<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934. For the quarterly period ended June 30, 1997.
Transition report pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934. For the transition period from to .
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Commission File Number: 0-19749
CHEMTRAK INCORPORATED
Delaware 77-0295388
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S Employer)
incorporation or organization) Identification No.)
929 E. Arques Avenue, Sunnyvale, CA 94086
-----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 773-8156
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class: Common Stock $.001 par value Outstanding at August 7, 1997: 12,994,006
---------------------------- -----------
<PAGE> 2
CHEMTRAK INCORPORATED
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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NO.
---
<S> <C>
Item 1: Financial Statements
Condensed Balance Sheets as of June 30, 1997 and December 31, 1996 3
Condensed Statements of Operations for the three and six months ended
June 30, 1997 and 1996 4
Condensed Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 5
Notes to Condensed Financial Statements 6-7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
EXHIBITS
2
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CHEMTRAK INCORPORATED
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, 1997 December 30, 1996
------------ ------------
(unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,875,000 $ 4,125,000
Short-term investments -- 567,000
Accounts receivable, net 520,000 485,000
Inventories 1,523,000 540,000
Prepaid expenses and other current assets 131,000 320,000
------------ ------------
Total current assets 4,049,000 6,037,000
Property and equipment, net 2,286,000 2,738,000
Other assets 66,000 66,000
------------ ------------
Total assets $ 6,401,000 $ 8,841,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 248,000 $ 289,000
Accrued payroll and benefits 165,000 199,000
Other accrued liabilities 791,000 788,000
Accrued royalties 149,000 105,000
------------ ------------
Total current liabilities 1,353,000 1,381,000
Deferred Revenue 350,000 --
Accrued rent 315,000 295,000
Convertible debentures 506,000 2,135,000
Stockholders' equity:
Common stock 13,000 12,000
Additional paid-in capital 43,160,000 41,375,000
Deferred compensation (39,000) (49,000)
Accumulated deficit (39,257,000) (36,308,000)
------------ ------------
Total stockholders' equity 3,877,000 5,030,000
------------ ------------
Total liabilities and stockholders' equity $ 6,401,000 $ 8,841,000
============ ============
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See accompanying notes.
3
<PAGE> 4
CHEMTRAK INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues:
Product sales $ 870,000 $ 581,000 $ 1,478,000 $ 1,437,000
Funded research and other revenues -- 25,000 833,000 175,000
------------ ------------ ------------ ------------
Total net revenues 870,000 606,000 2,311,000 1,612,000
Cost and expenses:
Cost of product sales 517,000 824,000 1,221,000 1,555,000
Research and development 579,000 729,000 1,032,000 1,473,000
Marketing, general and administrative 1,530,000 1,179,000 3,153,000 2,273,000
------------ ------------ ------------ ------------
Total costs and expenses 2,626,000 2,732,000 5,406,000 5,301,000
------------ ------------ ------------ ------------
Operating loss (1,756,000) (2,126,000) (3,095,000) (3,689,000)
Interest income and (expense), net 102,000 (663,000) 146,000 (596,000)
------------ ------------ ------------ ------------
Net loss $ (1,654,000) $ (2,789,000) $ (2,949,000) $ (4,285,000)
============ ============ ============ ============
Net loss per share $ (0.13) $ (0.29) $ (0.24) $ (0.44)
============ ============ ============ ============
Shares used in calculating per share amounts 12,855,000 9,773,000 12,470,000 9,743,000
============ ============ ============ ============
</TABLE>
4
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CHEMTRAK INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Operating activities:
Net loss $ (2,949,000) $(4,285,000)
Adjustment to reconcile net loss to net cash and
cash equivalents used in operating activities:
Depreciation and amortization 403,000 430,000
Interest expense and financing charges
on convertible debentures 105,000 619,000
Accrued rent 20,000 27,000
Stock option compensation and other -- 2,000
Loss on disposal of assets 170,000 --
Changes in operating assets and liabilities:
Accounts receivable (35,000) (364,000)
Inventories (983,000) (266,000)
Prepaid expenses and other current assets 189,000 167,000
Accounts payable (41,000) (183,000)
Accrued payroll and benefits (34,000) 36,000
Deferred Revenue 350,000 --
Accrued royalties and other accrued liabilities 47,000 349,000
----------------- -----------------
Net cash and cash equivalents
used in operating activities (2,928,000) (3,468,000)
----------------- -----------------
Investing activities:
Proceeds from available-for-sale securities 567,000 514,000
Acquisition of property and equipment, net 49,000 (190,000)
----------------- -----------------
Net cash and cash equivalents provided
by investing activities 616,000 324,000
----------------- -----------------
Financing activities:
Net proceeds from issuance of convertible debentures -- 4,700,000
Issuance of common stock 62,000 182,000
----------------- -----------------
Net cash and cash equivalents provided
by financing activities 62,000 4,882,000
----------------- -----------------
Net increase (decrease) in cash and cash equivalents (2,250,000) 1,738,000
Cash and cash equivalents at beginning of period 4,125,000 4,251,000
----------------- -----------------
Cash and cash equivalents at end of period $ 1,875,000 $ 5,989,000
================= =================
Supplemental disclosure of non-cash financing activities:
Conversion of convertible debentures and accrued
interest to common stock $ 1,629,000 $ --
================= =================
</TABLE>
See accompanying notes.
5
<PAGE> 6
CHEMTRAK INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1997
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements include all adjustments
consisting of normal recurring adjustments which the Company's management
believes to be necessary to fairly present the Company's financial position as
of June 30, 1997, and the results of operations for the three and six month
periods ended June 30, 1997.
The operating results of the interim periods presented are not
necessarily indicative of the results for the full year. The accompanying
financial statements should be read in conjunction with the financial statements
for the year ended December 31, 1996, included in the ChemTrak Incorporated
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the
"Form 10-K"), and the 1996 Annual Report to Stockholders (the "Annual Report").
The information set forth in the accompanying balance sheet as of December 31,
1996, has been derived from the audited balance sheet included in the
above-referenced Form 10-K and Annual Report.
Note 2. Net Loss Per Share
Net loss per share is computed using the weighted average number of
shares outstanding. Common equivalent shares from stock options are excluded in
the computation as their effect is antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which ChemTrak is required to adopt on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute loss per share and to restate all prior
periods. Under the new requirements for calculating primary loss per share, the
dilutive effect of stock options will be excluded. The primary loss per share
for the three and six month period ended June 30, 1997 and June 30, 1996 would
not change as reported. The impact of Statement 128 is expected not to have a
material effect on fully diluted loss per share.
6
<PAGE> 7
CHEMTRAK INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
June 30, 1997
(unaudited)
Note 3. Inventories
Inventories are stated at the lower of standard cost (which approximates
actual costs on a first-in, first-out basis) or market. Inventories consisted of
the following:
<TABLE>
<CAPTION>
June 30, 1997 December 31,1996
---------- ----------
<S> <C> <C>
Raw materials....... $ 728,000 $ 289,000
Work in process..... 182,000 63,000
Finished goods...... 613,000 188,000
---------- ----------
Total............. $1,523,000 $ 540,000
========== ==========
</TABLE>
Note 4. Convertible Debentures
In May 1996, the Company issued $5,000,000 of convertible debentures
resulting in net proceeds to the company of $4,700,000 after deducting selling
commissions. The debentures, which are due in May 1998, are convertible into
common stock at the lower of 110% of the average closing prices during the
ten-day trading period ending with the initial debenture funding date, or 82.5
percent of the similarly-defined average ten-day market price ending with the
conversion date. The Company has the option to convert the amount of periodic
interest due on the convertible debentures, computed at the rate of 7.5% per
annum, into common stock of the Company in lieu of cash payments. Through June
30, 1997, all interest obligations on the debentures have been settled by the
issuance of common stock.
