PMA application must also contain the results of all relevant
bench tests, laboratory and animal studies, a complete description of the device
and its components, a detailed description of the methods, facilities and
controls used to manufacture the device in addition to device labeling and
advertising literature.
If a PMA application is accepted for filing, the FDA begins an in-depth
review of the submission. FDA review of a PMA application generally takes one to
two years from the date the PMA application is accepted for filing, but may take
significantly longer. The PMA review process includes an inspection of the
manufacturer's facilities to ensure that the facilities are in compliance with
the applicable QSR requirements. In addition, an advisory committee made up of
clinicians and/or other appropriate experts is typically convened to evaluate
the application and make recommendations to the FDA as to whether the device
should be approved. The PMA process can be expensive, uncertain and lengthy. A
number of devices for which FDA approval has been sought by other companies have
never been approved for marketing.
Modifications to a device that is the subject of an approved PMA, its
labeling or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA, but limited to the
information necessary to support the proposed change.
Although clinical investigations of most devices are subject to the
investigational device exemption (IDE) requirements, clinical investigations of
in vitro diagnostic (IVD) tests are exempt from the IDE requirements, including
FDA approval of investigations, provided the testing meets certain exemption
criteria. IVD manufacturers must also establish distribution controls to assure
that IVDs distributed for the purpose of conducting clinical investigations are
used only for that purpose and not improperly commercialized. Pursuant to
current FDA policy, manufacturers of IVDs labeled for investigational use only
(IUO) or research use only (RUO) are encouraged by the FDA to establish a
certification program under which investigational IVDs are distributed to or
utilized only by individuals, laboratories, or healthcare facilities that have
provided the manufacturer with a written certification of compliance indicating
that the IUO or RUO product will be restricted in use and will, among other
things, meet institutional review board and informed consent requirements.
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Export of products subject to the 510(k) notification requirements, but not
yet cleared to market, are permitted provided certain requirements are met.
Unapproved products subject to the PMA requirements must be approved by the FDA
for export under certain circumstances. To obtain FDA export approval, certain
requirements must be met and information must be provided to the FDA, including,
with some exceptions, documentation demonstrating that the product is approved
for import into the country to which it is to be exported and, in some
instances, safety data for the devices. The FDA may not grant export approval
when such approval is necessary, and countries to which the devices are to be
exported may not approve the devices for import. Failure on our part to obtain
export approvals when required could significantly delay and impair our ability
to export our devices and could have a material adverse effect on our business,
financial condition and results of operations.
In April of 1995, we obtained a PMA approval for our HPV test to detect the
presence of HPV in women with equivocal Pap smears. In August of 1997, we
obtained FDA approval of a PMA supplement for the use of the HPV test using the
Cytyc sample collection system. We received FDA marketing clearance for our
Hybrid Capture II HPV Test in March 1999. We also intend to submit a PMA
supplement with the FDA to obtain market clearance for use of our Hybrid Capture
II HPV Test as a primary cervical cancer screening test either in conjunction
with or separate from Pap smear testing. We anticipate that a substantial amount
of clinical data will be required to support the PMA supplement. The data we
submit may not be adequate to support the use of the Hybrid Capture II HPV Test
as a primary cervical cancer screening test in the United States. Failure to
obtain FDA approval for the use of the Hybrid Capture II HPV Test as a primary
cervical cancer screening test could have a material adverse effect on our
business, financial condition and results of operations.
We received FDA marketing clearance for our Hybrid Capture I CMV Test in
October 1998. We submitted three 510(k) notifications for each of our tests for
chlamydia and gonorrhea in April 1998. Upon review of the 510(k) notification
for our tests, the FDA determined that additional data would be needed. After
collecting the necessary data, we submitted the information to the FDA. These
three 510(k) notifications remain pending with the FDA. The FDA may not grant
clearance of these 510(k) notifications in a timely manner, if at all, and the
FDA may require the submission of additional data or find the products not
substantially equivalent and require the submission of a PMA application.
We are developing tests for HBV and HIV which are class III devices that
will necessitate the collection of extensive clinical data and the eventual
submission and approval of a PMA application. We may not be able to collect
adequate data to support a PMA application for either the HBV test or HIV test,
and when a PMA application is submitted, FDA approval may not be granted in a
timely manner, if at all.
We are exporting our HPV test as a primary cervical cancer screening test
prior to obtaining PMA approval for this use in the United States. We are also
exporting our HBV test and HIV test for clinical use abroad prior to pursuing
PMA approval in the United States. Exportation of the HPV test as a primary
cervical cancer screening test and exports of the HBV test and HIV test can be
undertaken without prior FDA approval of a PMA provided, among other things,
that:
- the marketing of these tests is not contrary to the laws of the country
to which they are intended for import,
- they are manufactured in substantial conformance with the QSRs and
- we have valid marketing authorization for these products from any member
country of the European Union, Australia, Canada, Israel, Japan, New
Zealand, Switzerland or South Africa.
We also must provide the FDA with simple notification indicating the
products to be exported and the countries to which they will be exported. FDA
approval must be obtained for exports of products subject to the PMA
requirements if these export conditions are not met. We may not be able to
obtain and maintain valid marketing authorization for these tests from one of
the listed countries, and the FDA may not grant specific export approval. Our
failure to obtain and maintain valid marketing authorization from one of the
listed countries or otherwise meet the FDA export approval requirements, could
have a material adverse effect on our business, financial condition and results
of operations.
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We have developed viral and bacterial tests that we distribute in the
United States on a RUO basis. Failure by us or recipients of our RUO devices to
comply with the regulatory limitations on the distribution and use of RUO
devices could result in enforcement action by the FDA that would adversely
affect our ability to distribute the tests prior to obtaining FDA clearance or
approval for them.
Any products manufactured or distributed by us pursuant to FDA clearances
or approvals are subject to pervasive and continuing regulation by the FDA,
including recordkeeping requirements and reporting of adverse experiences with
the use of the device. Device manufacturers are required to register their
establishments and list their devices with the FDA and are subject to periodic
inspections by the FDA and certain state agencies. The Federal Food, Drug, and
Cosmetic Act requires devices to be manufactured in accordance with QSRs, which
impose certain procedural and documentation requirements upon us with respect to
manufacturing and quality assurance activities.
The FDA actively enforces regulations prohibiting the promotion of devices
for unapproved ("off label") uses and the promotion of devices for which
premarket clearance or approval has not been obtained. Failure to comply with
these requirements can result in regulatory enforcement action by the FDA and
possible limitations on the promotion of our products.
We and our products are subject to a variety of state laws and regulations
in those states and localities where our products are or will be marketed. Any
applicable state or local regulations may hinder our ability to market our
products in those states or localities. Manufacturers are also subject to
numerous federal, state and local laws relating to such matters as safe working
conditions, manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous substances. We may be
required to incur significant costs to comply with such laws and regulations now
or in the future, and such laws or regulations may have a material adverse
effect on our business, financial condition and results of operations.
The introduction of our developmental stage test products in foreign
markets will also subject us to foreign regulatory clearances, which may impose
additional substantial costs and burdens. International sales of medical devices
are subject to the regulatory requirements of each country. The regulatory
review process varies from country to country and many countries also impose
product standards, packaging requirements, labeling requirements and import
restrictions on devices. In addition, each country has its own tariff
regulations, duties, and tax requirements.
The approval by the FDA and foreign government authorities is unpredictable
and uncertain, and the necessary approvals or clearances may not be granted on a
timely basis or at all. Delays in receipt of, or a failure to receive, such
approvals or clearances could have a material adverse effect on our business,
financial condition and results of operations.
Changes in existing requirements or adoption of new requirements or
policies could adversely affect our ability to comply with regulatory
requirements. Failure to comply with regulatory requirements could have a
material adverse effect on our business, financial condition and results of
operations. We may be required to incur significant costs to comply with laws
and regulations in the future, and laws or regulations may have a material
adverse effect upon our business, financial condition and results of operations.
The Federal Food, Drug, and Cosmetic Act requires devices to be
manufactured in accordance with QSRs which impose certain procedural and
documentation requirements upon us with respect to manufacturing and quality
assurance activities. Noncompliance with QSRs can result in, among other things,
fines, injunctions, civil penalties, recalls or seizures of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing approvals,
and criminal prosecutions. The FDA also has proposed changes to the QSRs which,
if finalized, would likely increase the cost of compliance with the
requirements. Any failure by us to comply with QSR requirements could have a
material adverse effect on our business, financial condition and results of
operations.
We must comply with similar registration requirements of foreign
governments and with import and export regulations when distributing our
products to foreign nations. Each foreign country's regulatory requirements for
product approval and distribution are unique and may require the expenditure of
substantial
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time, money and effort. The regulation of medical devices in a number of such
jurisdictions, particularly in the European Union, continues to develop and new
laws or regulations may have a material adverse effect on our business,
financial condition and results of operations. Noncompliance with state, local,
federal, or foreign regulatory requirements can result in fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, delay or denial or withdrawal of premarket clearance or approval of
devices and criminal prosecution.
The IVD directive promulgated by the European Union goes into effect in
June 2000 and we must be in full compliance with such directive by 2003. One of
the critical components of such compliance is ISO 9001 certification, which we
received in June 1999.
LICENSES, PATENTS AND PROPRIETARY INFORMATION
Our success will depend in part on our ability to obtain and maintain
patent protection for our technologies, products and processes, preserve our
trade secrets, and operate without infringing the proprietary rights of other
parties. Because of the substantial length of time and expense associated with
bringing new products through development to the marketplace, the biotechnology
industry places considerable importance on obtaining and maintaining patent and
trade secret protection for new technologies, products and processes. Despite
these precautions, it may be possible for unauthorized third parties to utilize
our technology or to obtain and use information that we regard as proprietary.
The laws of some countries do not protect our proprietary rights in our
technologies, products and processes to the same extent as do the laws of the
United States.
We hold four issued U.S. patents relating to HPV types 35, 43, 44, and 56.
These patents expire in 2007. We have also filed corresponding foreign patent
applications in certain countries. The patents relating to HPV types 35, 43, and
56 have been licensed to Institut Pasteur (see cross license discussion below).
In addition, we are the exclusive, worldwide licensee of a U.S. patent
application and certain corresponding foreign patents and patent applications
relating to HPV type 52 and a U.S. patent and certain corresponding foreign
patents relating to the use of the L1 gene sequence to detect specific HPV types
(see Georgetown license discussion below) as well as certain trade secrets
relating to HPV type 58 (see Kanebo license discussion below).
Through a cross license with Institut Pasteur, we have obtained a worldwide
license to U.S. patents and patent applications and corresponding foreign patent
applications relating to HPV types 39 and 42 and foreign patents and
applications relating to HPV type 33. In return, we have granted to Institut
Pasteur a worldwide license to our three U.S. patents and corresponding foreign
patents and applications relating to HPV types 35, 43, and 56. We have granted
Institut Pasteur the right to extend the scope of the cross license to include
the U.S. patent and corresponding patent applications relating to HPV type 44 at
such time as Institut Pasteur shall have discovered and developed an additional
HPV type which is equivalent in value to HPV type 44. In return for such an
extension, we will receive a license to the new HPV type discovered and
developed by Institut Pasteur. The cross license is co-exclusive, except that
Institut Pasteur has sublicensed its rights to Beckman Instruments, Diagnostic
Pasteur, and their affiliates, and we have sublicensed our rights on a non-
exclusive basis to Toray Fuji Bionics, and its affiliates, for use outside North
America and certain countries in Western Europe. A sublicensee may use its
rights under the cross license to develop additional products or services that
compete with our products. We believe that the cross license terminates on the
last to expire of the underlying patent rights. Any prior termination of the
cross license could have a material adverse effect on our business, financial
condition and results of operations.
Through a license with Georgetown University, we have obtained exclusive,
worldwide rights to a U.S. patent application and corresponding foreign patents
and patent applications relating to HPV type 52 and to a U.S. patent and
corresponding foreign patents relating to the use of the L1 gene sequence to
detect specific HPV types. Unless terminated earlier, the Georgetown license
will terminate upon the last to expire of the licensed patent rights. All of the
issued foreign patents relating to HPV type 52 and the L1 related patent will
expire in 2008. We are obligated to make certain royalty payments to Georgetown
University based on the percentage of net sales of products incorporating the
licensed technologies.
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Through a license with Kanebo, Ltd., we have obtained exclusive, worldwide
rights (except for Japan where Kanebo, Ltd. retained the right to grant a
non-exclusive sublicense to Toray Industries, Inc.) to a foreign patent
application relating to HPV type 58. Unless terminated earlier, the Kanebo
license expires on the later to occur of January 1, 2010 or the expiration of
any patent relating to HPV type 58.
We have filed a U.S. patent application relating to certain aspects of our
Hybrid Capture technology. A foreign filing of this patent has been granted in
Australia and was allowed by the European Patent Office in July 1999. We have an
exclusive license with the University of Hawaii for a patent covering monoclonal
antibodies for detection of DNA:RNA hybrid complexes. We have also filed U.S.
patent applications in the areas of direct DNA probe labeling, signal
amplification and biotin-avidin probe chemistry and our continuous amplification
reaction amplification method. The inventions claimed by these applications may
be used in our DNA probes and any patents that issue from such applications may
provide some ancillary protection for certain aspects of our products. Under
current law, patent applications in the United States are maintained in secrecy
until patents are issued and patent applications in foreign countries are
maintained in secrecy for a period of time after filing. A U.S. patent or any
foreign patents relating to our Hybrid Capture technology may not be issued to
us on a timely basis, or at all.
We have received inquiries regarding possible patent infringements relating
to, among other things, certain aspects of our Hybrid Capture technology. We
believe that the patents of others to which these inquiries relate are either
not infringed by our Hybrid Capture technology or are invalid. However, we may
be subject to further claims that our technology, including our Hybrid Capture
technology, or our products infringe the patents or proprietary rights of third
parties. The defense of any such claims, if made, could be time consuming and
expensive, even if the outcome is favorable. An adverse outcome could subject us
to significant liabilities to third parties, require us to obtain licenses from
third parties, or require us to cease sales of related products. Any licenses
required under any such third party patents or proprietary rights may not be
made available on commercially reasonable terms, if at all.
The U.S. Patent and Trademark Office or any foreign patent office may not
grant patent protection for the subject matter of any pending patent
applications, and present or future patents may not provide commercially
significant protection to our present or future technologies, products, or
processes. Furthermore, others may develop independently substantially
equivalent proprietary information not covered by patents to which we have
rights or obtain access to our know-how, and others may be issued patents that
may prevent the sale of one or more of our products, or require licensing and
the payment of significant fees or royalties by us to third parties in order to
enable us to conduct our business. Such licenses may not be available or, if
available, may not be on terms acceptable to us or we may not be successful in
any attempt to redesign our products or processes to avoid infringement. Our
failure to obtain these licenses or to redesign our products or processes would
have a material adverse effect on our business, financial condition and results
of operations. Legal standards relating to the scope of claims and the validity
of patents in the biotechnology field are still evolving, and no assurance can
be given as to the degree of protection any patents issued to or licensed by us
will not be infringed by the products of others. Defense and prosecution of
patent claims can be expensive and time consuming, regardless of whether the
outcome is favorable to us, and can result in the diversion of substantial
resources from our other activities. An adverse outcome could subject us to
significant liabilities to third parties, require us to obtain licenses from
third parties, or require us to cease any related research and development
activities or product sales. In addition, the laws of certain countries may not
protect our intellectual property.
Our success is also dependent upon the skill, knowledge, and experience of
our scientific and technical personnel. To help protect our rights, we require
all employees, consultants, advisors, and collaborators to enter into
confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside Digene and require disclosure and, in most cases,
assignment to Digene of their ideas, developments, discoveries, and inventions.
There can be no assurance, however, that these agreements will provide adequate
protection for our trade secrets, know-how, or other proprietary information in
the event of any unauthorized use or disclosure.
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THIRD-PARTY REIMBURSEMENT
Hospitals, physicians, and other healthcare providers rely on third-party
payors, such as government entities, managed care organizations, and private
insurance plans, to reimburse the costs and fees associated with the use of
diagnostic tests. Successful sales of our tests in the United States and other
markets will depend, in part, on the availability of adequate reimbursement from
third-party payors such as government entities, managed care organizations, and
private insurance plans. There is significant uncertainty concerning third-party
reimbursement for the use of any medical test incorporating new technology.
Reimbursement by a third-party payor may depend on a number of factors,
including the payor's determination that the use of our tests are clinically
useful and cost-effective, not experimental or investigational, medically
necessary and appropriate for the specific patient. Since reimbursement approval
is required from each payor individually, seeking such approvals is a time
consuming and costly process which requires us to provide scientific and
clinical support for the use of our tests for their approved indications to each
payor separately. Third-party reimbursement may not be consistently available
for our tests for their approved indications or any of our other products that
may be developed and such third-party reimbursement may not be adequate. Federal
and state governmental agencies are increasingly considering limiting healthcare
expenditures. For example, the United States Congress is currently considering
various proposals to significantly reduce Medicaid and Medicare expenditures.
Such proposals, if enacted, could have a material adverse effect on our
business, financial condition and results of operations.
Outside the United States, we rely on a network of distributors to
establish reimbursement from third-party payors in their respective territories.
Our distributors have established reimbursement for the HPV test in Germany, the
Czech Republic, and Brazil. Accordingly, the establishment of reimbursement from
third-party payors in such countries is outside our control. Healthcare
reimbursement systems vary from country to country and, accordingly, there can
be no assurance that third-party reimbursement will be made available for our
products under any other reimbursement system. In Europe, Africa and the Middle
East, we are working closely with Abbott on advocacy efforts and to work with
government and/or ministry officials to establish appropriate reimbursement
coverage in the major countries.
Third-party payors are increasingly limiting reimbursement coverage for
medical diagnostic products and in many instances are exerting significant
pressure on medical suppliers to lower their prices. Lack of or inadequate
reimbursement by governmental and other third-party payors for our products
could have a material adverse effect on our business, financial condition and
results of operations.
PRODUCT LIABILITY
Our business is subject to product liability risks inherent in the testing,
manufacturing and marketing of our tests that are currently being marketed and
sold, as well as our other products in development. There can be no assurance
that product liability claims will not be asserted against us, our collaborators
or licensees. We currently maintain product liability insurance coverage with a
combined single limit of $6,000,000. This coverage may not be adequate to
protect us against future product liability claims, and product liability
insurance may not be available to us in the future on commercially reasonable
terms, if at all. Furthermore, we may not be able to avoid significant product
liability claims and the attendant adverse publicity. Consequently, a product
liability claim or other claim with respect to uninsured or underinsured
liabilities could have a material adverse effect on our business, financial
condition and results of operations.
EMPLOYEES
At September 27, 1999, we employed 124 persons, including 39 in research
and development, 38 in manufacturing, including quality assurance, 24 in sales
and marketing and 23 in accounting, finance, administration and regulatory
affairs. We are not a party to any collective bargaining agreements, and we
believe our relationships with our employees are good.
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PRINCIPAL EXECUTIVE OFFICES
We were incorporated in Delaware in 1987. Our principal executive offices
are located at 9000 Virginia Manor Road, Beltsville, Maryland 20705.
ADDITIONAL CONSIDERATIONS
WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE WE WILL INCUR CONTINUED
LOSSES FOR THE FORESEEABLE FUTURE.
We have had substantial operating losses since incorporation in 1987, and
we have never earned a profit. At June 30, 1999, our accumulated deficit was
approximately $48.7 million. These losses have resulted principally from: (1)
expenses associated with our research and development programs; (2) the
expansion of our manufacturing facilities; and (3) the expansion of our sales
and marketing activities in the United States and abroad.
We expect that these operating losses will continue for the foreseeable
future. Our future profitability depends, in part, on:
- the success of our product development efforts;
- obtaining regulatory approvals for our product candidates from the FDA
and foreign regulatory authorities;
- our ability to expand our manufacturing capabilities to meet any increase
in demand for our products; and
- our sales and marketing activities.
OUR OPERATING RESULTS HAVE, AND MAY CONTINUE TO, FLUCTUATE SIGNIFICANTLY.
Our quarterly operating results have fluctuated significantly in the past.
We believe that they may continue to fluctuate significantly in the future with
lower product revenues in our first and second fiscal quarters (July 1 through
December 31) as compared with our third and fourth fiscal quarters of each year.
The lower demand for certain women's health-related medical procedures during
the summer months and the December holiday season in the United States and
Europe primarily causes this fluctuation.
In addition, our quarterly operating results, as well as our annual
results, may fluctuate from period to period due to:
- the degree of market acceptance of our products;
- the timing of regulatory approvals and other regulatory announcements;
- variations in our distribution channels;
- the timing of new product announcements and introductions of new products
by us and our competitors; and
- product obsolescence resulting from new product introductions.
Due to any one or more of these or other factors, in one or more future
quarters our results of operations may fall below the expectations of securities
analysts and investors.
WE HAVE LIMITED MANUFACTURING EXPERIENCE, AND OUR MANUFACTURING OPERATIONS MAY
BE INTERRUPTED AS A RESULT OF OUR PLANNED MOVE.
We have limited commercial-scale manufacturing experience and capabilities,
and we anticipate that we will be required to expand our manufacturing
capabilities.
To address this anticipated expansion, we have entered into a lease for a
new facility in Gaithersburg, Maryland. We intend to relocate our corporate,
research and development and manufacturing operations to
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this new facility in December 1999. We cannot begin manufacturing activities at
the new facility until our manufacturing process there has been validated by the
FDA. The FDA may not provide such validation in a timely manner which could
delay our ability to meet the demand for our products. To minimize this
potential problem, we will continue manufacturing certain components in our
Beltsville, Maryland facility until our new facility is validated appropriately
and will stockpile product inventory during the second quarter of fiscal 2000.
This stockpiling will cause an increase in our expenses for that period.
Once the new facility is validated by the FDA, it will still be subject, on
an ongoing basis, to a variety of quality systems regulations, international
quality standards and other regulatory requirements, including requirements for
good manufacturing practices, which are commonly referred to as "cGMP." The
integration of our manufacturing operations into this new facility may result in
problems involving production yield and quality control and assurance. We may
encounter difficulties expanding our manufacturing operations in accordance with
these regulations and standards, which could result in a delay or termination of
manufacturing.
WE MANUFACTURE ALL OF OUR PRODUCTS IN A SINGLE FACILITY.
We face risks inherent in the operation of a single facility for
manufacture of our products. These risks include unforeseen plant shutdowns due
to personnel, equipment or other factors, and the possible inability of our
facility to produce products in quantities sufficient to meet customer demand.
Any delay in the manufacture of our products could result in delays in product
shipment.
OUR PRODUCTS MAY NOT BE FULLY ACCEPTED BY THE MARKET.
We cannot predict whether the worldwide medical community will accept our
technology to the extent we believe is appropriate or to the extent which is
required for us to operate profitably. Our success depends, in part, upon the
acceptance by third-party payors, clinical laboratories and healthcare providers
of our Hybrid Capture technology as a clinically useful and cost-effective
detection, screening and monitoring method in the areas of women's cancers and
infectious diseases and blood viruses.
In addition, our growth and success will depend upon market acceptance by
the medical community of our HPV tests as a primary cervical cancer screening
method and as a follow-up screening method for women with equivocal Pap smears.
This entails acceptance of our HPV tests as a clinically useful and
cost-effective alternative to well-established follow-up procedures, such as Pap
smear re-testing, colposcopy and biopsy. HPV testing, in general, or our HPV
tests, in particular, may not achieve market acceptance on a timely basis and,
in fact, may never achieve market acceptance.
Furthermore, technological advancements designed to improve quality control
over sample collection and preservation, and to reduce the Pap smear test's
susceptibility to human error, may serve to increase physician reliance on the
Pap smear and solidify its market acceptance. If marketed as an adjunct to the
Pap smear test for primary screening in the United States, our HPV tests may be
seen as adding unnecessary expense to the accepted cervical cancer screening
methodology. Consequently, we can provide no assurance that our HPV tests will
be able to achieve market acceptance as a primary screening test on a timely
basis, or at all.
OUR SALES TO INTERNATIONAL MARKETS ARE SUBJECT TO ADDITIONAL RISKS THAT ARE
BEYOND OUR CONTROL.
Our international sales and operations may be limited or disrupted by:
- the imposition of government controls;
- export license requirements;
- economic and political instability;
- price controls;
- trade restrictions;
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- changes in tariffs; and
- difficulties with foreign distributors.
Generally, the extent and complexity of regulation of medical products are
increasing worldwide, with regulation in some countries already nearly as
exhaustive as that in the United States. We anticipate that this trend will
continue and that the cost and time required to obtain approval to market in any
given country will increase with no assurance that such approval will be
obtained. Additionally, our business, financial condition and results of
operations may be materially and adversely affected by fluctuations in currency
exchange rates as well as increases in duty rates and difficulties in obtaining
required licenses and permits.
We may not be able to successfully commercialize any of our products in any
foreign market beyond the level of commercialization we have already achieved.
In addition, the laws of some countries do not protect our proprietary rights to
the same extent as those of the United States.
WE HAVE LIMITED SALES AND MARKETING EXPERIENCE.
We have limited sales and marketing experience and may be unable to
successfully establish and maintain a significant sales and marketing
organization. Due to the relatively limited market awareness of our products, we
believe that the marketing effort may be a lengthy process.
We intend to continue using a direct sales force as well as a network of
distributors to market and sell our HPV tests, chlamydia and gonorrhea tests and
blood virus tests. Our direct sales force may not succeed in promoting our
products to third-party payors, clinical laboratories, healthcare providers and
government entities. The risks of pursuing this strategy include:
- we may be unable to recruit and retain skilled sales, marketing, service
or support personnel;
- agreements with distributors for U.S. and foreign sales may not be
available on terms commercially reasonable to us, or at all; and
- our sales and marketing efforts may be unsuccessful.
OUR SALES ARE HIGHLY DEPENDENT ON A SINGLE INTERNATIONAL DISTRIBUTOR.
In May 1999 we entered into a marketing and distribution agreement with
Abbott Laboratories. Under this agreement, Abbott is exclusively responsible for
sales and marketing of certain of our Hybrid Capture products in Europe, Africa
and the Middle East and, when cleared by the FDA, our Hybrid Capture II
Chlamydia and Gonorrhea Tests in the United States. We expect that sales to
Abbott will constitute a significant portion of our total revenues for the
foreseeable future. We could be materially adversely affected by:
- the loss of Abbott's sales and marketing infrastructure;
- a significant decrease in product shipments to or an inability to collect
receivables from Abbott; or
- any other adverse change in our relationship with Abbott.
OUR SALES ARE HIGHLY DEPENDENT ON REIMBURSEMENTS FROM THIRD-PARTY PAYORS.
Sales of our products in the United States and other markets will depend,
in part, on the availability of adequate reimbursement from third-party payors,
such as government insurance plans, including Medicare and Medicaid in the
United States, managed care organizations and private insurance plans.
Third-party payors often express reluctance to reimburse healthcare providers
for the use of any medical test incorporating new technology, such as ours.
Reimbursement by a third-party payor may depend on a number of factors,
including the payor's determination that our products are clinically useful,
cost-effective, not experimental or investigational, and medically necessary and
appropriate for the specific patient.
Because each payor individually approves reimbursement, seeking such
approvals is a time consuming and costly process which requires us to provide
scientific and clinical support for the use of each of our
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products to each payor separately. In addition, third-party payors are
increasingly limiting reimbursement coverage for medical diagnostic products and
in many instances are exerting pressure on medical suppliers to lower their
prices. Thus, third-party reimbursement may not be consistently available for
our products or financially adequate to cover our costs and achieve
profitability.
Outside the United States, the responsibility for obtaining reimbursement
approval from third-party payors is handled by our distributors and, therefore,
is out of our direct control. Healthcare reimbursement systems vary from country
to country and, accordingly, we cannot guarantee that third-party reimbursement
will be available for our products under any other reimbursement system.
FUTURE LEGISLATION COULD AFFECT OUR ABILITY TO ACHIEVE PROFITABILITY.
One of our ongoing concerns is that from time to time, Congress has
considered restructuring the delivery and financing of healthcare services in
the United States. We cannot predict what form of legislation, if any, may be
implemented or the effect of this legislation on our business. It is possible
that future legislation will contain provisions which may adversely affect our
business, financial condition and results of operations. It is also possible
that future legislation could result in modifications to the nation's public and
private healthcare insurance systems, which could negatively affect
reimbursement policies or encourage integration or reorganization of the
healthcare industry in a manner that could negatively affect us. We cannot
predict what legislation, if any, relating to our business or to the healthcare
industry may be enacted.
OUR STRATEGY FOR THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS AND
PRODUCT CANDIDATES IS DEPENDENT IN PART ON COLLABORATIONS WITH THIRD PARTIES.
We have entered into and intend to continue to enter into corporate
collaborations for the development of new products, clinical collaborations with
respect to trials using our products and product candidates and strategic
alliances for the distributions of our Hybrid Capture System and tests. Our
success depends in large part on the efforts of these third parties in
performing their responsibilities. We cannot assure you that we will be able to
enter into arrangements that may be necessary in order to develop and
commercialize our products or that we will realize any of the contemplated
benefits from these arrangements. Furthermore, we cannot assure you that any
revenues or profits will be derived from our collaborative and other
arrangements.
WE FACE INTENSE COMPETITION IN THE BIOTECHNOLOGY INDUSTRY.
The medical diagnostics and biotechnology industries are subject to intense
competition. We can provide no assurance that we will be able to compete
successfully against existing or future competitors. For certain of our tests,
we also compete against existing detection, screening and monitoring
technologies, including the Pap smear, tissue culture and antigen-based
diagnostic methodologies.
Our existing and potential competitors may be able to develop technologies
that are as effective as, or more effective or easier to interpret than those
offered by us, which would render our products noncompetitive or obsolete.
Moreover, many of our existing and potential competitors have substantially
greater financial, research and development, marketing, sales, manufacturing,
distribution and technological resources than us.
In addition, many of these companies may have established third-party
reimbursement for their products. In marketing our HPV tests for primary
cervical cancer screening either in conjunction with or separate from the Pap
smear, our tests will compete against the Pap smear, which is widely accepted as
an inexpensive and, with regular use, adequate screening test for cervical
cancer. Additionally, in marketing our HPV tests for the follow-up screening of
women with equivocal Pap smears in the United States, we compete with well-
established follow-up procedures, such as Pap smear re-testing, colposcopy and
biopsy, which are also widely accepted and have a long history of use.
We face competition from a variety of technologies in the blood virus area.
There are several advanced technologies commercially available for the detection
and viral load measurement of HIV and hepatitis B virus. Additionally, there are
several emerging DNA probe amplification technologies to detect CMV being
developed by competitors.
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WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, PERMITTING COMPETITORS TO
DUPLICATE OUR PRODUCTS AND SERVICES.
Patent protection for our technologies and products will be a crucial
factor in our ability to develop and commercialize our products. Because of the
substantial length of time and expense associated with bringing new products
through development to the marketplace, the medical diagnostics and
biotechnology industries place considerable importance on obtaining and
maintaining patent and trade secret protection for new technologies, products
and processes. Large pharmaceutical companies consider a strong patent estate
critical when they evaluate whether to enter into a collaborative arrangement to
support the research, development and commercialization of a technology. Without
the prospect of reasonable patent protection, it would be difficult for us or
any corporate partner to justify the time and money that is necessary to
complete the development of a product.
We have obtained rights to certain patents and patent applications and may,
in the future, obtain, or seek rights from third parties to additional patents
and patent applications. We can provide no assurance that patent applications
relating to our products or technologies will result in patents being issued,
that any issued patents will afford adequate protection to us, or that such
patents will not be challenged, invalidated, infringed or circumvented.
Furthermore, we can provide no assurance that others have not developed, or will
not develop, similar products or technologies that will compete with our
products or technologies without infringing upon our intellectual property
rights.
Any success in protecting our proprietary rights will depend in large part
on our ability to:
- obtain, maintain and enforce patent protection for our products and
technologies both in the United States and internationally;
- license rights to patents from third parties;
- maintain trade secret protection;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing our proprietary rights.
Any licenses we may be required to secure under any patents or proprietary
rights of third parties may not be made available on terms acceptable to us, if
at all. Moreover, the laws of certain countries may not protect our proprietary
rights to the same extent as United States law.
In addition to the risk that we could be a party to patent infringement
litigation, the U.S. Patent and Trademark Office, or its foreign counterparts,
could require us to participate in patent interference proceedings that it
declares. These proceedings are often expensive and time-consuming, even if we
were to prevail in such a proceeding. We may also be forced to initiate legal
proceedings to protect our patent position or other proprietary rights. These
proceedings typically are costly, protracted and offer no assurance of success.
We have received inquiries regarding possible patent infringements relating
to, among other things, certain aspects of our Hybrid Capture technology. We
believe that the patents of others to which these inquiries relate are either
not infringed by our Hybrid Capture technology or are invalid. We currently are
in discussions with a third party regarding a license to a pending United States
patent application which might cover one of the human papillomavirus types
utilized in our Hybrid Capture II HPV Test. If the patent issues and a license
is necessary, our failure to successfully negotiate a license on commercially
reasonable terms, or at all, may require us to redesign our Hybrid Capture II
HPV Test to exclude this human papillomavirus type. Such exclusion could result
in delays in approval of our Hybrid Capture II HPV Test for marketing in the
United States and could have a material adverse effect on our business,
financial condition and results of operations. Nevertheless, we cannot be sure
that our patents and patent applications will adequately protect our Hybrid
Capture technology. We can provide no assurance that we will not be subject to
further claims that our technology, including our Hybrid Capture technology, or
our products, infringe the patents or proprietary rights of third parties.
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Our success also is dependent upon the skill, knowledge and experience of
our scientific and technical personnel. To help protect our rights, we require
all employees, consultants, advisors and collaborators to enter into
confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside our company and require disclosure, and in most
cases, assignment to us of their ideas, developments, discoveries and
inventions. We can provide no assurance, however, that these agreements will
provide adequate protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND MAY NOT BE ABLE TO OBTAIN
REGULATORY APPROVALS.
The FDA product clearance process is unpredictable and uncertain. We can
provide no assurance that the necessary approvals or clearances for our product
candidates will be granted on a timely basis, or at all. In particular:
- we may be unable to collect adequate data to support a premarket approval
for either our HIV test or hepatitis B virus test or to receive approval
for those tests in a timely manner;
- the FDA may determine that our chlamydia and gonorrhea tests are not
substantially equivalent to legally marketed devices or that additional
information or data is needed to make such a determination;
- we may be unable to obtain or keep valid marketing authorization from one
or more of the countries to which we export our products;
- we, or recipients of our products that are limited to research use only,
may fail to comply with the user certification requirements and other
regulatory limitations placed on the distribution and use of these
devices, which could result in an enforcement action by the FDA against
us; or
- we may lose previously received approvals, particularly the approvals for
our HPV tests using our Hybrid Capture I and II technologies.
Further, we must comply with similar requirements of foreign governments
and with import and export regulations when distributing our products to foreign
nations. Each foreign country's regulatory requirements for product approval and
distribution are unique and may require the expenditure of substantial time,
money and effort. The regulation of medical devices in a number of
jurisdictions, particularly in the European Union, continues to develop.
CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES ARE EXPENSIVE AND THEIR OUTCOME IS
UNCERTAIN.
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
products, we or our corporate partners must demonstrate through preclinical
testing and clinical trials that our product candidates are safe and effective
for use in humans. We have incurred and will continue to incur substantial
expense for, and devote a significant amount of time to, preclinical testing and
clinical trials.
Historically, the results from preclinical testing and early clinical
trials have often not predicted results of later clinical trials. A number of
new medical devices have shown promising results in clinical trials, but
subsequently failed to establish sufficient safety and efficacy data to obtain
necessary regulatory approvals. Data obtained from preclinical and clinical
activities is susceptible to varying interpretations, which may delay, limit or
prevent regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including changes in regulatory policy
during the period of product development.
Clinical trials conducted by us, by our collaborators or by third parties
on our behalf may not demonstrate sufficient safety and efficacy to obtain the
requisite regulatory approvals for our product candidates. Regulatory
authorities may not permit us to undertake any additional clinical trials for
our product candidates.
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Completion of clinical trials may take several years or more. The length of
time can vary substantially with the type, complexity, novelty and intended use
of the product candidate. Our commencement and rate of completion of clinical
trials may be delayed by many factors, including:
- our inability to manufacture sufficient quantities of materials used for
clinical trials;
- our inability to recruit patients at the expected rate;
- the failure of clinical trials to demonstrate a product candidate's
efficacy;
- our inability to follow patients adequately after treatment;
- our inability to predict unforeseen safety issues; and
- the potential for unforeseen governmental or regulatory delays.
If a product candidate fails to demonstrate safety and efficacy in clinical
trials, this failure may delay development of other product candidates and
hinder our ability to conduct related preclinical testing and clinical trials.
As a result of these failures, we may also be unable to find additional
collaborators or to obtain additional financing.
CERTAIN KEY COMPONENTS OF OUR PRODUCTS ARE PROVIDED BY A SINGLE SUPPLIER.
Several key components of our products come from single source suppliers.
These suppliers are subject to many strict regulatory requirements regarding the
supply of these components. We cannot be sure that these suppliers will comply,
or have complied, with applicable regulatory requirements or that they will
otherwise continue to supply us with the key components we require. If suppliers
are unable or refuse to supply us, or will supply us only at a prohibitive cost,
we may not be able to access additional sources at acceptable prices, on a
timely basis, if ever.
We acquire these components on a purchase-order basis, meaning that the
supplier is not required to supply us with a specified quantity of product
within a given time period or set-aside part of its inventory for our orders. We
have not arranged for alternative supply sources.
