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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
[_] 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:
CALYPTE BIOMEDICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1226727
(I.R.S. Employer
(State or other jurisdiction of Identification Number)
incorporation or organization)
1440 FOURTH STREET, BERKELEY, CALIFORNIA 94710
(Address of principal executive offices) (Zip Code)
(510) 526-2541
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
As of February 28, 1997, 10,465,446 shares of the registrant's common stock,
$.001 par value, were outstanding. The aggregate market value of the common
stock held by non-affiliates of the registrant (i.e., excluding shares held by
executive officers, directors, and control persons as defined in Rule 405) on
that date was $61,456,824 computed at the closing price of the common stock on
that date on the NASDAQ SmallCap Market.
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CALYPTE BIOMEDICAL CORPORATION
FORM 10-K
INDEX
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PAGE NO.
PART I. --------
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Item 1. Business.................................................... 1
Item 2. Properties.................................................. 18
Item 3. Legal Proceedings........................................... 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters..................................................... 19
Item 6. Selected Consolidated Financial Data........................ 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 20
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 23
PART III.
Item 10. Executive Officers and Directors of the Registrant.......... 24
Item 11. Executive Compensation...................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 31
Item 13. Certain Relationships and Related Transactions.............. 32
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................... 34
Signatures........................................................... 36
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Except for the historical information contained in this annual report on
Form 10-K, the matters discussed herein contain forward-looking statements
that are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected. These risks and
uncertainties include, but are not limited to, the dependence on sole source
of supply and regulatory approval of confirmatory test, limited operating
history, reliance on proprietary technology and know-how, the Company's
products not achieving market acceptance, and dependence on a single product,
as well as the other risks and uncertainties described herein and other risks
included from time to time in the Company's other SEC reports and press
releases, copies of which are available from the Company upon request. The
Company assumes no obligation to update any forward-looking statements
contained herein.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Calypte Biomedical Corporation ("Calypte" or the "Company") believes that it
is a leader in the development of a urine-based screening test for the
detection of Human Immunodeficiency Virus, Type-1 ("HIV-1"), the putative
cause of Acquired Immunodeficiency Syndrome ("AIDS"). The Company has
integrated several proprietary technologies to develop a test which, in
Company-funded clinical trials conducted by or on behalf of the Company,
detected the presence of HIV antibodies in urine with 99.33% sensitivity (as
compared to blood). Specificity of the screening test with a companion western
blot confirmatory test was 100%. Calypte believes that its proprietary urine-
based test offers significant advantages compared to existing blood-based
tests, including ease-of-use, lower costs, and significantly reduced risk of
infection from collecting and handling specimens. Urine collection is non-
invasive and painless, and urine is the most commonly collected body fluid.
The Company estimates that the cost of collecting, handling, testing and
disposing of urine specimens will be significantly less than that of blood
specimens. Independent studies report that the likelihood of finding
infectious HIV virus in urine is extremely low, which greatly reduces the risk
and cost of accidental exposure to health care workers, laboratory personnel,
and patients being tested.
On August 6, 1996, the Company received a product license and an
establishment license from the Food & Drug Administration ("FDA") to
manufacture and sell, in interstate and foreign commerce, the Company's urine-
based HIV-1 screening test for use in professional laboratory settings. The
Company's screening test, when used with the western blot confirmatory test
for urine licensed exclusively from Cambridge Biotech Corporation ("Cambridge
Biotech"), will provide the only complete urine-based HIV testing system. This
western blot test is already licensed by the FDA for use with blood, and is
currently pending FDA clearance for use with urine. On June 21, 1996, the FDA
Blood Products Advisory Committee ("BPAC") determined that the clinical data
and test protocol of the Cambridge Biotech urine western blot confirmatory
test supported its use to determine a positive HIV-1 test result. Based on the
data presented, the BPAC recommended that the Cambridge Biotech urine western
blot confirmatory test not be considered a stand-alone supplemental test and
that positive reported results in urine be subsequently verified by using a
blood sample. While any recommendation of the BPAC is not binding on the FDA,
there can be no assurance that the FDA will grant approval of the Cambridge
Biotech urine confirmatory test.