The accompanying financial statements reflect deemed non-cash interest
expense of $875,000 ($656,250 and $218,750 in the quarters ended June 30, 1996
and September 30, 1996, respectively).
As of June 30, 1997, aggregate principal amount of $4,605,000 had been
converted into 3,013,000 shares of common stock and approximately 84,436 shares
were issued to settle interest obligations.
7
<PAGE> 8
CHEMTRAK INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the Company's 1996 Form
10K and elsewhere in this document.
OVERVIEW
ChemTrak began marketing the AccuMeter(R) Cholesterol Test to the United
States physicians office market in May 1991, following receipt of clearance from
the FDA, and to the international consumer retail and physicians' office
laboratory market in October 1991. In March 1993, the Company received clearance
from the FDA for the United States consumer retail market. In January 1994, the
Company began marketing the AccuMeter(R) Cholesterol Self-Test through United
States consumer catalogs and signed a license and supply agreement with Direct
Access Diagnostics ("DAD"), a Johnson & Johnson company, to market the Company's
Total Cholesterol Test to over-the-counter retail outlets in North America. In
December 1995, the Company regained the exclusive rights to market its Total
Cholesterol Test in the United States retail market and re-launched the product
in January 1996 under the trade name of CholesTrak(R).
In April 1997, the Company entered into an agreement with Parents Alert
to distribute a home drug test kit. Under terms of the agreement, ChemTrak will
assume responsibility for nationwide marketing and distribution of the Parent's
Alert Home Drug Test Service. In return, Parent's Alert will receive royalty
payments and consulting payments from ChemTrak for the use of its name. Product
distribution is expected to begin in the third quarter of this year.
In March 1997, ChemTrak announced its entry into the colorectal disease
testing market with the introduction of ColoCARE(R), a Home Test to Detect the
Early Warning Signs of Colorectal Disease. The Company began shipments of
ColoCARE(R) during the first quarter of 1997.
In July 1996, the Company received clearance from the FDA to market its
first test for infectious diseases, the H. pylori test for use in the
physicians' office laboratory market. The first shipment to Astra Merck, Inc.
as part of the 1995 agreement, is now expected to be delivered in the third
quarter of 1997.
8
<PAGE> 9
In January of 1997, ChemTrak announced a pan-European license with
Selfcare Inc. of Waltham, Massachusetts to market the AWARE(TM)home HIV test
service in Europe. As part of the agreement Selfcare will pay for the cost of
regulatory submissions in each of the countries of Europe. Selfcare, does
however, have the option to terminate the agreement if the FDA does not approve
ChemTrak's AWARE(TM) home HIV test service in 1997. In 1995, the Company
acquired technology and filed with the FDA its pre-market approval application
("PMA") for the Company's AWARE(TM) home HIV test service. In June 1997, the FDA
requested additional information regarding the PMA Filing. The Company is
evaluating the FDA information request and the market opportunity for the
product.
As of June 30, 1997, ChemTrak had an accumulated deficit of
approximately $39,257,000. The ability of the Company to achieve profitability
is highly dependent upon numerous factors including, but not limited to, the
Company's ability to directly market and distribute its cholesterol, H. Pylori,
home drug test kit, and colorectal products in the United States, successful
completion of the Company's regulatory approval process to market products
under development, and the Company's ability to provide product in sufficient,
cost effective quantities. Due to the uncertainty of these factors, it is
difficult to reliably predict when such profitability may occur, if at all.
Until such time as it achieves profitability, the Company is likely to require
additional capital to finance its operations.
The development and marketing of consumer medical devices is capital
intensive. The Company has funded its operations to date through product sales,
funded research and other revenues, and public and private equity and debt
financings. The Company will require substantial additional funding in order to
complete the development and marketing activities in which it is currently
engaging, and to launch these products in the consumer marketplace. The Company
intends to seek additional funding through collaborative agreements with
corporate partners or through additional equity or debt financings. There can be
no assurance that the Company will be able to enter into such arrangements on
acceptable terms, or at all.
The Company has historically experienced significant fluctuations in its
operating results and anticipates that these fluctuations may continue. The
market price of the shares of the Company's common stock, like that of other
emerging medical technology companies, has been highly volatile. Various factors
including, but not limited to, fluctuations in the Company's operating results,
technical and regulatory developments, and general market and economic factors,
may have a significant effect on the market price of the Company's common stock.
9
<PAGE> 10
RESULTS OF OPERATIONS
NET REVENUES
Net revenues increased to $870,000 for the three months ended June 30,
1997 from $606,000 for the three months ended June 30, 1996. Product sales
increased to $870,000 in the three months ended June 30, 1997 from $581,000 in
the three months ended June 30, 1996, primarily due to higher shipments of
CholesTrak(R). Net revenues increased to $2,311,000 for the six months ended
June 30, 1997 from $1,612,000 for the same period last year. The variance is due
to Funded research and other revenues increasing to $833,000 for the six months
ended June 30, 1997 from $175,000 for the six months ended June 30, 1996.
Included in funded research and other revenues, for the six month period ending
June 30, 1997, is a milestone payment from Astra Merck, Inc., who will market
ChemTrak's H. pylori test as HpChek and a license fee from Selfcare, Inc. of
Waltham, Mass. for the Pan-European licensing and distribution agreement for
marketing the AWARE home HIV test service.
COST OF PRODUCT SALES
Cost of product sales for the three months ended June 30, 1997,
decreased to $517,000 from $824,000 for the three months ended June 30, 1996.
For the six months ended June 30, 1997, cost of product sales decreased to
$1,221,000 from $1,555,000 for the six months ended June 30, 1996. The decrease
for both the three and six month periods was primarily due to the sale of
product with lower recorded product cost and cost efficiencies from higher sales
volumes, and an effort by management to reduce manufacturing costs.
Product gross margin as a percentage of product sales increased to 41%
for the three months ended June 30, 1997 from a negative 42% for the same period
in 1996. Product gross margin as a percentage of product sales increased to 17%
for the six months ended June 30, 1997 from a negative 8% for the six months
ended June 30, 1996. These increases were primarily due to the reasons noted in
the prior paragraph.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased to $579,000 in the three
months ended June 30, 1997 from $729,000 for the three months ended June 30,
1996. For the six months ended June 30, 1997, research and development expenses
decreased to $1,032,000 from $1,473,000 for the six month period ended June 30,
1996. These decreases were primarily due to fewer clinical studies, reduction in
use of supplies and cost savings from a departmental reorganization.
10
<PAGE> 11
MARKETING, GENERAL AND ADMINISTRATION
Marketing, general and administrative expenses increased to $1,530,000
for the three months ended June 30, 1997 from $1,179,000 for the three months
ended June 30, 1996. For the six months ended June 30, 1997, marketing, general
and administration expenses were $3,153,000 as compared to $2,273,000 for the
six months ended June 30, 1996. These increases were primarily due to selling
and advertising expenses associated with the Company's CholesTrak total
cholesterol test.
INTEREST INCOME AND (EXPENSE), NET
Net interest income and (expense) increased to $102,000 of net interest
income for the three months ended June 30, 1997 from $663,000 of net interest
expense for the three months ended June 30, 1996, and increased to $146,000 of
net interest income for the six months ended June 30, 1997 from $596,000 of net
interest expense for the six months ended June 30, 1996. These increases were
due to the inclusion of non-cash interest expense in the 1996 periods from the
convertible debentures that the Company issued during May 1996.