In the event that we cannot obtain sufficient quantities of these
components on commercially reasonable terms, or in a timely manner, we would not
be able to manufacture our products on a timely and cost-competitive basis.
In addition, if any of the components of our products are no longer
available in the marketplace, we may be forced to further develop our technology
to incorporate alternate components. The incorporation of new components into
our products may require us to seek necessary approvals from the FDA or
appropriate foreign regulatory agencies prior to commercialization. We can
provide no assurance that this development would be successful or that, if
developed by us or licensed from third parties, any alternative components would
receive requisite regulatory approval on a timely basis, or at all.
The success of our products based on our Hybrid Capture technology will
depend, in part, on our ability to arrange for the distribution to our customers
of luminometers and related software and equipment with the capability to
analyze the results of our tests. Two suppliers currently provide us with all of
our luminometers. We may be unable to locate other suppliers if our current
suppliers fail to produce luminometers for us in accordance with specifications,
in accordance with applicable regulations and on a timely basis. Even if we
could locate an alternate supplier, that supplier may be more expensive than our
current suppliers and may require substantial lead time. Any of these events
could significantly inhibit our ability to market our Hybrid Capture products.
RAPID GROWTH MAY PLACE SIGNIFICANT DEMANDS ON OUR PERSONNEL.
We currently have limited management and administrative resources. If we
are successful in implementing our business strategy, we may experience a period
of rapid growth and expansion which could place significant additional demands
on our management and administrative resources.
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OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT.
We have substantially completed an assessment of our manufacturing and
research equipment, computer programs and telephone systems and have identified
the mission-critical equipment, computer programs and systems that were not year
2000 compliant, at least 80% of which have been upgraded and vendor-certified
for year 2000 compliance. We have also tested a majority of such
mission-critical equipment, computer programs and systems for year 2000
compliance. We expect to complete our upgrade and replacement activities by
November 1999 and complete the remainder of our testing activities by December
1999. During the remainder of calendar 1999, we intend to communicate with our
significant raw material and product vendors to determine their respective
states of year 2000 readiness.
If we, or any third parties upon which we rely, are unable to address the
year 2000 issue in a timely and successful manner, our business could be
materially adversely affected.
WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS FOR WHICH OUR INSURANCE MAY BE
INADEQUATE.
We may be exposed to liability claims arising from the use of our products
and the commercial sale of our products as well as from use of our products or
product candidates in clinical trials. These claims may be brought by consumers,
our collaborators or licensees or parties selling our products. We currently
carry product liability insurance coverage but we can provide no assurance that
this coverage will be adequate to protect us against future product liability
claims or that product liability insurance will be available to us in the future
on commercially reasonable terms, if at all. Furthermore, we can provide no
assurance that we will be able to avoid significant product liability claims and
the attendant adverse publicity.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION CONCERNING ENVIRONMENTAL
MATTERS.
We are subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic, infectious or other hazardous substances used
to manufacture our products. We cannot completely eliminate the risk of
accidental contamination or injury from these materials. Moreover, we cannot be
sure that our collaborative partners are currently complying with the governing
standards. We also cannot be sure that we and our collaborative partners will be
in compliance with such standards in the future or that we will not incur
significant costs to comply with environmental laws and regulations in the
future. If we were to fail to comply with any of these regulations, this failure
could subject us to significant liabilities.
WE NEED TO SPEND SUBSTANTIAL FUNDS TO BECOME PROFITABLE.
We have spent, and expect to continue to spend in the future, substantial
funds to complete our planned product development efforts, expand our sales and
marketing activities and expand our manufacturing operations. We expect that our
existing capital resources will be adequate to fund our operations through
calendar year 2000, but we cannot guarantee that this will be the case.
Our future capital requirements and the adequacy of available funds will
depend on numerous factors, including:
- the successful commercialization of our existing products;
- progress in our product development efforts;
- progress with regulatory affairs activities;
- the cost and timing of expansion of manufacturing operations;
- the expansion of our European, African and Middle Eastern sales
operations with Abbott;
- the growth and success of effective sales and marketing activities;
- successful relocation to our new facility;
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- the cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights; and
- the development of strategic alliances for the marketing of our products.
If funds generated from our operations, together with our existing capital
resources, are insufficient to meet current or planned operating requirements,
we will have to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. We do not have any committed sources of additional financing, and we
cannot provide assurance that additional funding, if necessary, will be
available on acceptable terms, if at all. If adequate funds are not available,
we may have to delay, scale-back or eliminate certain aspects of our operations
or attempt to obtain funds through arrangements with collaborative partners or
others. This may result in the relinquishment of our rights to certain of our
technologies, product candidates, products or potential markets. Therefore, the
inability to obtain adequate funds could have a material adverse impact on our
business, financial condition and results of operations.
CONTROL BY MANAGEMENT
As of September 10, 1999, our Chairman and Chief Executive Officer and our
President, Chief Operating Officer and Chief Financial Officer beneficially own
an aggregate of approximately 37.7% of our outstanding shares of Common Stock.
As a result, these officers, acting together, effectively control the election
of directors and matters requiring approval by our stockholders.
ANTITAKEOVER CONSIDERATIONS
Our board of directors has the authority, without further action by the
stockholders, to issue from time to time, up to 1,000,000 shares of Preferred
Stock in one or more classes or series, and to fix the rights and preferences of
such Preferred Stock. Our Certificate of Incorporation also provides for
staggered terms for members of the board of directors. We are subject to
provisions of Delaware corporate law which, subject to certain exceptions, will
prohibit us from engaging in any "business combination" with a person who,
together with affiliates and associates, owns 15% or more of our Common Stock
(referred to as an interested stockholder) for a period of three years following
the date that such person became an interested stockholder, unless the business
combination is approved in a prescribed manner. Additionally, our Bylaws
establish an advance notice procedure for stockholder proposals and for
nominating candidates for election as directors. These provisions of Delaware
law and of our Certificate of Incorporation and Bylaws may have the effect of
delaying, deterring or preventing a change in our control, may discourage bids
for the Common Stock at a premium over market price and may adversely affect the
market price, and the voting and other rights of the holders, of the Common
Stock.
ITEM 2. PROPERTIES
Due to our recent and expected future growth, on March 2, 1998, we entered
into a lease for two buildings, under construction, in Gaithersburg, Maryland,
comprising a total of approximately 90,000 square-feet. We intend to relocate
our operation to this new facility in December 1999. The lease for the new
facility has a term of ten years, and we have two options to extend the term for
a five-year period each.
Our current executive office and manufacturing facility is located in
Beltsville, Maryland. The lease on this 19,780 square-foot facility expires upon
completion of the new facility. In addition, we currently lease a 9,286
square-foot research and development facility in Silver Spring, Maryland on a
month-to-month basis. We will move operations from both of these facilities to
the Gaithersburg, Maryland facility.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings and are not aware of
any threatened litigation that could have a material adverse effect on our
business, financial condition and results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF OUR STOCKHOLDERS
Not applicable.
EXECUTIVE OFFICERS OF DIGENE
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
Evan Jones(1).................. 42 Chief Executive Officer and Chairman of the Board
Charles M. Fleischman(2)....... 41 President, Chief Operating Officer and Chief Financial
Officer
Robert McG. Lilley(3).......... 54 Senior Vice President, Global Sales and Marketing
Jeanmarie Curley(4)............ 39 Vice President, Manufacturing
Attila T. Lorincz, Ph.D.(5).... 44 Vice President, Research and Development and Scientific
William J. Payne, Jr., Director
Ph.D.(6)..................... 49 Vice President, Development
Donna Marie Seyfried(7)........ 41 Vice President, Business Development
Joseph P. Slattery(8).......... 34 Vice President, Finance and Controller
</TABLE>
- ---------------
(1) Mr. Jones has served as our Chief Executive Officer since Armonk Partners
acquired a controlling interest in Digene in July 1990 and as Chairman of
the Board since September 1995. He previously served as our President from
July 1990 until June 1999.
(2) Mr. Fleischman has served as our President since June 1999, as Chief
Financial Officer since March 1996 and as Chief Operating Officer since
September 1995. He previously served as our Executive Vice President from
July 1990, when Armonk Partners acquired a controlling interest in Digene,
to June 1999.
(3) Mr. Lilley has served as our Senior Vice President, Global Sales and
Marketing since June 1999, and before that as Vice President, Sales &
Marketing at Digene from July 1998 until June 1999, and as General Manager
for Digene Europe from March 1997 until July 1998. From September 1994 to
February 1997, Mr. Lilley was General Manager for Europe, Middle East &
Africa for Alltel Healthcare Information Services.
(4) Ms. Curley has served as our Vice President, Manufacturing since April 1998,
and from December 1990 until April 1998, she was our Director of
Manufacturing.
(5) Dr. Lorincz has served as our Vice President, Research and Development and
Scientific Director since December 1990. His research career includes
postdoctoral fellowships at the University of California. He also serves on
a number of advisory committees and is an Adjunct Associate Professor in the
Georgetown University Medical School Department of Pathology.
(6) Dr. Payne has served as our Vice President, Development since July 1997.
From August 1995 to July 1997, he was Vice President, Research and
Development in the IVD Medical Diagnostic division of Sigma Diagnostics and
from July 1993 to July 1995, he was Director of Research and Development in
the IVD Diagnostic Medical division of Sanofi Diagnostic Pasteur.
(7) Ms. Seyfried has served as our Vice President, Business Development since
October 1996. Ms. Seyfried served as Senior Director, Business Development
of The Perkin-Elmer Corporation from March 1993 to September 1996.
(8) Mr. Slattery has served as our Vice President, Finance and Controller since
April 1998 and as Controller from February 1996 to April 1998. From March
1995 to February 1996, Mr. Slattery was Director, Business Management, for
I-NET, Inc., a computer services company, and from April 1994 to March 1995,
he was the Managing Principal of Payne, Slattery and Company, a management
consulting firm.
27
<PAGE> 30
PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since our initial public offering of common stock on May 22, 1996, our
common stock has been traded on the Nasdaq National Market under the symbol
"DIGE." The following table sets forth, for the fiscal quarters indicated, the
high and low bid prices for our common stock, as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- ---- ---
<S> <C> <C>
Fourth quarter.............................................. $15 1/8 $ 6 1/4
Third quarter............................................... $ 9 1/8 $ 5 1/4
Second quarter.............................................. $ 7 1/8 $ 5 5/8
First quarter............................................... $11 $ 6 1/2
1998
- ----
Fourth quarter.............................................. $11 3/16 $ 7 3/8
Third quarter............................................... $11 3/8 $ 6 5/8
Second quarter.............................................. $13 3/8 $ 8 1/4
First quarter............................................... $15 1/4 $12
</TABLE>
On September 10, 1999, the closing sale price for the Common Stock, as
reported by the Nasdaq National Market was $13 7/8. As of September 10, 1999,
our Common Stock was held by 169 holders of record.
We have never paid dividends on our Common Stock and do not anticipate
paying any cash dividends on our Common Stock in the foreseeable future.
(a) Recent Sales of Unregistered Securities.
Since July 1, 1998, in transactions which were exempt from registration
pursuant to Section 4(2) of the Securities Act and Rule 701 promulgated under
the Securities Act, Digene issued options to certain employees, directors,
consultants and others to purchase an aggregate of 933,250 shares of our Common
Stock at prices per share ranging from $6.19 to $11.19. Between July 1, 1998 and
September 10, 1999, 32 of such employees, consultants and others exercised
options to purchase an aggregate of 286,463 shares at an aggregate price of
$406,043.
On July 1, 1998, we issued 181,884 shares of our Common Stock as
consideration for our purchase of all the outstanding capital stock of Viropath
B.V. We acquired these shares from three Dutch individuals and one Dutch
foundation. In addition, we granted options to purchase an aggregate of 50,000
shares of our Common Stock to the three Viropath individual shareholders in
connection with their execution of consulting agreements with us. One-fifth of
these options became exercisable on June 30, 1999 and the remaining options will
become exercisable in equal installments on each of June 30, 2000, 2001, 2002
and 2003. All of these options are exercisable at a price of $9.75 per share.
The options expire on June 29, 2008.
(b) Use of proceeds from Registered Securities.
Not applicable.
28
<PAGE> 31
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
Digene's Consolidated Statements of Operations for the fiscal years ended June
30, 1997, 1998 and 1999 and with respect to Digene's Consolidated Balance Sheets
at June 30, 1998 and 1999 are derived from the audited Consolidated Financial
Statements of Digene which are included elsewhere in this Form 10-K/A.
Consolidated Statements of Operations data for the fiscal years ended June 30,
1995 and 1996 and Consolidated Balance Sheet data at June 30, 1995, 1996 and
1997 are derived from Consolidated Financial Statements of Digene not included
herein. The selected consolidated financial data set forth below is qualified in
its entirety by, and should be read in conjunction with, the Consolidated
Financial Statements, the related Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this Form 10-K/A.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE LOSS)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales.......................................... $ 5,413 $ 6,359 $ 9,434
Research and development contracts..................... 749 381 626
-------- -------- --------
Total revenues.................................... 6,162 6,740 10,060
Costs and expenses:
Cost of product sales.................................. 2,652 2,895 3,441
Research and development............................... 1,856 2,430 4,131
Selling and marketing.................................. 1,375 2,095 5,236
General and administrative............................. 1,245 1,792 4,412
Amortization of intangible assets...................... 330 248 241
-------- -------- --------
Loss from operations........................................ (1,296) (2,720) (7,401)
Other income (expense)...................................... 14 40 (36)
Interest expense............................................ (277) (207) (84)
Interest income............................................. 45 252 1,527
-------- -------- --------
Loss from operations before income taxes.................... (1,514) (2,635) (5,994)
Provision for income taxes.................................. -- -- --
-------- -------- --------
Net loss before cumulative effect of a change in accounting
principle................................................. (1,514) (2,635) (5,994)
Cumulative effect of a change in accounting principle....... -- -- --
-------- -------- --------
Net loss.................................................... $ (1,514) $ (2,635) $ (5,994)
======== ======== ========
Basic and diluted net loss per share(1)..................... $ (4.11) $ (1.71) $ (0.53)
======== ======== ========
Weighted average shares outstanding(1)...................... 368 1,545 11,394
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................ $ 2,107 $ 29,616 $ 21,299
Total assets........................................... 4,485 33,174 30,207
Long-term debt, less current maturities................ 2,812 152 553
Redeemable Convertible Preferred Stock................. 13,115 -- --
Accumulated deficit.................................... (16,698) (19,333) (25,327)
Total stockholders' equity (deficit)................... (13,004) 30,119 24,266
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1998 1999
--------- --------
(IN THOUSANDS, EXCEPT PER
SHARE LOSS)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales.......................................... $ 11,980 $17,014
Research and development contracts..................... 29 453
-------- -------
Total revenues.................................... 12,009 17,467
Costs and expenses:
Cost of product sales.................................. 3,848 6,112
Research and development............................... 5,285 4,643
Selling and marketing.................................. 10,057 10,531
General and administrative............................. 5,690 5,957
Amortization of intangible assets...................... 386 150
-------- -------
Loss from operations........................................ (13,257) (9,926)
Other income (expense)...................................... (83) (184)
Interest expense............................................ (164) (30)
Interest income............................................. 1,378 985
-------- -------
Loss from operations before income taxes.................... (12,126) (9,155)
Provision for income taxes.................................. 48 149
-------- -------
Net loss before cumulative effect of a change in accounting
principle................................................. (12,174) (9,304)
Cumulative effect of a change in accounting principle....... (1,915) --
-------- -------
Net loss.................................................... $(14,089) $(9,304)
======== =======
Basic and diluted net loss per share(1)..................... $ (1.06) $ (0.65)
======== =======
Weighted average shares outstanding(1)...................... 13,236 14,354
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................ $ 28,428 $ 20,499
Total assets........................................... 35,440 28,108
Long-term debt, less current maturities................ -- --
Redeemable Convertible Preferred Stock................. -- --
Accumulated deficit.................................... (39,416) (48,720)
Total stockholders' equity (deficit)................... 31,099 23,687
</TABLE>
- ---------------
(1) Computed on the basis described in Note 2 of Notes to Consolidated Financial
Statements.
30
<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our Consolidated Financial
Statements and the related Notes to such Consolidated Financial Statements also
included in this Form 10-K/A. Some of the information that follows are not
statements of historical fact, and reflect our intent, belief or expectations
regarding the anticipated effect of events, circumstances and trends. Such
statements should be considered as forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Although we believe
that our expectations are based on reasonable assumptions within the bounds of
our knowledge of our business and operations, there can be no assurance that
actual results will not differ materially from our expectations. Factors that
might cause or contribute to such differences include: uncertainty of future
profitability and cash generation from operations; manufacturing delays while
awaiting regulatory approval for our new manufacturing facility; uncertainty of
clinical trial results for our products under development; uncertainty of market
acceptance of our products by the worldwide medical community; risks inherent in
international transactions, including those relating to our expansion in Europe,
Brazil and elsewhere; our limited sales and marketing experience; the extent of
future expenditures for sales and marketing programs; dependence on third-party
reimbursement from government entities, managed care organizations, and private
insurance plans; dependence on Abbott Laboratories as our principal European
distributor; delay in or failure to obtain regulatory approvals for our products
in development; uncertainty regarding patents and proprietary rights in
connection with our products; our ability to obtain requisite additional
financing to fund our operations beyond calendar 2000; and other factors as set
forth under the caption "Additional Considerations" beginning on page 18.
OVERVIEW
We develop, manufacture and market our patented Hybrid Capture(R) Gene
Analysis System and tests, and we are commercializing these Hybrid Capture
products in three areas: women's health testing, blood virus testing, and
pharmaceutical clinical research. Our primary focus is in women's health where
our lead product is the only FDA approved DNA test for human papillomavirus, or
HPV, which is associated with more than 99% of cervical cancers. We are the
world's leading supplier of HPV tests. Our Hybrid Capture II HPV Test received
PMA marketing approval from the FDA in March 1999. Internationally, our
portfolio of women's health tests is now cleared for sale in almost every major
European country and in Brazil and Argentina. Our objective in the women's
health area is to become the world leader in gene-based testing for women's
cancers and infectious diseases. We have also developed a family of unique blood
virus testing products based on our Hybrid Capture System including tests for
cytomegalovirus (CMV) and hepatitis B. Our CMV Test is the only CMV DNA test
cleared by the FDA; we received 510(k) clearance in October 1998.
Internationally, we are working to establish our HPV Test as the standard
for cervical cancer screening. Pursuant to a Marketing and Distribution
Agreement that became effective in May 1999, our women's health and blood virus
tests are marketed in Europe by Abbott Laboratories and, once FDA clearance is
received, our chlamydia and gonorrhea tests will be marketed by Abbott
Laboratories in the United States. We currently market our Hybrid Capture
products in the United States through a direct sales force supported by
technical and customer service representatives. In the United States, we are
currently marketing our HPV Test for the follow-up screening of women with
equivocal Pap smears. In the pharmaceutical clinical research market we are
using the unique capabilities of our Hybrid Capture System to provide us access
to complimentary early-stage technologies and to link our tests with novel
therapeutics and vaccines.
We have incurred substantial operating losses since inception, resulting
principally from expenses associated with our research and development programs,
including preclinical studies, clinical trials and regulatory submissions for
our products and the expansion of our manufacturing facilities and our global
sales and marketing activities. We expect such operating losses to continue at
least through fiscal 2000 as we continue our product development efforts, seek
FDA and foreign regulatory approvals of our products, expand our manufacturing
capabilities and expand our sales and marketing activities. In March 1998, we
entered into a lease agreement for a new facility where we will consolidate our
research and development facility, our corporate office and our manufacturing
facility into one location in Gaithersburg, Maryland, to which we expect to
relocate in December 1999. This new facility will result in increased operating
expenses.
31
<PAGE> 34
Our quarterly operating results have fluctuated significantly in the past
and we believe that they may continue to fluctuate significantly in the future
with lower product revenues in the first and second fiscal quarters as compared
with the third and fourth fiscal quarters, primarily attributable to the lower
demand for certain women's health-related medical procedures during the summer
months in the United States and Europe, and during the December holiday season.
In addition, our quarterly operating results, as well as annual results, may
fluctuate from period to period due to
- the degree of market acceptance of our products,
- competition, the timing of regulatory approvals and other regulatory
announcements,
- the volume and timing of orders from and shipments to distributors,
- variations in our distribution channels,
- the timing of new product announcements and introductions by us and our
competitors,
- product obsolescence resulting from new product introductions
and other factors, many of which are outside our control. Due to one or more of
these factors, in one or more future quarters our results of operations may fall
below the expectations of securities analysts and investors. In that event, the
market price of our common stock could be materially and adversely affected.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 1999 TO FISCAL YEAR ENDED JUNE 30, 1998
Product sales increased to $17,014,000 in fiscal 1999 from $11,980,000 in
fiscal 1998. The increase was due primarily to increased sales of our Hybrid
Capture tests, primarily HPV tests and related equipment, partially offset by
lower sales of our non-core products. We anticipate that sales of our HPV tests
will account for a substantial portion of our product sales for at least the
next two fiscal years.
Research and development contract revenues increased to $453,000 in fiscal
1999 from $29,000 in fiscal 1998 due primarily to our performance during the
entire fiscal year under a major research contract with the National Institutes
of Health for the development of tests for herpes simplex virus. We anticipate
that fiscal 2000 research and development contract revenues will remain
approximately the same as they were in fiscal 1999.
Cost of product sales increased to $6,112,000 in fiscal 1999 from
$3,848,000 in fiscal 1998 due primarily to increased sales volume. Gross margin
on product sales decreased to 64.1% in fiscal 1999 from 67.9% in fiscal 1998.
This decrease was due primarily to increased sales of lower-margin equipment and
increased write-offs for inventory obsolescence, partially offset by improved
manufacturing efficiencies and product pricing. We expect gross margins to
fluctuate moderately based on product mix in the coming years.
Research and development expenses decreased to $4,643,000 in fiscal 1999
from $5,285,000 in fiscal 1998 due primarily to reductions in expenditures for
clinical trials and laboratory supplies, partially offset by higher personnel
costs. We expect research and development expenses to increase moderately for
the next few fiscal years.
Selling and marketing expenses increased to $10,531,000 in fiscal 1999 from
$10,057,000 in fiscal 1998 due to increases in European sales and marketing
programs, partially offset by decreases in expenditures in the United States
associated with lower personnel costs. We expect selling and marketing expenses
to decrease over the next fiscal year as a result of the marketing and
distribution activities performed in Europe, the Middle East and Africa by
Abbott under our Marketing and Distribution Agreement rather than through the
expansion of a Digene sales and marketing force in those areas. Thereafter, we
expect selling and marketing expenses to increase moderately for the following
few fiscal years.
General and administrative expenses increased to $5,957,000 in fiscal 1999
from $5,690,000 in fiscal 1998, due primarily to costs associated with the
planned December 1999 move to our new facility in Gaithersburg, Maryland, as
well as increases in professional services expense, partially offset by a
reduction in
32
<PAGE> 35
bad debt expense. We expect general and administrative expenses to increase
moderately for the following few fiscal years.
Amortization of intangible assets decreased to $150,000 in fiscal 1999 from
$386,000 in fiscal 1998, due primarily to the write-off of certain intangible
assets in fiscal 1998, partially offset by amortization expense attributable to
goodwill associated with our acquisition of Viropath, B.V. on July 1, 1998. We
expect amortization of intangible assets to remain constant in the next fiscal
year.
Interest expense decreased to $30,000 in fiscal 1999 from $164,000 in
fiscal 1998 due primarily to the repayment in December 1998 of debt incurred in
February 1997.
Interest income decreased to $985,000 in fiscal 1999 from $1,378,000 in
fiscal 1998 due primarily to lower average cash and cash equivalents balances
primarily as a result of negative cash flows from operations.
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 1998 TO FISCAL YEAR ENDED JUNE 30, 1997
Product sales increased to $11,980,000 in fiscal 1998 from $9,434,000 in
fiscal 1997. The increase was due primarily to increased sales of our Hybrid
Capture tests, primarily HPV, partially offset by lower sales of equipment and
non-core products.
Research and development contract revenues decreased to $29,000 in fiscal
1998 from $626,000 in fiscal 1997 due primarily to substantial completion of
contract activities during fiscal 1998.
Cost of product sales increased to $3,848,000 in fiscal 1998 from
$3,441,000 in fiscal 1997 due to increased sales volume. Gross margin on product
sales increased to 67.9% in fiscal 1998 from 63.5% in fiscal 1997. This increase
was due primarily to sales of higher margin Hybrid Capture tests and increases
in overhead absorption and unit pricing.
Research and development expenses increased to $5,285,000 in fiscal 1998
from $4,131,000 in fiscal 1997 due to the hiring of additional research and
development personnel and increases in clinical trial activity related to the
development of our blood virus and sexually transmitted disease tests and to the
further development of our Hybrid Capture technology.
Selling and marketing expenses increased to $10,057,000 in fiscal 1998 from
$5,236,000 in fiscal 1997 due to substantial increases in sales and marketing
programs, the hiring of additional selling and marketing personnel, and other
selling costs incurred under our international distribution agreements.
General and administrative expenses increased to $5,690,000 in fiscal 1998
from $4,412,000 in fiscal 1997, due to the hiring of additional administrative
personnel, and costs associated with our expansion into the European and
Brazilian markets.
Amortization of intangible assets increased to $386,000 in fiscal 1998 from
$241,000 in fiscal 1997.
Interest expense increased to $164,000 in fiscal 1998 from $84,000 in
fiscal 1997 due primarily to debt incurred in February 1997 as a result of our
expansion into the European market.
Interest income decreased to $1,378,000 in fiscal 1998 from $1,527,000 in
fiscal 1997 due primarily to lower average cash and cash equivalents balances as
a result of negative cash flows from operations, partially offset by the
interest income generated by the investment of the net proceeds from the public
offering of our common stock in October 1997.
The $1,915,000 cumulative effect of change in accounting principle is a
result of the early adoption of Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities". The write-off of the unamortized balance of
capitalized costs was incurred in connection with our acquisition of HPV
customer lists under our 1997 agreements with International Murex Technologies
Corporation to establish a Digene-direct European sales operation for our
women's health products.
33
<PAGE> 36
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our expenses have significantly exceeded our revenues,
resulting in an accumulated deficit of approximately $48.7 million at June 30,
1999. We have funded our operations primarily through the sale of equity
securities. At June 30, 1999, we had cash, cash equivalents and short-term
investments aggregating approximately $18,281,000. Net cash used in our
operating activities was $6,073,000 for the fiscal year ended June 30, 1999.
Capital expenditures decreased to $934,000 in fiscal 1999 from $2,481,000
in fiscal 1998, due primarily to changes in our distribution agreements
requiring a smaller investment in equipment. In March 1998, we entered into a
lease agreement for a new facility in Gaithersburg, Maryland, to which we expect
to relocate in December 1999. The integration of our operations into this new
facility may result initially in inefficiencies and delays. Specifically, we may
encounter difficulties in expanding and/or moving our manufacturing operations.
We do not have any bank financing arrangements.
We anticipate that working capital requirements will increase moderately
for the foreseeable future due to increasing accounts receivable as a result of
expected revenue growth. We have incurred negative cash flows from operations
since our inception, and have expended, and expect to continue to expend in the
future, substantial funds to complete our planned product development efforts,
expand our sales and marketing activities and expand our manufacturing
capabilities. We expect that our existing capital resources will be adequate to
fund our operations through calendar 2000. We cannot give assurances that we
will not need to consume a significant amount of our available resources more
rapidly than we presently anticipate. Our future capital requirements and the
adequacy of available funds will depend on numerous factors, including the
successful commercialization of our products, progress in our product
development efforts and the magnitude and scope of such efforts, progress with
preclinical studies and clinical trials, progress in our regulatory affairs
activities, the cost and timing of expansion of our manufacturing capabilities,
the development and maintenance of effective sales and marketing activities, the
cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
and the development of strategic alliances for the marketing of our products. To
the extent that our existing capital resources and funds generated from
operations are insufficient to meet current or planned operating requirements,
we will be required to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. Although we expect to seek additional equity financing, we do not have
any committed sources of additional financing, and there can be no assurance
that additional funding, if necessary, will be available on acceptable terms, if
at all. If adequate funds are not available, we may be required to delay, scale
back or eliminate certain aspects of our operations or attempt to obtain funds
through arrangements with collaborative partners or others that may require us
to relinquish rights to certain of our technologies, product candidates,
products or potential markets. If adequate funds are not available, our
business, financial condition and results of operations will be materially and
adversely affected.
On July 1, 1998, we purchased all of the outstanding capital stock of
Viropath B.V., a company with limited liability registered in Amsterdam, The
Netherlands, for total consideration of 181,884 shares of our common stock. In
addition, we are obligated to pay royalties, not to exceed $1,000,000, on future
sales of Viropath's licensed HPV products in the field of cervical cancer
testing. We also granted options to purchase an aggregate of 50,000 shares of
our common stock to the three Viropath individual shareholders in connection
with their execution of consulting agreements with us. The options were
compensatory options and were valued on July 1, 1998 at approximately $316,500.
This amount will be expensed ratably over five fiscal years.
YEAR 2000 READINESS DISCLOSURE
We are working to resolve the potential impact of the year 2000 on the
ability of our computerized information programs and systems and certain
manufacturing and other equipment to accurately process information that may be
date-sensitive. Any of our technology that recognizes a date using "00" as the
year 1900 rather than the year 2000 could result in errors or system failures.
34
<PAGE> 37
We have substantially completed an assessment of our manufacturing and
research equipment, computer programs and telephone systems and have identified
the mission-critical equipment, computer programs and systems that were not year
2000 compliant, at least 80% of which have been upgraded and vendor-certified
for year 2000 compliance. We have also tested a majority of such
mission-critical equipment, computer programs and systems for year 2000
compliance. We expect to complete our upgrade and replacement activities by
November 1999 and complete the remainder of our testing activities by December
1999. During the remainder of calendar 1999, we intend to communicate with our
significant raw material and product vendors to determine their respective
states of year 2000 readiness.
In connection with our planned move to the new facility in Gaithersburg,
Maryland in December 1999, we have upgraded or replaced the mission-critical
computer programs, systems and manufacturing and other equipment with new
computer programs, systems and equipment which the suppliers have certified or
will certify to be year 2000 compliant. In anticipation of the possibility that
our relocation will not occur in 1999, which we do not expect, we have also made
the necessary year 2000-related changes to the few systems, such as our existing
telephone system, that we do not intend to relocate to the new facility and have
developed contingency plans. We do not expect that continuing our operations in
our existing space, if necessary, would be materially impacted by the advent of
the year 2000.
We are in the process of testing our upgraded or replaced computer
programs, systems and equipment and will continue the testing throughout the
remainder of calendar 1999. Based on information developed to date as a result
of our assessment and testing efforts, we do not anticipate that the total cost
of upgrading or replacing our computer programs, systems and equipment will be
material. In anticipation of possible year 2000-related failures and possible
delays in our manufacturing processes in connection with our planned relocation,
we are also formulating contingency plans, including the stockpiling of product
inventory during the second quarter of fiscal 2000. If we, or any third parties
upon which we rely, are unable to address the year 2000 issue in a timely and
successful manner, our business could be materially adversely affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Digene is subject to market risk associated with changes in foreign
currency exchange rates and interest rates. Our exchange rate risk is limited to
our operations in Europe and South America. We do not believe that the impact
from foreign currency exchange rate fluctuations will have a material impact on
our financial statements. The net impact of foreign exchange activities on
earnings was immaterial for the years ended June 30, 1997, 1998 and 1999.
Interest rate exposure is primarily limited to the $4.3 million of short-term
investments owned by us. Such securities are debt instruments which generate
interest income for Digene on excess cash balances. We do not actively manage
the risk of interest rate fluctuations; however, such risk is mitigated by the
relatively short term, less than 12 months, nature of these investments. We do
not consider the present rate of inflation to have a significant impact on its
business.
35
<PAGE> 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Digene Corporation
We have audited the accompanying consolidated balance sheets of Digene
Corporation as of June 30, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Digene Corporation at June 30, 1998 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1999, in conformity with generally accepted accounting
principles.
As discussed in Note 2 of Notes to Consolidated Financial Statements, in
1998 the Company changed its method of accounting for costs related to start-up
activities.
/s/ ERNST & YOUNG LLP
Washington, DC
August 20, 1999
36
<PAGE> 39
DIGENE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $18,330,803 $13,934,415
Short-term investments.................................... 7,181,572 4,347,084
Accounts receivable, less allowance of approximately
$209,000 and $170,000 at June 30, 1998 and 1999,
respectively........................................... 3,072,224 2,356,537
Inventories (Note 6)...................................... 3,557,289 2,894,210
Prepaid expenses and other current assets................. 560,706 1,388,224
----------- -----------
TOTAL CURRENT ASSETS........................................ 32,702,594 24,920,470
Property and equipment, net (Note 7)........................ 2,627,244 1,737,078
Intangible assets, net (Note 5)............................. -- 1,350,774
Deposits.................................................... 109,700 100,157
----------- -----------
TOTAL ASSETS................................................ $35,439,538 $28,108,479
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,424,245 $ 2,503,387
Accrued expenses.......................................... 542,064 809,811
Accrued payroll........................................... 755,490 1,108,236
Current maturities of long-term debt (Note 9)............. 552,717 --
----------- -----------
TOTAL CURRENT LIABILITIES................................... 4,274,516 4,421,434
Accrued rent................................................ 54,340 --
Deferred rent............................................... 11,980 --
Commitments (Notes 10, 11 and 16)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 per value, 1,000,000 shares
authorized, no shares issued and outstanding common
stock, $0.01 par value, 50,000,000 shares authorized,
14,117,308 and 14,565,937 shares issued and outstanding
at June 30, 1998 and 1999, respectively................ 141,173 145,659
Additional paid-in capital................................ 70,373,310 72,514,583
Deferred stock compensation............................... -- (253,200)
Accumulated deficit....................................... (39,415,781) (48,719,997)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.................................. 31,098,702 23,687,045
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $35,439,538 $28,108,479
=========== ===========
</TABLE>
See accompanying notes.
37
<PAGE> 40
DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
1997 1998 1999
----------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Product sales................................ $ 9,434,183 $ 11,980,445 $17,013,735
Research and development contracts........... 626,096 28,500 453,364
----------- ------------ -----------
Total revenues.................................... 10,060,279 12,008,945 17,467,099
Costs and expenses:
Cost of product sales........................ 3,440,963 3,847,725 6,111,774
Research and development..................... 4,131,090 5,284,761 4,643,458
Selling and marketing........................ 5,236,246 10,057,596 10,531,187
General and administrative................... 4,411,899 5,689,783 5,956,911
Amortization of intangible assets............ 240,902 385,679 150,086
----------- ------------ -----------
Loss from operations.............................. (7,400,821) (13,256,599) (9,926,317)
Other income (expense):
Other expense................................ (36,825) (83,047) (183,394)
Interest expense............................. (83,777) (163,625) (30,144)
Interest income.............................. 1,526,967 1,377,665 984,708
----------- ------------ -----------
Loss from operations before income taxes.......... (5,994,456) (12,125,606) (9,155,147)
Provision for income taxes........................ -- 48,463 149,069
----------- ------------ -----------
Net loss before cumulative effect of a change in
accounting principle............................ (5,994,456) (12,174,069) (9,304,216)
Cumulative effect of a change in accounting
principle....................................... -- (1,914,499) --
----------- ------------ -----------
Net loss.......................................... $(5,994,456) $(14,088,568) $(9,304,216)
=========== ============ ===========
Basic and diluted net loss per share.............. $ (0.53) $ (1.06) $ (0.65)
=========== ============ ===========
Weighted average shares outstanding............... 11,393,978 13,235,901 14,353,720
=========== ============ ===========
</TABLE>
See accompanying notes.
38
<PAGE> 41
DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED TOTAL
--------------------- PAID-IN STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
---------- -------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996... 11,303,705 $113,037 $49,339,001 $ -- $(19,332,757) $ 30,119,281
Exercise of Common Stock
options.................. 275,825 2,758 138,620 -- -- 141,378
Net loss................... -- -- -- -- (5,994,456) (5,994,456)
---------- -------- ----------- --------- ------------ ------------
BALANCE AT JUNE 30, 1997... 11,579,530 115,795 49,477,621 -- (25,327,213) 24,266,203
Issuance of Common Stock,
net of offering costs of
$1,845,585............... 2,250,000 22,500 20,631,915 -- -- 20,654,415
Exercise of Common Stock
options.................. 287,778 2,878 263,774 -- -- 266,652
Net loss................... -- -- -- -- (14,088,568) (14,088,568)
---------- -------- ----------- --------- ------------ ------------
BALANCE AT JUNE 30, 1998... 14,117,308 141,173 70,373,310 -- (39,415,781) 31,098,702
Exercise of Common Stock
options.................. 266,745 2,667 326,595 -- -- 329,262
Issuance of Common Stock in
connection with the
acquisition of
Viropath................. 181,884 1,819 1,498,178 -- -- 1,499,997
Grant of Common Stock
options to
non-employees............ -- -- 316,500 (316,500) -- --
Compensatory stock options
earned by nonemployees... -- -- -- 63,300 -- 63,300
Net loss................... -- -- -- -- (9,304,216) (9,304,216)
---------- -------- ----------- --------- ------------ ------------
BALANCE AT JUNE 30, 1999... 14,565,937 $145,659 $72,514,583 $(253,200) $(48,719,997) $ 23,687,045
========== ======== =========== ========= ============ ============
</TABLE>
See accompanying notes.