In October 1996, the Company received notification that the FDA would
require additional data before it would approve an amendment to Cambridge
Biotech's product license application for its urine-based HIV-1 Western Blot
kit, to be used as a confirmatory test with Calypte's HIV-1 urine screening
assay. On March 17, 1997, the Company submitted to the FDA the additional data
requested by the FDA before it would approve an amendment to Cambridge
Biotech's product license application for its HIV-1 Western Blot kit. There
can be no assurance that the FDA will grant approval of the Cambridge Biotech
urine confirmatory test. Any significant delay in obtaining approval for the
Cambridge Biotech urine confirmatory test could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company believes that the benefits of its testing system will enable it to
penetrate existing markets and expand into new markets that are currently not
served by blood-based and oral fluid-based HIV test systems.
The Company also intends to submit a pre-market approval application ("PMA")
to the FDA for approval of the Company's over-the-counter ("OTC") home urine
collection kit. The Company's home collection kit would allow consumers, in
the privacy of their homes, to take a urine sample, mail it to Calypte
Biomedical Laboratories for analysis and then anonymously obtain results and
professional counseling by telephone. On May 14, 1996, Direct Access
Diagnostics, a subsidiary of Johnson & Johnson, received FDA clearance for the
first OTC home blood collection kit for HIV. In addition, on July 22, 1996,
Home Access Health Corp. received FDA clearance for another OTC home
collection kit for HIV. The Company believes that these FDA approved OTC
products will accelerate consumer acceptance and awareness of home collection
for HIV. The Company believes that an OTC urine collection kit for HIV would
have advantages compared to an OTC blood collection kit for HIV.
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The Company intends to develop and commercialize additional urine-based
tests for other sexually transmitted diseases and other human retroviruses and
diseases based on its enabling urine testing technologies. Initially, the
Company intends to focus on developing and commercializing urine-based
screening tests for HIV-2, Chlamydia and H. pylori.
Upon approval, the Company intends to market its urine-based HIV-1 screening
test through direct sales personnel and distributors depending upon the market
segment and the location of the market. Calypte believes that its urine-based
test will achieve market acceptance because of safety, cost, convenience, and
painless collection of the fluid to be tested. There can be no assurance that
the Company's products or the Company's planned products will receive FDA
clearance or approval and become commercially available.
BACKGROUND
HIV is the putative cause of AIDS, which is the leading cause of death for
persons ages 25 to 44 in the U.S. Those infected with HIV generally do not
show symptoms of AIDS until several years after HIV infection, if at all.
Because most persons infected with HIV are asymptomatic for AIDS and are
unaware of their HIV status, such persons do not avail themselves of medical
treatment and may unknowingly expose others to the risk of infection. Prior
exposure to HIV can be detected in laboratory tests even though the individual
infected with HIV is asymptomatic.
According to the World Health Organization, HIV currently infects
approximately 16.9 million individuals worldwide and will infect between 30
and 40 million individuals worldwide by the year 2000. HIV is spread by a
transfer of bodily fluids primarily through sexual contact, blood
transfusions, sharing intravenous needles, accidental needle sticks or
transmission from infected mothers to newborns. The Rockefeller Foundation
reports that heterosexual transmission accounts for more than 70% of HIV
infection worldwide. The incidence of HIV-2 is insignificant except in certain
countries in West Africa where its incidence is more frequently reported.
The discovery in 1984 of circulating HIV antibodies in the blood led to the
development and widespread use of HIV blood screening tests. Testing by blood
banks of blood used in transfusions soon followed in an effort to maintain and
protect the integrity of the blood supply. Most HIV antibody screening tests
are enzyme immunoassays ("EIAs"). These tests operate on the principle that
antibodies will react with a known antigen; this reaction is detected by using
enzymes as indicators. It is estimated that 27 million blood bank screening
tests were performed in 1993 and 23 million non-blood bank HIV screening tests
were projected to be performed in 1996 in the United States. Outside of blood
bank screening, the largest domestic demand for HIV testing is generated by
physicians, the life insurance industry, the military, the criminal justice
system and the Immigration and Naturalization Service.