LIQUIDITY AND CAPITAL RESOURCES
From August 1985 through January 1992 the Company was financed through
private placements of equity securities. In February 1992, the Company completed
its initial public offering, raising approximately $23,500,000 net of issuance
costs.
At June 30, 1997, the Company had approximately $1,875,000 in cash.
The Company had convertible debentures outstanding of $506,000 at June
30, 1997.
The Company believes that its existing capital resources, together with
internally generated funds and funded research, will need to be augmented by
funds received from third parties, through collaboration agreements or equity or
debt financing to complete the development and marketing activities in which it
is currently engaged, and to launch these products in the consumer marketplace.
If such funding cannot be obtained, the Company may be required to implement
significant cost cutting measures to ensure the continuity of operations. The
Company has begun implementing certain cost cutting measures. At the Company's
current spending levels, the Company believes that available cash balances will
be sufficient to fund the Company's operations through October of 1997. The
Company's success is dependent on its ability to achieve profitable operations,
reduce discretionary operating expenses and to obtain additional funds to
support its operations. There can be no assurance that the Company will achieve
profitable operations or successfully reduce discretionary expenses by a
sufficient amount on a timely basis or that additional funds will be available
when and as required by the Company on acceptable terms or at all.
11
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CHEMTRAK INCORPORATED
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.40 Consulting Agreement between the Company, Parent's
Alert, Inc., a Georgia corporation ("Parent's Alert")
and Sunny Cloud, an individual, dated April 30, 1997
(the "Consulting Agreement").
10.41 License Agreement between the Company and Parent's Alert
dated April 30, 1997 ("the Licensing Agreement").
11.1 Statement re: computation of income (loss) per share
27.1 Financial Statement Schedule
b) Reports on Form 8-K
A report on Form 8-K was filed with the Commission on June 16,
1997, reporting the Company's plan to raise funds in a private
equity placement.
12
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CHEMTRAK INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: August 14, 1997 CHEMTRAK INCORPORATED
/s/ Donald V. Fluken
-----------------------------------------
Donald V. Fluken
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBITS
- ------ ----------
10.40 Consulting Agreement between the Company, Parent's Alert Inc., a
Georgia corporation ("Parent's Alert") and Sunny Cloud, an individual,
dated April 30, 1997 (the "Consulting Agreement").
10.41 License Agreement between the Company and Parent's Alert dated April
30, 1997 ("the Licensing Agreement").
11.1 Statement re: computation of income (loss) per share
27.1 Financial Statement Schedule
<PAGE> 1
EXHIBIT 10.40
CONSULTING AGREEMENT
Effective Date: April 30, 1997
THIS CONSULTING AGREEMENT (the "Agreement") is made by and between
ChemTrak, Inc. ("Company"), a Delaware corporation, Parent's Alert, Inc., a
Georgia corporation ("Parent's Alert") and Sunny Cloud, an individual
("Consultant").
1. ENGAGEMENT OF SERVICES. The Company hereby engages Parent's Alert to
provide such consulting services as the Company may request from time to time in
connection with the promotion, marketing, distribution and sale of home drug
test kits. Parent's Alert shall provide such services through Consultant.
Consultant agrees to make herself available to the Company to perform such
services, at times and places to be mutually agreed upon, for up to twenty (20)
hours per week during the first 6 months after the Effective Date of this
Agreement, and for up to fifteen (15) hours per week thereafter. Consultant
agrees to perform such services in a professional manner consistent with the
directions of the Company.
2. COMPENSATION. Company will pay Parent's Alert a monthly consulting
fee of [*]. Payment of Parent's Alert's fees will be made within ten (10) days
after the end of each calendar month during the term of this Agreement (and be
prorated for the first and last month hereunder). If Consultant performs
services at the request of the Company for more than [*] per quarter during the
term of this Agreement, the Company shall pay Consultant at a rate of [*] for
each hour over [*]. Consultant shall be responsible for documenting her time
spent performing services and reporting such time to the Company on a monthly
basis. Any report submitted by Consultant, which the Company does not reject
within ten (10) business days of receipt shall be deemed accepted. Reported
compensable time may include, but shall not be limited to, travel time,
preparation time, phone time and time spent on administration.
3. EXPENSES. Consultant will be reimbursed for travel and other
expenses incurred while performing services. The Company shall establish and
maintain an expense account of [*] from which Consultant may draw expense
advances, for expenses pre-approved by the Company. The Company shall replenish
the expense account upon submission by Consultant of verification of approved
expenses actually incurred.
4. OWNERSHIP OF WORK PRODUCT. Parent's Alert and Consultant hereby
assign to the Company all right, title and interest in and to any work product
(the "Work Product") created by Consultant, or to which consultant contributes,
which is related to the Products (as defined in the License Agreement between
Company and Parent's Alert of even date herewith (the "License Agreement"),
including all copyrights, trademarks and other intellectual property rights
contained therein. Notwithstanding the foregoing, Parent's Alert and Consultant
shall own all right title and interest in and to any work product unrelated to
the Products, including all copyrights, trademarks and other intellectual
property rights contained therein.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 2
5. INDEPENDENT CONTRACTOR RELATIONSHIP. The relationship of Parent's
Alert and Consultant with Company is that of independent contractors, and
nothing in this Agreement is intended to, or should be construed to, create a
partnership, agency, joint venture or employment relationship. Consultant will
not be entitled to any of the benefits which Company may make available to its
employees, including, but not limited to, group health or life insurance,
profit-sharing or retirement benefits. Neither Parent's Alert nor Consultant is
authorized to make any representation, contract or commitment on behalf of
Company unless specifically requested or authorized in writing to do so by a
Company officer. Parent's Alert is solely responsible for, and will file, on a
timely basis, all tax returns and payments required to be filed with, or made
to, any federal, state or local tax authority with respect to the performance of
services and receipt of fees under this Agreement. Parent's Alert and Consultant
are solely responsible for, and must maintain adequate records of,
expenses.incurred in the course of performing services under this Agreement. No
part of Parent's Alert's compensation will be subject to withholding by Company
for the payment of any social security, federal, state or any other employee
payroll taxes. Company will regularly report amounts paid to Parent's Alert by
filing Form 1099-MISC with the Internal Revenue Service as required by law.
6. NO CONFLICT OF INTEREST. During the term of this Agreement, Parent's
Alert and Consultant will not engage in any activities independently, accept
work, enter into a contract, or accept an obligation from any third party
relating to the marketing and sale of products for in-home testing for use of
drugs of abuse including but not limited to, [*] ("Home Drug Testing Products").
Consultant warrants that there is no other contract or duty on its part
inconsistent with this Agreement, including but not limited to any contract with
or duty to Parent's Alert, Inc.
7. TERM AND TERMINATION.
7.1 TERM. The initial term of this Agreement is for three (3)
years from the Effective Date set forth above, unless earlier terminated as
provided in this Agreement. This Agreement shall be renewed automatically for
successive one-year terms unless either Parent's Alert or the Company gives the
other written notice of its intent to terminate the Agreement sixty (60) days
prior to the expiration of the initial term or any renewal term; and further
provided that the fees payable under paragraph 2 above shall be increased by [*]
in year four of the Agreement and by an additional [*] in year five of the
Agreement and [*] thereafter.