39
<PAGE> 42
DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................... $ (5,994,456) $(14,088,568) $(9,304,216)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of property
and equipment........................... 461,603 1,068,211 951,364
Amortization of intangible assets......... 240,902 385,679 150,086
Compensation expense related to stock
options................................. -- -- 63,300
Cumulative effect of a change in
accounting principle.................... -- 1,914,499 --
Start-up expenses.................... 833,179 -- --
Changes in operating assets and
liabilities:
Accounts receivable.................. (2,094,096) 647,918 715,687
Inventories.......................... (618,834) (1,132,122) 1,547,736
Prepaid expenses and other current
assets............................. (146,933) (114,338) (827,518)
Deposits............................. (22,102) 37,648 (3,241)
Accounts payable..................... 241,476 330,352 79,142
Accrued expenses..................... 250,179 (229,973) 267,747
Accrued payroll...................... 395,794 152,935 352,746
Accrued rent......................... (49,289) (46,278) (54,340)
Deferred rent........................ (24,696) (25,338) (11,980)
------------ ------------ -----------
Net cash used in operating activities..... (6,527,273) (11,099,375) (6,073,487)
INVESTING ACTIVITIES
Purchases of short-term investments............ (15,045,827) (14,634,204) (8,183,962)
Sales of short-term investments................ 8,452,522 18,513,915 11,018,450
Capital expenditures........................... (971,111) (2,480,907) (933,934)
Acquisition of customer lists.................. (1,000,000) -- --
Additions to goodwill and intangible assets.... (3,363) (4,321) --
------------ ------------ -----------
Net cash (used in) provided by investing
activities.............................. (8,567,779) 1,394,483 1,900,554
FINANCING ACTIVITIES
Net proceeds from issuance of common stock..... -- 20,654,415 --
Exercise of common stock options............... 141,378 266,652 329,262
Principal repayments on debt................... (700,787) (1,338,236) (552,717)
------------ ------------ -----------
Net cash (used in) provided by financing
activities.............................. (559,409) 19,582,831 (223,455)
------------ ------------ -----------
Net (decrease) increase in cash and cash
equivalents....................................... (15,654,461) 9,877,939 (4,396,388)
Cash and cash equivalents at beginning of year...... 24,107,325 8,452,864 18,330,803
------------ ------------ -----------
Cash and cash equivalents at end of year............ $ 8,452,864 $ 18,330,803 $13,934,415
============ ============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid....................................... $ 17,000 $ 206,000 $ 30,000
============ ============ ===========
</TABLE>
See accompanying notes.
40
<PAGE> 43
DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
Digene Corporation (the "Company" or "Digene") was incorporated in the
state of Delaware in 1987. The Company develops, manufactures and markets its
proprietary Hybrid Capture(R) Gene Analysis System and tests for the detection,
screening and monitoring of human diseases. The Company's products are designed
to help improve clinical outcomes and reduce the overall cost of disease
management. The Company's lead product, the Hybrid Capture II HPV DNA Test, is
the only FDA-approved test for the detection of human papillomavirus ("HPV"),
the cause of essentially all cervical cancer. In addition, Digene has developed
and launched tests internationally for the detection and viral load monitoring
of major blood viruses, including cytomegalovirus and hepatitis B virus, and
tests for the detection of two of the most common sexually transmitted
infections, chlamydia and gonorrhea.
On June 28, 1996, Digene Corporation entered into a joint venture agreement
with a Brazilian national to establish Digene do Brasil LTDA, a majority-owned
subsidiary of Digene Corporation. On October 29, 1997, the Company established a
wholly-owned subsidiary, Digene B.V., for the distribution of the Company's
products in Europe. On March 3, 1998, the Company established a wholly-owned
subsidiary, Digene Europe, for the marketing of the Company's products in
Europe. On July 1, 1998, the Company completed the acquisition of Viropath B.V.,
a company with limited liability, registered in Amsterdam, The Netherlands (See
Note 5).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying financial statements include the accounts of Digene and
its subsidiaries. All significant intercompany transactions have been eliminated
in consolidation.
Cash and Cash Equivalents
Cash equivalents, which are stated at cost, consist of highly liquid
investments with original maturities of three months or less.
Short-Term Investments
The Company classifies its short-term investments as available-for-sale.
Investments in securities that are classified as available-for-sale and have
readily determinable fair values are measured at fair market value in the
consolidated balance sheets. As of June 30, 1998 and 1999, short-term
investments are stated at cost, which approximates market.
Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves for credit losses, and such losses have been within management's
expectations.
41
<PAGE> 44
DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Impairment of Long-Lived Assets
In the event that facts and circumstances indicate that long-lived assets
or other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down is required. If a write-down is required, the
Company would prepare a discounted cash flow analysis to determine the amount of
the write-down.
Revenue Recognition
Revenue from product sales is recognized upon shipment of goods. Revenue
from research and development contracts is recognized as research and
development activities are performed.
Significant Customers
For the years ended June 30, 1997, 1998 and 1999, the Company generated
42%, 42%, and 50%, respectively, of total revenues from a single customer.
Comprehensive Income
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. Comprehensive income includes all
changes in equity during a period except those resulting from the issuance of
shares of stock and distributions to stockholders. For the years ended June 30,
1997, 1998 and 1999 the Company's comprehensive loss approximates its net loss
and as such no disclosure is presented in the consolidated financial statements.
Foreign Currency Valuation
The local currency is the functional currency for the Company's
international subsidiaries and, as such, assets and liabilities are translated
into U.S. dollars at year-end exchange rates. Income and expense items are
translated at average exchange rates during the year. Translation adjustments
resulting from changes in exchange rates are not considered material and have
been recognized in the Consolidated Statements of Operations.
Research and Development
The Company expenses its research and development costs as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs
amounted to approximately $188,000, $215,000 and $309,000 during fiscal 1997,
1998 and 1999, respectively.
Income Taxes
The Company provides for income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
42
<PAGE> 45
DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net Loss Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128").
SFAS No. 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities, except as required by Staff Accounting
Bulletin No. 98 ("SAB 98"). The definition of diluted earnings per share is very
similar to the previous definition of fully diluted earnings per share. All net
loss per share amounts for all periods have been presented, and, where
appropriate, restated to conform to the SFAS No. 128 requirements.
Stock-Based Compensation
The Company accounts for its stock-based compensation in accordance with
the provisions of APB No. 25 and has provided the pro forma disclosures of net
loss and net loss per share in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") in
Note 13 of these Notes to Consolidated Financial Statements.
Change in Accounting Principle
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting the Costs of Start-up Activities" ("SOP 98-5"), which requires that
costs related to start-up activities be expensed as incurred. Prior to 1998, the
Company capitalized $2,497,172 for the acquisition of Murex's HPV customer lists
related to the Customer Transfer Agreement (See Note 4). Effective April 1,
1998, the Company elected early adoption of SOP 98-5. The effect of adoption of
SOP 98-5 was to increase net loss by $1,914,499 to expense costs that had been
capitalized prior to 1998.
Reclassification
Certain 1997 and 1998 balances have been reclassified to conform with the
1999 presentation.
3. MARKETING AND DISTRIBUTION AGREEMENT
On April 17, 1998, Abbott Laboratories ("Abbott") and International Murex
Technologies Corporation (together with its affiliates, "Murex") entered into an
agreement pursuant to which Abbott acquired all of the outstanding shares of
Murex's common stock. Effective May 7, 1999, the Company entered into a
Marketing and Distribution Agreement ("Abbott Agreement") with Abbott, and
thereby created an exclusive marketing alliance for Digene's Women's Health and
Blood Virus testing products in certain geographic areas. The Abbott Agreement
calls for Abbott to assume sales and marketing responsibility for all of
Digene's Hybrid Capture products in Europe, the Middle East and Africa and for
Digene's Hybrid Capture II chlamydia and gonorrhea tests in the United States.
The Abbott Agreement replaces all previous agreements between the Company and
Murex. In connection with these previous agreements, Murex owned an equity
interest in the Company. This equity interest was sold by Murex during fiscal
1998. Abbott will act as the sole distributor for Digene's HBV and HPV products
in Europe, the Middle East and Africa through December 31, 2003. In addition,
Abbott will act as the sole distributor in the United States for Digene's Hybrid
Capture chlamydia and gonorrhea tests.
4. CUSTOMER TRANSFER AGREEMENT
Effective February 1, 1997, the Company acquired Murex's HPV customer lists
for approximately $2,500,000 in exchange for promissory notes in the aggregate
amount of $1,702,750 and cash of $1,000,000. In accordance with an agency
agreement, which was superseded by the Abbott Agreement, the Company agreed
43
<PAGE> 46
DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
to pay to Murex costs of approximately $853,000 over eleven months, which costs
had been expensed during the year ended June 30, 1997. The intangible asset
recorded to account for the Murex customer lists was written off during 1998
(See Note 2 -- "Change in Accounting Principle").
5. ACQUISITION OF VIROPATH B.V.
On July 1, 1998, the Company issued 181,884 shares of its Common Stock, par
value $0.01 per share, as consideration for its purchase of all of the
outstanding capital stock (the "Shares") of Viropath B.V., a company with
limited liability, registered at Amsterdam, The Netherlands ("Viropath"). The
181,884 shares of the Company's Common Stock were recorded at $8.247 per share,
in accordance with the Stock Purchase Agreement, and resulted in total
consideration of approximately $1.5 million. In accordance with the Stock
Purchase Agreement, seventy percent of these shares were held in escrow until
July 1, 1999. The remaining thirty percent of these shares will be held in
escrow by the Company until January 1, 2000. In addition, the Company is
obligated to pay royalties on future sales of Viropath's licensed products, not
to exceed $1 million. Through June 30, 1999, the Company has not been required
to pay any such royalties. The acquisition was accounted for using the purchase
method and resulted in an excess of purchase price over the fair value of net
assets acquired of approximately $1.5 million, which the Company recorded as
goodwill and is amortizing over ten years using the straight-line method. As of
June 30, 1999, goodwill and the related accumulated amortization was $1,500,860
and $150,086, respectively. The results of operations of Viropath have been
consolidated with those of the Company since the date of acquisition. The
operating results of Viropath are not considered material to the consolidated
financial statements of the Company, and accordingly, pro forma financial
information has not been presented for this acquisition.
In addition, the Company granted options to purchase an aggregate of 50,000
shares of its Common Stock to the three Viropath individual shareholders in
connection with their execution of consulting agreements with the Company. The
options are exercisable in equal installments on each of June 30, 1999, 2000,
2001, 2002 and 2003 at an exercise price of $9.75 per share. The options expire
on June 29, 2008. The options were compensatory options and were valued on July
1, 1998 at approximately $316,500. This amount will be expensed ratably over the
vesting period of the options. During fiscal 1999, the Company recognized
$63,300 of compensation expense related to these options.
6. INVENTORIES
Inventories are stated at the lower of cost or market on a first-in,
first-out basis.
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Finished goods....................................... $1,341,391 $1,100,661
Work in process...................................... 1,773,977 1,636,552
Raw materials........................................ 780,421 894,537
---------- ----------
3,895,789 3,631,750
Obsolescence reserve................................. (338,500) (737,540)
---------- ----------
$3,557,289 $2,894,210
========== ==========
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated at
cost and depreciated or amortized using the straight-line method over the
estimated useful lives of three to five years. Leasehold improvements are
amortized over the lesser of the related lease term or the useful life.
44
<PAGE> 47
DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Furniture, fixtures and office equipment........... $ 1,324,978 $ 1,413,735
Machinery and equipment............................ 3,911,642 3,287,618
Leasehold improvements............................. 930,764 925,415
----------- -----------
6,167,384 5,626,768
Accumulated depreciation and amortization.......... (3,540,140) (3,889,690)
----------- -----------
$ 2,627,244 $ 1,737,078
=========== ===========
</TABLE>
8. INCOME TAXES
Significant components of the provision for income taxes on operations
consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................. $ -- $ -- $ --
State.................................... -- -- --
Foreign.................................. -- 48,463 149,069
-------- -------- --------
Total current................................. -- 48,463 149,069
Deferred:
Federal.................................. -- -- --
State.................................... -- -- --
Foreign.................................. -- -- --
-------- -------- --------
Total deferred................................ -- -- --
-------- -------- --------
Total provision for income taxes.............. $ -- $ 48,463 $149,069
======== ======== ========
</TABLE>
There is no net tax benefit recorded for the change in accounting principle
because such benefit creates a deferred tax asset which the Company has fully
reserved.
The components of loss from operations before income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
United States...................... $ (5,923,876) $ (9,971,255) $ (9,018,900)
Foreign............................ (70,580) (2,154,351) (136,247)
------------ ------------ ------------
$ (5,994,456) $(12,125,606) $ (9,155,147)
============ ============ ============
</TABLE>
45
<PAGE> 48
DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the items which caused recorded income taxes
attributable to continuing operations to differ from taxes computed using the
statutory federal income tax rate for the years ended June 30, 1997, 1998, and
1999:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Tax benefit at statutory rate......... $(2,098,000) $(4,244,000) $(3,204,000)
Effect of:
State income tax, net............ (300,000) (606,000) (458,000)
Foreign tax...................... -- 48,463 149,069
Stock options.................... (1,142,000) (1,005,000) (863,000)
Other............................ (49,000) 114,000 55,000
Foreign losses not used.......... -- 861,000 37,000
Valuation allowance.............. 3,589,000 4,880,000 4,433,000
----------- ----------- -----------
Provision for income taxes............ $ -- $ 48,463 $ 149,069
=========== =========== ===========
</TABLE>
The Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Net operating loss carryforwards................. $ 12,636,000 $ 16,840,000
Research and development credits................. 828,000 1,083,000
Patent costs, net................................ 577,000 491,000
Research and developmental deferral, net......... 1,346,000 1,125,000
Murex customer lists............................. 899,000 857,000
Other............................................ 812,000 1,568,000
------------ ------------
Deferred tax assets.............................. 17,098,000 21,964,000
Valuation allowance.............................. (17,098,000) (21,964,000)
------------ ------------
Net deferred tax assets.......................... $ -- $ --
============ ============
</TABLE>
Due to the Company's net operating loss carryforwards, the Company did not
recognize a tax provision for the year ended June 30, 1997. The Company
recognized a tax provision of $48,463 and $149,070 for the years ended June 30,
1998 and 1999, respectively, which related to the Company's foreign operations.
At June 30, 1999, the Company had tax net operating loss carryforwards for
income tax purposes of approximately $42 million. Approximately $7.7 million of
the net operating loss carryforwards is attributable to exercised stock options,
the benefit of which, when realized, will directly increase additional paid-in
capital. At June 30, 1999, the Company also had research and development credit
carryforwards of approximately $1,083,000. In 1990, the Company experienced a
change in ownership pursuant to Section 382 of the Internal Revenue Code, which
will cause the utilization of pre-change losses and credits to be limited.
Subject to this limitation, the Company's net operating loss carryforwards and
tax credits expire, if unused, at various dates from 2003 through 2019.
Realization of total deferred tax assets is contingent upon the generation of
future taxable income. Due to the uncertainty of realization of these tax
benefits, the Company has provided a valuation allowance for the full amount of
its deferred tax assets.
46
<PAGE> 49
DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Net Notes payable to Murex (See Note 4), net of
unamortized discount.................................. $ 537,424 $ --
Note payable to lessor................................ 15,293 --
--------- ---------
552,717 --
Current maturities of long-term debt.................. (552,717) --
--------- ---------
Long-term debt, less current maturities............... $ -- $ --
========= =========
</TABLE>
The unsecured notes payable to Murex arose in conjunction with the
Company's acquisition of Murex's HPV customer list (See Note 4), are
noninterest-bearing and have been discounted at 10%. The Company made payments
totaling $1,577,864, $1,420,000 and $557,750 and incurred interest expense of
$76,107, $128,830 and $20,326 for the years ended June 30, 1997, 1998 and 1999,
respectively.
The note payable to lessor represented the financing of a portion of
leasehold improvements made by the lessor under terms of the lease agreement for
the Company's research and development facility. The note, in the original
principal amount of $200,000, was paid during fiscal 1999. A $75,000 certificate
of deposit, which was assigned to the lessor as collateral for the lease
obligation, will be returned to the Company.
10. LEASE COMMITMENTS
On March 2, 1998, the Company entered into a lease for two buildings, under
construction, in Gaithersburg, Maryland, comprising a total of approximately
90,000 square feet. The Company intends to relocate its operation to this new
facility in December 1999. The lease for the new facility has a ten-year term
and the Company has two consecutive rights to extend the term of the lease for
five years each.
The Company's executive office and manufacturing facility is located in
Beltsville, Maryland. The Company's research and development facility is located
in Silver Spring, Maryland. These leases expire upon the completion of the new
facility.
Future minimum rental commitments under these and other operating lease
agreements, including the agreements mentioned above, are as follows as of June
30, 1999:
<TABLE>
<S> <C>
2000........................................................ $ 1,140,881
2001........................................................ 1,441,308
2002........................................................ 1,462,821
2003........................................................ 1,483,469
2004........................................................ 1,520,556
Thereafter.................................................. 8,769,331
-----------
$15,818,366
===========
</TABLE>
Rent expense was $449,449, $763,126, and $678,394 for the years ended June
30, 1997, 1998 and 1999, respectively.
47
<PAGE> 50
DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYMENT AGREEMENTS
The Company has executed employment agreements with certain key executives
under which the Company is required to pay the following base salaries over the
next three years:
<TABLE>
<S> <C>
2000........................................................ $ 739,375
2001........................................................ 427,500
2002........................................................ 124,493
----------
$1,291,368
==========
</TABLE>
12. COMMON STOCK
On October 20, 1997, the Company issued 2,250,000 shares of Common Stock in
a public offering, which generated net proceeds of approximately $20,654,000.
13. COMMON STOCK OPTIONS
In March 1996, the Company adopted the Digene Corporation Omnibus Plan (the
"Omnibus Plan"). Pursuant to the Omnibus Plan, officers or other employees of
the Company may receive options to purchase Common Stock. The Omnibus Plan is
administered by the Compensation Committee. 2,000,000 shares have been reserved
for issuance under the Omnibus Plan.
In October 1996, the Company adopted the Digene Corporation Directors'
Stock Option Plan (the "Directors' Plan"). Pursuant to the Directors' Plan,
directors of the Company may receive options to purchase Common Stock. The
Directors' Plan is administered by the Board of Directors. 500,000 shares have
been reserved for issuance under the Directors' Plan.
In September 1997, the Company adopted the Digene Corporation 1997 Stock
Option Plan (the "1997 Stock Option Plan"). Pursuant to the 1997 Stock Option
Plan, consultants and other non-employees of the Company may receive options to
purchase Common Stock. The 1997 Stock Option Plan is administered by the Board
of Directors. 500,000 shares have been reserved for issuance under the 1997
Stock Option Plan.
Prior to March 1996, the Company had adopted Stock Option Plans (the
"Option Plans") under which 2,622,821 shares of Common Stock were reserved for
issuance upon exercise of options. The Option Plans provide for grants of stock
options to employees (including officers and employee directors), directors and
consultants of the Company. The Option Plans were previously administered by the
Board of Directors and presently are being administered by the Compensation
Committee, which determines recipients and types of awards to be granted,
including the exercise price, number of shares subject to the award and the
exercisability thereof. The Company does not intend to grant further options
under these Option Plans.
The terms of all stock options granted may not exceed ten years. The
exercise price of options granted, as determined by the Compensation Committee,
approximates fair value.
48
<PAGE> 51
DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common stock options activity is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
1997 1998 1999
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 2,660,582 $ 4.14 2,812,333 $ 5.43 2,712,162 $ 6.42
Options granted................. 460,000 10.14 486,500 11.69 933,250 8.77
Options exercised............... (275,825) .52 (287,778) .93 (266,745) 1.23
Options canceled or expired..... (32,424) 8.66 (298,893) 11.15 (201,138) 10.17
--------- --------- ---------
Outstanding at end of year...... 2,812,333 5.43 2,712,162 6.42 3,177,529 7.31
========= ========= =========
Options exercisable at
year-end...................... 1,288,218 2.53 1,131,492 1.81 1,434,192 4.72
========= ========= =========
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- --------------------------
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
EXERCISE PRICES JUNE 30, 1999 LIFE (YEARS) PRICE JUNE 30, 1999 PRICE
--------------- -------------- ------------ --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.01 - $ 2.00...... 533,967 1.5 $ 1.15 533,967 $1.15
$ 2.01 - $ 5.00...... 319,522 1.5 2.30 295,099 2.25
$ 5.01 - $ 8.00...... 353,399 8.7 6.49 62,638 5.94
$ 8.01 - $11.00...... 1,751,641 7.8 9.55 542,488 9.43
$11.01 - $13.25...... 219,000 8.1 12.89 -- --
--------- ---------
3,177,529 6.2 7.31 1,434,192 4.72
========= =========
</TABLE>
If the compensation cost for the Company's stock option plans had been
determined based upon the fair value at the grant date for options under the
plans consistent with the methodology prescribed under SFAS No. 123, the
Company's net loss in fiscal 1997, 1998 and 1999 would have been approximately
$7,594,000 and $16,574,000, and $12,842,000 or $0.67, $1.25, and $0.89 per
share, respectively. The effect of applying SFAS No. 123 on 1997, 1998 and 1999
pro forma net loss as stated above is not necessarily representative of the
effects on reported net loss for future years due to, among other things, (1)
the vesting period of the stock options and (2) the fair value of additional
stock options in future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing fair value model with the following
weighted-average assumptions used for grants:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Dividend yield......................................... 0.00% 0.00% 0.00%
Expected volatility.................................... 73% 73% 77%
Risk-free interest rate................................ 6.5% 6.5% 6.0%
Expected life of the option term (in years)............ 6.6 5.5 6.1
</TABLE>
The weighted average fair values of the options granted during the years
ended June 30, 1997, 1998 and 1999 were $8.03, $7.99, and $6.26, respectively.
49
<PAGE> 52
DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1997 1998 1999
----------- ------------ -----------
<S> <C> <C> <C>
Numerator:
Net loss........................ $(5,994,456) $(14,088,568) $(9,304,216)
=========== ============ ===========
Denominator:
Denominator for basic and
diluted earnings per
share -- weighted-average
shares........................ 11,393,978 13,235,901 14,353,720
=========== ============ ===========
Basic and diluted net loss per
share.............................. $ (0.53) $ (1.06) $ (0.65)
=========== ============ ===========
</TABLE>
The following table sets forth the computation of basic and diluted net
loss per share to reflect the cumulative effect of a change in accounting
principle:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Basic and diluted loss per common share
Net loss before cumulative effect of a change
in accounting principle...................... $(0.53) $(0.92) $(0.65)
Cumulative effect of a change in accounting
principle.................................... (0.00) (0.14) (0.00)
------ ------ ------
Net loss............................................ $(0.53) $(1.06) $(0.65)
====== ====== ======
</TABLE>
15. RETIREMENT PLAN
The Company sponsors a 401(k) Profit Sharing Plan (the "Plan"), which
covers all employees who have completed ninety days of service. The Plan
stipulates that employees may elect an amount between 1% and 15% of their total
compensation to contribute to the Plan. Employee contributions are subject to
Internal Revenue Service limitations. All employees who have completed 1,000
hours of service during the plan year and are employed by the Company on the
last day of the plan year are eligible to share in discretionary Company
contributions. Employees vest in employer contributions over five years. No
contributions were made by the Company during the years ended June 30, 1997,
1998 and 1999.
16. OTHER COMMITMENTS AND CONTINGENCIES
The Company's access to various probes, diagnostic techniques and a key
product component were acquired under agreements requiring the Company to pay
future royalties up to 4.0% of applicable future net sales on certain products.
During fiscal 1997, 1998 and 1999, total royalties amounted to $396,665,
$769,930, and $655,062, respectively.
During fiscal 1999, the Company executed a purchase commitment with a
vendor to acquire $1,125,000 of equipment. As of June 30, 1999, the Company has
recorded a prepaid expense of $281,250 related to this obligation.
17. SEGMENT REPORTING
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131
50
<PAGE> 53
DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
changes the way public companies report segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial reports to stockholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Company operates one business segment which develops,
manufactures and markets proprietary DNA and RNA tests for the detection,
screening and monitoring of human diseases. Worldwide operations are summarized
by geographic region in the following table:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
1997 1998
------------------------- -------------------------
ASSETS REVENUES ASSETS REVENUES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
North America............. $29,450,973 $ 4,244,576 $34,396,189 $ 4,776,036
Europe.................... -- 4,342,175 445,434 4,938,758
South America............. 312,604 881,048 597,915 1,619,334
Pacific Rim............... -- 592,480 -- 674,817
----------- ----------- ----------- -----------
$29,763,577 $10,060,279 $35,439,538 $12,008,945
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999
-------------------------
ASSETS REVENUES
----------- -----------
<S> <C> <C>
North America...................................... $27,575,447 $ 5,930,026
Europe............................................. 165,583 9,055,571
South America...................................... 367,449 1,860,242
Pacific Rim........................................ -- 621,260
----------- -----------
$28,108,479 $17,467,099
=========== ===========
</TABLE>
51
<PAGE> 54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No change of accountants and/or disagreements on any matter of accounting
principles or financial statement disclosures have occurred within the last two
years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- Directors. The information with respect to directors required by this
item is incorporated herein by reference to Digene's definitive Proxy
Statement for its Annual Meeting of Stockholders, scheduled to be held on
October 28, 1999, which shall be filed with the Securities and Exchange
Commission within 120 days from the end of the Digene's fiscal year (the
"1999 Proxy Statement").
- Executive Officers. The information with respect to executive officers
required by this item is set forth in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by
reference to the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated herein by
reference to the 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the 1999 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) - Consolidated Financial Statements of Digene Corporation:
Report of Independent Auditors
Consolidated Balance Sheets as of June 30, 1998 and 1999
Consolidated Statements of Operations for the fiscal years ended June 30,
1997, 1998, and 1999
Consolidated Statements of Stockholders' Equity for the fiscal years
ended June 30, 1997, 1998, and 1999
Consolidated Statements of Cash Flows for the fiscal years ended June 30,
1997, 1998 and 1999
Notes to Consolidated Financial Statements
- Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable
accounting regulation of the Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
52
<PAGE> 55
- Exhibits:
<TABLE>
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of
Digene.**
3.2 Amended and Restated Bylaws of Digene. (Incorporated by
reference to Exhibit 3.2 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999 and
filed with the SEC on September 28, 1999.)
4.1 Specimen Common Stock Certificate.**
10.2 1989 Special Employee Stock Option Plan.**
10.3 1990 Stock Option Plan.**
10.4 1991-A Stock Option Plan.**
10.5 1991-B Stock Option Plan.**
10.6 1996 Omnibus Plan.**
10.7! Employment Agreement dated as of May 1, 1996 between Digene
and Evan Jones, as amended.**
10.8! Employment Agreement dated as of May 1, 1996 between Digene
and Charles M. Fleischman, as amended.**
10.11 Lease Agreement dated January 13, 1988 between Digene and
West Farm Associates Limited Partnership.**
10.12 Lease Agreement dated June 20, 1991 between Digene and
Murkirk Manor Associates Limited Partnership.**
10.14 License Agreement dated September 1, 1995 between Digene and
Institut Pasteur.**
10.15 Cross-License Agreement dated April 1, 1990 among Life
Technologies, Inc. and Institut Pasteur.**
10.16 License Agreement dated December 1, 1983 between Bethesda
Research Laboratories, a division of Life Technologies, Inc.
and Georgetown University.**
10.18 License Agreement dated December 19, 1990 between Digene and
Life Technologies, Inc.**
10.26 Registration Rights Agreement dated as of May 24, 1996
between Digene, Armonk Partners, Murex Diagnostics
Corporation and Certain Other Stockholders.**
10.28 License Agreement dated September 27, 1995 between Digene
and Kanebo, Ltd.**
10.30*** Agency and Sales Representation Agreement between Digene and
Murex dated as of February 1, 1997. (Incorporated by
reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.)
10.31*** Customer Transfer Agreement between Digene and Murex dated
as of February 1, 1997. (Incorporated by reference to
Exhibit 10.2 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997.)
10.32 First Amendment to the Distribution Agreement between Digene
and Murex dated as of February 1, 1997. (Incorporated by
reference to Exhibit 10.3 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.)
10.33! Employment Agreement dated as of September 3, 1996 between
Digene and Donna Marie Seyfried. (Incorporated by reference
to Exhibit 10 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.)
10.34 Director's Stock Option Plan. (Incorporated by reference to
Exhibit A of Digene's Proxy Statement filed pursuant to
Section 14(a) of the Securities Exchange Act, dated
September 20, 1996.)
10.35! Employment Agreement dated as of July 11, 1997 between
Digene and William J. Payne. (Incorporated by reference to
Exhibit 10.1 to Digene's Registration Statement on Form S-3,
File No. 333-35463, dated November 12, 1997.)
10.36 1997 Stock Option Plan. (Incorporated by reference to
Exhibit 99 of Digene's Registration Statement on Form S-8,
dated November 24, 1997.)
</TABLE>
53
<PAGE> 56
<TABLE>
<C> <S>
10.37 Stock Purchase Agreement dated as of June 30, 1998 by and
among Digene and Stichting Researchfonds Pathologie, Ewald
C.R.M. Keijser, Christophorus J.L.M. Meijer and Jan M. M.
Walboomers. (Incorporated by reference to Exhibit 10.37 of
Digene's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998.)
10.38 Lease dated as of March 2, 1998 by and between Digene and
ARE -Metropoliton Grove I, LLC. (Incorporated by reference
to Exhibit 10.1 of Digene's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.)
10.39! Employment Agreement dated as of December 22, 1998 between
Digene and Joseph P. Slattery. (Incorporated by reference to
Exhibit 10.2 of Digene's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1998.)
10.40! Employment Agreement dated as of December 22, 1998 between
Digene and Jeanmarie P. Curley. (Incorporated by reference
to Exhibit 10.1 of Digene's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1998.)
10.41* Marketing and Distribution Agreement between Digene and
**** Abbott Laboratories, dated May 7, 1999.
21 Subsidiaries of the Registrant. (Incorporated by reference
to Exhibit 21 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1999 and filed with the
SEC on September 28, 1999.)
23.1* Consent of Ernst & Young LLP, Independent Auditors.
27* Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** Incorporated by reference to the like-numbered exhibits to Digene's
Registration Statement on Form S-1, File No. 333-2968, dated March 29,
1996.
*** Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted June 3, 1997. Such provisions have been filed
separately with the Commission.
**** Confidential treatment has been requested for certain portions thereof
pursuant to a Confidential Treatment Request filed December 21, 1999. Such
provisions have been filed separately with the Commission.
! Constitutes a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K/A.
(b) Reports on Form 8-K.
NONE.
54
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DIGENE CORPORATION
December 21, 1999 By: /s/ EVAN JONES
------------------------------------
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ EVAN JONES Chairman and Chief Executive December 21, 1999
- ----------------------------------- Officer (Principal Executive
Evan Jones Officer)
/s/ CHARLES M. FLEISCHMAN President, Chief Operating Officer, December 21, 1999
- ----------------------------------- Chief Financial Officer and
Charles M. Fleischman Director (Principal Financial
Officer)
* Vice President, Finance and December 21, 1999
- ----------------------------------- Controller (Principal Accounting
Joseph P. Slattery Officer)
* Director December 21, 1999
- -----------------------------------
Wayne T. Hockmeyer
* Director December 21, 1999
- -----------------------------------
John H. Landon
* Director December 21, 1999
- -----------------------------------
Joseph M. Migliara
* Director December 21, 1999
- -----------------------------------
John J. Whitehead
*By: /s/ EVAN JONES
------------------------------
Evan Jones, as
attorney-in-fact
for the persons indicated
</TABLE>
55
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of
Digene.**
3.2 Amended and Restated Bylaws of Digene. (Incorporated by
reference to Exhibit 3.2 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999 and
filed with the SEC on September 28, 1999.)
4.1 Specimen Common Stock Certificate.**
10.2 1989 Special Employee Stock Option Plan.**
10.3 1990 Stock Option Plan.**
10.4 1991-A Stock Option Plan.**
10.5 1991-B Stock Option Plan.**
10.6 1996 Omnibus Plan.**
10.7! Employment Agreement dated as of May 1, 1996 between Digene
and Evan Jones, as amended.**
10.8! Employment Agreement dated as of May 1, 1996 between Digene
and Charles M. Fleischman, as amended.**
10.11 Lease Agreement dated January 13, 1988 between Digene and
West Farm Associates Limited Partnership.**
10.12 Lease Agreement dated June 20, 1991 between Digene and
Murkirk Manor Associates Limited Partnership.**
10.14 License Agreement dated September 1, 1995 between Digene and
Institut Pasteur.**
10.15 Cross-License Agreement dated April 1, 1990 among Life
Technologies, Inc. and Institut Pasteur.**
10.16 License Agreement dated December 1, 1983 between Bethesda
Research Laboratories, a division of Life Technologies, Inc.
and Georgetown University.**
10.18 License Agreement dated December 19, 1990 between Digene and
Life Technologies, Inc.**
10.26 Registration Rights Agreement dated as of May 24, 1996
between Digene, Armonk Partners, Murex Diagnostics
Corporation and Certain Other Stockholders.**
10.28 License Agreement dated September 27, 1995 between Digene
and Kanebo, Ltd.**
10.30*** Agency and Sales Representation Agreement between Digene and
Murex dated as of February 1, 1997. (Incorporated by
reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.)
10.31*** Customer Transfer Agreement between Digene and Murex dated
as of February 1, 1997. (Incorporated by reference to
Exhibit 10.2 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997.)
10.32 First Amendment to the Distribution Agreement between Digene
and Murex dated as of February 1, 1997. (Incorporated by
reference to Exhibit 10.3 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.)
10.33! Employment Agreement dated as of September 3, 1996 between
Digene and Donna Marie Seyfried. (Incorporated by reference
to Exhibit 10 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.)
10.34 Director's Stock Option Plan. (Incorporated by reference to
Exhibit A of Digene's Proxy Statement filed pursuant to
Section 14(a) of the Securities Exchange Act, dated
September 20, 1996.)
10.35! Employment Agreement dated as of July 11, 1997 between
Digene and William J. Payne.
(Incorporated by reference to Exhibit 10.1 to Digene's
Registration Statement on Form S-3, File No. 333-35463,
dated November 12, 1997.)
10.36 1997 Stock Option Plan. (Incorporated by reference to
Exhibit 99 of Digene's
Registration Statement on Form S-8, dated November 24,
1997.)
</TABLE>
56
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.37 Stock Purchase Agreement dated as of June 30, 1998 by and
among Digene and Stichting Researchfonds Pathologie, Ewald
C.R.M. Keijser, Christophorus J.L.M. Meijer and Jan M. M.
Walboomers. (Incorporated by reference to Exhibit 10.37 of
the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1998.)
10.38 Lease dated as of March 2, 1998 by and between Digene and
ARE -- Metropoliton Grove I, LLC. (Incorporated by reference
to Exhibit 10.1 of Digene's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.)
10.39! Employment Agreement dated as of December 22, 1998 between
Digene and Joseph P. Slattery. (Incorporated by reference to
Exhibit 10.2 of Digene's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1998.)
10.40! Employment Agreement dated as of December 22, 1998 between
Digene and Jeanmarie P. Curley. (Incorporated by reference
to Exhibit 10.1 of Digene's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1998.)
10.41* Marketing and Distribution Agreement between Digene and
**** Abbott Laboratories, dated May 7, 1999.
21 Subsidiaries of the Registrant. (Incorporated by reference
to Exhibit 21 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1999 and filed with the
SEC on September 28, 1999.)
23.1* Consent of Ernst & Young LLP, Independent Auditors.
27* Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** Incorporated by reference to the like-numbered exhibit to Digene's
Registration Statement on Form S-1, File No. 333-2968, dated March 29,
1996.
*** Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted June 3, 1997. Such provisions have been filed
separately with the Commission.
**** Confidential treatment has been requested for certain portions thereof
pursuant to a Confidential Treatment Request filed December 21, 1999. Such
provisions have been filed separately with the Commission.
! Constitutes a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K/A.
57
<PAGE> 60
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Digene Corporation
We have audited the consolidated financial statements of Digene Corporation
as of June 30, 1998 and 1999 and for each of the three years in the period ended
June 30, 1999 and have issued our report thereon dated August 20, 1999 (included
elsewhere in this report). Our audits also included the financial statement
schedule listed in Item 14(a) of this report. The schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Washington, DC
August 20, 1999
58
<PAGE> 61
DIGENE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING OF AT END
CLASSIFICATION PERIOD ADDITIONS DEDUCTIONS PERIOD
-------------- ------------ --------- ---------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accts:
Year ended June 30, 1997....................... $ 61 -- -- $ 61
Year ended June 30, 1998....................... 61 150 (2)(1) 209
Year ended June 30, 1999....................... 209 -- (39)(1) 170
Reserve for inventory obsolescence:
Year ended June 30, 1997....................... $250 89 -- $339
Year ended June 30, 1998....................... 339 -- -- 339
Year ended June 30, 1999....................... 339 399 -- 738
</TABLE>
- ---------------
(1) "Deductions" represent accounts written off during the period less
recoveries of accounts previously written off.