To minimize the risk of incorrectly reporting that an individual is infected
with HIV (a false positive result), most countries require a strict testing
protocol. The protocol is to first test a sample for the presence of HIV. Any
sample found to be reactive in the initial screen is then retested in
duplicate. If either of the retests are reactive, the same sample is tested
again using a more precise and expensive confirmatory test. The presence of
HIV antibodies, based on the results of the confirmatory test, is considered
diagnostic for HIV infection.
HIV blood testing can be expensive and poses risk of infection to health
care personnel. The typical HIV screening test requires a trained health care
worker or phlebotomist to draw and centrifuge a blood sample, which is then
tested for the presence of HIV antibodies. Blood is typically drawn at
physician offices, hospitals or blood draw stations, where trained personnel
are available, and then sent to a laboratory for HIV testing. Blood samples
and related blood-sampling equipment require careful handling to avoid
accidental exposure to blood-borne pathogens, including HIV. In addition, the
use of blood-based tests has become increasingly costly because of the costs
of disposing of potentially infected specimens, syringes, needles and transfer
tubes. The overall cost of blood-based testing has precluded large public
health screening programs, particularly in less developed countries, many of
which have significantly higher rates of HIV infection than that of the U.S.
Even in the United States, certain populations are not routinely screened due
to the high cost of blood-based testing. For example, currently only four
million of the approximately 14 million life insurance policies written each
year utilize HIV screening.
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In December 1994, the FDA approved the first non-invasive method for HIV-1
testing, an oral fluid-based screening test and collection device. Collection
of oral fluid is technique dependent, and detailed instructions on the proper
use of the oral fluid collection device need to be carefully followed. In
addition, oral fluid is not commonly collected and is rarely tested for other
diagnostic purposes. In June 1996, one manufacturer received approval from the
FDA for a western blot oral-fluid confirmatory test.
HIV screening can also be performed by using a dried blood spot ("DBS")
specimen. DBS sampling, which was developed in the late 1980's, is a variant
of blood sampling for the testing of newborns. The DBS sampling method
involves sticking a baby's heel or an adult's finger with a sharp lancet and
collecting five or six drops of blood onto filter paper. The laboratory
punches the dried blood spots out of the filter paper, and the non-cellular
components of the blood spot are eluted back in liquid form by soaking the
punches in diluent. The resulting fluid is then assayed by one of several
traditional serum/plasma EIAs.
The DBS method, which is comparable in cost to traditional serum tests, is
susceptible to problems in sample variability, the adequacy of volume for
testing, pain on sample withdrawal, and invasiveness.
The Company believes that a large market opportunity exists for home urine
collection and remote testing for HIV infection. On May 14, 1996 and July 22,
1996, the FDA approved DBS OTC home collection kits for HIV. These collection
kits, to be marketed by Direct Access Diagnostics, a subsidiary of Johnson &
Johnson, and Home Access Health Corp., respectively, are reported to each
retail for approximately $40. ChemTrak Incorporated has also submitted an
application to the FDA for a DBS OTC home collection kit for HIV. The Company
believes that these FDA approved OTC products will accelerate consumer
acceptance and awareness of home collection for HIV.
The human immune system typically requires a number of months to begin
producing antibodies following exposure to HIV. There is no consensus in the
scientific community as to whether antibodies can first be detected in blood,
urine or oral fluid. Moreover, the Company is not aware of any conclusive data
that indicates how long before an infected individual's blood, oral fluids or
urine will indicate that he or she is HIV positive.