7.2 TERMINATION BY COMPANY. The Company may terminate this
Agreement at any time if the License Agreement is terminated by either party
pursuant to Section 8 of the License Agreement. Company also may terminate this
Agreement: (i) upon forty-five (45) days written notice in the event of a
material breach by Consultant of this Agreement, provided that, such breach
remains uncured at the end of such forty-five (45) day period; or (ii)
immediately upon Consultant's material breach of Section 8 ("Noninterference
with Business"). The Company
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 3
also may terminate this Agreement at any time for any other reason, provided
that Company makes the [*] payments to Parent's Alert provided for in Section 2
for [*].
7.3 TERMINATION BY PARENT'S ALERT. Parent's Alert may
terminate this Agreement if the License Agreement is terminated pursuant to
Section 8(a) of the License Agreement as a result of a material breach by the
Company provided that such breach remains uncured at the end of the forty-five
(45) day cure period, or in the event that the License Agreement is terminated
by the Company pursuant to Section 8(f) thereof. In either such event, Company
shall be obligated to make the [*] payments to Parent's Alert provided for in
Section 2 for [*].
7.4 SURVIVAL. The rights and obligations contained in Section
2 ("Ownership of Work Product"), 5 ("Confidential Information.) and 8
("Noninterference of Business") will survive any termination or expiration of
this Agreement.
8. NONINTERFERENCE WITH BUSINESS. During this Agreement, and for a
period of two years immediately following its termination, each party agrees not
to disparage the business of any other party or its products or services in any
manner.
9. CONFIDENTIAL INFORMATION
9.1 CONFIDENTIAL INFORMATION. During the term of this
Agreement, and for a period of five (5) years after expiration or termination
thereof, Consultant will maintain all Confidential Information in trust and
confidence and will not disclose any such Confidential Information to any third
party or use any Confidential Information for any unauthorized purpose.
"Confidential Information" shall mean all information provided by ChemTrak to
Consultant that is identified in writing as confidential, including but not
limited to ChemTrak sales information. Consultant may use such Confidential
Information only to the extent required to accomplish the purposes of this
Agreement. Confidential Information shall not be used for any purpose or in any
manner that would constitute a violation of any laws or regulations, including
without limitation, the export control laws of the United States. Confidential
Information shall not be reproduced in any form except as required to accomplish
the intent of this Agreement. No Confidential Information shall be disclosed to
any employee, agent, or consultant who does not have a need for such
information. To the extent that disclosure is authorized by this Agreement,
Consultant will obtain prior agreement from her employees, agents, consultants,
or other parties to whom disclosure is to be made to hold in confidence and not
make use of such information for any purpose other than those permitted by this
Agreement. Consultant will promptly notify ChemTrak upon discovery of any
unauthorized use or disclosure of the Confidential Information.
9.2 EXCEPTIONS. Confidential Information shall not include any
information which:
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 4
(a) is now, or hereafter becomes, through no act or
failure to act on the part of Consultant, generally known or available, or
(b) is the subject of a written permission to disclose
provided by ChemTrak.
Consultant agrees that the material financial terms of this Agreement will be
considered Confidential Information of both parties. Notwithstanding the
foregoing, Parent's Alert may disclose both the existence of this Agreement and
the terms thereof to bona fide prospective investors, corporate partners,
lenders and bona fide potential Sublicensees; in connection with any such
disclosure, Parent's Alert will use its best efforts to secure confidential
treatment of such information.
9.3 Authorized Disclosure. Notwithstanding any other Provision
of this Agreement, Consultant may disclose Confidential Information if such
disclosure:
(a) is in response to a valid order of a court or other
governmental body of the United States or any political subdivision thereof;
provided, however, that Consultant shall first have given notice to ChemTrak and
shall have made a reasonable effort to obtain a protective order requiring that
the Confidential Information so disclosed be used only for the purposes for
which the order was issued; or
(b) is otherwise required by law.
10. SUCCESSORS AND ASSIGNS. Parent's Alert may not subcontract or
otherwise delegate its obligations under this Agreement without Company's prior
written consent. Subject to the foregoing, this Agreement will be for the
benefit of Company's successors and assigns, and will be binding on Consultant's
assignees.
11. GOVERNING LAW AND DISPUTE RESOLUTION. This Agreement shall be
governed in all respects by the laws of the State of California, as such laws
are applied to agreements entered into and to be performed entirely within
California between California residents. The parties agree that personal
jurisdiction and venue shall be proper in state and federal courts in Cobb and
Fulton Counties, Georgia, in all lawsuits relating to or arising out of this
Agreement. The parties hereby waive any defense of improper personal
jurisdiction or venue in these courts.
12. SEVERABILITY. Should any provisions of this Agreement be held by a
court of law to be illegal, invalid or unenforceable, the legality, validity and
enforceability of the remaining provisions of this Agreement shall not be
affected or impaired thereby.
13. WAIVER. The waiver by Company of a breach of any provision of this
Agreement by Consultant shall not operate or be construed as a waiver of any
other or subsequent breach by Consultant.
<PAGE> 5
14. NOTICES. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed or sent by facsimile, or sent by certified, registered or
express mail, postage prepaid and shall be deemed given when so delivered
personally, telegraphed or telexed or sent by facsimile or computer
transmission, or if mailed, five (5) days after the date of mailing, as follows:
If to Company to:
ChemTrak Inc.
929 East Arques Avenue
Sunnyvale, CA 94086-4520
ATTN: Mr. Edward F. Covell
President and Chief Executive Officer
Telephone: (408) 773-8156
Facsimile: (408) 773-6151
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306-2155
ATTN: Alan C. Mendelson. Esq.
Telephone: (415) 843-5000
Facsimile: (415) 857-0663
If to Parent's Alert:
Parent's Alert
Suite 500, 1900 The Exchange
Atlanta, Georgia 30339-2022
ATTN: Mr. James L. Rhoden, Jr., Vice President
Telephone: (770) 953-1225
Facsimile: (770) 951-7587
and
Parent's Alert, Inc.
P.O. Box 724146
Atlanta, Georgia 31139-1146
ATTN: Ms. Sunny L. Cloud, President
Telephone: (770) 953-1125
Facsimile: (770) 955-5338
<PAGE> 6
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
Suite 2400, 600 Peachtree Street, NE
Atlanta, Georgia 30308-2222
ATTN: W. Andrew Scott, Esq.
Telephone: (404) 815-2400
Facsimile: (404) 815-2424
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties relating to this subject matter and supersedes all prior or
contemporaneous oral or written agreements concerning such subject matter.
Company and Consultant acknowledge that certain other rights and obligations
relating to the home drug test kit have been agreed to between Company and
Parent's Alert, Inc. in the License Agreement. The terms of this Agreement will
govern all services undertaken by Consultant for Company. This Agreement may
only be changed by mutual agreement of authorized representatives of the parties
in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CHEMTRAK, INC.
SUNNY CLOUD
By:_________________________________ Signature:____________________________
Name:_______________________________ Address:______________________________
Title:______________________________ ______________________________________
Address: 929 E. Arques Avenue
Sunnyvale, CA 94086-4520 PARENT'S ALERT, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
<PAGE> 1
EXHIBIT 10.41
LICENSE AGREEMENT
This Trademark License Agreement (the "Agreement" is made and entered
into as of April 30, 1997 (the "Effective Date") by and between Chemtrak
Incorporated, a Delaware corporation ("ChemTrak"), and Parent's Alert, Inc., a
Georgia Corporation ("Parent's Alert").