59
<PAGE> 1
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.41
MARKETING AND DISTRIBUTION
AGREEMENT
BY AND BETWEEN
ABBOTT LABORATORIES
AND
DIGENE CORPORATION
<PAGE> 2
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
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TABLE OF CONTENTS
ARTICLE 1. - DEFINITIONS......................................................3
1.1 "Affiliate"......................................................3
1.2 "Africa".........................................................3
1.3 "Amplified Reimbursement"........................................3
1.4 "Analyte"........................................................4
1.5 "AUP"............................................................4
1.6 "Base Sales".....................................................4
1.7 "Book Value".....................................................4
1.8 "Business Day"...................................................4
1.9 "Calendar Quarter"...............................................4
1.10 "Certificate of Analysis"........................................4
1.11 "Change of Control"..............................................5
1.12 "CMV"............................................................5
1.13 "CMV Territory"..................................................5
1.14 "Confidential Information".......................................5
1.15 "Contract Year"..................................................6
1.16 "CT/GC"..........................................................6
1.17 "CT/GC Clearance"................................................7
1.18 "CT/GC Non-U.S. AUP".............................................7
1.19 "CT/GC Products".................................................7
1.20 "CT/GC U.S. AUP".................................................7
1.21 "CT/GC Specifications"...........................................8
1.22 "CT/GC Territory"................................................8
1.23 "Delivered "and "Delivery".......................................8
1.24 "Designated Country".............................................8
1.25 "Digene Equipment"...............................................8
1.26 "Digene Products"................................................9
1.27 "Digene Trademarks"..............................................9
1.28 "Distributor"....................................................9
1.29 "Distributor Territories"........................................9
1.30 "Distribution Agreement".........................................9
1.31 "Effective Date".................................................9
1.32 "Equipment"......................................................9
1.33 "Europe".........................................................9
1.34 "FDA"............................................................9
1.35 "Field"..........................................................9
1.36 "Fully Burdened Manufacturing Cost".............................10
1.37 "HBV"...........................................................10
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1.38 "HBV AUP".......................................................10
1.39 "HBV Products"..................................................11
1.40 "HBV Specifications"............................................11
1.41 "HBV Territory".................................................11
1.42 "HPV"...........................................................11
1.43 "HPV AUP".......................................................11
1.44 "HPV Products"..................................................12
1.45 "HPV Specifications"............................................12
1.46 "HPV Territory".................................................12
1.47 "Hybrid Capture(R) Technology"..................................12
1.48 "Hybrid Capture for Digene Products"............................12
1.49 "Improvement"...................................................12
1.50 "Incremental Sales".............................................13
1.51 "Initial Term"..................................................13
1.52 "Innovation"....................................................13
1.53 "Middle East"...................................................13
1.54 "Minimum Transfer Price"........................................13
1.55 "Murex Entities"................................................14
1.56 "Net Sales".....................................................14
1.57 "Non-Amplified Reimbursement"...................................15
1.58 "Non-proprietary Equipment".....................................15
1.59 "Other Products"................................................15
1.60 "Other Product Specifications"..................................15
1.61 "Party".........................................................15
1.62 "Patents".......................................................16
1.63 "Product".......................................................16
1.64 "Product Accessories"...........................................16
1.65 "Purchase Price"................................................16
1.66 "Recall"........................................................16
1.67 "SHARP".........................................................16
1.68 "SHARP Territory"...............................................16
1.69 "Shipped Products"..............................................16
1.70 "Specifications"................................................16
1.71 "Term"..........................................................16
1.72 "Territory".....................................................16
1.73 "Third Party"...................................................17
1.74 "Trade".........................................................17
1.75 "Trade Secrets".................................................17
1.76 "Transition Period".............................................17
1.77 "United States".................................................17
1.78 "Validation Protocols"..........................................17
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1.79 "Warranty Period"...............................................17
1.80 "Work With".....................................................18
1.81 "Year 2000 Compliant"...........................................18
ARTICLE 2. - APPOINTMENT TO MARKET AND DISTRIBUTE.............................18
2.1 Exclusive Appointment for CT/GC..................................18
2.2 Exclusive Appointment for HBV....................................19
2.3 Exclusive Appointment for HPV....................................19
2.4 Additional Territories...........................................20
2.5 Noncompetition...................................................21
2.6 Trade Costs......................................................21
2.7 Selling Price....................................................21
2.8 Contracting Rights...............................................22
2.9 Distributor Territories..........................................22
2.10 Non-Exclusive Appointment for Equipment..........................23
ARTICLE 3. - MARKETING AND PROMOTION..........................................23
3.1 Abbott's General Marketing and Promotion Responsibilities........23
3.2 Digene's General Promotional Responsibilities....................24
3.3 Development of Promotional and Marketing Materials...............24
3.4 Marketing Plans..................................................24
3.5 Sales Reports....................................................25
3.6 Support..........................................................26
3.7 Product Samples..................................................26
3.8 Marketing Steering Committee.....................................26
ARTICLE 4. - SALES PERFORMANCE THRESHOLDS.....................................27
4.1 Net Sales Thresholds for CT/GC...................................27
4.2 Net Sales Thresholds for HBV.....................................29
4.3 Net Sales Thresholds for HPV.....................................31
4.4 Exercise of Rights...............................................34
4.5 Wind-down Activities.............................................34
4.6 Factors Affecting Net Sales......................................35
ARTICLE 5. - MANUFACTURE AND SUPPLY...........................................35
5.1 Supply...........................................................35
5.2 Forecasting......................................................39
5.3 Orders...........................................................40
5.4 Failure to Supply Product........................................41
5.5 Failure to Supply Digene Equipment...............................43
5.6 Supply Allocation................................................44
5.7 Ordering Processing..............................................44
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5.8 Safety Stock.....................................................44
5.9 Hazardous Classification Labeling................................44
ARTICLE 6. - PRICE AND TERMS..................................................45
6.1 Purchase Price for Equipment.....................................45
6.2 Product Transfer Price...........................................46
6.3 Minimum Transfer Price...........................................47
6.4 Year-End Reconciliation..........................................47
6.5 Royalty Obligations..............................................48
6.6 Payment Terms....................................................48
6.7 Foreign Exchange.................................................48
ARTICLE 7. - SHIPMENT AND DELIVERY............................................49
7.1 Shipment.........................................................49
7.2 Delivery.........................................................49
7.3 Export Licenses: Import Certificates; Customs and
Regulatory Approval for Delivery of Shipped Products
Outside the United States........................................49
7.4 Title and Risk of Loss...........................................50
7.5 Taxes............................................................50
7.6 Certificate of Analysis..........................................50
ARTICLE 8. - ACCEPTANCE OF SHIPPED PRODUCT; INSPECTION OF
MANUFACTURING FACILITY...........................................51
8.1 Digene Testing...................................................51
8.2 Abbott Testing...................................................51
8.3 Abbott Inspection................................................53
ARTICLE 9. - REGULATORY COMPLIANCE AND MEDICAL COMPLAINTS.....................53
9.1 No Modification..................................................53
9.2 Regulatory Compliance............................................53
9.3 Customer Complaints..............................................54
ARTICLE 10. - RECALL OR WITHDRAWAL............................................55
10.1 Event of Recall and Withdrawal...................................55
10.2 Expense of Recall................................................55
ARTICLE 11. - BOOKS AND RECORDS...............................................56
11.1 Examination Rights...............................................56
11.2 Reconciliation of Underpayment or Overcharge.....................56
11.3 Costs of Examination.............................................57
ARTICLE 12. - PATENTS AND TRADEMARKS..........................................57
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12.1 Trademark License...............................................57
12.2 Trademark Ownership.............................................58
12.3 Infringement....................................................59
12.4 Possible Removal From Market....................................59
12.5 Third Party Claims for Infringement.............................60
12.6 Co-Labeled Product..............................................60
12.7 Limitation of Liability.........................................60
ARTICLE 13. - REPRESENTATIONS AND WARRANTIES..................................61
13.1 Digene Representations and Warranties...........................61
13.2 Replacement or Repair...........................................62
13.3 Third Party Distributors........................................63
13.4 Limitation on Warranties........................................63
13.5 Patent Representations and Warranties...........................63
13.6 General Representations and Warranties..........................64
ARTICLE 14. - GENERAL INDEMNIFICATION.........................................64
14.1 Digene Indemnification..........................................64
14.2 Abbott Indemnification..........................................65
14.3 Cooperation.....................................................65
14.4 Insurance.......................................................65
ARTICLE 15. TERM AND TERMINATION..............................................66
15.1 Term............................................................66
15.2 Termination for Cause...........................................66
15.3 Termination By Digene For Abbott's Failure to
Achieve Net Sales Thresholds....................................67
15.4 Termination By Abbott for Change of Control.....................68
15.5 Partial Termination By Digene For Abbott's Failure
to Market in Particular Country.................................69
15.6 Continuation of Force Majeure...................................70
15.7 Accrued Obligations.............................................70
15.8 Additional Remedies for Breach..................................70
ARTICLE 16. - CONSEQUENCES OF TERMINATION.....................................71
16.1 Buy-out of Equipment and Inventory..............................71
16.2 Termination Fee.................................................71
16.3 Residual Payments...............................................72
ARTICLE 17. - CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS........................72
17.1 Confidentiality.................................................72
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17.2 Handling of Trade Secrets.......................................73
17.3 Confidential Treatment..........................................73
17.4 Public Announcements............................................74
ARTICLE 18. - FORCE MAJEURE..................................................74
ARTICLE 19. - IMPROVEMENTS, INNOVATIONS, DIGENE PRODUCTS;
DEVELOPMENT PROJECTS............................................75
19.1 First Right of Negotiation......................................75
19.3 Third Party Licenses............................................78
19.4 Determination of Improvements or Innovations....................78
19.5 [*****].........................................................80
19.6 Development Projects............................................80
19.7 Testing Service Rights..........................................82
19.8 R&D Expenses....................................................82
19.9 Products Outside the Scope of the Agreement.....................82
ARTICLE 20. - TRANSFER, MODIFICATION OR TERMINATION OF OBLIGATIONS
UNDER THE MUREX AGREEMENTS......................................82
20.1 General.........................................................82
20.2 Distribution of HBV.............................................83
20.3 Distribution of HPV.............................................83
20.4 Distribution of CMV.............................................83
20.5 Distribution of SHARP Signal System Products....................84
20.6 Murex-Only Labeled Products.....................................85
20.7 Continuing Obligations Under the Murex Agreements...............86
20.8 Transition Period...............................................87
20.9 Termination of the Murex Agreements.............................90
ARTICLE 21. - MISCELLANEOUS...................................................92
21.1 Relationship of the Parties.....................................92
21.2 Successors and Assignment.......................................92
21.3 Binding Effect..................................................92
21.4 Entire Agreement................................................93
21.5 Governing Law...................................................93
21.6 Dispute Resolution..............................................93
21.7 Notices.........................................................93
21.8 Severability....................................................94
21.9 Interpretation..................................................95
21.10 Amendments......................................................95
21.11 Waiver..........................................................95
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21.12 Survival........................................................95
21.13 Headings........................................................96
21.14 Counterparts....................................................96
21.15 Mutual Drafting.................................................96
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MARKETING AND DISTRIBUTION AGREEMENT
THIS AGREEMENT is made, as of the Effective Date, by and between Abbott
Laboratories, an Illinois corporation having its principal place of business at
100 Abbott Park Road, Abbott Park, Illinois 60064-6400 ("Abbott"), and Digene
Corporation, a Delaware corporation having its principal place of business at
9000 Virginia Manor Road, Beltsville, Maryland 20705 ("Digene").
WITNESSETH:
WHEREAS, Digene is engaged in the development, manufacture, marketing and
distribution of medical diagnostic products;
WHEREAS, Digene has entered into: (i) a Distribution Agreement with Murex
Diagnostics Corporation dated August 1, 1997; (ii) an Agency and Sales
Representation Agreement with Murex Diagnostics Corporation dated February 1,
1997; (iii) a Customer Transfer Agreement with Murex Diagnostics Corporation
dated February 1, 1997; (iv) an Escrow Agreement dated February 1, 1997 among
Digene, Murex Diagnostics Corporation and Reid & Priest LLP; (v) a Distribution
Agreement with Murex Biotech Limited dated February 28, 1996, as amended
February 1, 1997; (vi) a Development and License Agreement with International
Murex Technologies Corporation dated May 31, 1994 (and the related escrow
agreement); (vii) a letter agreement dated May 31, 1994 with International
Murex Technologies Limited; (viii) a Development and License Agreement with
International Murex Technologies Corporation dated
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April 14, 1993 (and the related escrow agreement); and (ix) a Distribution
Agreement with International Murex Technologies Corporation dated May 19, 1992,
as amended on May 26, 1993 and April 4, 1996, (collectively the "Murex
Agreements") for the distribution and development of certain Digene products
(Murex Biotech Limited, Murex Diagnostics Corporation and International Murex
Technologies Limited were at all relevant times subsidiaries or affiliates of
International Murex Technologies Corporation and together with International
Murex Technologies Corporation are hereinafter referred to as "Murex");
WHEREAS, on or about April 17, 1998, Abbott acquired International Murex
Technologies Corporation pursuant to an Acquisition Agreement dated March 13,
1998, and as a result thereof, assumed the obligations of Murex under the Murex
Agreements;
WHEREAS, Digene desires to transfer certain obligations under the Murex
Agreements to Abbott, to enter into a new distribution arrangement with Abbott
regarding the development, manufacture, marketing and distribution of certain
of its products in certain territories in the world and, in connection
therewith, to terminate the Murex Agreements;
WHEREAS, Digene and Abbott wish to collaborate to expand the development
and utilization of certain Digene products;
WHEREAS, Abbott, through its Diagnostics Division ("ADD"), is engaged in
the development, manufacture, marketing and distribution of medical diagnostic
products;
WHEREAS, Abbott desires to accept the transfer of certain obligations
under the Murex Agreements, to enter into a new distribution arrangement with
Digene regarding the
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development, manufacture, marketing and distribution of certain Digene products
and, in connection therewith, to terminate the Murex Agreements; and
WHEREAS, in accordance with the terms and conditions hereof, Digene is
willing to appoint Abbott as a distributor of certain Digene products in
certain territories, and Abbott is willing to accept such appointment.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and upon the terms and subject to conditions set forth below,
Abbott and Digene hereby agree as follows:
ARTICLE 1. - DEFINITIONS
The following words and phrases, when used herein with initial capital
letters, shall have the meanings set forth or referenced below:
1.1 "Affiliate" shall mean, with respect to each Party (as hereinafter
defined), any legal entity which is, directly or indirectly, controlling,
controlled by or under common control with such Party. For purposes of this
definition, a Party shall be deemed to control another entity if it owns or
controls, directly or indirectly, more than fifty percent (50%) of the voting
equity of the other entity (or other comparable ownership interest for an
entity other than a corporation).
1.2 "Africa" shall mean those countries and territories set forth on
Schedule 1.2.
1.3 "Amplified Reimbursement" shall mean reimbursement under the
Medicare/Medicaid CPT code for reimbursement as an amplified assay, which as of
the Effective Date (as hereinafter defined) is 87491 (CT) and 87591 (GC).
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1.4 "Analyte" shall mean an individual compound, nucleic acid or fragment
thereof, bacteria, virus, fungus, mycoplasm or other substance which is the
target of quantitative or qualitative measurement.
1.5 "AUP" shall mean average unit selling price.
1.6 "Base Sales" shall mean the Net Sales (as hereinafter defined) in
calendar year 1998 of each Product (as hereinafter defined) sold by Digene and
its Affiliates in the same Territory (as hereinafter defined) in which Abbott
and its Affiliates are granted distribution rights hereunder with respect to
such Product, as set forth on Schedule 1.6.
1.7 "Book Value" shall mean the Purchase Price (as hereinafter defined)
of the Digene Equipment (as hereinafter defined), less accumulated depreciation
on a straight-line basis for four (4) years with $0.00 residual value, in
accordance with generally accepted accounting principles in the United States
(as hereinafter defined) ("GAAP"), consistently applied.
1.8 "Business Day" means any day other than a day which is a Saturday or
Sunday or other day on which commercial banks in New York, New York are
authorized or required to remain closed.
1.9 "Calendar Quarter" shall mean a period of three (3) consecutive
calendar months commencing on January 1, April 1, July 1 or October 1 of any
Contract Year (as hereinafter defined).
1.10 "Certificate of Analysis" shall mean finished goods test results
accompanying the release of Products.
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.11 "Change of Control" shall mean: (a) the consolidation or merger of
Digene or any Affiliate of Digene holding or controlling a majority of the
assets relating to the business of Digene which is the subject of this
Agreement, with or into any Third Party (as hereinafter defined); (b) the
assignment, sale, transfer, lease or other disposition of all or substantially
all of the assets of Digene and its Affiliates taken as a whole; or (c) the
acquisition by any Third Party or group of Third Parties acting in concert, of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended) of shares of voting stock of Digene, the result of which in the case
of any transaction described in clauses (a), (b) and (c) above is that
immediately after the transaction the shareholders of Digene immediately before
the transaction own less than fifty percent (50%) of the outstanding shares of
the surviving corporation in a transaction specified in clause (a) above or the
acquiror in a transaction specified in clause (b) or (c) above.
1.12 "CMV" shall have the meaning set forth in Section 20.4.
1.13 "CMV Territory" shall mean Europe (as hereinafter defined), the
Middle East (as hereinafter defined) and Africa.
1.14 "Confidential Information" shall mean any and all technical data,
information, materials and other know-how, including Trade Secrets (as
hereinafter defined), presently owned by or developed by or licensed to, or on
behalf of, Digene or Abbott which relates to the development, manufacture,
promotion, marketing, distribution, sale or use of (a) any Product or Digene
Products, (b) any Improvement (as hereinafter defined) or Innovation (as
hereinafter defined), (c) any Digene Equipment, (d) a development project
described in Article 19 during the
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Term (as hereinafter defined), (e) any Abbott products, and (f) any
information, including financial data, relating to the business of either of
the Parties and/or of their Affiliates, which a Party and/or its Affiliates
discloses to the other Party and/or its Affiliates in writing and identifies as
being confidential, or if disclosed orally, visually or through some other
media, is identified as confidential at the time of disclosure and is
summarized in writing within thirty (30) days of such disclosure and identified
as confidential, except any portion thereof which:
(a) is known to the receiving Party and/or its Affiliates at the time
of the disclosure, as evidenced by its written records;
(b) is disclosed to the receiving Party and/or its Affiliates by a
Third Party having a legal right to do so;
(c) becomes patented, published or otherwise part of the public
domain through no fault of the receiving Party and/or its Affiliates; or
(d) is independently developed by or for the receiving Party and/or
its Affiliates without use of Confidential Information disclosed
hereunder, as evidenced by its written records.
1.15 "Contract Year" shall mean a calendar year during the Term, except
that the first Contract Year shall begin on the Effective Date and shall end on
December 31, 1999.
1.16 "CT/GC" shall mean Digene's diagnostic assay utilizing Hybrid
Capture(R) Technology (as hereinafter defined) designed to detect the presence
of gonorrhea and/or chlamydia in a sample in accordance with the CT/GC
Specifications (as hereinafter defined),
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including any Improvements thereto (except as provided in Section 19.2),
consisting of the CT/GC Products (as hereinafter defined).
1.17 "CT/GC Clearance" shall have the meaning set forth in Section 4.1.
1.18 "CT/GC Non-U.S. AUP" shall mean (a) for the purpose of payment of the
transfer price under Section 6.2(a), (i) in the first Contract Year, the amount
set forth on Schedule 1.18 and (ii) for each subsequent Contract Year, the Net
Sales of each CT/GC Product sold by Abbott and its Affiliates in the CT/GC
Territory (as hereinafter defined), excluding the United States, during the
first nine (9) months of the immediately preceding Contract Year, divided by
the number of units of each such CT/GC Product sold by Abbott and its
Affiliates in the CT/GC Territory, excluding the United States, during the
first nine (9) months of the immediately preceding Contract Year, which
calculation shall be provided to Digene by written notice from Abbott no later
than December 1 of such immediately preceding Contract Year, and (b) for the
purposes of year-end reconciliation under Section 6.4 the Net Sales of CT/GC
sold by Abbott and its Affiliates in the CT/GC Territory, excluding the United
States, during the immediately preceding Contract Year divided by the number of
units of each such CT/GC Product sold by Abbott and its Affiliates in the CT/GC
Territory, excluding the United States, during the immediately preceding
Contract Year.
1.19 "CT/GC Products" shall mean each of the CT/GC products listed by part
number on Schedule 1.19.
1.20 "CT/GC U.S. AUP" shall mean (a) for the purpose of payment of the
transfer price under Section 6.2(b), (i) in the first Contract Year, the amount
set forth on Schedule 1.20
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and (ii) for each subsequent Contract Year, the Net Sales of each CT/GC Product
sold by Abbott and its Affiliates in the United States during the first nine
(9) months of the immediately preceding Contract Year, divided by the number of
units of each such CT/GC Product sold by Abbott and its Affiliates in the
United States during the first nine (9) months of the immediately preceding
Contract Year, which calculation shall be provided to Digene by written notice
from Abbott no later than December 1 of such immediately preceding Contract
Year, and (b) for the purposes of year-end reconciliation under Section 6.4 the
Net Sales of CT/GC sold by Abbott and its Affiliates in the United States
during the immediately preceding Contract Year divided by the number of units
of each such CT/GC Product sold by Abbott and its Affiliates in the United
States during the immediately preceding Contract Year.
1.21 "CT/GC Specifications" shall mean the characteristics of CT/GC set
forth on Schedule 1.21 as such specifications may be amended from time to time
pursuant to Section 21.10.
1.22 "CT/GC Territory" shall mean the United States, Europe, the Middle
East and Africa, as may be amended in accordance with Sections 2.4 or 15.5.
1.23 "Delivered "and "Delivery" shall have the meanings ascribed to them
in Section 7.1.
1.24 "Designated Country" shall mean a country in the Territory to which
Shipped Products (as hereinafter defined) shall be delivered.
1.25 "Digene Equipment" shall mean the DML 2000 Luminometers, DCR 1 Tube
Luminometers and other system equipment listed on Schedule 1.25.
8
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1.26 "Digene Products" shall mean all existing and new products
principally utilizing Hybrid Capture for Digene Products (as hereinafter
defined), including any Improvements thereto sold or to be sold by Digene in
the Field other than Products and Other Products.
1.27 "Digene Trademarks" shall mean the trademarks of Digene as set forth
on Schedule 1.27.
1.28 "Distributor" shall mean a Third Party with whom Digene has a
Distribution Agreement (as hereinafter defined) in effect on the Effective Date
in the Territory for Products as set forth on Schedule 1.28.
1.29 "Distributor Territories" shall mean those countries identified on
Schedule 1.29, as may be amended from time to time in accordance with the
provisions of Section 2.9.
1.30 "Distribution Agreement" shall mean each agreement between Digene and
any Distributor for the development, manufacture, marketing and/or distribution
of Products in the Territory, as set forth on Schedule 1.30.
1.31 "Effective Date" shall mean the date on which the last Party
executes this Agreement.
1.32 "Equipment" shall mean Digene Equipment and Non-proprietary Equipment
(as hereinafter defined).
1.33 "Europe" shall mean those countries and territories listed on
Schedule 1.33.
1.34 "FDA" shall mean the United States Food and Drug Administration and
any successor agency thereto.
1.35 "Field" shall mean the in vitro human diagnostic market.
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.36 "Fully Burdened Manufacturing Cost" shall mean the cost of goods
produced, including direct labor, direct materials and allocable manufacturing
overhead incurred in the manufacture of the Products and the purchase and
packaging of Digene Equipment, all determined in accordance with generally
accepted industry standards and GAAP, consistently applied.
1.37 "HBV" shall mean Digene's diagnostic assay utilizing Hybrid Capture
Technology designed to detect the presence of Hepatitis B Virus in a sample in
accordance with the HBV Specifications (as hereinafter defined), including any
Improvements thereto (except as provided in Section 19.2), consisting of the
HBV Products (as hereinafter defined).
1.38 "HBV AUP" shall mean (a) for the purpose of payment of the transfer
price under Section 6.2(c), (i) in the first Contract Year, the amount set
forth on Schedule 1.38 and (ii) for each subsequent Contract Year, the Net
Sales of each HBV Product sold by Abbott and its Affiliates in the HBV
Territory (as hereinafter defined) during the first nine (9) months of the
immediately preceding Contract Year, divided by the number of units of each
such HBV Product sold by Abbott and its Affiliates in the HBV Territory during
the first nine (9) months of the immediately preceding Contract Year, which
calculation shall be provided to Digene by written notice from Abbott no later
than December 1 of such immediately preceding contract year, and (b) for the
purposes of year-end reconciliation under Section 6.4 the Net Sales of HBV sold
by Abbott and its Affiliates in the HBV Territory during the previous Contract
Year, divided by the number of units of each such HBV Product sold by Abbott
and its Affiliates in the HBV Territory during the immediately preceding
Contract Year.
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.39 "HBV Products" shall mean each of the HBV products listed by part
number on Schedule 1.39.
1.40 "HBV Specifications" shall mean the characteristics of HBV set forth
on Schedule 1.40, as such specifications may be amended from time to time
pursuant to Section 21.10.
1.41 "HBV Territory" shall mean Europe, the Middle East and Africa, as may
be amended in accordance with Sections 2.4 or 15.5.
1.42 "HPV" shall mean Digene's diagnostic assay utilizing Hybrid Capture
Technology designed to detect the presence of Human Papillomavirus in a sample
in accordance with the HPV Specifications (as hereinafter defined), including
any Improvements thereto (except as provided in Section 19.2), consisting of
HPV Products (as hereinafter defined).
1.43 "HPV AUP" shall mean (a) for the purpose of payment of the transfer
price under Section 6.2(d), (i) in the first Contract Year, the amount set
forth on Schedule 1.43 and (ii) for each subsequent Contract Year, the Net
Sales of each such HPV Product sold by Abbott and its Affiliates in the HPV
Territory (as hereinafter defined) during the first nine (9) months of the
immediately preceding Contract Year, divided by the number of units of each
such HPV Product sold by Abbott and its Affiliates in the HPV Territory during
the first nine (9) months of the immediately preceding Contract Year, which
calculation shall be provided to Digene by written notice from Abbott no later
than December 1 of such immediately preceding Contract Year, and (b) for the
purposes of year-end reconciliation under Section 6.4 the Net Sales of HPV sold
by Abbott and its Affiliates in the HPV Territory during the previous Contract
Year, divided by the
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
number of units of each such HPV Product sold by Abbott and its Affiliates in
the HPV Territory during the immediately preceding Contract Year.
1.44 "HPV Products" shall mean each of the HPV products listed by part
number on Schedule 1.44.
1.45 "HPV Specifications" shall mean the characteristics of HPV set forth
on Schedule 1.45, as such specifications may be amended from time to time
pursuant to Section 21.10.
1.46 "HPV Territory" shall mean Europe, the Middle East and Africa, as may
be amended in accordance with Sections 2.4 or 15.5.
1.47 "Hybrid Capture(R) Technology" shall mean the [***********************
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1.48 "Hybrid Capture for Digene Products" shall mean the methods for
performing Hybrid Capture I and Hybrid Capture II assays in coated tube and
96-well microplates for nucleic acid sequences that involve antibody
recognition of double-stranded sequences and which is claimed by the Patents.
1.49 "Improvement" shall mean any improvement, modification or adjustment
of or to any Product or Digene Product, as the case may be, which provides no
recognized or a moderate, but not significant, benefit to customers in terms of
the testing method, performance and/or automation. Examples of Improvements
include, but are not limited to, the following: [*******************************
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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1.50 "Incremental Sales" shall mean the Net Sales of a Product or
Products in the twelve (12) months preceding a Change in Control in excess of
Base Sales of such Product or Products.
1.51 "Initial Term" shall mean the period beginning on the Effective Date
and ending, with respect to CT/GC on December 31 of the fifth full Contract
Year after CT/GC Clearance and, with respect to HBV and HPV, on December 31,
2003.
1.52 "Innovation" shall mean any significant development, improvement,
modification or adjustment of or to any Product which results in a technology
restatement or a unique competitive advantage which provides significant
customer benefit in terms of the testing method, performance and/or automation.
Examples of Innovations include, but are not limited to, the following: [*******
********************************************************************************
*******************************************************************************]
1.53 "Middle East" shall mean those countries and territories set forth on
Schedule 1.53.
1.54 "Minimum Transfer Price" shall mean the minimum price Digene shall
invoice Abbott and its Affiliates for any Product as set forth on Schedule
1.54.
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.55 "Murex Entities" shall mean Murex Diagnostic Corporation, Murex
Biotech Limited, International Murex Technologies Corporation, International
Murex Technologies Limited and any Murex Affiliate obligated to perform
activities pursuant to any of the Murex Agreements.
1.56 "Net Sales" shall mean the total of the gross amount billed or
invoiced to Third Parties for the sale of a Product in the Field, less:
(a) rebates granted and allowances, trade, quantity or cash discounts
actually allowed and taken.
(b) retroactive price reductions imposed by government authorities;
(c) fees, commissions or rebates lawfully paid pursuant to contracts
with group purchasing organizations;
(d) amounts actually repaid a Third Party by reason of rejection or
return of defective Product; and
(e) upcharges paid by Third Parties as part of a reagent agreement
plan or similar arrangement;
provided, however, that if any Product is sold by Abbott or its Affiliates in
combination with other components which have commercial utility other than use
in combination with such Product (together, a "Combination Product"), Net Sales
of such Product shall be the gross invoiced price of such Combination Product
billed to customers by Abbott or its Affiliates, less the allowances and
adjustment referred to above, multiplied by the fraction A/(A+B), where A is
the gross selling price of the Product sold separately during the period in
question, and B is the
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
gross selling price of such other components sold separately during the period
in question; provided, further, that if any Combination Product is sold by
Abbott or its Affiliates and the gross selling price for the Product or such
other components is not determinable, then the gross amount billed or invoiced
to Third Parties for the sale of such Product shall be deemed to be an amount
equal to the percentage of the gross sales price, less the allowances and
adjustments referred to above, for the Combination Product which is equal to
the percentage of the fair market value of the Product and such other
components in the Combination Product represented by the fair market value of
the Product.
1.57 "Non-Amplified Reimbursement" shall mean reimbursement under the
Medicare/Medicaid CPT code for reimbursement as a non-amplified assay, which as
of the Effective Date is 87490 (CT) and 87590 (GC).
1.58 "Non-proprietary Equipment" shall mean the equipment available for
purchase from Third Parties, as set forth on Schedule 1.58, which is utilized
in connection with Digene Equipment, and which has been specified and validated
under the Validation Protocol (as hereinafter defined) for use in connection
with Products.
1.59 "Other Products" shall mean CMV and SHARP(TM) (as hereinafter
defined).
1.60 "Other Product Specifications" shall mean the characteristics of CMV
or SHARP, as the case may be, set forth on Schedule 1.60, as such
specifications may be amended from time to time pursuant to Section 21.10.
1.61 "Party" shall mean Digene or Abbott, and "Parties" shall mean Digene
and Abbott.
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.62 "Patents" shall mean the patents and patent applications (including
any patents that issue based upon such patent applications) set forth on
Schedule 1.62.
1.63 "Product" shall mean CT/GC, HBV and HPV, or any combination of the
foregoing, including the Product Accessories (as hereinafter defined), manuals,
labeling, packaging and package inserts thereto.
1.64 "Product Accessories" shall mean proprietary sample collection
devices, reagents, and/or other consumables that may be used in connection with
Products, as set forth on Schedule 1.64.
1.65 "Purchase Price" shall mean the price for Equipment purchased by
Abbott and its Affiliates from Digene hereunder, more fully described in
Section 6.1.
1.66 "Recall" shall have the meaning set forth in Section 10.1.
1.67 "SHARP" shall have the meaning set forth in Section 20.5.
1.68 "SHARP Territory" shall mean Europe, the Middle East and Africa.
1.69 "Shipped Products" shall have the meaning set forth in Section 7.1.
1.70 "Specifications" shall mean collectively the CT/GC Specifications,
the HBV Specifications and the HPV Specifications.
1.71 "Term" shall mean the Initial Term and any extensions thereto, unless
otherwise terminated earlier in accordance with the terms and conditions of
Article 15.
1.72 "Territory" shall mean collectively the CT/GC Territory, the HBV
Territory and the HPV Territory, as may be amended in accordance with Sections
2.4 or 15.5.
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.73 "Third Party" shall mean a natural person, corporation, partnership,
trust, joint venture, governmental authority or other legal entity or
organization other than the Parties and/or their Affiliates.
1.74 "Trade" shall mean potential customers, including, without
limitation, hospitals, physician office laboratories, reference laboratories,
alternate site facilities and group purchasing organizations, but shall not
include a Distributor during the term of such Distributor's Distribution
Agreement.
1.75 "Trade Secrets" shall mean the technical or non-technical data,
formulae, patterns, compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans, marketing plans, product
plans and the like, owned or licensed by a Party and/or its Affiliates: (a)
from which a Party and/or its Affiliates derives actual or potential economic
value by being held in secrecy and not known by Third Parties who are not under
an obligation of confidentiality with respect thereto; or (b) which gives such
Party an actual or potential advantage over Third Party competitors who do not
know or use it.
1.76 "Transition Period" shall have the meaning set forth in Section 20.8.
1.77 "United States" shall mean the fifty (50) states of the United
States, including its territories and possessions and the District of Columbia
and Puerto Rico.
1.78 "Validation Protocols" shall mean the Validation Protocols set forth
on Schedule 3.6.
1.79 "Warranty Period" shall have the meaning ascribed to it in Section
13.1(b).
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.80 "Work With" shall mean to provide reasonable assistance, to consult,
to offer advice and to take other reasonable steps designed to help resolve
technical or quality or customer problems and to provide a professional,
unified image to customers, and timely cooperation in the execution of
distribution, sales, marketing and promotion programs or the adjustments of any
Net Sales thresholds under this Agreement; provided, however, that "Work With"
shall not mean incurring any capital expenditures or incurring any expenses
other than direct salary, travel and accommodation costs of Abbott or Digene
employees, as the case may be. For the purposes of this definition, a failure
to "Work With" shall include a habitual neglect or failure to perform the
activities outlined in this Agreement over a commercially reasonable period of
time or failure to act in good faith, on a timely basis at the request of the
other Party. A failure to "Work With" shall be a material breach for the
purposes of Section 15.2.
1.81 "Year 2000 Compliant" shall mean having no lesser functionality with
respect to records containing dates before or after January 1, 2000, than
previously with respect to dates prior to January 1, 2000.
ARTICLE 2. - APPOINTMENT TO MARKET AND DISTRIBUTE
2.1 Exclusive Appointment for CT/GC. Subject to the terms and conditions
of this Agreement, Digene hereby appoints Abbott and its Affiliates for the
Term as Digene's exclusive distributor, subject to the rights of existing
Distributors, of CT/GC in the CT/GC Territory for use in the Field and Abbott
hereby accepts such appointment. As part of such appointment under this Section
2.1, Abbott shall have the right to appoint sub-distributors in those countries
or
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
territories in the CT/GC Territory in which Abbott generally uses
sub-distributors to distribute Abbott diagnostic products. As exclusive
distributor hereunder, Abbott and its Affiliates shall have the sole and
exclusive right, subject to the rights of existing Distributors, to market,
promote, sell and distribute CT/GC in the CT/GC Territory for use in the Field,
which right shall operate to exclude all others, including Digene, its
Affiliates and all Third Parties.
2.2 Exclusive Appointment for HBV. Subject to the terms and conditions of
this Agreement, Digene hereby appoints Abbott and its Affiliates for the Term
as the exclusive distributor, subject to the rights of existing Distributors,
of HBV in the HBV Territory for use in the Field and Abbott hereby accepts such
appointment. As part of such appointment under this Section 2.2, Abbott shall
have the right to appoint sub-distributors in those countries or territories in
the HBV Territory in which Abbott generally uses sub-distributors to distribute
Abbott diagnostic products. As exclusive distributor hereunder, Abbott and its
Affiliates shall have the sole and exclusive right, subject to the rights of
existing Distributors, to market, promote, sell and distribute HBV in the HBV
Territory for use in the Field, which right shall operate to exclude all
others, including Digene, its Affiliates and all Third Parties.
2.3 Exclusive Appointment for HPV. Subject to the terms and conditions of
this Agreement, Digene hereby appoints Abbott and its Affiliates for the Term
as the exclusive distributor, subject to the rights of existing Distributors,
of HPV in the HPV Territory for use in the Field and Abbott hereby accepts such
appointment. As part of such appointment under this Section 2.3, Abbott shall
have the right to appoint sub-distributors in those countries or territories in
the HPV Territory in which Abbott generally uses sub-distributors to distribute
Abbott
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
diagnostic products. As exclusive distributor hereunder, Abbott and its
Affiliates shall have the sole and exclusive right, subject to the rights of
existing Distributors, to market, promote, sell and distribute HPV in the HPV
Territory for use in the Field, which right shall operate to exclude all
others, including Digene, its Affiliates and all Third Parties.
2.4 Additional Territories. Promptly after the Effective Date, but no
later than December 31, 1999, the Parties shall commence good faith exclusive
negotiations to expand the territories covered by this Agreement with respect
to each Product subject to any existing agreements between Digene and a Third
Party; provided, however, that neither Party shall be obligated to enter into
such an arrangement after completing such good faith negotiations. In the event
that prior to December 31, 1999, Digene receives an unsolicited request from a
Third Party, which Digene desires to pursue, to negotiate or enter into an
agreement to market and distribute any Product in territories not covered by
this Agreement, Digene shall provide prompt written notice to Abbott with
respect to the Product and the territories for which it has received an
unsolicited request. Abbott shall provide written notice to Digene within ten
(10) Business Days of Abbott's receipt of Digene's notice of the unsolicited
request of whether it will commence good faith exclusive negotiations with
Digene regarding such Product and territories pursuant to this Section 2.4.