THE CALYPTE URINE-BASED HIV-1 SCREENING TEST
Calypte's proprietary urine-based HIV-1 screening test is non-invasive, easy
to use, reliable and avoids many of the costs and risks associated with blood-
based testing. The Company's screening test, when used with the western blot
confirmatory test for urine licensed exclusively from Cambridge Biotech, will
provide the only complete urine-based HIV testing system. Laboratories using
the Company's system can complete the entire testing profile for HIV-1 using a
single urine specimen. The Company believes that the benefits of its testing
system will enable it to penetrate existing markets and expand into new
markets that are not served currently by the more expensive blood and oral
fluid-based HIV test systems. Key benefits of the Company's test include:
Ease of Use/Non-Invasive Collection. Urine is the most commonly collected
bodily fluid for laboratory testing as it is already being collected for
testing purposes other than the detection of HIV. Because it requires no
special preservatives or containers, it is also easier to collect, handle, and
discard than blood. Furthermore, the Company's test is in standard EIA format
and is designed to be used with standard laboratory equipment. Blood sampling
is invasive and, for many patients, stressful and painful. The ability to
screen non-invasively for HIV in all types of patients, including intravenous
drug users and newborns, will enhance patient comfort and may significantly
increase the voluntary testing rates in patients who might otherwise decline
testing. Moreover, unlike urine collection, obtaining an uncontaminated oral
fluid specimen is highly technique-dependent, requiring specific placement of
a sterile collection device in the mouth, rubbing the collection device along
the gum line, and holding it in place for no less than two and no more than
five minutes.
Lower Overall Cost. The Company's urine-based screening test may lower
significantly the overall cost of testing for HIV because the cost of
collecting, transporting, testing and disposing of urine specimens can be
significantly less than that of blood specimens, and less than the cost of an
oral fluid screening test. Additional
3
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cost savings may accrue as a function of reduced needlestick incidents and
associated counseling, testing and lost productivity. With respect to oral
fluid screening tests, the Company believes that each oral fluid collection
device costs between $2.00 to $4.00, while a urine collection cup costs
approximately $0.20. Moreover, since urine is often already being collected
for other testing purposes, the incremental cost of collecting urine samples
is likely to be lower than collecting oral fluids.
Safety. Independent studies have concluded that the likelihood of finding
infectious HIV virus in urine is extremely low. There have been no reported
cases of transmission of HIV virus through contact with urine of HIV-infected
patients. Accordingly, the risk of HIV infection to health care and laboratory
workers accidentally exposed to urine samples is negligible. Since no needles
are used in the Calypte urine sampling process, the test eliminates this route
of accidental infection. In developing countries, where the supply of sterile
needles and syringes cannot be guaranteed, the safety benefits of using urine
sampling extend to patients as well as to health care workers.
Reliability. The Company has performed clinical studies demonstrating the
effectiveness of using urine as a reliable and clinically valid sample for HIV
testing. In Company-funded clinical trials conducted by or on behalf of the
Company, for the HIV-1 urine EIA, a total of approximately 11,000 matched
blood and urine specimens were tested. In two different studies, assay
specificity was assessed by testing samples from a combined subset of low risk
individuals, and specificity of the screening test in conjunction with the
confirmatory tests was 100%. Sensitivity (correlation to blood tests) of the
urine screening test was estimated by testing samples from a subset of
individuals with a clinical diagnosis of AIDS at five sites, and sensitivity
was 99.33%. Assay specificity is the ability of an assay to identify all non-
HIV infected individuals correctly. Assay sensitivity is the ability of the
assay to detect truly HIV-infected individuals.
In spite of the benefits of the Company's urine-based screening test, such
test represents a new method of determining the presence of HIV antibodies.
Blood-based and oral fluid based tests, which constitute competitive products,
have the advantage of already being commercially marketed and have gained
acceptance from the medical community. Furthermore, both blood-based and oral
fluid based tests have been shown to be reliable media for detection of HIV.
There can be no assurance that the Company's urine-based screening test will
gain any significant degree of market acceptance among physicians, patients or
health care payors, even if necessary regulatory and reimbursement approvals
are obtained. Moreover, even after such regulatory approvals are obtained, the
Company may recommend, whether required as a condition to approval of the
urine-based confirmatory test or otherwise, that a blood test be obtained as a
prelude to any medical care rendered for persons diagnosed with HIV.
The Company's test uses an industry standard 96 well microtiter plate to
detect antibodies to HIV-1 in urine. The HIV-1 antibodies, when present in
urine, bind to Calypte's proprietary antigen coated on prepared microtiter
plates. A subsequent enzymatic reaction produces a color change revealing the
presence of HIV-1 antibodies.