RECITALS
WHEREAS, Parent's Alert owns and has the right to exploit the trademark
"Parent's Alert", as reflected on Exhibit A hereto, and such additional marks
as the parties may agree from time to time (collectively, the "Licensed Marks")
in connection with the sale of home drug testing kits, which are described in
Exhibit B hereto (collectively, the "Products");
WHEREAS, Parent's Alert is the owner of a United States federal
registration for the mark "Parent's Alert";
WHEREAS, Parent's Alert desires to grant, and ChemTrak desires to
obtain, the right to market and sell the Products under the Licensed Marks in
the United States;
WHEREAS, concurrently with the effective date hereof, ChemTrak,
Parent's Alert and Sunny Cloud ("Cloud"), the president of Parent's Alert, are
entering into a Consulting Agreement (the "Consulting Agreement") whereby
Parent's Alert and Cloud will agree to perform certain marketing and promotional
services on behalf of the Products; and
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing promises and the
mutual covenants and obligations contained herein and in the Consulting
Agreement, the parties agree as follows:
1. GRANT AND SCOPE OF LICENSES
1.1 GRANT OF LICENSE TO CHEMTRAK. Subject to the limitations set
forth below, Parent's Alert grants to ChemTrak an exclusive, royalty-bearing
license to use the Licensed Marks in connection with the promotion and sale of
the Products in [*].
1.2 SUBLICENSES. With the prior written consent of Parent's Alert,
which may be withheld in Parent Alert's sole discretion, ChemTrak may grant
sublicenses under such rights to third parties who agree in writing to be bound
by the terms of this Agreement, including but not limited to the quality control
provisions of Section 6.2.
1.3 RESTRICTIONS ON CHEMTRAK. ChemTrak shall not use the Licensed
Marks in connection with any other goods or in any other activities without
prior written consent of
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 2
Parent's Alert. ChemTrak agrees that, unless it obtains the prior written
consent of Parent's Alert, which Parent's Alert may withhold in its sole
discretion, it shall sell the Products only in connection with the use of the
Licensed Marks.
1.4 RESTRICTIONS ON PARENT'S ALERT. During the term hereof and
except as provided in Section 10.3, Parent's Alert will not use the Licensed
Marks for commercial purposes in the United States. Notwithstanding the
foregoing, Parent's Alert retains the right, for itself and its other licensees
to use the Licensed Marks to market and sell any products outside the United
States; provided, however, that in the event either Parent's Alert or ChemTrak
determines that a market for the Products exists in countries outside the United
States, Parent's Alert and Chemtrak agree to negotiate, for a period not to
exceed 45 days, the terms and conditions of the extension of the license granted
in Section 1.1 to such countries.
1.5 ADDITIONAL MARKS. The Parties may by mutual written agreement
extend this Agreement to cover additional marks for use with the Products, which
Parent's Alert may acquire and desire to license to ChemTrak or to cover
additional products. In such event, the terms and conditions of such extension
shall be as agreed by the parties.
1.6 FDA INTERIM GUIDELINES. The parties acknowledge that the license
is being granted pursuant to interim guidelines promulgated by the Unites States
Food and Drug Administration, which permit the Products to be marketed to
consumers without a Premarket Approval application (the "FDA Interim
Guidelines"). In the event the FDA Interim Guidelines are changed, subsequent to
the Effective Date, in a manner that has a material adverse effect on ChemTrak's
ability to market the Products, this Agreement will be terminable under Section
8.2(c) hereof. In the event ChemTrak elects to challenge or take such actions as
may be required to comply with any such change to the FDA Interim Guidelines in
lieu of terminating this Agreement, so long as ChemTrak diligently pursues such
challenge or compliance actions, ChemTrak's obligation to pay Quarterly Minimum
Royalties hereunder shall be suspended, provided that the period of any such
suspension shall not exceed thirty months.
2. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF PARENT'S ALERT. Parent's Alert
hereby represents and warrants that:
(a) it is duly organized and validly existing under the laws of
the state of Georgia and has full corporate power and authority to enter into
this Agreement and to carry out the provisions hereof;
(b) it is duly authorized to execute and deliver this Agreement
and to perform its obligations hereunder;
(c) this Agreement is a legal and valid obligation binding upon
it and enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by Parent's Alert does not conflict with any
agreement to which it is a party or by
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which it may be bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having jurisdiction over it;
(d) it is the sole owner of all rights, title and interest in
the Licensed Marks and has not granted any interest in any Licensed Marks to any
third party prior to the Effective Date;
(e) to the knowledge of Parent's Alert the use of the Licensed
Marks by ChemTrak in conformance with this Agreement and the guidelines of
Parent's Alert will not infringe upon the rights of any third party, and will
not infringe any other rights of Parent's Alert; and
(f) it is not aware of any infringement claims pending or
threatened by any third party with respect to the Licensed Marks.
2.2 REPRESENTATIONS AND WARRANTIES OF CHEMTRAK. ChemTrak hereby
represents and warrants that:
(a) it is duly organized and validly existing under the
laws of the state of Delaware and has full corporate power and authority to
enter into this Agreement and to carry out the provisions hereof;
(b) it is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder; and
(c) this Agreement is a legal and valid obligation binding
upon it and enforceable in accordance with its terms. The execution, delivery
and performance of this Agreement by ChemTrak does not conflict with any
agreement to which it is a party or by which it may be bound, nor violate any
law or regulation of any court, governmental body or administrative or other
agency having jurisdiction over it.
3. OWNERSHIP OF LICENSED MARKS
3.1 OWNERSHIP OF LICENSED MARKS. ChemTrak shall not acquire any
right, title or interest in the Licensed Marks other than the limited license
set forth in Section 1.1. ChemTrak acknowledges that Parent's Alert is the sole
and exclusive owner of the Licensed Marks and all intellectual property rights
therein, and ChemTrak agrees that it will do nothing inconsistent with such
ownership, and that its use of the Licensed Marks and the goodwill associated
therewith shall inure to the benefit of Parent's Alert.
3.2 ADVERSE USE. ChemTrak agrees to inform Parent's Alert of any
adverse use by a third party of the Licensed Marks or of a mark or name
confusingly similar to the Licensed Marks. ChemTrak agrees to take no action
with respect thereto except with the prior written authorization of Parent's
Alert. Parent's Alert may thereupon take such action as it in its sole
discretion deems advisable for the protection of its rights in and to the
Licensed Marks.
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<PAGE> 4
If Parent's Alert elects not to take action with respect to such adverse use, it
shall permit ChemTrak to bring and prosecute a claim against such third party at
ChemTrak's expense. ChemTrak further agrees to provide full cooperation with any
legal or equitable action by Parent's Alert to protect Parent's Alert's rights,
title and interest in the Licensed Marks.
3.3 REGISTRATION. ChemTrak agrees that it shall not. apply for
registration or protection or claim or seek to obtain ownership of any Licensed
Mark or any intellectual property rights therein in any nation or other
political subdivision. ChemTrak shall not, at any time during or after the
effective term of the Agreement dispute or contest, directly or indirectly,
Parent's Alert's exclusive right and title to the Licensed Marks and
intellectual property rights therein or the validity thereof.
4. OBLIGATIONS OF PARENT'S ALERT
Parent's Alert agrees that during the term of this Agreement it
shall neither fund nor be engaged in any manner, directly or indirectly through
any third party, in the development, manufacture, marketing, promotion,
distribution or sale of any products for in-home testing, through urine
sampling and laboratory analysis, for use of drugs of abuse including but not
limited to, [*] ("Home Drug Testing Products") in the United States, except with
the prior written consent of ChemTrak.