Such negotiations shall be deemed to commence on the date of Abbott's notice to
Digene. In the event that Abbott does not so notify Digene that it desires to
commence such negotiations, Digene may enter into negotiations and an agreement
with respect to such Product in such territories. In the event the Parties do
not enter into an expanded contractual relationship within sixty (60) days
after the commencement of good faith exclusive
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
negotiations, then, from the conclusion of such negotiations or the expiration
of such sixty (60) day period, whichever first occurs, until December 31, 2001,
Digene shall not enter into any distribution agreement with a Third Party with
respect to one or more Products in territories not covered by this Agreement,
the terms of which, when considered in their entirety, are materially more
favorable to the Third Party than the terms finally offered to or by Abbott in
such negotiations. Digene shall have no obligation under this Section 2.4 with
respect to any Product if Abbott is in material breach of this Agreement or if,
with respect to such Product, Abbott's distribution rights are non-exclusive or
have terminated.
2.5 Noncompetition. During the Term, Abbott and its Affiliates shall not,
directly or indirectly, promote, market, distribute or sell any products that
are covered by an HPV patent or patents owned by or licensed to Digene or its
Affiliates unless Digene or its Affiliates have licensed such patent or patents
to Abbott or one or more of its Affiliates.
2.6 Trade Costs. Abbott and its Affiliates shall be responsible for
payment of all rebates, discounts, management fees, service allowances, credits
and taxes associated with the sale by Abbott or its Affiliates of Shipped
Products.
2.7 Selling Price. Abbott and its Affiliates shall, in their sole
discretion, determine the final sales price of Shipped Products sold by Abbott
and its Affiliates to the Trade; provided, however, that any discount to the
sales price of Products shall be consistent with the overall discounting policy
of Abbott in connection with the sale of its diagnostic products and, when
considered in relation to the percentage discount applicable to Abbott
diagnostic products which
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
are sold together with or in connection with the Products, shall not materially
adversely affect Net Sales.
2.8 Contracting Rights. During the Term, Abbott and its Affiliates shall
have the exclusive right, subject to the Distribution Agreements, to contract
with the Trade for the sale of Products in the applicable Territory.
2.9 Distributor Territories. Digene shall terminate existing agreements,
arrangements and understandings regarding the distribution of Products with
Distributors in the Territory, unless such termination violates either the
terms of any such agreement, arrangement or understanding, any applicable law,
or both or such termination requires any payment by Digene. In such event,
Digene shall use commercially reasonable efforts to negotiate, at Digene's
cost, an arrangement whereby such agreement, arrangement or understanding (a)
is terminated, or (b) is converted to non-exclusive; provided, however, that
Digene shall have no obligations under this sentence if the cost of termination
or conversion is, in Digene's sole judgment, unreasonable. For the
non-exclusive Distributor Territories, a list of which is set forth on Schedule
1.30, Abbott's and its Affiliates' appointment hereunder shall be co-exclusive
for the applicable Products as of the Effective Date and shall remain
co-exclusive for such Products until termination of the applicable agreement,
arrangement or understanding with a Distributor, at which time, the Distributor
Territories that are subject to such agreement, arrangement or understanding
shall become part of the applicable Territory for such Products. For the
exclusive Distributor Territories, a list of which is set forth on Schedule
1.30, Abbott and its Affiliates shall have no rights to distribute the
applicable Products therein until termination of the applicable agreement,
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
arrangement or understanding with a Distributor, at which time, the Distributor
Territories that are subject to such agreement, arrangement or understanding
shall become part of the applicable Territory for such Products.
2.10 Non-Exclusive Appointment for Equipment. Subject to the terms and
conditions of this Agreement, Digene hereby appoints Abbott and its Affiliates
for the Term as the non-exclusive distributor of Equipment in the Territory for
use with respect to Products and in the CMV Territory with respect to CMV in
the Field and Abbott accepts such appointment. As part of such appointment
under this Section 2.10, Abbott shall have the right to appoint
sub-distributors in those countries or territories in the Territory in which
Abbott generally uses sub-distributors to distribute Abbott diagnostic
products.
ARTICLE 3. - MARKETING AND PROMOTION
3.1 Abbott's General Marketing and Promotion Responsibilities. Abbott
shall use commercially reasonable efforts to promote, market, sell and
distribute CT/GC, HBV, HPV, CMV, SHARP and Equipment in each country in the
CT/GC Territory, the HBV Territory, the HPV Territory, the CMV Territory and
the SHARP Territory, respectively, as the case may be. Such efforts may
include, but shall not be limited to, preparing collateral marketing materials,
conducting advertising, presenting educational seminars, participating in
customer visitations, displaying exhibits at trade shows and ensuring
representation and attendance at industry meetings, all of which shall be
performed in accordance with Abbott's usual and customary practices with regard
to other Abbott-distributed diagnostic products of similar market potential.
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Abbott shall, on an on-going basis, and at Abbott's cost, train and supervise
the appropriate personnel within the ADD sales force in the promotion and sale
of Shipped Products.
3.2 Digene's General Promotional Responsibilities. For the initial
training, Digene shall provide training personnel in such reasonable scope,
time and quantity as the Parties may mutually agree to train ADD's sales force.
In addition Digene, at Digene's cost, shall provide reasonable assistance to
Abbott in the preparation of appropriate sales force training materials.
Further, Digene shall attend, at Digene's expense, major trade shows during the
Term, as mutually agreed by the Parties, to provide Abbott with necessary
technical and Product and Other Product information support.
3.3 Development of Promotional and Marketing Materials. Promptly after
the Effective Date, Digene shall deliver to Abbott copies of all promotional
and marketing materials owned or controlled by Digene to be used by Abbott and
its Affiliates in the promotion and sale of Products and Other Products
hereunder. During the Term, Abbott shall develop and prepare, at Abbott's sole
discretion and at its cost, promotional and marketing materials for use in its
sale of Shipped Products. Abbott shall appropriately and with visual prominence
consistent with the use of its name, use Digene, Hybrid Capture, the names of
Products, Other Products and Digene Equipment and Digene Trademarks in all
promotional and marketing materials prepared for use in the sale of Shipped
Products.
3.4 Marketing Plans. Abbott shall develop and prepare, at Abbott's sole
discretion and at its cost, all marketing plans for the promotion and sale of
Shipped Products; provided, however, that Abbott shall provide to Digene prior
to implementation, any marketing plans
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
developed by Abbott with respect to Products for Digene's review and comment
only. As part of such marketing plans, Abbott and Digene shall mutually agree
to activities within such plans that shall be Digene's responsibility. The
marketing plans of Abbott shall be considered Confidential Information. With
respect to marketing plans regarding HPV, Abbott and Digene shall perform
marketing activities as follows:
(a) Digene shall be primarily responsible for marketing
activities directed toward obtaining governmental endorsement of HPV
testing, institutional reimbursement for use of the HPV test, and
maximizing consumer awareness and education of the benefits of HPV
testing, which activities shall be subject to the approval of Abbott which
will not be unreasonably withheld. In performing such activities, Digene
shall exercise the same diligence and shall commit the same level of
effort as it does when it markets and promotes Digene Products and the
Products outside the HPV Territory;
(b) in addition to its overall marketing responsibilities, Abbott
shall have the sole responsibility for marketing activities directed
toward obtaining laboratory endorsement and systematic use of HPV testing;
and
(c) Abbott and Digene shall Work With each other in good faith and
use commercially reasonable efforts to promote HPV testing for primary
screening in the HPV Territory, subject to applicable regulatory approvals
and restrictions.
3.5 Sales Reports. Abbott shall provide to Digene within forty-five (45)
days after each Calendar Quarter, a sales report reflecting the sales of
Products, by product part number and by country, by Abbott and its Affiliates.
Each such report shall provide Net Sales dollars and
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unit sales of Products, listed separately by product, by product part number
and by country, for that Calendar Quarter, and for that year-to-date. These
sales reports shall be considered Confidential Information.
3.6 Support. During the Term, Abbott and its Affiliates and
subcontractors shall provide its customers purchasing Shipped Products with the
same level of training, support and service that Abbott provides with respect
to other Abbott-distributed diagnostic products it sells to the Trade. Abbott
and its Affiliates shall use commercially reasonable efforts to instruct from
time to time all customers purchasing Products and Other Products to utilize
Equipment that has been specified and validated under the Validation Protocols
for Equipment used in connection with Products and Other Products. The
Validation Protocols shall be as set forth on Schedule 3.6.
3.7 Product Samples. During the Term, Digene shall make available to
Abbott Products in such quantities as may be reasonably requested by Abbott and
its Affiliates and reasonably satisfactory to Digene, at [*****] price, to be
used by Abbott and its Affiliates and sub-distributors to demonstrate and
sample the Products to the Trade in the Territory subject to reconciliation
under Section 6.4.
3.8 Marketing Steering Committee. Abbott and Digene shall create a
Marketing Steering Committee which will be responsible for reviewing and
recommending general marketing and promotional responsibilities for Products
under this Article 3, recommending marketing plans and resolving operational
issues which may arise from time to time. The Marketing Steering Committee
shall consist of two (2) representatives from Abbott and two (2)
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representatives from Digene, as designated from time to time by each respective
Party. The Marketing Steering Committee shall meet in person or by telephone at
least twice per year. Either Party may replace one or both of its
representatives on the Marketing Steering Committee at any time after providing
five (5) Business Days written notice to the other Party. The members of the
Marketing Steering Committee shall Work With each other in good faith to
satisfy their responsibilities under this Section 3.8.
ARTICLE 4. - SALES PERFORMANCE THRESHOLDS
4.1 Net Sales Thresholds for CT/GC. As of the Effective Date, the FDA
has not cleared CT/GC for use in the United States. Until 510(k) clearance by
the FDA to market CT/GC (as filed with the FDA as of the Effective Date) in the
United States has been obtained, Digene is able to deliver CT/GC to Abbott for
resale in the United States, and CT/GC meets the automation specifications set
forth on Schedule 4.1 and has been internally validated by Digene pursuant to
the Validation Protocols ("CT/GC Clearance"), Abbott shall not be subject to
any Net Sales thresholds for CT/GC. Abbott shall be subject to Net Sales
thresholds for CT/GC in the CT/GC Territory at the completion of the [********]
following the Contract Year in which CT/GC Clearance was obtained and
thereafter, as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
CPT Code Net Sales in [***] Net Sales in [***] Net Sales in [***]
- -------- ------------------ ------------------ ------------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-Amplified $[***] $[***] The greater of
Reimbursement $[***] or the Net
Sales in the [***]
- ------------------------------------------------------------------------------------------------
</TABLE>
27
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<TABLE>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amplified $[***] $[***] The greater of
Reimbursement $[***] or the Net
Sales in the [***]
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) Abbott Achieves Thresholds. If Abbott and its Affiliates achieve
each Net Sales threshold set forth above during the Term, this Agreement
shall be extended automatically on an exclusive basis with respect to
CT/GC in the CT/GC Territory for an additional Contract Year and shall
continue to be extended for an additional Contract Year for each
subsequent Contract Year in which the Net Sales threshold is achieved.
If Abbott and its Affiliates do not have Net Sales in the [******]
following the Contract Year in which CT/GC Clearance was obtained which
meet the Net Sales threshold established for such Contract Year or if
after the Initial Term, Abbott and its Affiliates do not have Net Sales
in any subsequent Contract Year which meet the Net Sales threshold
established for Contract Years after the Initial Term, Digene, at its
sole discretion, may elect, within one hundred and twenty (120) days
following the completion of such Contract Year, to convert this
Agreement with respect to CT/GC only, to a non-exclusive appointment for
[*****************] following the Contract Year in which the Net Sales
threshold was not achieved. Digene shall not be obligated to pay Abbott
a termination fee if Digene elects to convert as described above. If
Digene elects to so convert this Agreement, Digene shall provide Abbott
with written notice of such election and such non-exclusive appointment
shall become applicable immediately upon Abbott's receipt of the
notification.
28
<PAGE> 37
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(b) Abbott Fails to Achieve Thresholds. If Abbott and its Affiliates do
not achieve the Net Sales threshold for CT/GC for the [******] following
the Contract Year in which CT/GC Clearance was obtained, Digene, at its
sole discretion, may elect, within one hundred and twenty (120) days
following the completion of such [******], to convert this Agreement
with respect to CT/GC only, to a non-exclusive appointment for the
remainder of the Term. If Digene elects to so convert this Agreement,
Digene shall provide Abbott with written notice of such election and
such non-exclusive appointment shall become applicable immediately upon
Abbott's receipt of notification. Digene shall not be obligated to pay
Abbott a termination fee if Digene elects to convert as described above.
At the expiration of the Term, if Abbott was then an exclusive
distributor, Abbott and Digene shall engage in a wind-down for a period
of twelve (12) months commencing at the expiration of the Term as more
fully described in Section 4.5.
4.2 Net Sales Thresholds for HBV. During the Term, Abbott shall be
subject to Net Sales thresholds for HBV at the completion of the [******] and
each subsequent Contract Year, if any, as follows:
<TABLE>
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
[********] [********] Each Contract Year
Following the[***]
- ------------------------------------------------------------------------------------------------
$[***] $[***] Actual Net Sales in
the [***]
- ------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 38
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(a) Abbott Achieves Thresholds. If Abbott and its Affiliates achieve
each Net Sales threshold set forth above during the Term, this Agreement
shall be extended automatically on an exclusive basis with respect to
HBV in the HBV Territory for an additional Contract Year and shall
continue to be extended for an additional Contract Year for each
subsequent Contract Year in which the Net Sales threshold is achieved.
After the Initial Term, if Abbott and its Affiliates do not have Net
Sales in any subsequent Contract Year which meets the Net Sales
threshold established for Contract Years after the Initial Term, Digene,
at its sole discretion, may elect, within one hundred and twenty (120)
days following the completion of such Contract Year, to convert this
Agreement with respect to HBV only, to a non-exclusive appointment for
[*********] following the Contract Year in which the Net Sales threshold
was not achieved. Digene shall not be obligated to pay Abbott a
termination fee if Digene elects to convert as described above. If
Digene elects to so convert this Agreement, Digene shall provide Abbott
with written notice of such election and such non-exclusive appointment
shall become applicable immediately upon Abbott's receipt of the
notification.
(b) Abbott Fails to Achieve Thresholds. If Abbott and its Affiliates do
not achieve the Net Sales threshold for HBV for the [********], Digene,
at its sole discretion, may elect, within one hundred and twenty (120)
days following the completion of such [********], to convert this
Agreement with respect to HBV only, to a non-exclusive appointment for
the remainder of the Term. If Digene elects to so convert
30
<PAGE> 39
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
this Agreement, Digene shall provide Abbott with written notice of such
election and such non-exclusive appointment shall become applicable
immediately upon Abbott's receipt of the notification. In addition, if
Abbott and its Affiliates do not achieve the Net Sales threshold for HBV
for the [********], and if Abbott was then an exclusive distributor,
Digene, at its sole discretion and upon written notice to Abbott, may
terminate this Agreement with respect to HBV only and provide Abbott
with a wind-down period of twelve (12) months commencing at the
expiration of the Term, as more fully described in Section 4.5. Digene
shall not be obligated to pay Abbott a termination fee if Digene elects
to convert or terminate as described above.
4.3 Net Sales Thresholds for HPV. During the Term, Abbott shall be
subject to Net Sales thresholds for HPV at the completion of each of the
[********], inclusive, and each subsequent Contract Year, if any, as follows:
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------
$[***] $[***] $[***] $[***]
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) Abbott Achieves Thresholds. If Abbott and its Affiliates achieve
the Net Sales thresholds set forth above for each of the [********],
this Agreement shall continue automatically after each such Contract
Year on an exclusive basis with respect to HPV in the HPV Territory for
an additional Contract Year. After the [********], the following shall
apply:
31
<PAGE> 40
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(i) If Abbott and its Affiliates have Net Sales of HPV in
the HPV Territory in the [********] of between [********] and
[********], Digene shall elect, at its sole discretion, either
to: (A) terminate this Agreement with respect to HPV only and
provide Abbott with a wind-down for a period of twelve (12)
months as more fully described in Section 4.5, plus pay Abbott a
[*********] residual for five (5) years payable at the end of
[********] following termination, based on Abbott's and its
Affiliates' Net Sales of HPV in the HPV Territory in the
[**************************]; or (B) convert this Agreement with
respect to HPV only, to a non-exclusive appointment for
[************************];
(ii) If Abbott and its Affiliates have Net Sales of HPV in
the HPV Territory in the [********] of greater than [********]
but less than [********], Digene shall elect, at its sole
discretion, either to: (A) terminate this Agreement with respect
to HPV only and provide Abbott with a wind-down for a period of
twelve (12) months as more fully described in Section 4.5, plus
pay Abbott a [************] residual for five (5) years payable
at the end of [********] following termination, based on Abbott's
and its Affiliates' Net Sales of HPV in the HPV Territory in the
[**********************]; or (B) convert this Agreement with
respect to HPV only, to a non-exclusive appointment for
[************************]; and
(iii) If Abbott and its Affiliates have Net Sales of HPV in
the HPV Territory in the [********] of [********] or greater,
Abbott, and not Digene, shall elect, at Abbott's sole discretion,
either to: (A) terminate this Agreement with respect to HPV only
and provide Digene with a wind-down for a period of
twelve (12) months as more fully described in Section 4.5, plus
receive residual payments from Digene of [***************] for
five (5) years payable at the end of [********] following
termination, based on Abbott's and its Affiliates' Net Sales of
HPV in the HPV Territory in the [**********************]; or (B)
convert this Agreement with respect to HPV only, to a
non-exclusive appointment for [********************];
32
<PAGE> 41
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
provided, however, that in the event Abbott fails to notify
Digene of its election within one hundred twenty (120) days of
the end of the [*****], Digene shall provide Abbott with prompt
written notice of such failure and Abbott shall have thirty (30)
days from receipt of such notice to notify Digene in writing of
Abbott's election under this Section 4.3(a)(iii). If Abbott fails
to so notify Digene within such thirty (30) day period, Digene
may, at its sole discretion, terminate this Agreement with
respect to HPV and Digene shall have no obligation to provide
Abbott with any wind-down period or pay any termination fee or
any residual described in this Section 4.3(a)(iii);
Digene shall not be obligated to pay Abbott a termination fee if
Abbott is converted to a non-exclusive appointment as described
above.
(b) Abbott Fails to Achieve Thresholds. If Abbott and its
Affiliates do not achieve the Net Sales threshold for HPV for
any of the [*********], inclusive, Digene, at its sole
discretion, may elect, within one hundred and twenty (120) days
following the completion of each such Contract Year, to terminate
this Agreement with respect to HPV only.
33
<PAGE> 42
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
If Digene elects to terminate this Agreement and Abbott was then
an exclusive distributor, Digene shall provide Abbott with
written notice of such election and Abbott and Digene shall
engage in a wind-down for a period of twelve (12) months
commencing at the expiration of the Term, as more fully
described in Section 4.5. Digene shall not be obligated to pay
Abbott a termination fee if Digene elects to convert or
terminate as described above.
4.4 Exercise of Rights. Digene shall have one hundred and twenty (120)
days from the date on which it is determined that Abbott did not achieve a Net
Sales threshold set forth in this Article 4 to advise Abbott in writing that
Digene is electing to assert the particular right associated with Abbott's
failure to achieve such Net Sales threshold. In the event Digene does not
provide Abbott with such written election within the one hundred and twenty
(120)-day period, Digene shall be deemed to have waived such threshold
requirement and Digene shall be precluded from asserting Abbott's failure to
achieve such Net Sales threshold at any other time thereafter, except as
provided in Sections 15.4(b) and 19.2(b)(ii)(A).
4.5 Wind-down Activities. During a wind-down period Abbott's rights
shall convert to non-exclusive for the Product to which the wind-down period
applies, and Digene and Abbott shall continue to perform their respective duties
and be bound to their respective obligations hereunder with respect to
manufacturing, supplying, selling and distributing such Product. During such
wind-down period, Abbott and its Affiliates shall only solicit Trade that were
customers of Abbott or its Affiliates for the specific Product or Products which
the wind-down period applies as of the date of the termination of the Term, and
shall be precluded from selling such Product or Products to Third Parties that
were not customers of Abbott or its Affiliates as of the date of the termination
of the Term. If new customers contact Abbott or its Affiliates on their own
regarding such Product or Products, Abbott shall refer such customers directly
to Digene or its designee.
34
<PAGE> 43
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
4.6 Factors Affecting Net Sales. In the event Abbott's Net Sales with
respect to any Product is materially adversely impacted as a result of: delays
in Digene obtaining CT/GC Clearance as contemplated by Section 4.1; changes in
reimbursement structure; Digene's failure to supply Abbott with Product in
accordance with the terms and conditions of Articles 5 or 18; Recalls; other
actions by regulatory authorities or by Digene as described in Section 12.4; or
any adverse change in the performance of the Product or failure to meet
Specifications, the Parties shall meet and negotiate in good faith an agreement
with respect to the appropriate downward adjustment to the applicable Net Sales
thresholds set forth above.
ARTICLE 5. - MANUFACTURE AND SUPPLY
5.1 Supply.
(a) Supply. Upon the terms and subject to the conditions of this
Agreement, Digene shall manufacture, or cause to be manufactured, and
provide to Abbott such quantities of Products, Other Products and
Equipment as are consistent with the forecasting and ordering
provisions set forth in Sections 5.2 and 5.3.
(b) Labeling and Package Inserts. Digene, at its expense, shall
translate and modify each Product's, CMV's and Digene Equipment's
documentation and labeling into
35
<PAGE> 44
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Spanish, Italian, French, and German and Abbott shall be responsible
for translation into any other language so that such Products, CMV and
Digene Equipment comply with all local requirements for sale and
clinical use in each country or region of the applicable Territory.
Each Party shall assist the other Party with such translation at such
other Party's request. Further, subject to the requirements of
applicable law, Digene shall include on all Products a co-branded label
identifying Abbott and Digene with equal prominence, which co-branded
label shall be reasonably satisfactory to both Parties.
(c) Registrations.
(i) Requirements. Digene shall own and hold and shall have
all right, title and interest in and to all registrations with
respect to Product and CMV that have been or will be filed in
the name of Digene. Digene, at its sole expense, except as
otherwise provided in this Section 5.1(c)(i) and as provided in
Section 19.6(b), shall be responsible for completing and
maintaining all documentation, including technical (e.g., the
international products master file) and all legal documentation
required for regulatory approvals for marketing Products and CMV
in the Territory and the CMV Territory, as the case may be. The
Parties shall Work With each other to complete such
registrations. To the extent a Designated Country requires
regulatory documentation necessary to market Products and CMV to
be filed in the name of a local Affiliate, Abbott shall promptly
notify Digene in writing of Abbott's intent to seek such
registrations and, if Digene does not have or does not seek to
create such a local Affiliate, then
36
<PAGE> 45
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Abbott, at Abbott's sole expense, shall be responsible for
completing and maintaining all documentations, including
technical, and all legal documentation required for regulatory
approvals for marketing Products and CMV in such Designated
Country. Further, Abbott shall own and hold and shall have all
right, title and interest in and to all registrations with
respect to Products and CMV that Abbott paid for pursuant to the
immediately preceding sentence; provided, however, that Abbott
shall not own or have any proprietary interest in or to any
Confidential Information disclosed by Digene hereunder with
respect to such registrations, unless otherwise agreed in
writing by the Parties. The Parties shall Work With each other
to prepare and submit all such regulatory filings in such
Designated Country.
(ii) Transfers. In the event Abbott does not have exclusive
distribution rights with respect to a Product hereunder and
Digene desires to access and use any registrations obtained by
Abbott under Section 5.1(c)(i) with respect to such Product or
CMV, Digene shall so advise Abbott in writing. Promptly after
receipt of such request, Abbott shall, to the extent permissible
under applicable law, provide Digene access and use of the
registrations requested by Digene, provided that Digene
reimburses Abbott for Abbott's direct expense in obtaining such
registrations in accordance with the following formula: Digene
shall reimburse Abbott at [********] of Abbott's direct expense,
and such reimbursement percentage shall be reduced in [********]
for each Contract Year in which such
37
<PAGE> 46
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
registrations are owned and held by Abbott and in which Abbott
retains any marketing and distribution rights hereunder
(excluding any wind-down periods described in Article 4) with
respect to the Products and/or CMV to which such registrations
apply; provided, however, that Digene shall only be obligated to
reimburse Abbott for [**********************] determined pursuant
to such formula for any periods during which Abbott's rights to
such Product and/or CMV are [*************] hereunder. In the
event Abbott does not have any marketing and distribution rights
hereunder with respect to a Product and/or CMV the registration
rights of which have been requested by Digene, Abbott shall, to
the extent permissible under applicable law, transfer to Digene
all right, title and interest in and to such registrations.
(d) Changes. Digene shall notify Abbott in writing of any
proposed changes in Digene's manufacturing process which affect fit,
form or function of Product or Other Product. Upon the request of
Abbott, Digene shall provide to Abbott representative samples of such
changed Product or Other Product in sufficient quantities for the sole
purpose of evaluating such proposed change in Digene's manufacturing
process. Upon such notice of any proposed change after receipt of such
representative samples, Abbott may evaluate and communicate to Digene
its approval or disapproval of such change within forty-five (45) days
after the date of notice; provided, however, that Abbott shall not
unreasonably withhold its approval of any such change. A failure to
notify by Abbott within forty-five (45) days after the date of notice
by Digene shall be deemed to
38
<PAGE> 47
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
constitute Abbott's approval of such proposed change. Only upon
approval may Digene incorporate such change into the manufacturing
process. Digene shall be obligated only to notify Abbott in writing of
any proposed material changes in Digene's manufacturing process which
do not affect fit, form or function of Product or Other Product but no
action by Abbott shall be required in order for Digene to incorporate
such change.
(e) Certified Vendor. Digene shall use its reasonable
commercial efforts to become an Abbott certified vendor within twelve
(12) months after the Effective Date.
(f) Special Provisions. Digene shall maintain stock of items
critical to the manufacture of Products and Other Products in
accordance with its standard operating procedure for ordering special
materials. Digene shall provide Abbott notice of any change to such
standard operating procedure reasonably likely to affect the production
of Products or Other Products.
(g) Fully Burdened Manufacturing Costs Report. Digene shall
provide to Abbott a written report reflecting a detailed analysis of
the Fully Burdened Manufacturing Costs for Products purchased on a cost
or cost-plus basis for the preceding Calendar Quarter and for Digene
Equipment purchased on a cost or cost-plus basis within forty-five (45)
days after each Contract Year for the preceding Contract Year. Further,
Digene shall advise Abbott in writing sufficiently in advance of any
proposed change in Digene's accounting methodology and treatment so
that Abbott can adjust its record-keeping accordingly to integrate such
change.
39
<PAGE> 48
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
5.2 Forecasting. Within thirty (30) days after the Effective Date, Abbott
shall provide to Digene a written forecast of Abbott and its Affiliates'
purchases of Product, Other Product and Equipment (listed separately) for the
first Contract Year. This forecast shall not be binding on either Party and
shall be used for planning purposes only. Further, on the Effective Date with
respect to the remainder of the first Calendar Quarter of the first Contract
Year, and then on or before the first day of each Calendar Quarter thereafter,
Abbott shall provide to Digene a written rolling forecast estimating by month
Abbott and its Affiliates' purchases of Product, Other Product and Equipment
(listed separately) for the following twelve (12)-month period. The quantity of
Product, Other Product and Equipment listed for the first three (3) months of
each forecast shall be a firm order, which is a guarantee of minimum orders to
be placed during the first three (3) months of each forecast and the remainder
of the forecast shall be used for planning purposes only. In the event Abbott
and its Affiliates place firm orders during a Calendar Quarter that exceed the
amount of the firm order for such Calendar Quarter, Digene shall use its
commercially reasonable efforts to meet any such additional firm orders placed
by Abbott or its Affiliates. Notwithstanding the preceding sentence, Digene
shall have no obligation to fill any additional firm orders to the extent such
additional firm orders exceed the quantities of Product, Other Product and
Equipment (listed separately) contained in the forecast by more than one
hundred fifty percent (150%).
5.3 Orders. All orders shall be placed on Abbott purchase order forms,
which shall specify the quantity ordered, price, the requested delivery date
and any special shipping instructions or invoicing information. Except for the
terms specified in the purchase order in
40
<PAGE> 49
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
accordance with the preceding sentence, the terms and conditions of this
Agreement shall govern all purchases and supersede the general terms of any
purchase order, acknowledgment or invoice form.
5.4 Failure to Supply Product.
(a) In the event Digene is unable to supply Abbott and its
Affiliates with Product (on a Product by Product basis): (i) in
accordance with Abbott's and its Affiliates' firm purchase orders
issued in accordance with Sections 5.2 and 5.3; (ii) as a result of an
uncured material breach by Digene of any covenant, representation or
warranty contained in this Agreement; or (iii) as a result of an event
of force majeure, Abbott, subject to the terms and conditions of
Sections 5.4(b), 5.4(c) and 5.4(d), shall have the right to manufacture
or have manufactured for it any Product which supply is adversely
impacted as described above.
(b) Digene shall notify Abbott in writing as soon as practicable
if Digene is unable or anticipates it will be unable to provide
sufficient quantities of Product as a result of a condition described
in Sections 5.4(a)(i)-(iii). Upon receipt of such notification, Abbott
shall Work With Digene to resolve the failure to supply. If such
failure to supply has not been resolved in the reasonable good faith
judgment of Abbott, which judgment shall not be unreasonably withheld,
within six (6) months from the date Abbott received the notification
from Digene, Abbott shall, on thirty (30) days written notice to
Digene, have the right to manufacture or have manufactured for it such
impacted Product.
41
<PAGE> 50
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(c) In the event Abbott exercises its right to manufacture or
have manufactured for it any Product pursuant to Section 5.4(b), (i)
Abbott shall be obligated to pay to Digene an amount equal to
[********] of the [********] for the impacted Product which Abbott
would have been obligated to pay had Digene continued to manufacture
such Product, until Digene resumes the manufacture of such Product
under Section 5.4(e), and (ii) Digene shall, solely for the period
during which Abbott exercises its rights pursuant to Section 5.4(b),
transfer to Abbott any rights, materials, know-how and documentation
necessary for the manufacture of such Product, if necessary, pursuant
to a fully paid temporary license until Digene resumes manufacture of
the impacted Product under Section 5.4(e). Abbott shall use such
rights, materials, know-how and documentation only for the manufacture
of such Product in accordance with this Section 5.4 and not for any
other purpose.
(d) Notwithstanding the transfer to Abbott of any rights,
materials, know-how, and documentation necessary for the manufacture of
any Product, Digene shall be permitted to cure any condition described
in Section 5.4(a)(i)-(iii). In the event Digene cures any inability to
supply Abbott and its Affiliates with any Product at any time after
Abbott's exercise of its right to manufacture such Product, at Digene's
election, Abbott shall return to Digene all rights, materials,
know-how, and documentation previously transferred pursuant to this
Section and Digene shall resume the manufacture of such Product. Any
rights, materials, know-how, and documentation transferred pursuant to
this Section shall be treated by Abbott and/or its Affiliates as
Confidential Information.
42
<PAGE> 51
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(e) If Digene elects to exercise its right to resume the
manufacture of such Product, Digene shall pay to Abbott Abbott's direct
cost of capital after amortization and direct expenses for materials,
labor and direct allocable overhead for establishing the capability to
manufacture such Product and Abbott shall transfer and convey to Digene
title to any equipment and other assets represented by such cost.
5.5 Failure to Supply Digene Equipment.
(a) In the event Digene is unable to supply Abbott and its
Affiliates with Digene Equipment (on a product by product basis): (i) in
accordance with Abbott's and its Affiliates' firm purchase orders issued in
accordance with Sections 5.2 and 5.3; (ii) as a result of an uncured material
breach by Digene of any covenant, representation or warranty contained in this
Agreement; or (iii) as a result of an event of force majeure, Abbott shall have
the right to purchase any equipment from Third Parties necessary to perform the
function(s) of Digene Equipment adversely impacted by this Section 5.5(a);
provided, however, that such equipment meets the Validation Protocols set forth
on Schedule 3.6.
(b) Digene shall notify Abbott in writing as soon as practicable
if Digene is unable or anticipates it will be unable to provide sufficient
quantities of Digene Equipment as a result of a condition described in Sections
5.5(a)(i)-(iii). Upon receipt of such notification, Abbott shall Work With
Digene to resolve the failure to supply. If such failure to supply has not been
resolved in the reasonable good faith judgment of Abbott, which judgment shall
not be unreasonably withheld, within thirty (30) days from the date Abbott
received the notification
43
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
from Digene, Abbott shall, on thirty (30) days written notice to Digene, have
the right to purchase equipment from Third Parties as provided in Section
5.5(a).
(c) If Digene elects to resume supply of Digene Equipment
adversely impacted by Section 5.5(a), Abbott shall no longer have the right to
purchase equipment under Section 5.5(b), but Digene shall afford Abbott a
commercially reasonably time frame in which to sell existing inventory of
alternative equipment purchased pursuant to Section 5.5(b).
5.6 Supply Allocation. In the event of a shortage of Product and/or CMV
during the Term, Digene shall allocate Product and CMV in a reasonable manner
so as to support Abbott and its Affiliates as a supplier of Products and CMV,
and at a minimum, Digene shall allocate its manufacturing capability on a unit
basis such that Abbott and its Affiliates receive the same percentage of
Digene's total output of Products and CMV as Abbott and its Affiliates received
on average during the most recent six (6) months prior to the shortage.
5.7 Ordering Processing. Abbott and its Affiliates shall have the sole
responsibility for solicitation and for receiving and processing orders for
Product from the Trade in the exclusive territories with respect to each
Product. Purchase orders for Products received by Digene from the Trade in such
territories shall be transferred immediately to Abbott for handling and
invoicing. Digene shall promptly forward to Abbott any order it receives during
the Term for Products from the Trade in the applicable Territory.
5.8 Safety Stock. Within thirty (30) days after the first Delivery of
each Product hereunder, Digene shall maintain a six (6) month safety stock of
the critical components (including, but not limited to, cell lines, antibodies,
calibrator and control stocks, and probe sets)
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
of each Product, based on the most recent twelve (12) month forecast provided
by Abbott pursuant to Section 5.2. Digene shall rotate the safety stock with
each new manufacturing lot.
5.9 Hazardous Classification Labeling. To the extent required by
applicable law with respect to each Product, Other Product and Equipment,
Digene shall complete, subject to Abbott's prior written approval, which
approval shall not be unreasonably withheld, Product, Other Product and
Equipment analysis forms or, alternatively, Digene shall provide Abbott with
access to all pertinent documentation with respect to each Product, Other
Product and Equipment, including, without limitation, composition, test results
or other relevant Product, Other Product and Equipment data, as deemed
necessary by Abbott. Further, to the extent necessary, the Parties shall
address appropriate labeling matters.
5.10 Expiration Dating. Digene shall use commercially reasonable efforts
to extend to twelve (12) months the expiration dating on Products and CMV, if
applicable, delivered to Abbott. Products and CMV shall have a minimum of six
(6) month expiration dating.
ARTICLE 6. - PRICE AND TERMS
6.1 Purchase Price for Equipment.
(a) Digene Equipment. Abbott shall purchase from Digene all
Digene Equipment needed to implement and perform this Agreement at the
Purchase Price set forth on Schedule 6.1(a). Abbott shall pay for such
Digene Equipment in accordance with Digene's standard payment terms,
which are net thirty (30) days.
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(b) Existing Field Equipment. Abbott shall purchase existing
field Equipment from Digene for the purchase price set forth on
Schedule 6.1(b), less accumulated depreciation for each item of
Equipment calculated since the date of shipment of such item by Digene.
Abbott shall pay for such existing field Equipment within thirty (30)
days of the Effective Date. A list of such field Equipment is set forth
on Schedule 6.1(b).
(c) Non-proprietary Equipment. The Purchase Price for
Non-proprietary Equipment shall be as set forth on Schedule 6.1(c);
provided, however, that Abbott and its Affiliates may, at their sole
cost and expense and at their sole discretion, purchase any
Non-proprietary Equipment directly from Third Parties; provided that
such Non-proprietary Equipment meets the Validation Protocols set forth
on Schedule 3.6.
(d) Equipment. To the extent Abbott purchases Digene Equipment
listed on Schedule 6.1(a) and PC Monitor (Product Number 5050-1015) and
Inkjet Printer (Product Number 5050-1028A) from Digene, so that such
purchase constitutes a complete customer system, such Purchase Price
shall not [*************] per unit, adjusted for changes in the
Producer Price Index ("PPI") for in vitro diagnostic
substances-clinical chemistry products-standards and controls (Code
2835-115), as quoted by the U.S. Department of Labor, Bureau of Labor
Statistics (or any successor agency or index), from the PPI published
most recently prior to the Effective Date to the PPI published most
recently prior to the date of such purchase, provided that, in the
event and to the extent such adjustment cannot be passed on to
customers, the amount of the
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adjustment or the portion thereof which cannot be passed on to
customers shall be reduced by [*************].
6.2 Product Transfer Price.
(a) Transfer Price of CT/GC Outside the United States. During the
Term, the transfer price of CT/GC with respect to sales outside the
United States shall be [******] of the CT/GC Non-U.S. AUP, subject to
[***************************************************].
(b) Transfer Price of CT/GC in the United States. During the
Term, the transfer price of CT/GC with respect to sales in the United
States shall be [******] of the CT/GC U.S. AUP, subject to [***********
***************************************].
(c) Transfer Price of HBV. During the Term, the transfer price of
HBV shall be [******] of the HBV AUP, subject to [********************
******************************].
(d) Transfer Price of HPV. During the Term, the transfer price of
HPV shall be [******] of the HPV AUP, subject to [********************
******************************].
(e) Purchase Price for Product Accessories. The purchase price
for Product Accessories is set forth on Schedule 1.64.