5. ROYALTIES
5.1 QUARTERLY ROYALTIES. In consideration of the license granted
herein, ChemTrak shall pay Parent's Alert the royalties as set forth herein
beginning with the first full calendar quarter after the Effective Date of the
Agreement.
(a) ChemTrak shall determine the Actual Royalties it owes
Parent's Alert based upon the Selling Price of all the Products sold during each
calendar quarter. The first calculation shall include all sales of Products
through the end of the first full calendar quarter after the Effective Date of
this Agreement.
"Actual Royalties" shall mean the greater of: (i) [*] of the
Selling Price of all Products sold for the first [*] of cumulative Product
sales, [*] of the next [*] of cumulative Product sales, and [*] thereafter; and
(ii) a minimum of [*] for each unit of Product sold (provided that if the actual
royalties payable for each unit of Product fall below [*] per unit for [*]
consecutive quarters, the parties agree to discuss in good faith the reduction
of the per unit royalty).
"Selling Price" shall mean the actual price ChemTrak charges its
nonaffiliated customers for the purchase of the Products, less: (i) reasonable
commissions actually paid to ChemTrak brokers for sale of the Products, provided
that such commissions shall not exceed [*]; (ii) the price of actual returns;
(iii) sales taxes added to the price of the Products and paid by ChemTrak; and
(iv) a maximum of [*] from its Product list price
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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<PAGE> 5
for promotional discounts, which discounts shall not be provided [*] more than
[*]. If ChemTrak sells Products to one of its affiliates who then sells to
nonaffiliated customers, the Selling Price for such Products shall mean the
price that the affiliate charges its nonaffiliated customers for the purchase of
the Products.
Products shall be deemed to have been "sold" when invoiced,
whether or not collection by ChemTrak is made, or if not invoiced, then when
delivered, shipped or paid for, whichever is first.
(b) Each calendar quarter ChemTrak shall pay Parent's Alert
royalties equal to the greater of either the Actual Royalties or the Quarterly
Minimum Royalties due for such calendar quarter.
"Quarterly Minimum Royalties" shall be equal to [*] for the
first [*] following the Effective Date, [*] for [*] after the Effective Date,
[*] for [*] after the Effective Date, and [*] for [*], and thereafter,
commencing on the first day of [*] after the Effective Date and each anniversary
of the Effective Date thereafter (each such date an "Adjustment Date"), during
the term and any renewal thereof, the annualized Quarterly Minimum Royalties
shall be increased to an amount equal to the product of (i) the total [*]
payable for [*] such anniversary, and (ii) a fraction, the numerator of which
shall be [*] and the denominator of which shall be, for the first Adjustment
Date, product of: (a) the sum of [*] and [*] and (b) [*], and for the second and
each Adjustment Date thereafter, [*]. As used herein, "CPI" shall mean the
Revised Consumer Price Index for all Urban Consumers - U.S. City Average
(1982-1984 - 100)" published by the Bureau of Labor Statistics of the United
States Department of Labor. If, at any time during the term of this Agreement,
neither the CPI nor a comparable successor index is compiled or published by the
Bureau of Labor Statistics, the index for "all items" compiled and published by
any other branch or department of the Federal government shall be used for the
adjustments required by this paragraph, and if no such index is compiled and
published by any branch of the Federal government, the statistics reflecting
cost of living increases as compiled by any institution or organization or
individual generally recognized as an authority by financial and insurance
institutions shall be used as a basis for such adjustments in order to obtain
substantially the same result as would have been obtained if the CPI had not
been discontinued or revised.
5.2 PAYMENT. ChemTrak shall pay Parent's Alert the Royalties due
each calendar quarter within forty-five (45) days after the end of such calendar
quarter and shall be paid to Parent's Alert in cash or by check at the address
that Parent's Alert may from time to time specify in writing. Notwithstanding
the foregoing, a different method of payment or credit arrangement may be agreed
to in writing by the parties in which case such other method of payment or
credit arrangement will govern until Parent's Alert gives ChemTrak thirty (30)
days written notice that it will require payment as noted above.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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<PAGE> 6
5.3 LATE FEES ON DELINQUENT PAYMENTS. In the event ChemTrak does not
pay any amounts due Parent's Alert pursuant to this Agreement, ChemTrak shall
pay late charges on such past due amounts at a monthly rate of [ * ] (or, if
less, the maximum interest rate then allowed under applicable law).
5.4 TAXES. All taxes imposed as a result of the existence of this
Agreement or the performance by the parties hereunder shall be borne and paid by
the party required to do so by applicable law.
5.5 PAYMENT OF ROYALTIES UPON TERMINATION. Upon the termination or
expiration of this Agreement, ChemTrak shall pay Royalties to the Parent's Alert
according to the formula in Section 5.1 above except that, for the calendar
quarter in which the termination or expiration occurs, ChemTrak shall only owe
the greater of either the Actual Royalties or the pro rata share of the
Quarterly Minimum Royalties, calculated by multiplying the Quarterly Minimum
Royalties due by the number of days in the calendar quarter through the date the
Agreement was terminated or expired, and then dividing such amount by the number
of days in such calendar quarter.
5.6 REPORTING REQUIREMENT. Within forty-five (45) days after the end
of each calendar quarter, and within sixty (60) days after the end of each
calendar year, ChemTrak shall prepare and deliver to Parent's Alert an unaudited
report, certified by an officer of ChemTrak attesting to its correctness,
showing:
(a) the Selling Price of all Licensed Products sold by ChemTrak
during such calendar quarter or calendar year; and
(b) the royalties due pursuant to this Article 5 with respect to
such calendar quarter or calendar year.
5.7 RECORDS. During the term of this Agreement and any renewal, and
for a period of two (2) years thereafter, ChemTrak shall keep accurate and
complete records of all data necessary for the computation of all royalties due
hereunder. From time to time upon five (5) days written notice to ChemTrak,
Parent's Alert's designated independent public accountant shall have the right
at reasonable times during normal business hours to examine the records of
ChemTrak applicable to the calculation of the royalties for the purpose of
verifying the amounts owed to Parent's Alert and the accuracy of the reports
furnished by ChemTrak hereunder; provided, however, that before obtaining access
to and examining such records, Parent's Alert shall cause its independent public
accountant to execute and deliver, a confidentiality agreement in form and
substance reasonably acceptable to ChemTrak regarding ChemTrak's records and the
information contained therein. If the records show that ChemTrak has
underreported the Selling Price of the Licensed Products sold or the amount of
royalties due by more than three percent (3%) during any calendar quarter,
ChemTrak shall pay all costs associated with the examination of the records. If
the records show that ChemTrak has overreported the Selling Price of the
Licensed Products sold or the amount of royalties due by more than three percent
(3%) during any calendar quarter, ChemTrak shall be entitled to reduce the
royalties payable
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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in the following quarter by the amount of the overpayment.
6. OTHER OBLIGATIONS OF CHEMTRAK
6.1 FIRST COMMERCIAL SALE; MARKETING OBLIGATIONS. ChemTrak agrees to
make the first commercial sale of a product (the "First Commercial Sale") no
later than 6 months from the Effective Date. ChemTrak further agrees to spend a
minimum of [*] on expenditures related to Product advertising, promotion,
marketing, sales and other commercial functions within [*] from the date of
First Commercial Sale. Thereafter ChemTrak agrees to spend each year a minimum
of [*] of projected annual Selling Price of all Products to be sold in each
calendar year.