6.3 Minimum Transfer Price. Notwithstanding anything in this Article
6 or any other Section of this Agreement to the contrary, during the Term, the
transfer price for each Product shall be [*********************************
************************************].
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
6.4 Year-End Reconciliation. Within forty-five (45) days after the end
of each Contract Year, Abbott and Digene shall reconcile, by product code, [***
*******************************************************************************
************************************]. In such reconciliation [*****************
*********************************************************************
********************************************************************]. The
calculations and results of such reconciliation shall be contained in a written
report submitted to Digene within thirty (30) days after the end of the
immediately preceding Contract Year. The Parties shall make any adjustments as
to overpayments or underpayments, if any, by credit or debit memo, as the case
may be, within fifteen (15) days after Digene's receipt of the report;
provided, however, any such adjustment in the final Contract Year shall be
handled by a check or wire transfer of the overpayment or underpayment to the
affected Party within thirty (30) days after the end of the final
reconciliation.
6.5 Royalty Obligations. Digene shall make, at Digene's sole cost and
expense, all royalty payments due to all relevant Third Parties as a result of
the manufacture, use, sale and importation of Products, Other Products and
Equipment in the affected territories.
6.6 Payment Terms. Digene shall invoice Abbott or its Affiliates for
Products, Product Accessories, Product Samples, Other Products and Equipment
purchased hereunder. Abbott shall pay such invoices in United States dollars
net thirty (30) days from the date of receipt of the invoice. In the event
Abbott fails to make a payment when due, overdue payments shall bear interest
at the rate of one percent (1.0%) per month, or if lower, the highest rate
permitted by law, from the date due until paid.
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
6.7 Foreign Exchange. All amounts referred to in this Agreement are
expressed in United States dollars. All payments under this Agreement shall be
made in United States dollars (or other legal currency of the United States).
If Abbott, its Affiliates or its sub-distributors receive revenues from the
sales of Products in a currency other than United States dollars, Net Sales
with respect to such sales shall be converted into United States dollars at the
average exchange rate for such foreign currency calculated monthly by adding
the spot rate at the end of the month immediately prior to the date of sale and
the spot rate at the end of the current month in which such sale occurs divided
by two (2). Rates used shall be those available on Reuters at 9:00 a.m. CST on
the second to last business Day of the month, with the exception of November,
in which the last Business Day of the month shall be used.
ARTICLE 7. - SHIPMENT AND DELIVERY
7.1 Shipment. Delivery shall occur for Products, Other Products and
Equipment purchased from Digene ("Shipped Products") FOB Digene ("Delivery" or
"Delivered"). Unless otherwise agreed, freight charges for Shipped Products
Delivered will be invoiced directly to Abbott by the carrier selected by Abbott
in its sole discretion. Digene may make partial shipments of the Shipped
Products, subject to prompt filling of any resulting back order; provided,
however, that Abbott shall not be responsible for any incremental freight
charges resulting from partial shipments.
7.2 Delivery. For Delivery of Shipped Products, Digene shall ship
Shipped Products ordered by Abbott and its Affiliates in accordance with
shipping instructions provided by Abbott.
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
7.3 Export Licenses: Import Certificates; Customs and Regulatory
Approval for Delivery of Shipped Products Outside the United States.
(a) Abbott's Responsibilities. Abbott, [************] shall: (i)
obtain any export license required by the country of manufacture to
export the Shipped Products to the Designated Country; (ii) obtain all
authorizations required to export the Shipped Products from the United
States or import the Shipped Products into the Designated Country;
(iii) obtain, if required, any import or export certificates and other
necessary permits or approvals required by any country from or through
which Shipped Products are to be shipped to Deliver the Shipped
Products to the Designated Country; and (iv) pay all applicable import
and custom duties, taxes and fees.
(b) Digene's Responsibilities. Digene shall take all reasonable
steps to cooperate with Abbott in complying with any import, export or
custom regulations applicable to the Shipped Products, to the extent
consistent with applicable law, including filling out necessary
paperwork or reports to obtain any applicable waiver, exemption or
reduction of such duties in a timely manner.
7.4 Title and Risk of Loss. Title to and risk of loss Shipped
Products shall pass to Abbott at the place and time of Delivery. Any loss or
damage to Shipped Products prior to Delivery shall be at Digene's risk.
7.5 Taxes. Any foreign, federal, state, county or local sales, use,
value-added or excise tax or similar charge, including customs and import
duties, or other tax assessment (other than that assessed against income),
license fee (other than royalties owed to Third Parties) or
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
other charge lawfully assessed or charged on the sale or transportation of
Shipped Products sold pursuant to this Agreement after Delivery to Abbott shall
be paid by Abbott.
7.6 Certificate of Analysis. Digene shall provide Abbott with a
Certificate of Analysis with each lot of Products and Other Products sold to
Abbott hereunder certifying compliance with the Specifications and Other
Product Specifications, respectively.
ARTICLE 8. - ACCEPTANCE OF SHIPPED PRODUCT; INSPECTION OF
MANUFACTURING FACILITY
8.1 Digene Testing. Digene shall inspect and test Shipped Products for
conformity to the Specifications or Other Product Specifications, as
applicable, in accordance with its normal quality assurance procedures as such
procedures may be amended from time to time prior to release to Abbott and its
Affiliates. Digene shall notify Abbott prior to any change in its quality
assurance procedures that reasonably may be expected to affect the quality of
the Shipped Product.
8.2 Abbott Testing. All Shipped Products shall be subject to Abbott's or
its Affiliates' inspection and approval. At Abbott's request, Digene shall make
available to Abbott up to four (4) kits per lot for each Product and Other
Product, free of charge, prior to the delivery of Products and Other Products,
to enable Abbott to ensure that the Product or Other Product conforms to the
Specifications or Other Product Specifications, respectively. Abbott or its
Affiliates shall, within ten (10) days after receipt of such Equipment or kits,
inspect and test such Equipment and kits and may reject any Shipped Product
which is:
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(a) not in compliance with the Specifications or Other Product
Specifications, as applicable;
(b) not in compliance with all manufacturing procedures,
in-process controls, testing, specifications and storage conditions, as
set forth in Digene's 510(k), or any foreign equivalent for Shipped
Products, or any subsequent amendments thereto;
(c) not manufactured in accordance with cGMPs with respect to
Products, Other Products and Digene Equipment;
(d) not conforming to instructions agreed upon by the Parties in
writing regarding packaging or transport;
(e) shipped in violation of any applicable statute,
administrative order or regulation;
(f) Recalled by any governmental agency or by Digene for reasons
for which Abbott and its Affiliates are not at fault; or
(g) shipped by Digene with less than six (6) months dating with
respect to Products or CMV.
If Abbott, or its Affiliates, as the case may be, reject any Shipped
Products, it shall give Digene written notice of such rejection within ten (10)
days testing period, accompanied by a written summary of the grounds for
rejection and any documentation of any testing performed by Abbott, or its
Affiliates, as the case may be. Upon receipt of such notice, Digene may request
Abbott, or its Affiliates, as the case may be, to return the rejected Shipped
Product, or samples thereof, for testing by Digene. Abbott's or its Affiliates'
rejection shall be final unless Digene
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
notifies Abbott within thirty (30) days after the later of the receipt of the
rejection notice or the rejected Shipped Product, or samples thereof, that
Digene disagrees with Abbott's or its Affiliates' conclusions with respect to
the rejected Shipped Product. If the Parties are unable to resolve the dispute,
samples of the rejected Shipped Product shall be submitted to a mutually
acceptable independent testing laboratory for analysis. The results of the
independent testing laboratory shall be final and binding on the Parties. The
costs of the independent testing laboratory shall be paid by the Party against
whom the discrepancy is resolved. The Parties' inability to agree upon an
independent testing laboratory shall be resolved through the dispute resolution
procedures set forth in Section 21.6. All Products properly rejected by Abbott
or its Affiliates pursuant to the terms and conditions of this Section 8.2 and
not otherwise replaced by Digene in a timely fashion to enable Abbott and its
Affiliates to consummate the available sale to the Trade shall be included in
any calculation with respect to Net Sales thresholds as described in Article 4.
8.3 Abbott Inspection. Digene shall permit Abbott, upon reasonable
notice and during Digene's regular business hours, but no more often than once
in each Contract Year, access to those areas of Digene's manufacturing
facilities where the Products and Other Products are manufactured, tested,
packaged, stored, handled and shipped to verify Digene's compliance with its
obligations hereunder. The Device Master Record shall be available for review
by Abbott on site at Digene's manufacturing facilities upon reasonable notice
from Abbott.
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ARTICLE 9. - REGULATORY COMPLIANCE AND MEDICAL COMPLAINTS
9.1 No Modification. Abbott shall not modify, repackage, reformulate or
alter any Shipped Product, including its label, except with specific written
authorization from Digene.
9.2 Regulatory Compliance. Digene shall be responsible at Digene's
expense for all governmental and regulatory filings in the Territory for
Products, Digene Equipment and in the CMV Territory for CMV. All responses to
governmental agencies concerning the Products, Digene Equipment and CMV shall
be the sole responsibility of Digene, with reasonable assistance from Abbott,
as requested by Digene. Digene shall provide Abbott copies of all filings
and/or responses concerning the Products, Digene Equipment and CMV which occur
after the Effective Date. In the event Digene is unable to obtain or maintain
the requisite governmental approvals to enable Abbott and its Affiliates to
sell Products in any such country in the Territory, Abbott's inability to meet
the Net Sales thresholds described in Article 4 shall be adjusted based on [***
************************************************************************
**************************************************************************
***********], to reflect the adverse impact to Abbott due to the absence of
regulatory clearance.
9.3 Customer Complaints. In the event either Party receives a customer
complaint regarding Shipped Products, such Party shall promptly notify the
other of such complaint. If the Shipped Product giving rise to such complaint
was sold by Abbott, its Affiliates or sub-distributors, then Abbott shall
evaluate the complaint and promptly notify Digene in writing regarding such
evaluation. If Abbott determines that such complaint is due to a matter that is
within Digene's responsibilities hereunder, then Digene, at Abbott's request
and Digene's
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expense, shall assist Abbott or its Affiliates in follow-up resolution of such
complaint. The Parties shall exchange on a confidential basis all pertinent
information regarding a customer complaint with respect to Products and
Equipment sold in the Territory, CMV sold in the CMV Territory and SHARP sold
in the SHARP Territory.
ARTICLE 10. - RECALL OR WITHDRAWAL
10.1 Event of Recall and Withdrawal. In the event: (a) any governmental
or regulatory authority in the Territory, CMV Territory or SHARP Territory
issues a request, directive or order that Shipped Product be recalled or
withdrawn, or such request, directive or order is imminent; (b) a court of
competent jurisdiction orders such recall or withdrawal; or (c) either Party
reasonably determines after consultation with the other that a recall or
withdrawal is necessary or advisable (each a "Recall"), the Parties shall take
all appropriate corrective action.
10.2 Expense of Recall. In the event a Recall results from any cause or
event arising from the manufacture, packaging, shipment of Shipped Products by
Digene or its Affiliates, or other cause or event attributable to Digene, its
Affiliates or Third Parties (excluding Third Parties in privity with Abbott),
Digene shall be responsible for the expense of the Recall. In the event a
Recall results from any cause or event attributable to Abbott, its Affiliates
or sub-distributors and arising from the marketing, promotion, sale or
distribution of Shipped Products by Abbott, its Affiliates or sub-distributors,
or other cause or event attributable to Abbott, its Affiliates or
sub-distributors, Abbott shall be responsible for the expense of the Recall. In
each instance, the Parties shall cooperate to effectuate efficiently the
Recall. For purposes of this Agreement,
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Recall expenses shall include, without limitation, the expenses of notification
and destruction or return of the recalled or withdrawn Shipped Product and
Abbott's, its Affiliates' or sub-distributors' costs for the Shipped Products
recalled or withdrawn.
ARTICLE 11. - BOOKS AND RECORDS
11.1 Examination Rights. For a period of two (2) years following each
Contract Year, Abbott and Digene each shall maintain proper books and records
in accordance with GAAP reflecting Net Sales, CT/GC Non-U.S. AUP, CT/GC U.S.
AUP, HBV AUP, HPV AUP, Minimum Transfer Price, transfer prices, Purchase Price,
Book Value and Fully Burdened Manufacturing Costs and other calculations
required by this Agreement, as appropriate. Upon thirty (30) days' prior
written notice to the other Party (but not more frequently than once in any
Contract Year, unless there is a dispute, then as frequently as is necessary),
a Party may examine the other Party's books and records relating to the matters
described herein, which shall be transferred to, if not already located at, the
other Party's principal place of business. The examining Party shall retain, at
its own expense, an independent certified public accountant not currently
engaged by the examining Party but reasonably acceptable to the other Party to
conduct the examination. The examination shall occur at the other Party's
principal place of business during its normal business hours for the sole
purpose of verifying the accuracy of such calculations. The independent
certified public accountant shall be required to execute a mutually acceptable
confidentiality agreement and shall report to both Parties its final
calculations, in addition to any discrepancy in the calculations made by the
Party whose books and records were
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examined. Such examination rights may be exercised by the Parties only with
respect to books and records for the then current Contract Year and the
immediately preceding Contract Year.
11.2 Reconciliation of Underpayment or Overcharge. Within thirty (30)
days after completion of such examination, the Parties shall reconcile any
underpayment or overcharge, if any, by credit or debit memo; provided, however,
if such adjustment is to occur at the end of the final Contract Year, any
overpayment or underpayment shall be paid by check or wire transfer to the
affected Party within thirty (30) days after completion of the final
reconciliation.
11.3 Costs of Examination. The results of the independent examination
shall be subject to the alternative dispute resolution procedure in Section
21.6. The costs of the independent examination shall be paid by the Party whose
books and records were examined if the results of the independent examination
reflect a discrepancy from such books and records favorable to the Party
requesting the examination of greater than five percent (5%) with respect to
the calculation examined and otherwise such costs shall be paid by the Party
requesting the examination.
ARTICLE 12. - PATENTS AND TRADEMARKS
12.1 Trademark License. Digene hereby grants to Abbott and its
Affiliates a nonexclusive license, with the right to sublicense, to use the
Digene Trademarks in the Field with respect to Products, Other Products and
Digene Equipment to market, promote, distribute and sell Products, Other
Products and Digene Equipment in the Territory, and the CMV Territory and the
SHARP Territory, respectively. On or before January 1 of each Contract Year,
Abbott may
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request a trademark report reflecting all applications by Digene for Digene
Trademarks and the status thereof. In addition, Digene shall, at its expense,
file new applications to register any or all of the Digene Trademarks in any or
all of the countries in the Territory, the CMV Territory and the SHARP
Territory, as may be reasonably requested by Abbott. Abbott shall give Digene
at least ninety (90) days' prior written notice before marketing, promoting,
selling or distributing any Product, Other Product or Digene Equipment under
the Digene Trademarks in any country not identified in the Digene Trademark
report. The Parties shall mutually agree on the trademark approach in any such
country, taking into consideration, among other things, the length of time
required to obtain trademark registration, laws relating to trademark use, the
existence of any conflicting trademark registrations, applications or uses and
the anticipated sales volumes of the relevant Products, Other Products or
Digene Equipment in such country. All representations of the Digene Trademarks
that Abbott intends to use shall be consistent with written guidelines provided
to Abbott by Digene or shall first be submitted to Digene for approval of
design, color and other details, which approval shall not be unreasonably
withheld or will be exact copies of those used by Digene. In addition, Abbott
shall follow the written instructions issued by Digene from time to time for
the purpose of protecting the standards of quality established for the goods
and services sold under Digene Trademarks. Any use of an Abbott trademark by
Digene shall be subject to Abbott's prior approval, which approval may be
withheld by Abbott at Abbott's sole discretion.
12.2 Trademark Ownership. It is understood and agreed that Digene is the
sole and exclusive owner of all rights, title and interests in and to the
Digene Trademarks. Nothing
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contained in this Agreement shall be construed as an assignment to Abbott of
any rights, title or interests in the Digene Trademarks; it being understood
that all rights, title and interests relating to the Digene Trademarks are
expressly reserved by Digene, except for the rights being licensed hereunder.
12.3 Infringement. Each party shall notify the other Party of any
suspected infringements by Third Parties of the Digene Trademarks in the Field
or any patent or other proprietary right of Digene in the Field that may come
to such Party's attention. Digene shall have the initial right to determine
whether any action shall be taken on account of any such infringement, and
Digene shall have the right to employ counsel of its choosing and to direct the
handling of the litigation and any settlement thereof, at Digene's expense. In
the event Digene does not pursue such potential infringement within three (3)
months after notice of such potential infringement, Abbott shall have the right
to take action on its own behalf, to employ counsel of its choosing and to
direct the handling of the litigation and any settlements thereof, at Abbott's
own expense. The Parties agree to cooperate with each other in maintaining,
protecting and defending the Digene Trademarks.
12.4 Possible Removal From Market. In the event that the manufacture,
use, sale or importation for sale of Product, Other Product or Digene Equipment
becomes, or, in the opinion of Digene or Abbott, may become, the subject of any
claim, suit or proceeding for infringement or if the manufacture, use, sale or
importation for sale of the Product, Other Product or Digene Equipment is or,
in the opinion of Digene or Abbott, is likely to be enjoined for infringement,
Digene shall, at its option and expense, do one (1) or more of the following:
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(a) obtain for Abbott, its Affiliates and sub-distributors the
right to use, sell and import for sale the Product, Other Product or
Digene Equipment;
(b) modify the Product, Other Product or Digene Equipment so that
it becomes non-infringing or replace the Product, Other Product or
Digene Equipment with a non-infringing product while remaining in
compliance with Digene's published Specifications, or Other Product
Specifications in effect at the time; or
(c) require that Abbott, its Affiliates and sub-distributors
cease to deliver the Product, Other Product or Digene Equipment in the
affected country.
In the event Digene does not perform (a) or (b) above, and such
nonperformance reduces Abbott's annual Net Sales for such Product by more than
[********], the Parties shall negotiate in good faith an agreement with respect
to [********************************************************************
********************************************].
12.5 Third Party Claims for Infringement. If a Third Party brings a
legal action or administrative proceeding against either or both of the Parties
alleging infringement by a Product, Other Product or Digene Equipment in the
Field in the Territory, the CMV Territory or the SHARP Territory, the Parties
agree that they shall confer in good faith to determine the most effective
means of cooperating to defend their sole and mutual interests.
12.6 Co-Labeled Product. Digene shall sell Products identified by an
Abbott trademark or trade name only to Abbott and its Affiliates or to an
Abbott-appointed sub-distributor.
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
12.7 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
FOR ANY AMOUNTS REPRESENTING LOSS OF BUSINESS, OR INDIRECT, SPECIAL, EXEMPLARY,
CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING FROM THE PERFORMANCE OR
NONPERFORMANCE OF THIS AGREEMENT OR ANY ACTS OR OMISSIONS ASSOCIATED THEREWITH
OR RELATED TO THE USE OF ANY ITEMS OR SERVICES FURNISHED HEREUNDER, WHETHER THE
BASIS OF THE LIABILITY IS BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE AND
STRICT LIABILITY), STATUTORY OR ANY OTHER LEGAL THEORY. IN NO EVENT SHALL THIS
SECTION 12.7 BE DEEMED TO LIMIT LIABILITY FOR LOSS OF PROFITS UNDER THIS
AGREEMENT.
ARTICLE 13. - REPRESENTATIONS AND WARRANTIES
13.1 Digene Representations and Warranties. Digene represents and
warrants that all Products, Other Products and Digene Equipment delivered to
Abbott hereunder shall be:
(a) manufactured in accordance with cGMPs, the Specifications or
Other Product Specifications, as applicable and, after December 31,
1999, ISO 9000 Series;
(b) free from defects in material and workmanship until one (1)
year after date of shipment for the Digene Equipment and/or the shelf
life for Products or Other Products having an expiration date (the
"Warranty Period");
(c) free and clear of any Third Party security interest, lien or
encumbrance;
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(d) manufactured in compliance with all applicable foreign,
federal, state and local laws and regulations in the location of
manufacture; and
(e) Year 2000 Compliant as of July 1, 1999 in accordance with the
following terms:
(i) all Products, Other Products and Digene Equipment that
operate on date data software and hardware; and
(ii) all mission critical hardware and software supplied by
Digene for Products, Other Products and Digene Equipment.
(f) Year 2000 Compliant as of December 1, 1999 with respect to
all mission critical hardware and software used in Digene's
manufacturing process for Products Other Products, and Digene
Equipment.
With respect to clauses (a), (b) and (d) of this Section 13.1, the
Parties acknowledge and agree that unless Digene fails to deliver Products,
Other Products or Digene Equipment consistently to Abbott, at a mutually agreed
upon level, any Product, Other Product or Digene Equipment not conforming to
clauses (a), (b) and (d) of this Section 13.1 shall be handled in accordance
with Section 13.2 and shall not constitute a material breach of this Agreement.
13.2 Replacement or Repair. Digene, at its election, shall repair or
replace Products, Other Products or Digene Equipment returned during the
Warranty Period which fail to meet the warranty set forth in Section 13.1
("Defective Products"). Customers in the Territory, CMV Territory and SHARP
Territory shall return Defective Products to Abbott, its Affiliates or
sub-distributors for return to Digene. Digene, at its election, shall accept
returned Defective
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Products in accordance with the terms of Schedule 13.2 or Abbott, at Digene's
request, shall dispose of such Defective Products appropriately. Digene shall
bear the cost of return shipment of Defective Products to Digene and the cost of
shipping repaired or replaced Defective Products to the customer or Abbott, its
Affiliates or sub-distributors, as the case may be.
13.3 Third Party Distributors. Digene represents and warrants to Abbott
that, except for Distributors, Abbott and its Affiliates, and sub-distributors,
no Third Party has any right of distribution, marketing, promotion or any other
rights to sell Products in the applicable Territory.
13.4 Limitation on Warranties. DIGENE MAKES NO WARRANTIES REGARDING THE
PRODUCTS, OTHER PRODUCTS AND DIGENE EQUIPMENT OTHER THAN THE EXPRESS WARRANTIES
IN THIS ARTICLE AND THERE SHALL BE NO IMPLIED OR STATUTORY WARRANTIES, INCLUDING
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
NON-INFRINGEMENT.
13.5 Patent Representations and Warranties.
(a) Digene represents and warrants to Abbott as of the Effective
Date, that:
(i) to its knowledge, there are no Third Party patents,
trademarks or other proprietary rights which are valid and enforceable
and which would be infringed by making, having made, using, selling,
offering for sale or importing Products, Other Products and Digene
Equipment in the Territory, the CMV Territory or the SHARP Territory,
as applicable in accordance with the terms of this Agreement; and
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(ii) to its knowledge, Digene is not, and as a result of the
execution and delivery of this Agreement or the performance of Digene
hereunder will not be in violation of or lose any rights pursuant to
any license, sublicense or agreement previously provided to a Third
Party.
13.6 General Representations and Warranties. Each Party represents and
warrants to the other Party as of the Effective Date as follows:
(a) it is a corporation duly organized and validly existing under the
laws of its state of incorporation;
(b) it has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder;
(c) the execution, delivery and performance by it of this Agreement
and its compliance with the terms and provisions hereof does not and will not
conflict with or result in a breach of any other agreement or relationship; and
(d) all mission critical hardware and software used in the
Performance of its duties and obligations hereunder shall be Year 2000 Complaint
no later than July 1, 1999, except, however that Digene's mission critical
hardware and software used in Digene's manufacturing process shall be Year 2000
Compliant no later than December 1, 1999.
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ARTICLE 14. - GENERAL INDEMNIFICATION
14.1 Digene Indemnification. Digene shall indemnify, defend and hold Abbott
and its Affiliates and their officers, directors, employees, and representatives
harmless from and against any and all claims, causes of action, suits,
proceedings, losses, damages, demands, fees, expenses, fines, penalties and
costs (including reasonable attorney's fees) arising out of, relating to or in
connection with: (a) the manufacture, shipment or use of Product, Other Product
or Digene Equipment; (b) the breach of Digene's warranties, representations or
covenants set forth in this Agreement or in the Murex Agreements as provided in
Article 20; (c) any Third Party patent infringement action against Abbott and/or
its Affiliates relating to Products or Other Products; (d) the termination by
Digene of any distributor of Product in the Territory; and/or (e) the wrongful
or negligent acts or omissions on the part of Digene's employees, agents or
representatives.
14.2 Abbott Indemnification. Abbott shall indemnify, defend and hold Digene
and its Affiliates and their officers, directors, employees, and representatives
harmless from and against any and all claims, causes of action, suits,
proceedings, losses, damages, demands, fees, expenses, fines, penalties and
costs (including reasonable attorney's fees) arising out of, relating to or in
connection with: (a) the breach of Abbott's warranties, representations or
covenants set forth in this Agreement or in the Murex Agreements as provided in
Article 20; or (b) the wrongful or negligent acts or omissions on the part of
Abbott's employees, agents or representatives.
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
14.3 Cooperation. Each Party shall promptly notify the other Party of any
claim or potential claim covered by the indemnification provisions of this
Article 14 and shall include sufficient information to enable the other Party to
assess the facts. Each Party shall cooperate with the other Party in the defense
of all such claims. No settlement or compromise shall be binding on a Party
without such Party's prior written consent, which consent shall not be
unreasonably withheld or delayed.
14.4 Insurance. Digene shall procure and maintain during the Term
comprehensive commercial liability insurance, including contractual and products
liability coverage, in aggregate annual limits of Six Million Dollars
($6,000,000). Digene shall provide Abbott with prompt written notice of any
notice of cancellation, modification or reduction of coverage under, such
policies. Digene shall cause Abbott and its Affiliates to be named as additional
insureds on such policies and Digene policies shall be primary with respect to
any indemnification of Abbott and its Affiliates hereunder.
ARTICLE 15. TERM AND TERMINATION
15.1 Term. Subject to early termination as set forth in this Article 15,
this Agreement shall begin on the Effective Date and shall continue until the
last day of the Initial Term. Thereafter, this Agreement, with respect to each
Product and Equipment, for so long as Abbott retains rights to market and
distribute a Product hereunder, shall be extended automatically in accordance
with the terms and conditions of Article 4.
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
15.2 Termination for Cause.
(a) Either Party may terminate this Agreement for cause upon written
notice to the other Party in the event the other Party becomes insolvent or
makes an assignment for the benefit of its creditors, or upon appointment
of a trustee or receiver for the other Party of a material portion of its
assets, or upon filing of a voluntary petition against the other Party
under any bankruptcy or insolvency law, including Section 101 et seq.,
Title 11 of the United States Code (the "U.S. Bankruptcy Code"), or an
involuntary petition against the other Party under any bankruptcy or
insolvency law, including the U.S. Bankruptcy Code, which involuntary
petition remains undismissed or undischarged and in effect for a period of
ninety (90) days.
(b) Either Party may terminate this Agreement for cause (i) on a
Product by Product basis upon written notice to the other Party in the
event the other Party materially breaches this Agreement with respect to a
Product or Products, or (ii) in its entirety upon written notice to the
other Party in the event the other Party materially breaches this Agreement
with respect to all Products or with respect to terms which are not
specific as to Product and fails to cure such breach within sixty (60) days
after receipt of written notice of breach from the non-breaching Party, as
such cure period may be extended for such additional period as the
non-breaching Party reasonably determines that the breaching Party is
diligently pursuing a cure of such breach, to the extent such rights are
provided by Sections 4.2(b) or 4.3(b), as applicable.
15.3 Termination By Digene For Abbott's Failure to Achieve Net Sales
Thresholds. Digene shall have the right to terminate this Agreement with respect
to HBV at the end of the Initial Term if Abbott fails to achieve the Net Sales
thresholds as described in Section 4.2(b), and with respect to HPV at the end
of each of the second through fifth Contract Years, inclusive, if Abbott fails
to achieve the Net Sales thresholds as described in Section 4.3(b).
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
In the event of termination pursuant to this Section 15.3. Abbott and Digene
shall continue to perform their obligations hereunder for a period of twelve
(12) months pursuant to Section 4.5, to the extent required by Sections 4.2(b)
and 4.3(b), respectively.
15.4 Termination By Abbott for Change of Control. Abbott shall have the
right to terminate this Agreement upon [************************] prior written
notice to Digene in the event of a Change of Control of Digene wherein the
entity acquiring control of Digene is a material direct competitor of Abbott.
Digene shall provide Abbott written notice of any such Change of Control within
sixty (60) days thereafter. Abbott shall provide written notification to Digene
of the exercise of its termination rights within sixty (60) days of receipt of
the notice of a Change of Control from Digene. The [*****************] period
set forth in this Section 15.4 shall commence on the date Digene receives
written notification of Abbott's exercise of rights under this Section.
Notwithstanding Abbott's right to terminate under this Section 15.4, the Parties
shall be obligated to the following:
(a) CT/GC Clearance. In the event a Change of Control giving Abbott
the right to terminate hereunder occurs earlier than three (3) months prior
to the date of CT/GC Clearance, then Digene shall have the right within
sixty (60) days after CT/GC Clearance to terminate this Agreement with
respect to CT/GC and Equipment (provided
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Abbott does not then have rights to market and distribute HPV or HBV in
the United States) for sale in the United States.
(b) Net Sales Thresholds. In the event a Change of Control giving
Abbott the right to terminate hereunder occurs and, at the end of the most
recently completed Contract Year preceding such Change of Control, Abbott
did not achieve the Net Sales threshold for a Product for such Contract
Year or, if there was no Net Sales threshold for such Contract Year, for
the immediately preceding Contract Year for which there was a Net Sales
threshold, as described in Article 4, then Digene shall have the right to
withdraw such Product from this Agreement, subject to Digene providing
Abbott a twelve (12) month wind-down pursuant to Section 4.5 and Digene
paying Abbott one hundred percent (100%) of Incremental Sales for such
Product.
Digene shall only be obligated to provide Abbott with a twelve (12) month
wind-down under this Section if at the time of such Change of Control Abbott
was an exclusive distributor for such Product.
15.5 Partial Termination By Digene For Abbott's Failure to Market in
Particular Country. In addition to its rights under Section 15.2, Section 15.3
and Section 15.4, Digene shall have the right, on sixty (60) days written
notice, to terminate Abbott's marketing and distribution rights with respect to
a Product and with respect to a country in the Territory if Abbott fails, after
giving consideration to the factors affecting Net Sales in Section 4.6 to meet
its obligations under Section 3.1 hereunder with respect to such Product in such
country and such failure has not been cured; provided, however, that if Abbott
has recorded sales of such Product in such country,
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Abbott may initiate an alternative dispute resolution proceeding under Section
21.6 within such sixty (60) day period, in which event Digene's right to
terminate shall be determined by such proceeding. Solely for the purposes of
this Section 15.5, Abbott shall have sixty (60) days from the receipt of notice
from Digene under this Section 15.5 to cure any failure to meet obligations
under Section 3.1. The partial termination of this Agreement with respect to a
Product and with respect to a country shall be without prejudice to any other
rights of the Parties hereunder. By way of example and for avoidance of doubt,
Abbott's failure to sell a particular HBV Product in a particular country does
not entitle Digene to terminate this Agreement as to that particular HBV Product
in that particular country, but rather may give rise to Digene's right to
terminate Abbott's right to market and distribute HBV in that particular country
under this Section 15.5, to the extent Abbott's failure to sell such particular
HBV Product in such particular country constitutes failure to use commercially
reasonable efforts to sell HBV in such country.
15.6 Continuation of Force Majeure. Either Party may terminate this
Agreement in the event of force majeure event continues for one hundred eighty
(180) consecutive days and prevents a Party from materially performing its
obligations under this Agreement.
15.7 Accrued Obligations. Termination, expiration, cancellation or
abandonment of this Agreement through any means and for any reason shall not
relieve the Parties of any obligation accruing prior thereto and shall be
without prejudice to the rights and remedies of either Party with respect to any
antecedent breach of any of the provisions of this Agreement.
15.8 Additional Remedies for Breach. Notwithstanding the terms and
conditions of Section 15.2, neither Party shall be obligated to terminate this
Agreement in the event the other
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Party materially breaches this Agreement. The non-breaching Party shall have the
right to seek, in accordance with Section 21.6, other remedies available to it
at law and equity to recover for such breach, without having to terminate the
Agreement.
ARTICLE 16. - CONSEQUENCES OF TERMINATION
16.1 Buy-out of Equipment and Inventory.
(a) In the event of any termination or expiration of this Agreement,
except in the case of Abbott's non-performance, Digene shall, at Abbott's
option, within ninety (90) days after such termination or expiration, (i)
purchase from Abbott and its Affiliates at Book Value at the date of
termination the Digene Equipment that is placed with customers by Abbott
and its Affiliates and at Abbott's and its Affiliates' acquisition cost any
inventory of Product held by Abbott or its Affiliates, and (ii) assume any
reagent contracts with the Trade with respect to Digene Equipment.
(b) In the event of any termination of expiration of this Agreement
by reason of Abbott's non-performance, Digene may, at its option, within
ninety (90) days after such termination or expiration, (i) purchase from
Abbott and its Affiliates at Book Value at the date of termination the
Digene Equipment that is placed with customers by Abbott and its Affiliates
and at Abbott's and its Affiliates' acquisition cost any inventory of
Product held by Abbott or its Affiliates, and (ii) assume any reagent
contracts with the Trade with respect to Digene Equipment.
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
16.2 Termination Fee. In the event of termination of this Agreement by
Abbott pursuant to Section 15.4, Digene shall pay to Abbott upon the effective
date of such termination, a one-time termination fee as described in Section
15.4(b), which fee shall not be deemed a penalty.
16.3 Residual Payments. In the event of any termination of this Agreement
with respect to HPV pursuant to Section 4.3(a), and in consideration of Abbott
efforts in developing Product sales and goodwill during the Term, Digene shall
pay for five (5) years following the termination of this Agreement, a residual
to Abbott pursuant to Section 4.3(a).
ARTICLE 17. - CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
17.1 Confidentiality. The Parties acknowledge and agree that during the
Term, each of them and their Affiliates may exchange Confidential Information,
and the disclosure and use of any such Confidential Information shall be
governed by the provisions of this Article 17. Each Party shall use the
Confidential Information of the other Party only for the purpose of the
activities contemplated by this Agreement and may only disclose such
Confidential Information on a need to know basis for the purposes of this
Agreement to a Third Party or employee who is bound by a confidentiality
obligation similar to the terms of this Section 17.1. The Parties shall ensure
that their Affiliates and such Affiliates' officers, directors, employees,
representatives and agents shall keep all Confidential Information exchanged
hereunder confidential and treat such Confidential Information with the same
care as such Party would exercise in the handling of its own confidential or
proprietary information. Notwithstanding the foregoing, any Confidential
Information may be disclosed to the neutral in any alternative dispute
resolution proceeding
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under Section 21.6, provided that such neutral executes a mutually acceptable
confidentiality agreement prior to the commencement of such proceeding. This
provision shall remain in effect for a period of five (5) years after
termination or expiration of this Agreement for all Confidential Information.
17.2 Handling of Trade Secrets. During the course of its performance
hereunder, a Party (the "Disclosing Party") may desire or be requested to
disclose Confidential Information to the other Party (the "Receiving Party"),
which the Disclosing Party considers a Trade Secret. In such event, the
Disclosing Party first shall inform the Receiving Party, on a non-confidential
basis, the general nature of the Trade Secret information. The Receiving Party
shall have ten (10) days to decide whether it wishes to have such Trade Secrets
disclosed to it and to inform the Disclosing Party in writing that it wishes to
receive such a disclosure. Any Trade Secrets so disclosed between the Parties
shall be marked "Trade Secret," and the Receiving Party shall not disclose or
use such Trade Secret for the Term and thereafter except as expressly permitted
under this Agreement. In the event the Disclosing Party discloses the Trade
Secrets to the Receiving Party without written approval of the Receiving Party
and/or without appropriately marking such information as "Trade Secret" that
Trade Secret shall be handled as Confidential Information under Section 17.1.
17.3 Confidential Treatment. Digene shall seek confidential treatment for
the terms and conditions of this Agreement to the fullest extent permitted by
the SEC and any other governmental agency or self-regulatory organization to
which Digene provides a copy of this Agreement, if at all. Prior to seeking
confidential treatment from the SEC or any other
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
governmental agency or self-regulatory organization for any such document,
Digene shall consult with Abbott and Abbott's counsel and provide them with a
reasonable opportunity to request the inclusion of specified provisions in any
request by Digene for confidential treatment.
17.4 Public Announcements. Neither Party shall make any public announcement
concerning this Agreement, nor make any public statement which includes the name
of the other Party or any of its Affiliates, or otherwise use the name of the
other Party or any of its Affiliates in any public statement or document without
the consent of the other Party, which consent shall not be unreasonably
withheld, except: (a) as may be required by law or judicial order, including
required disclosure under the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, any exchange on which either Party's equity
securities are listed, the National Association of Securities Dealers, Inc.
and/or its subsidiaries; (b) as may be contained in joint marketing materials,
presentations and related activities; (c) that Digene may provide general
information, including aggregate revenue information by region, on a periodic
basis and in response to inquiries; or (d) that either Party may include in a
subsequent public statement or document, information regarding this Agreement
which has already been approved by the other Party.
ARTICLE 18. - FORCE MAJEURE
Neither Party shall be held in breach of this Agreement for failure
to perform any of its obligations hereunder and, subject to the terms and
conditions of Section 15.6, the time required for performance shall be extended
for a period equal to the period of such delay, provided that
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such delay has been caused by or is a result of any acts of God; acts of the
public enemy; civil strife; wars declared or undeclared; embargoes; labor
disputes, including strikes, lockouts, job actions or boycotts; fires;
explosions; floods; shortages of material or energy; events caused by reason of
laws or regulations or orders by any government, governmental agency or
instrumentality or by any other supervening unforeseeable circumstances beyond
the reasonable control of the Party so affected. The Party so affected shall:
(a) give prompt written notice to the other Party of the nature and date of
commencement of the force majeure event and its expected duration; and (b) use
its reasonable best efforts to relieve the effect of such cause as rapidly as
possible.