6.2 QUALITY CONTROL. ChemTrak acknowledges that the maintenance and
protection of the Parent's Alert's name, image and goodwill are material
conditions of this Agreement and that Parent's Alert depends upon the high
quality and proper use of the Licensed Marks and the channels through which the
Licensed Marks are distributed. Pursuant thereto, ChemTrak agrees that it shall:
(a) display the Licensed Mark on all Products only in the form
and manner and with the appropriate legends as approved by Parent's Alert from
time to time;
(b) provide to Parent's Alert, at ChemTrak's cost and expense, a
sample of all tags, labels and packaging to be used in association therewith
prior to any commercial sale or use of the Products and shall not sell or use
the same without the prior written consent of Parent's Alert;
(c) not use the Licensed Marks in any marketing and advertising
materials for the Products, including any marketing or advertisement over
electronic media such as television, radio, and the internet without the prior
written consent of Parent's Alert;
(d) be responsible for ensuring that all regulatory requirements
relating to the labelling, packaging and marking and other such matters are
complied with;
(e) not alter, modify or otherwise misuse the Licensed Marks;
and
(f) not use any other trademark, name or artwork confusingly
similar to the Licensed Marks in respect of any Products, either during or after
the term of this Agreement; and
(g) not use any Licensed Marks as part of ChemTrak's corporate
or trade name.
6.3 APPROVALS. Any approvals of Parent's Alert required by Section 6.2
shall not be unreasonably withheld. Any approvals or rejections shall be
communicated by Parent's Alert to ChemTrak within fifteen (15) days of the
receipt of ChemTrak's written request for
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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<PAGE> 8
approval. If Parent's Alert does not notify ChemTrak of its approval or
rejection within such fifteen (15) day period, Parent's Alert shall be deemed to
have approved.
6.4 Efforts. ChemTrak shall use commercially reasonable efforts to:
(a) exploit fully the license throughout the United States; and
(b) offer for sale the Products so they may be sold to the
consumer on a timely basis.
6.5 RIGHTS TO ARTWORK. All rights with respect to any Product
specific designs, logos, photography or artwork which ChemTrak may incorporate
or use in conjunction with the Licensed Marks shall be deemed the sole and
exclusive property of Parent's Alert. In this regard, if necessary, ChemTrak
agrees to assign to Parent's Alert all right, title and interest in and to such
designs, logos, photography and/or artwork including all copyright and
trademarks rights associated therewith and to take such other action as may be
necessary to vest ownership in Parent's Alert. All rights with respect to any
other designs, logos, photography or artwork which ChemTrak may incorporate or
use in conjunction with the Licensed Marks shall be deemed the sole and
exclusive property of ChemTrak, including, but not limited to any designs, logos
or artwork which ChemTrak uses in conjunction with other products as well as the
Products.
6.6 INCONSISTENT USE. ChemTrak shall promptly cease any use of the
Licensed Marks not consistent with the terms of this Agreement upon Parent's
Alert's reasonable request.
7. INDEMNIFICATION
Parent's Alert shall indemnify, defend and hold ChemTrak harmless from
and against all losses, claims, damages, liabilities, costs and expenses
(including but not limited to reasonable attorneys' fees) arising out of or in
connection with any claim, judgment or adjudication against ChemTrak that the
Licensed Marks infringe any trademark right of any third party, provided that
ChemTrak (a) promptly notifies Parent's Alert in writing of any such claim and
(b) provides Parent's Alert with an opportunity to assume sole control of the
defense and/or settlement of such claim. ChemTrak shall cooperate with Parent's
Alert in defending or settling such claim, and ChemTrak may join in the defense
with counsel of its choice at ChemTrak's expense. Parent's Alert shall have no
liability hereunder to the extent that the infringement arises solely from any
use or modification of the Licensed Marks not permitted hereunder, and to the
extent of any damages, liabilities, costs and expenses that exceed the amount
paid by ChemTrak to Parent's Alert hereunder and under the Consulting Agreement.
8. TERM AND TERMINATION
8.1 TERM. this Agreement shall begin on the Effective Date and shall
end seven years thereafter (the "Termination Date"); provided, however, that
this Agreement shall be automatically renewed for successive one-year periods
unless either party gives the other
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written notice of its intent not to renew the Agreement at least sixty (60) days
before the Termination Date or before the end of any renewal period. Section 7
shall survive expiration of this Agreement for a period of five years.
8.2 TERMINATION. This Agreement shall be terminable prior to the
Termination Date or any renewal term on forty-five (45) days prior written
notice:
(a) by either party, in the event of a material breach by the
other party of this Agreement and the breaching party does not correct or
eliminate the default within such 45 day notice period;
(b) by either party, upon termination or cancellation of the
Consulting Agreement in accordance with the provisions of the Consulting
Agreement as a result of a breach thereof by the other party;
(c) by ChemTrak with 30 days prior written notice, in the event
the FDA Interim Guidelines are changed in a manner that ChemTrak determines may
have a material adverse effect on ChemTrak's ability to market the Products;
(d) by ChemTrak, at any time prior to the date 90 days from
Effective Date, in the event that the results of the independent market study
commissioned by ChemTrak prior to the Effective Date lead ChemTrak to conclude,
in its sole discretion, that there is not sufficient market potential for
ChemTrak with respect to the Products to justify proceeding with ChemTrak's
plans to market the Products;
(e) by Parent's Alert in the event ChemTrak's Actual Royalties
payable in each of [*] are less than [*];
(f) by ChemTrak if, in the [*] Contract Year (as hereinafter
defined) the aggregate Selling Price for all Products sold is less than [*], or,
in any subsequent Contract Year, the aggregate Selling Price for all Products
sold in any Contract Year is less than [*]. A "Contract Year" shall mean any
twelve month period beginning on the anniversary of the Effective Date; or
(g) By ChemTrak, by notice delivered at any time prior to the
date forty-five (45) days after the Effective Date, if ChemTrak reasonably
determines that the sale of Products under the Licensed Marks would infringe the
rights of any third party and that such infringement would materially and
adversely affect ChemTrak's gain from the sale of the Products; provided,
however that the parties agree to use commercially reasonable efforts to resolve
any such conflict before terminating this Agreement.
8.3 CONSEQUENCES OF TERMINATION. In the event of any early
termination of this Agreement (but not expiration under Section 8.1), ChemTrak
agrees to discontinue immediately all use of the Licensed Marks and promptly to
return to Parent's Alert, at Parent's Alert's expense, or at the option of
Parent's Alert to destroy, all advertising or promotional
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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materials, stationery or other material that bear the Licensed Marks. Section 7
shall survive for a period of two years following any such termination. In the
event of any termination of this Agreement pursuant to Section 8.1, ChemTrak
agrees to discontinue all use of the Licensed Marks within ninety (90) days
after the expiration of this Agreement and thereafter promptly to return to
Parent's Alert, at Parent's Alert's expense, or at the option of Parent's Alert
to destroy, all advertising or promotional materials, stationery or other
material that bear the Licensed Marks.
9. CONFIDENTIAL INFORMATION
9.1 CONFIDENTIAL INFORMATION. During the term of this Agreement, and
for a period of five (5) years after expiration or termination thereof, Parent's
Alert will maintain all Confidential Information in trust and confidence and
will not disclose any such Confidential Information to any third party or use
any Confidential Information for any unauthorized purpose. "Confidential
Information" shall mean all information provided by ChemTrak to Parent's Alert
that is identified in writing as confidential, including but not limited to
ChemTrak sales information. Parent's Alert may use such Confidential Information
only to the extent required to accomplish the purposes of this Agreement.
Confidential Information shall not be used for any purpose or in any manner that
would constitute a violation of any laws or regulations, including without
limitation, the export control laws of the United States. Confidential
Information shall not be reproduced in any form except as required to accomplish
the intent of this Agreement. No Confidential Information shall be disclosed to
any employee, agent, or consultant who does not have a need for such
information. To the extent that disclosure is authorized by this Agreement,
Parent's Alert will obtain prior agreement from its employees, agents,
consultants, or other parties to whom disclosure is to be made to hold in
confidence and not make use of such information for any purpose other than those
permitted by this Agreement. Parent's Alert will promptly notify ChemTrak upon
discovery of any unauthorized use or disclosure of the Confidential Information.
9.2 EXCEPTIONS. Confidential Information shall not include any
information which:
(a) is now, or hereafter becomes, through no act or failure to
act on the part of Parent's Alert, generally known or available, or
(b) is the subject of a written permission to disclose provided
by ChemTrak.
Parent's Alert agrees that the material financial terms of this
Agreement will be considered Confidential Information of both parties.
Notwithstanding the foregoing, Parent's Alert may disclose both the existence of
this Agreement and the terms thereof to bona fide prospective investors,
corporate partners, lenders and bona fide potential Sublicensees; in connection
with any such disclosure, Parent's Alert will use its best efforts to secure
confidential treatment of such information.
10
<PAGE> 11
9.3 AUTHORIZED DISCLOSURE. Notwithstanding any other Provision of
this Agreement, Parent's Alert may disclose Confidential Information if such
disclosure is in response to a valid order of a court or other governmental body
of the United States or any political subdivision thereof, or is otherwise
required by law; provided, however, that Parent's Alert shall first have given
notice to ChemTrak and shall have made a reasonable effort to obtain a
protective order requiring that the Confidential Information so disclosed be
used only for the purposes for which the order was issued.
10. MISCELLANEOUS
10.1 GOVERNING LAW AND DISPUTE RESOLUTION. This Agreement shall be
governed by and construed in accordance with federal laws as they apply to
trademark matters and in accordance with the laws of the State of California as
applied to contracts entered into and to be performed entirely within the State
of California. The parties agree that personal jurisdiction and venue shall be
proper in state and federal courts in Cobb and Fulton Counties, Georgia, in all
lawsuits relating to or arising out of this Agreement. Any lawsuits filed by
either party arising out of or relating to this Agreement shall be filed in one
of these courts. The parties hereby waive any defense of improper personal
jurisdiction or venue in these courts.
10.2 NOTICES. Any notice or other communication required or which
may be given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed or sent by facsimile, or sent by certified, registered or
express mail, postage prepaid and shall be deemed given when so delivered
personally, telegraphed or telexed or sent by facsimile or computer
transmission, or if mailed, five (5) days after the date of mailing, as follows:
If to Company to:
ChemTrak Inc.
929 East Arques Avenue
Sunnyvale, CA 94086-4520
ATTN: Mr. Edward F. Covell
President and Chief Executive Officer
Telephone: (408) 773-8156
Facsimile: (408) 773-6151
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 E1 Camino Real
Palo Alto, California 94306-2155
ATTN: Alan C. Mendelson. Esq.
Telephone: (415) 843-5000
Facsimile: (415) 857-0663
If to Parent's Alert:
11
<PAGE> 12
Parent's Alert
Suite 500, 1900 The Exchange
Atlanta, Georgia 30339-2022
ATTN: Mr. James L. Rhoden, Jr., Vice President
Telephone: (770) 953-1225
Facsimile: (770) 951-7587
and
Parent's Alert, Inc.
P.O. Box 724146
Atlanta, Georgia 31139-1146
ATTN: Ms. Sunny L. Cloud, President
Telephone: (770) 953-1125
Facsimile: (770) 955-5338
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
Suite 2400, 600 Peachtree Street, NE
Atlanta, Georgia 30308-2222
ATTN: W. Andrew Scott, Esq.
Telephone: (404) 815-2400
Facsimile: (404) 815-2424
10.3 ENTIRE AGREEMENT. This Agreement, the Consulting Agreement and
the Letter Agreement between the parties hereto dated as of the Effective Date
constitute the complete, final and exclusive embodiment of the parties'
agreement with respect to the subject matter hereof, and supersede all prior
agreements, whether written or oral, and whether explicit or implicit, which
have been entered into before the execution hereof.
10.4 AMENDMENT AND WAIVER. No provision of this Agreement may be
amended or waived except by a writing signed by both parties.
10.5 SEVERABILITY. Any invalidity, in whole or in part, of one
provision of this Agreement shall not affect the validity of any other provision
of this Agreement.
10.6 SUCCESSORS. Subject to the prohibitions against assignment
contained herein, this Agreement shall inure to the benefit of and shall be
binding on the parties hereto and their respective successors and permitted
assigns.
10.7 ASSIGNMENT. This Agreement and the rights and obligations
created hereunder shall not be assignable by either party, either voluntarily or
by operation of the law, without the prior written consent of the other party;
provided, however, that ChemTrak shall be entitled to assign its right and
obligations hereunder to the purchaser of a majority of the ChemTrak stock in a
purchase approved by the Securities and Exchange Commission, provided
12
<PAGE> 13
that the purchaser agrees in writing to be bound by the terms of this Agreement.
Any assignment without required consent shall be null and void.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
CHEMTRAK INCORPORATED PARENT'S ALERT, INC.
By:_________________________________ By:___________________________________
Name:_______________________________ Name:_________________________________
Title:______________________________ Title:________________________________
13
<PAGE> 14
EXHIBIT A
PARENT'S ALERT LICENSED MARKS
The following trademarks are the subject of the foregoing license:
Word Marks: PARENT'S ALERT
United States Patent and Trademark Office, Principal Register Reg.
No. 2,017,030, Nov. 19, 1996.
14
<PAGE> 15
EXHIBIT B
PARENT'S ALERT PRODUCTS
Parent's Alert Drug Test Kit:
Kits for in-home urine testing and SAMHSA approved laboratory analysis for use
of drugs of abuse including but not limited to, [*].
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
15
<PAGE> 1
EXHIBIT 11.1
CHEMTRAK INCORPORATED
COMPUTATION OF INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------------- ----------------------------------
1997 1996 1997 1996
-------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Weighted average common share outstanding 12,855,0000 9,773,000 12,470,000 9,743,000
============== ============= ============== ================
Net income (loss) $ (1,654,000) $ (2,789,000) $ (2,949,000) $ (4,285,000)
============== ============= ============== ================
Net income (loss) per share $ (0.13) $ (0.29) $ (0.24) $ (0.44)
============== ============= ============== ================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements in the Quarterly Report on Form 10-Q of ChemTrak
Incorporated for the quarter ended June 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,875,000
<SECURITIES> 0
<RECEIVABLES> 520,000
<ALLOWANCES> 0
<INVENTORY> 1,523,000
<CURRENT-ASSETS> 131,000
<PP&E> 2,286,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,401,000
<CURRENT-LIABILITIES> 1,353,000
<BONDS> 0
0
0
<COMMON> 13,000
<OTHER-SE> 3,864,000
<TOTAL-LIABILITY-AND-EQUITY> 6,401,000
<SALES> 870,000
<TOTAL-REVENUES> 870,000
<CGS> 517,000
<TOTAL-COSTS> 517,000
<OTHER-EXPENSES> 2,109,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,654,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,654,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,654,000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.12)
</TABLE>