ARTICLE 19. - IMPROVEMENTS, INNOVATIONS, DIGENE PRODUCTS;
DEVELOPMENT PROJECTS
19.1 First Right of Negotiation. Digene hereby grants to Abbott the first
right of negotiation with regard to any transaction contemplated by Digene
whereby Digene, directly or indirectly, would itself, or would license, sell,
transfer, convey, assign to a Third Party or otherwise encumber any right, title
or interest of Digene to, sell, market, promote or distribute [*****************
*****************************************************************************
***************]; provided, however, that neither Party shall be obligated by
the grant of such right to enter into any arrangement after completing the good
faith negotiations described in this Section 19.1. In the event Digene
determines to undertake the foregoing itself or to solicit a proposal for the
foregoing, Digene first shall promptly provide exclusively to Abbott written
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notice thereof, the scope thereof and [********************************]
involved. In the event Digene receives an unsolicited Third Party proposal with
respect to such a transaction and Digene intends to pursue negotiations with the
Third Party submitting such proposal, Digene shall promptly provide exclusively
to Abbott written notice of the fact that it has received such a proposal, the
scope thereof and [********************************] involved. Abbott shall have
[**********************] from receipt of any of such notices to advise Digene in
writing (the "Negotiation Notice") of whether Abbott shall negotiate with Digene
regarding [*********************************], as the case may be. If Abbott
elects to negotiate with Digene regarding [*********************************],
as the case may be, Abbott and Digene shall negotiate exclusively in good faith,
for up to [***************] after Digene receives the Negotiation Notice, a
definitive agreement reflecting the material terms of the license, sale,
marketing, promotion or distribution of [*********************************];
provided, however, that neither Party shall be obligated to enter into such an
arrangement after completing such good faith negotiations. If Abbott and Digene
are unable in good faith to reach a definitive agreement within the [**********
***] period, Digene may enter into negotiations and conclude with a Third Party
a definitive agreement of substantially similar scope and with respect to [****
*****************************], as the case may be, on terms which, when
considered in their entirety, are not materially less favorable to Digene than
those finally offered by or to Abbott or undertake the foregoing itself. In the
event that Abbott does not so notify Digene that it elects to negotiate such a
definitive agreement, Digene may undertake the foregoing itself or enter into
negotiations and an agreement with a Third Party with respect to [****
****************************] without any further obligations
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with respect thereto under this Section 19.1. Digene shall have no obligations
under this Section 19.1 with respect to [***********************************
*****************************************************************************
*************************************************].
19.2 Restriction of Right to Improvements, Innovations and Digene Products.
(a) Improvements and Innovations. Digene shall have no obligation to
provide Abbott with [*************************************************
************************************************************************
*************************************************************************
*************************************************************************
*******************************************************************].
(b) [********] Digene shall have no obligation to provide
Abbott with first rights of negotiation to any [*************], as more
fully described in Section 19.1, upon the earlier of [*********************
**************************************************************************
*************************************************************************
**************************************************************************
***********************************************************************
********************************************************************];
provided, however, that if Digene's obligations under this sentence have
been terminated by reason of [**************************************
***************************************************************************
**************************************************************************
***
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**********************************************************************
**************], Digene's obligations under Section 19.1 shall be restored
with respect to [********************************************************
***********************************************************************
*************************************************************************
*************] until or unless Digene shall otherwise be, or have been,
relieved of its obligations in accordance with this sentence.
19.3 Third Party Licenses. During the Term, Digene shall not license or
sublicense to a Third Party rights to a Product in the Field in the Territory,
provided that Abbott has [***********************************************
********].
19.4 Determination of Improvements or Innovations. The Parties shall
determine whether an improvement, modification or adjustment of or to a Product
is to be deemed an Improvement or an Innovation to such Product or whether an
improvement, modification or adjustment of or to a Digene Product is to be
deemed an Improvement to such Digene Product. Factors the Parties shall consider
in determining whether an improvement, modification or adjustment is an
Improvement or an Innovation to such Product or an Improvement to such Digene
Product, include, but are not limited to the following:[************************
********************************************************************************
*****************************************************************************].
In the event the Parties are unable to determine whether an improvement,
modification or adjustment of or to a Product is to be deemed an Improvement or
Innovation to such Product, or whether an improvement, modification or
adjustment of or to a Digene Product is to be deemed
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
an Improvement to such Digene Product, either Party may elect to conduct an
independent review of the dispute by impaneling an independent review board
comprised of four (4) opinion leaders in the industry, with each Party selecting
two (2) members thereof. If a Party elects to impanel an independent review
board, it shall provide the other Party with written notice of such election and
the Parties shall then select their respective members of such board. A hearing
on whether the particular improvement, modification or adjustment of or to a
Product is to be deemed an Improvement or Innovation to such Product, or whether
an improvement, modification or adjustment of or to a Digene Product is to be
deemed an Improvement to such Digene Product, shall be conducted within sixty
(60) days after receipt of the initial notice. Such hearing shall be held in the
presence of both Parties at a location to be mutually agreed to by the Parties
and shall be conducted over a period of no longer than eight (8) hours, with
each Party entitled to present for no longer than four (4) hours. The cost of
the hearing and of the members of the independent review board shall be shared
equally by the Parties. Any conclusions or recommendations offered by the
independent review board shall be advisory only, shall not be binding on either
Party and shall not be admissible in an alternative dispute resolution
proceeding under Section 21.6. Further, any such conclusions or recommendations
shall not be provided in writing. If after conducting the hearing with the
independent review board, the Parties remain unable to agree whether the
improvement, modification or adjustment is an Improvement or an Innovation to
such Product, or an Improvement to such Digene Product, then either Party may
seek final resolution of the dispute through the alternative dispute resolution
procedure under Section 21.6.
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
19.5 [*********]. Within one hundred and twenty (120) days following the
Effective Date, Abbott shall provide written notice to Digene as to whether [**
********************************************************************************
******************************************************************************
*********************************]. In the event Abbott so notifies Digene of
[***************************************************************************
****************************************************************************
******************************************************************************
************************]. In the event the Parties, after [********************
***********************************************************************
**************************************************************************
*****************************************************************]. In the event
Abbott does not so notify Digene or notifies Digene that it [******************
****************************************************************************]
19.6 Development Projects. Abbott shall [******************************
***] of the following development projects, subject to agreed upon milestones
and timeframe. Abbott shall promptly after the Effective Date, meet with Digene
and discuss a collaboration between the Parties to pursue [******************
**************************************************************************
******************************************************************************
****************************].
(a)[******************************************************************
***************************************************************************
***************************************************************************
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
************************************************************************].
(b)[******************************************************************
***************************************************************************
************************************************************************].
(c) [*****************************************************************
***************************************************************************
***************************************************************************
************************************************************************].
Once the Parties select [***********************************], the Parties shall
mutually prepare a project plan and milestone setting forth in detail the
expectation of the Parties.
19.7 Testing Service Rights. Digene hereby expressly reserves the right,
for its and its Affiliates, to sell or distribute all Products and Digene
Products as a product or as a testing service intended only for use in
functional genomics, pharmaceutical screening, or drug
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
discovery and development, including but not limited to therapeutics and
vaccines. In addition, Digene retains the right to supply all Products and
Digene Products for internal use by Digene and its Affiliates. For purposes of
clarification, products and testing services described in this Section 19.7
shall not include human in vitro diagnostic applications.
19.8 R&D Expenses. Except as otherwise provided in Section 19.6 or as
otherwise agreed, Digene shall be responsible, at its sole cost and expense for
the funding of [****************************************************************
***********************].
19.9 Products Outside the Scope of the Agreement. Except as provided in
Section 19.5, any rights of Digene to any product or Analyte which, with respect
to Products, does not principally utilize Hybrid Capture Technology and, with
respect to Digene Products, does not principally utilize Hybrid Capture for
Digene Products are outside the scope of this Agreement and Digene shall have no
obligation to negotiate with Abbott with respect to such rights for any country
in the world.
ARTICLE 20. - TRANSFER, MODIFICATION OR
TERMINATION OF OBLIGATIONS UNDER THE MUREX AGREEMENTS
20.1 General. The obligations of the Murex Entities and Digene under the
Murex Agreements shall, after the Effective Date, be transferred to, modified
(as applicable) and performed in accordance with the terms and provisions of
this Agreement, as set forth in this Article 20. Any obligations of the Murex
Entities and/or Digene under any of the Murex
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Agreements, other than those described in this Article 20, shall be terminated
and of no further force and effect as of and after the Effective Date.
20.2 Distribution of HBV. Any distribution, marketing and/or manufacturing
activities of any of the Murex Entities under any of the Murex Agreements with
respect to HBV shall be transferred from such Murex Agreements and, after the
Effective Date, performed by Abbott and by Digene, as the case may be, in the
HBV Territory in accordance with the terms and provisions of this Agreement.
20.3 Distribution of HPV. Any distribution, marketing and/or manufacturing
activities of any of the Murex Entities under any of the Murex Agreements with
respect to HPV shall be transferred from such Murex Agreements and, after the
Effective Date, performed by Abbott and by Digene, as the case may be, in the
HPV Territory in accordance with the terms and provisions of this Agreement.
20.4 Distribution of CMV. The Parties shall transfer all obligations with
respect to the distribution of Digene products for the diagnosis of
cytomegalovirus set forth on Schedule 20.4 ("CMV") from all of the applicable
Murex Agreements to this Agreement, with such obligations to be performed as
follows. Subject to, and in accordance with the other terms and conditions of
this Agreement, Digene hereby appoints Abbott and its Affiliates for the Term as
a non-exclusive distributor of CMV in the CMV Territory for use in the Field,
and Abbott hereby accepts such appointment. As part of such appointment under
this Section 20.4, Abbott shall have the right to appoint sub-distributors in
those countries or territories in the CMV Territory in which Abbott generally
uses sub-distributors to distribute Abbott diagnostic products. All CMV shall be
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
labeled identifying Digene only. Abbott shall not be required to meet any Net
Sales thresholds with respect to sales of CMV. Either Party shall be entitled to
terminate this non-exclusive distribution arrangement at any time by providing
to the other Party [******] written notice. The sales prices for the CMV shall
be determined as set forth in Section 2.7. During the Term, the transfer prices
of CMV shall be the price set forth on Schedule 20.4.
Notwithstanding the other provisions of this Section 20.4, the provisions
of Sections 2.4, 2.8, 2.9, 3.5, 3.8, 5.1(g), 5.4, 5.7 and 5.8 and Article 4
shall not apply to the marketing and distribution of CMV hereunder. In addition,
Digene and Abbott shall have no obligation under this Agreement or any of the
Murex Agreements for development activities with respect to products for the
diagnosis and/or treatment of CMV. Unless otherwise specified, however, all
other provisions of this Agreement shall apply to the marketing and distribution
of CMV.
20.5 Distribution of SHARP Signal System Products. The Parties shall
transfer all obligations with respect to the distribution of all Digene SHARP
Signal System products listed on Schedule 20.5 currently sold in the SHARP
Territory under the Murex Agreements ("SHARP") from all of the applicable Murex
Agreements to this Agreement, with such obligations to be performed as follows.
Subject to, and in accordance with the other terms and conditions of this
Agreement, Digene hereby appoints Abbott and its Affiliates for the Term as a
non-exclusive distributor of SHARP in the SHARP Territory for use in the Field,
and Abbott hereby accepts such appointment. As part of such appointment under
this Section 20.5, Abbott shall have the right to appoint sub-distributors in
those countries or territories in the SHARP
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Territory in which Abbott generally uses sub-distributors to distribute Abbott
diagnostic products. All SHARP shall be labeled identifying Digene only. Abbott
shall not be required to meet any Net Sales thresholds with respect to sales of
SHARP. Either Party shall be entitled to terminate this non-exclusive
distribution arrangement at any time by providing to the other Party [******]
written notice. The sales prices for the SHARP shall be determined as set forth
in Section 2.7. During the Term, the transfer prices of SHARP shall be the price
set forth on Schedule 20.5.
Notwithstanding the other provisions of this Section 20.5, the provisions
of Sections 2.4, 2.8, 2.9, 3.5, 3.8, 5.1(b), 5.1(c), 5.1(g), 5.4, 5.5, 5.6, 5.7,
5.8 and 5.10 and Article 4 shall not apply to the marketing and distribution of
SHARP hereunder. In addition, Digene and Abbott shall have no obligation under
this Agreement or any of the Murex Agreements for development activities with
respect to the applications for SHARP. Unless otherwise specified, however, all
other provisions of this Agreement shall apply to the marketing and distribution
of SHARP.
20.6 Murex-Only Labeled Products. Pursuant to the Development and License
Agreement, dated as of April 14, 1993, between Digene and International Murex
Technologies Corporation and the 1994 Development and License Agreement dated as
of May 31, 1994, between Digene and International Murex Technologies
Corporation, Murex had the right to require Digene to provide Murex with
products developed under such agreements with labels designed by Murex. Pursuant
to such rights, Digene has provided CMV to Murex with Murex-only trade marks and
trade dress. Abbott, on behalf of itself and all Murex Entities and
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Affiliates, shall remove the requirement to label any such products, including
CMV, with any Murex identifier in the label or trade dress, and hereby
terminates the obligation of Digene to provide such Murex-only labeled products
pursuant to either Development and License Agreement.
20.7 Continuing Obligations Under the Murex Agreements.
(a) Confidentiality Provisions. As of the Effective Date, all
Confidential Information (as such term is defined in each of the Murex
Agreements) of either Digene or the applicable Murex Entity that relates, in any
way, to CMV, CT/GC, HBV, HPV or SHARP or any of the Equipment marketed,
distributed, sold, developed or manufactured in accordance with the terms of
this Agreement shall be treated as "Confidential Information" as defined in, and
exchanged under, this Agreement. The Parties shall protect the confidentiality
of, and abide by their respective non-disclosure obligations with respect to,
all such Confidential Information in accordance with the terms of Article 17 of
this Agreement. All Confidential Information of Digene or the applicable Murex
Entity not transferred to this Agreement pursuant to the foregoing shall
continue to be treated as Confidential Information of Digene and the applicable
Murex Entity in accordance with, and subject to the provisions of the applicable
Murex Agreement, including, without limitation, the provisions requiring Digene
(on behalf of itself and its Affiliates) and Abbott (regarding itself and its
Affiliates, including the Murex Entities) to continue to comply with the
confidentiality and non-disclosure obligations under the applicable Murex
Agreement for the time period specified in the applicable Murex Agreement
following the termination of such Murex Agreement. Nothing contained in this
Agreement shall be, or shall be
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
deemed to be, a waiver by Digene or Abbott, or their respective Affiliates or
any of the Murex Entities of the confidentiality and non-disclosure obligations
set forth in each of the Murex Agreements.
(b) Indemnification Provisions. The indemnification provisions,
including the survival thereof, contained in the Murex Agreements shall continue
in full force and effect until terminated in accordance with the provisions of
each applicable Murex Agreement.
(c) Warranties. All warranties by Digene and/or its Affiliates in any
of the Murex Agreements shall apply to all products shipped by Digene or its
Affiliates to a Murex Entity or Abbott and/or its Affiliates prior to the
Effective Date.
20.8 Transition Period. For a period not to exceed one hundred eighty (180)
days from the Effective Date (the "Transition Period"), Digene and Abbott shall
Work With each other to transition the responsibilities and obligations under
the Murex Agreement to the responsibilities and obligations under this Agreement
in accordance with the following guidelines, which shall apply to all Products
and Other Products marketed, manufactured, sold and distributed hereunder:
(a) Marketing and Promotion. Abbott shall wind-down all marketing and
promotion efforts initiated under the Murex Agreements for products other than
the Products and Other Products and/or performed in areas of the world other
than the applicable Territory, the CMV Territory or the SHARP Territory within
the Transition Period. Thereafter, the provisions of Article 3 of this Agreement
shall supersede and replace all marketing and promotion obligations of the Murex
Entities set forth in any of the Murex Agreements.
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(b) Selling Activities. As of the Effective Date, the forecasts, Net
Sales thresholds and requirements provisions as set forth in this Agreement
shall supersede and replace all forecasts, Net Sales thresholds and requirements
provisions as set forth in any of the Murex Agreements.
(c) Transfer Prices and Costs and Expenses. As of the Effective Date,
for all Product, Other Product and Equipment purchase orders that are placed
beginning after the Effective Date, the transfer prices and all provisions
related to costs and expenses, including, without limitation, the payment of
Trade costs, the determination of the selling price in the applicable Territory,
CMV Territory or SHARP Territory, as the case may be, costs of shipping, testing
and Recall, and the price and terms provisions set forth in Article 6 and
Article 20 of this Agreement shall supercede and replace all similar provisions
of any of the Murex Agreements. Any purchase orders relating to Product, Other
Product and Equipment sales to end-users or distributors or Murex Affiliates
initiated prior to or on the Effective Date shall be completed in accordance
with the provisions of the applicable Murex Agreement; provided, however, that
any Product, Other Product or Equipment sale transactions that cannot be
completed within the Transition Period (excluding receipt of payment) shall be
completed as expeditiously as possible in accordance with the provisions of this
Agreement.
(d) Customer Billing and Collection. Abbott shall continue to perform
the customer billing, collection and Digene payment obligations of the Murex
Entities as set forth in any of the Murex Agreements for all Product, Other
Product and Equipment sales in the applicable Territory, CMV Territory or SHARP
Territory, as the case may be, initiated but not
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
completed prior to or on the Effective Date. After all such transactions have
been completed, the Parties shall cooperate with each other to terminate any
billing, collection and lock-box procedures established pursuant to the terms of
any of the Murex Agreements but not consistent with any similar terms of this
Agreement. Any purchase orders or sales performed in their entirety after the
Effective Date shall be handled in accordance with the provisions of this
Agreement.
(e) Wind-Down Activities. No wind-down provisions in any of the Murex
Agreements shall continue or be triggered.
(f) Equipment Buy-Out Provisions. The equipment buy-out obligations
under the Murex Agreements shall be handled in accordance with the provisions of
Section 6.1(b).
(g) Shipment and Delivery and Acceptance of Products and Other
Products. All shipments initiated prior to or on the Effective Date shall be
completed in accordance with the shipment, delivery and product acceptance terms
of the applicable Murex Agreement, but any shipments in the Territory, the CMV
Territory or the SHARP Territory after the Effective Date shall be performed in
accordance with the similar provisions of this Agreement.
(h) Consignment Inventory Storage Activities. The consignment
inventory holding obligations of the Murex Entities and Affiliates set forth in
Appendix A to the Agency and Sales Representation Agreement between Digene and
Murex Diagnostics Corporation shall continue until all consignment inventory of
Digene products has been depleted or discarded in accordance with the provisions
of such Murex Agreement.
(i) Financial Reconciliation.
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(i) As of the Effective Date the Parties shall reconcile all payments
owed under any of the Murex Agreements and shall settle all outstanding
obligations in accordance with Schedule 20.8(i).
(ii) The Parties shall Work With each other during the Transition
Period to transfer all financial reporting, payment and accounting obligations
with respect to the sales of Products and Other Products in the Territory, the
CMV Territory or the SHARP Territory, as applicable, from the various systems
established pursuant to the Murex Agreements to the procedures and reporting
systems developed to comply with the provisions of this Agreement.
(j) Further Assurances. During the Transition Period, the Parties
shall Work With each other to amend this Agreement, in accordance with Section
21.10, to finalize Schedules 6.1(b) and 20.8(i) to update the information set
forth therein as of the Effective Date.
20.9 Termination of the Murex Agreements. Subject to the foregoing
provisions of this Article 20, each of Digene, on behalf of itself and its
Affiliates, and Abbott on behalf of itself, each Murex Entity and each Affiliate
of either Abbott or Murex hereby agrees that, as of the Effective Date, each of
the Murex Agreements shall be terminated and, except as set forth
herein, shall have no further force and effect. Without limiting the generality
of the foregoing sentence, Abbott and Digene shall have no further obligations
to each other under the Murex Agreements with respect to any: (a) marketing,
distribution or manufacture of any products and/or equipment as contemplated by
the Murex Agreements, other than as specifically set forth
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
in this Agreement, including, without limitation, in any areas of the world
other than the Territory, the CMV Territory and the SHARP Territory; (b) product
or equipment development activities set forth in, or contemplated by, any of the
Murex Agreements; (c) indemnification obligations thereunder to the other Party
beyond the time periods described in this Article 20; and (d) payment and
related obligations other than those related to the transition activities
described in Section 20.8. All obligations of the parties thereto set forth in
the Murex Agreements for which similar provisions are set forth in this
Agreement, but not specifically mentioned in this Article 20 shall be governed,
with respect to the Products and Other Products and the Territory the CMV
Territory or the SHARP Territory, as applicable, to the extent applicable, by
such provisions of this Agreement (i.e., Recall, regulatory compliance, patent
and trademark protection, termination rights and consequences, new product
development efforts and miscellaneous provisions). Any provisions of the Murex
Agreements not covered by or contemplated by this Agreement shall be of no
further force and effect as of and after the Effective Date.
ARTICLE 21. - MISCELLANEOUS
21.1 Relationship of the Parties. The relationship of the Parties under
this Agreement is that of independent contractors. Nothing contained in this
Agreement shall be construed so as to constitute the Parties as partners, joint
venturers or agents of the other. Neither Party or its Affiliates has any
express or implied right or authority under this Agreement to assume or create
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
any obligations or make any representations or warranties on behalf of or in the
name of the other Party or its Affiliates.
21.2 Successors and Assignment. Neither Party may assign its rights or
obligations under this Agreement without the prior written consent of the other
Party, which consent shall not be unreasonably withheld; provided, however, that
either Party may, without such consent, (a) assign this Agreement, in whole or
in part, to an Affiliate of such Party; (ii) designate one (1) or more of its
Affiliates to perform its obligations hereunder (in which case the designating
Party shall remain responsible for the performance of all of its obligations
hereunder); and (iii) assign any or all of its rights, interests or obligations
hereunder to any successor to the assignor in a merger or consolidation or any
other purchase of substantially all of the assets of the assignor. Any permitted
assignee shall assume all obligations of the its assignor under this Agreement.
No assignment shall relieve any Party of responsibility for the performance of
any obligation which such Party may have or incur hereunder.
21.3 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of Abbott and those of its Affiliates which are acting or have acted as
a distributor hereunder and Digene and their respective successors and permitted
assigns. Abbott hereby guarantees the performance of all obligations hereunder
by all of its Affiliates which are acting or have acted as a distributor
hereunder.
21.4 Entire Agreement. This Agreement, including the Schedules, which are
incorporated herein by reference, set forth the entire understanding of the
Parties concerning the
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
subject matter hereof and supersedes all written or oral prior agreements or
understandings with respect thereto.
21.5 Governing Law. This Agreement and the legal relations between
the Parties hereunder shall be construed, interpreted and governed by the laws
of the State of Illinois, without regard to its conflict of laws principles.
21.6 Dispute Resolution. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be resolved through the
alternative dispute resolution procedure described on Schedule 21.6; provided,
however, that this shall not prevent a Party from seeking and obtaining
injunctive relief in a court of competent jurisdiction.
21.7 Notices. All notices hereunder shall be in writing and shall
be: (a) delivered personally; (b) mailed by registered or certified mail;
postage prepaid; (c) sent by overnight courier; or (d) sent by facsimile or
express mail to the following addresses of the respective Parties:
If to Abbott: Abbott Laboratories
Director, Acquisitions and Technology Assessment
D-9RK, Building AP6C
100 Abbott Park Road
Abbott Park, Illinois 60064-6094
Facsimile Number: (847) 937-6951
with copy to: Divisional Vice President
Domestic Legal Operations
D-322, Building AP6D
100 Abbott Park Road
Abbott Park, Illinois 60064-6049
Facsimile Number: (847) 938-1206
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
If to Digene: Digene Corporation
Chief Executive Officer
9000 Virginia Manor Road
Beltsville, Maryland 20705
Facsimile Number: (301) 470-2880
with copy to: Morris Cheston, Jr.
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Facsimile Number: (215) 864-8999
Notice shall be effective: (i) upon receipt if personally delivered; (ii) on the
third Business Day following the date of mailing if sent by registered or
certified mail; (iii) on the second Business Day following the date of delivery
to the express mail service if sent by express mail; and (iv) on the first
Business Day following the date of transmission or delivery to the overnight
courier if sent by facsimile or overnight courier. A Party may change its
address listed above by sending notice to the other Party.
21.8 Severability. If any provision of this Agreement for any reason shall
be held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or provision
hereof, and this Agreement shall be interpreted and construed as if such term or
provision, to the extent the same shall have been held to be invalid, illegal or
unenforceable, had never been contained herein.
21.9 Interpretation. When a reference is made in this Agreement to Sections
or Schedules, such references shall be to a Section of or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
headings contained in this Agreement have been inserted for convenience or
reference only and shall not be relied upon in construing this Agreement. Use of
any gender herein to refer to any person shall be deemed to comprehend
masculine, feminine, and neuter unless the context clearly requires otherwise.
21.10 Amendments. This Agreement may be amended at any time by a written
instrument executed by authorized representatives of both Parties. Any amendment
effective pursuant to this Section 21.10 shall be binding upon Abbott and those
of its Affiliates which are acting or have acted as a distributor hereunder and
Digene and their respective successors and permitted assigns.
21.11 Waiver. No waiver of any of the terms of this Agreement shall be
valid unless in writing and signed by authorized representatives of both
Parties. Failure by either Party to enforce any of its rights under this
Agreement shall not be construed as a waiver of such rights nor shall a waiver
by either Party in one or more instances be construed as constituting a
continuing waiver or as waiver in other instances.
21.12 Survival. Expiration or early termination of this Agreement shall not
relieve either Party of its obligations incurred prior to such expiration or
early termination. The following provisions shall survive expiration or early
termination of this Agreement: Article 1, the last sentence of Section 4.1(b),
the next to last sentence of Sections 4.2(b) and 4.3(b), Sections 4.5 and 6.4,
Article 10, Article 11, Article 13 (except Section 13.3) and Sections 14.1,
14.2, 14.3, 15.7, 16.1, 16.2, 16.3, 17.1, 17.2, 20.7, 21.5 and 21.6.
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REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
21.13 Headings. The captions to the Articles and Sections in this Agreement
are inserted for convenience only and are not a part hereof.
21.14 Counterparts. This Agreement may be executed in two (2) original
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
21.15 Mutual Drafting. This Agreement has been jointly drafted by Abbott
and Digene, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of the Parties and their respective
legal counsel and advisers and any rule of construction that a document shall be
interpreted or construed against the drafting party shall not be applicable.
96
<PAGE> 105
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, each Party has caused this Marketing and Distribution
Agreement to be executed on its behalf by its duly authorized officer as of the
Effective Date.
ABBOTT LABORATORIES DIGENE CORPORATION
By: /s/ James J. Koziarz By: /s/ Evan Jones
-------------------------- --------------------------
Name: James J. Koziarz Name: Evan Jones
Title: Corporate Vice President Title: President and Chief Executive
Diagnostic Products Officer
Research and Development
Date: May 7, 1999 Date: May 7, 1999
97
<PAGE> 106
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
LIST OF SCHEDULES
<TABLE>
<S> <C>
SCHEDULE 1.2 AFRICA
SCHEDULE 1.6 BASE SALES
SCHEDULE 1.18 CT/GC NON-U.S. AUP
SCHEDULE 1.19 CT/GC PRODUCTS
SCHEDULE 1.20 CT/GC U.S. AUP
SCHEDULE 1.21 CT/GC SPECIFICATIONS
SCHEDULE 1.25 DIGENE EQUIPMENT
SCHEDULE 1.27 DIGENE TRADEMARKS
SCHEDULE 1.28 DISTRIBUTORS
SCHEDULE 1.29 DISTRIBUTOR TERRITORIES
SCHEDULE 1.30 DISTRIBUTION AGREEMENTS
SCHEDULE 1.33 EUROPE
SCHEDULE 1.38 HBV AUP
SCHEDULE 1.39 HBV PRODUCTS
SCHEDULE 1.40 HBV SPECIFICATIONS
SCHEDULE 1.43 HPV AUP
SCHEDULE 1.44 HPV PRODUCTS
SCHEDULE 1.45 HPV SPECIFICATIONS
SCHEDULE 1.53 MIDDLE EAST
SCHEDULE 1.54 MINIMUM TRANSFER PRICE
SCHEDULE 1.58 NON-PROPRIETARY EQUIPMENT
SCHEDULE 1.60 OTHER PRODUCT SPECIFICATIONS
SCHEDULE 1.62 PATENTS
SCHEDULE 1.64 PRODUCT ACCESSORIES
SCHEDULE 3.6 VALIDATION PROTOCOLS
SCHEDULE 4.1 CT/GC AUTOMATION SPECIFICATIONS
SCHEDULE 6.1(a) PURCHASE PRICE FOR DIGENE EQUIPMENT
SCHEDULE 6.1(b) PURCHASE PRICE FOR EXISTING FIELD EQUIPMENT
SCHEDULE 6.1(c) PURCHASE PRICE FOR NON-PROPRIETARY EQUIPMENT
SCHEDULE 13.2 PRODUCT, OTHER PRODUCT AND EQUIPMENT REPLACEMENT OR
REPAIR
SCHEDULE 20.4 CMV
SCHEDULE 20.5 SHARP
SCHEDULE 20.8(i) FINANCIAL RECONCILIATION
SCHEDULE 21.6 ALTERNATIVE DISPUTE RESOLUTION
</TABLE>
<PAGE> 107
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
SCHEDULE 1.2
AFRICA
All countries in the continent of Africa, excluding Algeria, Egypt, Morocco, The
Sudan and Tunisia
(which are to be included in Schedule 1.53)
<PAGE> 108
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.6
Base Sales
<TABLE>
<CAPTION>
TERRITORY CATEGORY SALES ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
EUROPE CT/GC [***]
- --------------------------------------------------------------------------------
EUROPE HBV [***]
- --------------------------------------------------------------------------------
EUROPE HPV [***]
- --------------------------------------------------------------------------------
USA CT/GC [***]
- --------------------------------------------------------------------------------
TOTAL [***]
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 109
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
SCHEDULE 1.18
CT/GC Non-U.S. AUP
<TABLE>
<CAPTION>
DIGENE
ABBOTT CATALOG # CATALOG # DESCRIPTION QUANTITY AUP ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2F72.01 5100-1400IVT Digene Sample Conversion Kit 100 ml [***]
- ----------------------------------------------------------------------------------------------------------------------------------
2F73.01 5100-1500IVT Digene Sample Conversion Kit 1 L [***]
- ----------------------------------------------------------------------------------------------------------------------------------
2F78.01 5130-1015IVT Digene Urine Prep Kit 96 Tests [***]
- ----------------------------------------------------------------------------------------------------------------------------------
2F79.01 5130-1096IVT Digene CT/GC Test 96 Tests [***]
- ----------------------------------------------------------------------------------------------------------------------------------
2F80.01 5130-1116IVT Digene CT/GC Test Panel 6 Samples [***]
- ----------------------------------------------------------------------------------------------------------------------------------
2F81.01 5135-1050IVT Digene CT-ID Test 96 Tests [***]
- ----------------------------------------------------------------------------------------------------------------------------------
2F82.01 5140-1000IVT Digene GC-ID Test 96 Tests [***]
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 110
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.19
CT/GC Products
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
ABBOTT DIGENE
CATALOG # CATALOG # DESCRIPTION QUANTITY
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2F72.01 5100-1400IVT Digene Sample Conversion Kit 100 ml
- -------------------------------------------------------------------------------------------------------------------------------
2F73.01 5100-1500IVT Digene Sample Conversion Kit 1 L
- -------------------------------------------------------------------------------------------------------------------------------
2F78.01 5130-1015IVT Digene Urine Prep Kit 96 Tests
- -------------------------------------------------------------------------------------------------------------------------------
2F79.01 5130-1096IVT Digene CT/GC Test 96 Tests
- -------------------------------------------------------------------------------------------------------------------------------
2F80.01 5130-1116IVT Digene CT/GC Test Panel 6 Samples
- -------------------------------------------------------------------------------------------------------------------------------
2F81.01 5135-1050IVT Digene CT-ID Test 96 Tests
- -------------------------------------------------------------------------------------------------------------------------------
2F82.01 5140-1000IVT Digene GC-ID Test 96 Tests
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 111
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.20
CT/GC U.S. AUP
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AUP- ($) AUP- ($)
ABBOTT DIGENE AMPLIFIED NON-AMPLIFIED
CATALOG # CATALOG # DESCRIPTION QUANTITY REIMBURSEMENT. REIMBURSEMENT.
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2F72.01 5100-1400IVT Digene Sample Conversion Kit 100 ml [***] [***]
- ---------------------------------------------------------------------------------------------------------------------------------
2F73.01 5100-1500IVT Digene Sample Conversion Kit 1 L [***] [***]
- ---------------------------------------------------------------------------------------------------------------------------------
2F78.01 5130-1015IVT Digene Urine Prep Kit 96 Tests [***] [***]
- ---------------------------------------------------------------------------------------------------------------------------------
2F79.01 5130-1096IVT Digene CT/GC Test 96 Tests [***] [***]
- ---------------------------------------------------------------------------------------------------------------------------------
2F80.01 5130-1116IVT Digene CT/GC Test Panel 6 Samples [***] [***]
- ---------------------------------------------------------------------------------------------------------------------------------
2F81.01 5135-1050IVT Digene CT-ID Test 96 Tests [***] [***]
- ---------------------------------------------------------------------------------------------------------------------------------
2F82.01 5140-1000IVT Digene GC-ID Test 96 Tests [***] [***]
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 112
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.21
CT/GC Specifications
General product description, intended use statement, general performance
characteristics and description of kit components as stated in the relevant
sections of the current, applicable product Package Inserts and Certificates of
Analysis as listed below:
<TABLE>
<CAPTION>
Assay Digene Package Insert Certificate of Analysis
- ----------------------------------------------------------------------
<S> <C> <C>
CT/GC DNA Test L0990 06/97 L1350 12/98
(5130-1096 IVT)
- ----------------------------------------------------------------------
CT-ID DNA Test L0991 06/97 L1352 12/98
(5135-1050 IVT)
- ----------------------------------------------------------------------
GC-ID DNA Test L0992 06/97 L1351 12/98
(5140-1000 IVT)
- ----------------------------------------------------------------------
</TABLE>
<PAGE> 113
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.25
Digene Equipment
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
ABBOTT DIGENE DESCRIPTION QUANTITY
CATALOG # CATALOG #
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3F62.01 4300-1010 CE DCR-1 Luminometer, 240 Volt (adaptable to 120 Volt) 1 Each
- -----------------------------------------------------------------------------------------------------------
3F70.02 5000-1010 DML 2000 Luminometer 120 Volt 1 Each
- -----------------------------------------------------------------------------------------------------------
3F70.03 5000-1020 DML 2000 Luminometer 240 Volt 1 Each
- -----------------------------------------------------------------------------------------------------------
3F63.01 4300-1020 Rotary Shaker Assembly, 120 Volt 1 Each
- -----------------------------------------------------------------------------------------------------------
3F63.02 4300-1025 Rotary Shaker Assembly, 240 Volt 1 Each
- -----------------------------------------------------------------------------------------------------------
4F93.02 6000-2110 Rotary Shaker I, 120 Volt 1 Each
- -----------------------------------------------------------------------------------------------------------
4F93.01 6000-2240 Rotary Shaker I, 240 Volt 1 Each
- -----------------------------------------------------------------------------------------------------------
3F64.01 4300-1030 Rack Holder Shaker (Must be ordered with 4300-1020/1025) 1 Each
- -----------------------------------------------------------------------------------------------------------
4F82.02 6000-1110 Microplate Heater I, 120 Volt 1 Each
- -----------------------------------------------------------------------------------------------------------
4F82.01 6000-1240 Microplate Heater I, 220 Volt 1 Each
- -----------------------------------------------------------------------------------------------------------
TBA 5050-xxxx HPV, CT/GC
- -----------------------------------------------------------------------------------------------------------
HIV & HBV Software and Manuals ** 1 Each
- -----------------------------------------------------------------------------------------------------------
TBA 5050-1024EN PC System American English* 1 Each
- -----------------------------------------------------------------------------------------------------------
4F88.04 5050-1024FR PC System French * 1 Each
- -----------------------------------------------------------------------------------------------------------
4F88.05 5050-1024GR PC System German * 1 Each
- -----------------------------------------------------------------------------------------------------------
4F88.01 5050-1024IT PC System Italian * 1 Each
- -----------------------------------------------------------------------------------------------------------
4F88.02 5050-1024SP PC System Spanish * 1 Each
- -----------------------------------------------------------------------------------------------------------
4F88.03 5050-1024UK PC System English UK * 1 Each
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*Includes: HP Brio CPU, Mouse, Language Specific Keyboard, Preloaded Software
(Language Specific Windows 95/Excel 97)
**Includes: HPV and CT/GC Software and Manuals (product part number 5050-1036
IVT) and HIV and HBV Software and Manuals (product part number 5050-1039 RUO).
<PAGE> 114
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.27
Digene Trademarks
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MARK REGISTRATION NUMBER REGISTRATION DATE
- --------------------------------------------------------------------------------
<S> <C> <C>
SHARP SIGNAL 1,929,468 1/24/95
- --------------------------------------------------------------------------------
DIGENE 1,958,407 2/27/96
- --------------------------------------------------------------------------------
Digene Design Logo 1,958,406 2/27/96
- --------------------------------------------------------------------------------
HYBRID CAPTURE 2,029,476 1/14/97
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 115
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.28
Distributors
[*****************]
<PAGE> 116
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.29
Distributor Territories
[*****]
<PAGE> 117
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.30
Distribution Agreements
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Company Name Contract Date Territory Product Comments
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[***] [***] [***] [***] [***]
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE> 118
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.33
Europe
Albania
Andora
Austria
Baltic Republics: Estonia, Latvia, Lithuania
Belgium
Belarus
Bosnia
Bulgaria
Commonwealth of Independent States
Croatia
Cyprus
Czech Republic
Denmark
Finland
France
Germany
Greece
Greenland
Hungary
Iceland
Ireland
Italy
Liechtenstein
Luxembourg
<PAGE> 119
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.33 (cont'd)
Europe
Macedonia
Malta
Moldova
Monaco
Netherlands
Norway
Poland
Portugal
Romania
Russia
San Marino
Serbia
Slovenia
Slovakia
Spain
Sweden
Switzerland
Ukraine
United Kingdom
USSR - all former countries
Vatican City
Yugoslavia
<PAGE> 120
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.38
HBV AUP
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
ABBOTT CATALOG # DIGENE CATALOG # DESCRIPTION QUANTITY AUP ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TBA 6110-1000 RUO Digene HBV Serum Training Panel 12 Samples [***]
- ------------------------------------------------------------------------------------------------------------
4F41.01 6110-1096 RUO Digene HBV DNA Test (Includes Kit and 96 Tests [***]
Positive Controls)
- ------------------------------------------------------------------------------------------------------------
4F39.01 6110-1097 RUO Digene HBV DNA Ultra Sensitive Kit 96 Tests [***]
(Includes Positive Controls & Ultra
Sensitive Controls)
- ------------------------------------------------------------------------------------------------------------
TBA 4402-0477 HBV Detection Reagent (Sent with Each [***]
4402-1060M)
- ------------------------------------------------------------------------------------------------------------
2F94.01 4402-1006M HBV DNA Test Panel 1 Set [***]
- ------------------------------------------------------------------------------------------------------------
8E16.01 4402-1060M HBV DNA Assay 60 Tests [***]
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 121
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.39
HBV Products
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
ABBOTT CATALOG # DIGENE CATALOG # DESCRIPTION QUANTITY
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TBA 6110-1000 RUO Digene HBV Serum Training Panel 12 Samples
- ----------------------------------------------------------------------------------------------
4F41.01 6110-1096 RUO Digene HBV DNA Test (Includes Kit and 96 Tests
Positive Controls)
- ----------------------------------------------------------------------------------------------
4F39.01 6110-1097 RUO Digene HBV DNA Ultra Sensitive Kit 96 Tests
(Includes Positive Controls & Ultra
Sensitive Controls)
- ----------------------------------------------------------------------------------------------
TBA 4402-0477 HBV Detection Reagent (Sent with Each
4402-1060M)
- ----------------------------------------------------------------------------------------------
2F94.01 4402-1006M HBV DNA Test Panel 1 Set
- ----------------------------------------------------------------------------------------------
8E16.01 4402-1060M HBV DNA Assay 60 Tests
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 122
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.40
HBV Specifications
General product description, intended use statement, general performance
characteristics and description of kit components as stated in the relevant
sections of the current, applicable product Package Inserts and Certificates of
Analysis as listed below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Assay Digene Package Insert Certificate of Analysis
- --------------------------------------------------------------------------------
<S> <C> <C>
HBV DNA Assay L0796 10/97 No reference number
4402-1060M
- --------------------------------------------------------------------------------
HBV DNA Test L1183 10/98 L1339 03/99
(6110-1096RUO &
6110-1097RUO)
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 123
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.43
HPV AUP
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
ABBOTT CATALOG# DIGENE CATALOG # DESCRIPTION QUANTITY AUP ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2F32.01 4401-1024 HPV DNA Test Panel 1 Set [***]
- -----------------------------------------------------------------------------------------------------------
8E17.01 4401-1030UP HPV DNA Assay 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F74.01 5101-1024IVT Digene HPV Validation Panel 6 Samples [***]
- -----------------------------------------------------------------------------------------------------------
2F75.01 5101-1042IVT HPV Validation Panel 36 Samples [***]
- -----------------------------------------------------------------------------------------------------------
2F76.01 5101-1096IVT Digene HPV Test 96 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F33.01 4401-1016 HPV Type 16 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F34.01 4401-1018 HPV Type 18 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F35.01 4401-1031 HPV Type 31 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F36.01 4401-1033 HPV Type 33 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F37.01 4401-1035 HPV Type 35 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F38.01 4401-1042 HPV Type 42 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F39.01 4401-1043 HPV Type 43 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F40.01 4401-1044 HPV Type 44 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F41.01 4401-1045 HPV Type 45 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F42.01 4401-1051 HPV Type 51 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F43.01 4401-1052 HPV Type 52 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F44.01 4401-1056 HPV Type 56 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
2F45.01 4401-1611 HPV Type 6/11 60 Tests [***]
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 124
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.44
HPV Products
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
ABBOTT CATALOG# DIGENE CATALOG # DESCRIPTION QUANTITY
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
2F32.01 4401-1024 HPV DNA Test Panel 1 Set
- -----------------------------------------------------------------------------------------
8E17.01 4401-1030UP HPV DNA Assay 60 Tests
- -----------------------------------------------------------------------------------------
2F74.01 5101-1024IVT Digene HPV Validation Panel 6 Samples
- -----------------------------------------------------------------------------------------
2F75.01 5101-1042IVT HPV Validation Panel 36 Samples
- -----------------------------------------------------------------------------------------
2F76.01 5101-1096IVT Digene HPV Test 96 Tests
- -----------------------------------------------------------------------------------------
2F33.01 4401-1016 HPV Type 16 60 Tests
- -----------------------------------------------------------------------------------------
2F34.01 4401-1018 HPV Type 18 60 Tests
- -----------------------------------------------------------------------------------------
2F35.01 4401-1031 HPV Type 31 60 Tests
- -----------------------------------------------------------------------------------------
2F36.01 4401-1033 HPV Type 33 60 Tests
- -----------------------------------------------------------------------------------------
2F37.01 4401-1035 HPV Type 35 60 Tests
- -----------------------------------------------------------------------------------------
2F38.01 4401-1042 HPV Type 42 60 Tests
- -----------------------------------------------------------------------------------------
2F39.01 4401-1043 HPV Type 43 60 Tests
- -----------------------------------------------------------------------------------------
2F40.01 4401-1044 HPV Type 44 60 Tests
- -----------------------------------------------------------------------------------------
2F41.01 4401-1045 HPV Type 45 60 Tests
- -----------------------------------------------------------------------------------------
2F42.01 4401-1051 HPV Type 51 60 Tests
- -----------------------------------------------------------------------------------------
2F43.01 4401-1052 HPV Type 52 60 Tests
- -----------------------------------------------------------------------------------------
2F44.01 4401-1056 HPV Type 56 60 Tests
- -----------------------------------------------------------------------------------------
2F45.01 4401-1611 HPV Type 6/11 60 Tests
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 125
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.45
HPV Specifications
General product description, intended use statement, general performance
characteristics and description of kit components as stated in the relevant
sections of the current, applicable product Package Inserts and Certificates of
Analysis as listed below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Assay Digene Package Insert Certificate of Analysis
- --------------------------------------------------------------------------------
<S> <C> <C>
HPV DNA Assay L0890 09/97 L1775
4401-1030
- --------------------------------------------------------------------------------
HPV DNA Test L0893 06/97 L1460 12/98
(5101-1096)
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 126
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.53
Middle East
Afghanistan
Algeria
Egypt
Iran
Iraq
Israel
Jordon
Kuwait
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Syria
The Sudan
Tunisa
Turkey/Kurdistan
United Arab Emirates (UAE)
<PAGE> 127
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.54
Minimum Transfer Price
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Product Type Minimum Transfer Price
- --------------------------------------------------------------------------
<S> <C>
CT/GC [***]
[***]
[***]
- --------------------------------------------------------------------------
HBV [***]
[***]
[***]
- --------------------------------------------------------------------------
HPV [***]
[***]
[***]
- --------------------------------------------------------------------------
</TABLE>
*[************************************************************************
*****************************************************************************].
**Notwithstanding the calculation of the Minimum Transfer Price [*******
********] in no event shall the Minimum Transfer Price for any such Product be
greater than [********] of the actual transfer price of such Product at the
time of its first sale to Abbott hereunder adjusted for changes in the PPI for
in vitro diagnostic substances-clinical chemistry products-standards and
controls (Code 2835-115), as quoted by the U.S. Department of Labor, Bureau of
Labor Statistics (or any successor agency or index), from the PPI published
most recently prior to such first sale to the PPI published most recently prior
to the date of the sale of such Product to which the Minimum Transfer Price is
applicable.
<PAGE> 128
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.58
Non-proprietary Equipment
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ABBOTT CATALOG # DIGENE CATALOG # DESCRIPTION QUANTITY
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TBA 5050-1015 PC Monitor 1 Each
- --------------------------------------------------------------------------------------------------
TBA 5050-1028A Inkjet Printer (Epson Stylus 640) 1 Each
- --------------------------------------------------------------------------------------------------
TBA 5050-1019 Printer Cable 1 Each
- --------------------------------------------------------------------------------------------------
TBA 4300-1013 DCR-1 Well Liner Assembly 1 Each
- --------------------------------------------------------------------------------------------------
TBA 4301-1002 Decanting Racks 2/Pack
- --------------------------------------------------------------------------------------------------
TBA 4301-1003 Specimen Tube Rack 1 Rack
- --------------------------------------------------------------------------------------------------
TBA 4301-1012 DCR-1 Printer Paper 5 Rolls
- --------------------------------------------------------------------------------------------------
TBA 4301-1500 Disposable Transfer Pipettes 500/Pack
- --------------------------------------------------------------------------------------------------
2F84.01 4400-0296 Wash Buffer Pack 1 Pack
- --------------------------------------------------------------------------------------------------
2F30.01 4400-1000 Luminometer Validation Reagents 1 Set
- --------------------------------------------------------------------------------------------------
2F85.01 4500-1005 Sample Digestion Reagent 4 ml
- --------------------------------------------------------------------------------------------------
3F73.01 5030-1010 Wash Apparatus 1 Unit
- --------------------------------------------------------------------------------------------------
3F93.01 P0076 Hybridization Tube Caps, Green 1000/Bag
- --------------------------------------------------------------------------------------------------
3F94.01 P0077 Hybridization Tube Caps, Red 1000/Bag
- --------------------------------------------------------------------------------------------------
3F71.01 5015-1010 Specimen Collection Tube Rack 1 Each
- --------------------------------------------------------------------------------------------------
3F72.01 5025-1010 EXPAND-4 Pipettor (includes Power Supply) 1 Each
- --------------------------------------------------------------------------------------------------
3F72.02 5025-1015 EXPAND-4 Pipettor Stand 1 Each
- --------------------------------------------------------------------------------------------------
3F72.04 5025-1021 Power Supply (Included with 5025-1010) 1 Each
- --------------------------------------------------------------------------------------------------
3F75.01 5060-1001 MicroTubes 960/Pack
- --------------------------------------------------------------------------------------------------
3F75.02 5065-1010 MicroTube Rack 1 Each
- --------------------------------------------------------------------------------------------------
4F81.01 5070-1010 Plate Sealers 100/Pack
- --------------------------------------------------------------------------------------------------
4F61.01 5075-1011 Extra Long Pipette Tips 720/Case
- --------------------------------------------------------------------------------------------------
4F89.01 5080-1000 Screw Caps 1000/Bag
- --------------------------------------------------------------------------------------------------
4F85.01 5090-1010 Disposable Reagent Reservoirs 100/Case
- --------------------------------------------------------------------------------------------------
TBA 5100-0393 Wash Buffer (30x) 100 ml
- --------------------------------------------------------------------------------------------------
4F87.01 5061-1001 1.5 ml Specimen Preparation Tubes with O-Ring 1000/Case
Screw Caps
- --------------------------------------------------------------------------------------------------
4F86.01 5076-1011 Thin Tip Transfer Pipettes 2000/Case
- --------------------------------------------------------------------------------------------------
4F81.02 6000-0319 HBV Plate Sealers 100/Box
- --------------------------------------------------------------------------------------------------
4F79.01 6000-0904 HBV Absorbent Blotting Pad 3000/Case
- --------------------------------------------------------------------------------------------------
4F80.01 6000-1203 HBV Hybridization Microplates 100/Box
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 129
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.60
Other Product Specifications
CMV
General product description, intended use statement, general performance
characteristics and description of kit components as stated in the relevant
sections of the current, applicable product Package Inserts and Certificates of
Analysis as listed below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Assay Digene Package Insert Certificate of Analysis
- --------------------------------------------------------------------------------
<S> <C> <C>
CMV DNA Assay L0863 09/98 No reference number
(4403-2005, Murex
DP35)
- --------------------------------------------------------------------------------
</TABLE>
SHARP Specifications
SHARP Signal Assay (Digene Catalog No. 4600-1192 and Package Insert L0575
04/98)
Digene Internal QC Criteria:
When tested with a master Positive Control and RNA Probe, the absorbance at 450
nm should be greater than or equal to 0.60 after one hour substrate incubation.
Customer Criteria:
When tested with the Postive Control and RNA Probe from any Probe/Primer Kit,
the absorbance at 450 nm should be greater than or equal to 0.40 after one hour
substrate incubation.
SHARP Probe/Primer Kits
Digene Internal QC Criteria:
When the Postive Control and RNA Probe are tested with the SHARP Signal
Detection Kit, the absorbance at 450 nm should be greater than or equal to 0.60
after one hour substrate incubation.
Customer Criteria:
When the Positive Control and RNA Probe are tested with the SHARP Signal
Detection Kit, the absorbance at 450 nm should be greater than or equal to 0.40
after one hour substrate incubation.
<PAGE> 130
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.62
Patents
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Application Filed Patent Issued Title Country
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[***] [***] [***] [****] [***] [***]
- -------------------------------------------------------------------------------------------------------
30689/92 11/12/92 673,813 11/28/96 Non-Radioactive Hybridization Australia
Assay and Kit
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 131
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 1.64
Product Accessories
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
ABBOTT CATALOG # DIGENE CATALOG # DESCRIPTION QUANTITY COST ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2F71.01 5100-1050IVT Digene Cervical Sampler 50/Box [***]
- --------------------------------------------------------------------------------------------------------------
8E33.01 4203-0020 Specimen Collection Kit 20 Kits, 1 Box [***]
- --------------------------------------------------------------------------------------------------------------
2F29.01 4203-1030 STM 30 ml [***]
- --------------------------------------------------------------------------------------------------------------
TBA 4203-1030S STM 1L [***]
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 132
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 3.6
Validation Protocols
Validation protocols will be as described in each Product, Other Product and
Equipment package insert.
<PAGE> 133
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 4.1
CT/GC Automation Specifications
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Specification System Requirement
- ---------------------------------------------------------------------
<S> <C>
[***] [***]
- ---------------------------------------------------------------------
</TABLE>
<PAGE> 134
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 4.1 (cont'd)
CT/GC Automation Specifications
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Specification System Requirement
- ---------------------------------------------------------------------
<S> <C>
[***] [***]
- ---------------------------------------------------------------------
</TABLE>
<PAGE> 135
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
SCHEDULE 6.1(a)
PURCHASE PRICE FOR DIGENE EQUIPMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ABBOTT CATALOG # DIGENE CATALOG # DESCRIPTION QUANTITY COST ($)*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3F62.01 4300-1010 CE DCR-1 LUMINOMETER, 240 VOLT (ADAPTABLE TO 1 EACH [***]
120 VOLT)
- ----------------------------------------------------------------------------------------------------------------------
3F70.02 5000-1010 DML 2000 Luminometer 120 Volt 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
3F70.03 5000-1020 DML 2000 Luminometer 240 Volt 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
3F63.01 4300-1020 Rotary Shaker Assembly, 120 Volt *** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
3F63.02 4300-1025 Rotary Shaker Assembly, 240 Volt *** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
4F93.02 6000-2110 Rotary Shaker I, 120 Volt *** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
4F93.02 6000-2110 Rotary Shaker I, 120 Volt *** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
4F93.01 6000-2240 Rotary Shaker I, 240 Volt *** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
TBA 4300-1030 Rack Holder Rotary Shaker (Must be ordered 1 Each [***]
with 4300-1020/1025)
- ----------------------------------------------------------------------------------------------------------------------
4F82.02 6000-1110 Microplate Heater I, 120 Volt *** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
4F82.01 6000-1240 Microplate Heater I, 220 Volt *** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
TBA 5050-xxxx HPV, CT/GC, HIV & HBV Software and Manuals 1 Each [***]
****
- ----------------------------------------------------------------------------------------------------------------------
TBA 5050-1024EN PC System American English** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
4F88.04 5050-1024FR PC System French ** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
4F88.05 5050-1024GR PC System German ** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
4F88.01 5050-1024IT PC System Italian ** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
4F88.02 5050-1024SP PC System Spanish ** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
4F88.03 5050-1024UK PC System English UK ** 1 Each [***]
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* All prices set forth in this column represent [***] Effective Date. All
purchases of Digene Equipment shall be either at [***], or with respect
to the items identified with ***, at [********]
**Includes: HP Brio CPU, Mouse, Language Specific Keyboard, Preloaded Software
(Language Specific Windows 95/Excel 97)
*** Price is [*******]
**** 5050-xxxx includes HPV and CT/GC Software and Manuals (product part number
5050-1036 IVT) and HIV and HBV Software and Manuals (product part number
5050-1039 RUO).
<PAGE> 136
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 6.1(b)
Purchase Price for Existing Field Equipment
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Description Data Grand Total
- -------------------------------------------------------------------------
<S> <C> <C>
CABLE Price Ea [***]
---------------------------------------------------------
Quantity [***]
---------------------------------------------------------
Ext Price [***]
---------------------------------------------------------
Depreciation [***]
---------------------------------------------------------
Net Price [***]
- -------------------------------------------------------------------------
DCR-1 Price Ea [***]
---------------------------------------------------------
Quantity [***]
---------------------------------------------------------
Ext Price [***]
---------------------------------------------------------
Depreciation [***]
---------------------------------------------------------
Net Price [***]
- -------------------------------------------------------------------------
DML Price Ea [***]
---------------------------------------------------------
Quantity [***]
---------------------------------------------------------
Ext Price [***]
---------------------------------------------------------
Depreciation [***]
---------------------------------------------------------
Net Price [***]
- -------------------------------------------------------------------------
MONITOR Price Ea [***]
---------------------------------------------------------
Quantity [***]
---------------------------------------------------------
Ext Price [***]
---------------------------------------------------------
Depreciation [***]
---------------------------------------------------------
Net Price [***]
- -------------------------------------------------------------------------
PC Price Ea [***]
---------------------------------------------------------
Quantity [***]
---------------------------------------------------------
Ext Price [***]
---------------------------------------------------------
Depreciation [***]
---------------------------------------------------------
Net Price [***]
- -------------------------------------------------------------------------
PIPETTOR Price Ea [***]
---------------------------------------------------------
Quantity [***]
---------------------------------------------------------
Ext Price [***]
---------------------------------------------------------
Depreciation [***]
---------------------------------------------------------
Net Price [***]
- -------------------------------------------------------------------------
PRINTER Price Ea [***]
---------------------------------------------------------
Quantity [***]
---------------------------------------------------------
Ext Price [***]
---------------------------------------------------------
Depreciation [***]
---------------------------------------------------------
Net Price [***]
- -------------------------------------------------------------------------
</TABLE>
<PAGE> 137
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 6.1(b) (con't)
Purchase Price for Existing Field Equipment
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------
SHAKER Price Ea [***]
-----------------------------------------------------------
Quantity [***]
-----------------------------------------------------------
Ext Price [***]
-----------------------------------------------------------
Depreciation [***]
-----------------------------------------------------------
Net Price [***]
- -----------------------------------------------------------------------------------
SOFTWARE Price Ea [***]
-----------------------------------------------------------
Quantity [***]
-----------------------------------------------------------
Ext Price [***]
-----------------------------------------------------------
Depreciation [***]
-----------------------------------------------------------
Net Price [***]
- -----------------------------------------------------------------------------------
Total Ext Price [***]
- -----------------------------------------------------------------------------------
Total Depreciation [***]
- -----------------------------------------------------------------------------------
Total Net Price [***]
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE> 138
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 6.1(c)
Purchase Price for Non-proprietary Equipment
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ABBOTT CATALOG # DIGENE CATALOG # DESCRIPTION QUANTITY COST ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TBA 5050-1015 PC Monitor 1 Each [***]
- -----------------------------------------------------------------------------------------------------------------
TBA 5050-1028A Inkjet Printer (Epson Stylus 640) 1 Each [***]
- -----------------------------------------------------------------------------------------------------------------
TBA 5050-1019 Printer Cable 1 Each [***]
- -----------------------------------------------------------------------------------------------------------------
TBA 4300-1013 DCR-1 Well Liner Assembly 1 Each [***]
- -----------------------------------------------------------------------------------------------------------------
TBA 4301-1002 Decanting Racks 2/Pack [***]
- -----------------------------------------------------------------------------------------------------------------
TBA 4301-1003 Specimen Tube Rack 1 Rack [***]
- -----------------------------------------------------------------------------------------------------------------
TBA 4301-1012 DCR-1 Printer Paper 5 Rolls [***]
- -----------------------------------------------------------------------------------------------------------------
TBA 4301-1500 Disposable Transfer Pipettes 500/Pack [***]
- -----------------------------------------------------------------------------------------------------------------
2F84.01 4400-0296 Wash Buffer Pack 1 Pack [***]
- -----------------------------------------------------------------------------------------------------------------
2F30.01 4400-1000 Luminometer Validation Reagents 1 Set [***]
- -----------------------------------------------------------------------------------------------------------------
2F85.01 4500-1005 Sample Digestion Reagent 4 ml [***]
- -----------------------------------------------------------------------------------------------------------------
3F73.01 5030-1010 Wash Apparatus 1 Unit [***]
- -----------------------------------------------------------------------------------------------------------------
3F93.01 P0076 Hybridization Tube Caps, Green 1000/Bag [***]
- -----------------------------------------------------------------------------------------------------------------
3F94.01 P0077 Hybridization Tube Caps, Red 1000/Bag [***]
- -----------------------------------------------------------------------------------------------------------------
3F71.01 5015-1010 Specimen Collection Tube Rack 1 Each [***]
- -----------------------------------------------------------------------------------------------------------------
3F72.01 5025-1010 EXPAND-4 Pipettor (includes Power Supply) 1 Each [***]
- -----------------------------------------------------------------------------------------------------------------
3F72.02 5025-1015 EXPAND-4 Pipettor Stand 1 Each [***]
- -----------------------------------------------------------------------------------------------------------------
3F72.04 5025-1021 Power Supply (Included with 5025-1010) 1 Each [***]
- -----------------------------------------------------------------------------------------------------------------
3F75.01 5060-1001 MicroTubes 960/Pack [***]
- -----------------------------------------------------------------------------------------------------------------
3F75.02 5065-1010 MicroTube Rack 1 Each [***]
- -----------------------------------------------------------------------------------------------------------------
4F81.01 5070-1010 Plate Sealers 100/Pack [***]
- -----------------------------------------------------------------------------------------------------------------
4F61.01 5075-1011 Extra Long Pipette Tips 720/Case [***]
- -----------------------------------------------------------------------------------------------------------------
4F89.01 5080-1000 Screw Caps 1000/Bag [***]
- -----------------------------------------------------------------------------------------------------------------
4F85.01 5090-1010 Disposable Reagent Reservoirs 100/Case [***]
- -----------------------------------------------------------------------------------------------------------------
TBA 5100-0393 Wash Buffer (30x) 100 ml [***]
- -----------------------------------------------------------------------------------------------------------------
4F87.01 5061-1001 1.5 ml Specimen Preparation Tubes with O-Ring 1000/Case [***]
Screw Caps
- -----------------------------------------------------------------------------------------------------------------
4F86.01 5076-1011 Thin Tip Transfer Pipettes 2000/Case [***]
- -----------------------------------------------------------------------------------------------------------------
4F81.02 6000-0319 HBV Plate Sealers 100/Box [***]
- -----------------------------------------------------------------------------------------------------------------
4F79.01 6000-0904 HBV Absorbent Blotting Pad 3000/Case [***]
- -----------------------------------------------------------------------------------------------------------------
4F80.01 6000-1203 HBV Hybridization Microplates 100/Box [***]
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule 13.2
PRODUCT, OTHER PRODUCT AND EQUIPMENT REPLACEMENT OR REPAIR
If Abbott believes that a Product, Other Product or Equipment is a
Defective Product it shall so notify Digene in writing within sixty (60) days
of discovering the existence of such defect. Abbott shall use commercially
reasonable efforts to provide to Digene a written report detailing the area(s)
of non-conformance within forty-five (45) days after providing Digene with the
initial notification. The Parties shall mutually determine if such Product,
Other Product or Equipment is a Defective Product and, if so, shall mutually
determine a time frame in which the Defective
<PAGE> 139
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Product shall be either disposed of appropriately or packaged in accordance
with the appropriate international, national, state and local regulations for
return to Digene. Digene shall arrange for a shipping agent to collect, handle
and ship the Defective Product to a destination of Digene's choice and at
Digene's sole expense. Such collection shall occur during Abbott's normal
business hours.
<PAGE> 140
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 20.4
CMV
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ABBOTT CATALOG # DIGENE CATALOG # DESCRIPTION QUANTITY COST ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2F93.01 4400-0333 CMV Lysis Buffer 100 ml [***]
- ---------------------------------------------------------------------------------------------------------
8E19.01 4403-2005 CMV DNA Assay (Murex label) 60 Tests [***]
- ---------------------------------------------------------------------------------------------------------
2F92.01 4403-2006 CMV DNA Test Panel 1 Set [***]
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 141
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 20.5
SHARP
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ABBOTT CATALOG # DIGENE CATALOG # DESCRIPTION QUANTITY COST ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8E18.01 4600-1192 Sharp Signal System Assay 192 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F46.01 4600-1511 HBV Positive Control DNA 100 Microliters [***]
- ----------------------------------------------------------------------------------------------------------------
[***]
- ----------------------------------------------------------------------------------------------------------------
2F49.01 4600-1514 HIV Positive Control DNA 100 Microliters [***]
- ----------------------------------------------------------------------------------------------------------------
2F50.01 4600-1515 CMV Positive Control DNA 100 Microliters [***]
- ----------------------------------------------------------------------------------------------------------------
2F51.01 4600-1516 Mtb Positive Control DNA 100 Microliters [***]
- ----------------------------------------------------------------------------------------------------------------
2F86.01 4601-1100 HBV Probe Primer Set 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F54.01 4603-1100 HPV Probe Primer Set 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F88.01 4604-1145 HIV SK145/150 Probe Primer Set 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F87.01 4604-1380 HIV SK38/39 Probe Primer Set 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F89.01 4605-1100 CMV Probe Primer Set 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F56.01 4605-1101 Cytomegalovirus (CMV) 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F58.01 4606-1100 Mycobacterium TB 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F59.01 4607-1100 Herpes Simplex Virus 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F60.01 4608-1100 Varicella Zoster Virus 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F61.01 4609-1100 Human Herpes Virus 6 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F62.01 4610-1100 Epstein Barr Virus 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F63.01 4611-1100 Parvovirus B19 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F64.01 4620-1100 Borrelia burgdorderi, flagellin 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F65.01 4620-1101 Borrelia burgdorderi, OspA 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F66.01 4621-1100 Chlamydia Trachomatis 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F67.01 4630-1000 Toxoplasma gondii 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F67.01 4631-1100 Plasmodium flaciparum 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F69.01 4632-1100 Plasmodium vivax 210 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
2F70.01 4632-1101 Plasmodium vivax 247 100 Tests [***]
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 142
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 20.8(i)
Financial Reconciliation
Amounts due to (from) Digene as of March 31, 1999
<TABLE>
<CAPTION>
Billed to Amount (USD)
- --------- --------------
<S> <C>
[******] $ [***]
Adjustments
- -----------
Note offsets (9/30/98 & [***]
12/31/98)
Price adjustment on open equipment invoices [***]
----------------
Net amount due to Digene $ 2,722,803.04
================
</TABLE>
<PAGE> 143
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule 21.6
Alternative Dispute Resolution
The Parties recognize that a bona fide dispute as to certain matters may
arise from time to time during the term of this Agreement which relates to
either Party's rights and/or obligations. The terms of this Schedule 21.6 set
forth the procedures to be used in the alternative dispute resolution ("ADR")
process for resolving disputes between the Parties.
A Party initiating the ADR must first send written notice of the dispute to
the other Party for attempted resolution by good faith negotiation between their
respective presidents (or their equivalents) of the affected subsidiaries,
divisions, or business units within twenty-eight (28) days after such notice is
received (all references to "days" in this ADR provision are to calendar days).
If the matter is not resolved within such twenty-eight (28) day period, or
if the Parties fail to meet within such twenty-eight (28) day period, either
Party may initiate an ADR proceeding as provided herein. The Parties shall have
the right to be represented by counsel in such a proceeding.
22. To begin the ADR proceeding, a Party shall provide written notice (the
"ADR Notice") to the other Party of the issues to be resolved by ADR.
Within fourteen (14) days after its receipt of the ADR Notice, the other
Party may, by written notice to the Party providing the ADR Notice, add
additional issues to be resolved within the same ADR proceeding.
23. Within twenty-one (21) days following receipt of the ADR Notice, the
Parties shall select a mutually acceptable neutral individual to preside in
the resolution of any disputes in the ADR proceeding. If the Parties are
unable to agree on a mutually acceptable neutral within such period, either
Party may request the President of the CPR Institute for Dispute Resolution
("CPR"), 366 Madison Avenue, 14th Floor, New York, New York 10017, to
select a neutral pursuant to the following procedures:
(a) The CPR shall submit to the Parties a list of not less than five
(5) candidates within fourteen (14) days after receipt of the request,
along with a Curriculum Vitae for each candidate. Each candidate shall
be independent and shall not be an employee, director or holder of one
percent (1%) or more of the outstanding equity securities of either
Party or any of their subsidiaries or affiliates or of any entity with
which either Party has a contractual or business relationship.
(b) Such list shall include a statement of disclosure by each
candidate of any circumstances likely to affect his or her
impartiality.
(c) Each Party shall number the candidates in order of preference
(with the number one (1) signifying the greatest preference and shall
deliver the list to the CPR within seven (7) days following receipt of
the list of candidates. If a Party believes a conflict of interest
exists regarding any of the candidates, that Party shall provide a
written explanation of the conflict to the CPR along with its list
showing its order of preference for the candidates. Any Party failing
to return a list of preferences on time shall be deemed to have no
order of preference.
(d) If the Parties collectively have identified fewer than three (3)
candidates deemed to have conflicts, the CPR immediately shall
designate as the neutral the candidate for whom the Parties
collectively have indicated the greatest preference. If a tie should
result between two candidates, the CPR may designate either candidate.
If the Parties collectively have identified three (3) or more
candidates deemed to have conflicts, the CPR shall review the
explanations regarding the conflicts and, it its sole discretion, may
either (i) immediately designate as the neutral the candidate for whom
the Parties collectively have indicated the greatest preference, or
(ii) issue a new list of not less than five (5) candidates, in which
case the procedures set forth in subparagraphs 2(a)-2(d) shall be
repeated until the neutral is selected.
24. No earlier than twenty-eight (28) days or later than fifty-six (56)
days after selection, the neutral shall hold a hearing to resolve each of
the issues identified by the Parties. The ADR proceeding shall take place
at a location agreed upon by the Parties. If the Parties cannot agree, the
neutral shall designate a location other than the principal place of
business of either Party or any of their subsidiaries or affiliates.
25. At least seven (7) days prior to the hearing, each Party shall submit,
in written form, the following to the other Party and the neutral:
(a) a copy of all exhibits on which such Party intends to rely in any
oral or written presentation to the neutral;
<PAGE> 144
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(b) a list of any witnesses such Party intends to call at the
hearing, and a short summary of the anticipated testimony of each
witness;
(c) a proposed ruling on each issue to be resolved, together with a
request for a specific damage award or other remedy for each issue.
The proposed rulings and remedies shall not contain any recitation of
the facts or any legal arguments and shall not exceed one (1) page per
issue.
(d) a brief in support of such Party's proposed rulings and remedies,
provided that the brief shall not exceed twenty (20) pages. This page
limitation shall apply regardless of the number of issues raised in
the ADR proceeding.
Except as expressly set forth in subparagraphs 4(a) - 4(d), no discovery
shall be required or permitted by any means, including depositions,
interrogatories, requests for admissions, or production of documents.
26. The hearing shall be conducted on two (2) consecutive days and shall
be governed by the following rules:
(a) The hearing may be attended by one representative of each Party,
each Party's expert witnesses, if any, counsel and the neutral.
(b) Video conferencing shall be permissible at the discretion of the
neutral.
(c) Each Party shall be entitled to five (5) hours of hearing time to
present its case. The neutral shall determine whether each Party has
had the five (5) hours to which it is entitled.
(d) Each Party shall be entitled, but not required, to make an
opening statement, to present regular and rebuttal testimony,
documents or other evidence, to cross-examine witnesses, and to make a
closing argument. Cross-examination of witnesses shall occur
immediately after their direct testimony, and cross-examination time
shall be charged against the Party conducting the cross-examination.
(e) The Party initiating the ADR shall begin the hearing and, if it
chooses to make an opening statement, shall address not only issues it
raised but also any issues raised by the responding Party. The
responding Party, if it chooses to make an opening statement, also
shall address all issues raised in the ADR. Thereafter, the
presentation of regular and rebuttal testimony and documents, other
evidence, and closing arguments shall proceed in the same sequence.
(f) Except when testifying, witnesses, other than the Party
representatives and any expert witnesses, shall be excluded from the
hearing until closing arguments.
(g) Settlement negotiations, including any statements made therein,
shall not be admissible under any circumstances. Affidavits prepared
for purposes of the ADR hearing shall be admissible at the discretion
of the neutral, provided the affiant is available for purposes of
cross-examination. As to all other matters, the neutral shall have
sole discretion regarding the admissibility of any evidence.
27. Within seven (7) days following completion of the hearing, each Party
may submit to the other Party and the neutral a post-hearing brief in
support of its proposed rulings and remedies, provided that such brief
shall not contain or discuss any new evidence and shall not exceed ten (10)
pages. This page limitation shall apply regardless of the number of issues
raised in the ADR proceeding.
28. The neutral shall rule on each disputed issue within fourteen (14)
days following completion of the hearing. Such ruling shall adopt in its
entirety the proposed ruling and remedy of one of the parties on each
disputed issue but may adopt one party's proposed rulings and remedies on
some issues and the other party's proposed rulings and remedies on other
issues. The neutral shall not issue any written opinion or otherwise
explain the basis of the ruling.
29. The neutral shall be paid a reasonable fee plus expenses. These fees
and expenses, along with the reasonable legal fees and expenses of the
prevailing Party (including all expert witness fees and expenses), the fees
and expenses of a court reporter, and any expenses for a hearing room,
shall be paid as follows:
(a) If the neutral rules in favor of one Party on all disputed issues
in the ADR, the losing Party shall pay 100% of such fees and expenses.
(b) If the neutral rules in favor of one Party on some issues and in
favor of the other Party on other issues, the neutral shall issue with
the rulings a written determination as to how such fees and expenses
shall be allocated between the Parties. The neutral shall allocate
fees and expenses in a way that bears a reasonable relationship to the
outcome
<PAGE> 145
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
of the ADR, with the Party prevailing on more issues, or on issues of
greater value or gravity, recovering a relatively larger share of its
legal fees and expenses.
30. The rulings of the neutral and the allocation of fees and expenses
shall be binding, non-reviewable, and non-appealable, and may be entered as
a final judgment in any court having jurisdiction.
31. Except as provided in paragraph 9 or as required by law, the existence
of the dispute, any settlement negotiations, the ADR hearing, any
submissions (including exhibits, testimony, proposed rulings, and briefs),
and the rulings shall be deemed Confidential Information, although the
rulings may be introduced in any subsequent ADR hearing relating to this
Agreement. The neutral shall have the authority to impose sanctions for
unauthorized disclosure of Confidential Information.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-14933 and Form S-8 No. 333-40899) pertaining to the Digene
Diagnostics, Inc. 1990 Stock Option Plan, the Digene Diagnostics, Inc. 1991-A
Stock Option Plan, the Digene Diagnostics, Inc. 1991-B Stock Option Plan, the
Digene Corporation Omnibus Plan, the Digene Corporation Directors' Stock Option
Plan, and the Digene Corporation 1997 Stock Option Plan of our reports dated
August 20, 1999, with respect to the consolidated financial statements and
schedule of Digene Corporation included in its Annual Report on Form 10-K/A for
the year ended June 30, 1999, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Washington, DC
December 20, 1999
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 13,934,415
<SECURITIES> 4,347,084
<RECEIVABLES> 2,526,201
<ALLOWANCES> 169,664
<INVENTORY> 2,894,210
<CURRENT-ASSETS> 24,920,470
<PP&E> 5,626,768
<DEPRECIATION> 3,889,690
<TOTAL-ASSETS> 28,108,479
<CURRENT-LIABILITIES> 4,421,434
<BONDS> 0
0
0
<COMMON> 145,659
<OTHER-SE> 23,541,386
<TOTAL-LIABILITY-AND-EQUITY> 28,108,479
<SALES> 17,013,735
<TOTAL-REVENUES> 17,467,099
<CGS> 6,111,774
<TOTAL-COSTS> 10,755,232
<OTHER-EXPENSES> 183,394
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,144
<INCOME-PRETAX> (9,155,147)
<INCOME-TAX> 149,069
<INCOME-CONTINUING> (9,304,216)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,304,216)
<EPS-BASIC> (0.65)
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