The test requires only 200 microliters of urine (approximately four drops)
and can be performed using standard laboratory equipment. Collection of the
urine can take place any time of day, and the test does not require a 24-hour
voided specimen or a midstream, clean-catch sample. Samples can be shipped and
stored at two to 30 degrees centigrade for up to 55 days before testing. The
laboratory protocol for testing urine is nearly identical to that of blood,
requiring few, if any, modifications to existing laboratory protocols.
The Company has entered into an agreement with Cambridge Biotech under which
both Calypte and Cambridge Biotech will market and distribute a urine-capable
western blot confirmatory test which uses technology licensed from the
Company. The western blot kit manufactured by Cambridge Biotech has already
received FDA approval for blood testing, and is the only confirmatory test for
which application has been made for FDA approval for use with urine. In April
1996, Cambridge Biotech agreed to sell its retroviral diagnostic business to
bioMerieux Vitek, Inc. bioMerieux Vitek is part of bioMerieux, an
international biotechnology group based in Lyon, France, dedicated to in-vitro
diagnostics with a special focus on infectious diseases. Clinical data related
to the Cambridge Biotech License Application Amendment was reviewed by the
BPAC on June 21, 1996.
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The BPAC provides guidance to the FDA on issues related to product license
applications currently under review by the FDA. At the June 21, 1996 meeting,
the BPAC determined that the clinical data and test protocol of the Cambridge
Biotech urine western blot confirmatory test supported its use to determine a
positive HIV-1 test result. Based on the data presented, the BPAC recommended
that the Cambridge Biotech urine western blot confirmatory test not be
considered a stand-alone supplemental test and that positive reported results
in urine be subsequently verified by using a blood sample. While any
recommendation of the BPAC is not binding on the FDA, there can be no
assurance that the FDA will grant approval of the Cambridge Biotech urine
confirmatory test. In October 1996, the Company received notification that the
FDA would require additional data before it would approve an amendment to
Cambridge Biotech's product license application for its urine-based HIV-1
Western Blot kit, to be used as a confirmatory test with Calypte's HIV-1 urine
screening assay. Any significant delay in obtaining approval for the Cambridge
Biotech urine confirmatory test could have a material adverse effect on the
Company's business, financial condition and results of operations.
On March 17, 1997, the Company submitted to the FDA the additional data
requested by the FDA before it would approve an amendment to Cambridge
Biotech's product license application for its HIV-1 Western Blot kit. There
can be no assurance that the FDA will grant approval of the Cambridge Biotech
urine confirmatory test.
STRATEGY
The Company's objective is to be the leader in the development and
commercialization of urine-based diagnostic tests. The Company's primary
strategy is to exploit the advantages of using urine instead of blood for HIV
testing to establish its diagnostic screening test as the screening method of
choice for HIV. In addition, building on its expertise in urine-based
diagnostics, the Company intends to develop additional urine-based tests for
sexually transmitted diseases and other human conditions. The key components
of the Company's business strategy are to:
. Target and Expand Life Insurance Testing Market. The Company is marketing
its urine-based HIV screening test kit directly to the five major
laboratories that perform the substantial majority of HIV tests for the
domestic life insurance industry. These laboratories currently collect
and test urine from most life insurance applicants for other diseases and
risks. Because of the overall lower cost and because urine is already
routinely collected, the Company believes that its test will enable life
insurance companies to increase the number of applicants tested for HIV.
. Penetrate U.S. Clinical Laboratory Market. The Company, through its
distributors, intends to market its tests to laboratories currently
serving physicians. Because of restrictions on the collection of blood in
the physician's office imposed by CLIA, many physicians refer their HIV
"at-risk" patients to phlebotomists at outside laboratory service centers
for blood collection. The Company's urine-based HIV test will allow
physicians' offices to collect the specimen for use with the Company's
HIV test.
. Pursue International Markets Through Distributor Relationships. Upon
approval from appropriate regulatory authorities, the Company intends to
market its HIV test in international markets pursuant to existing
worldwide distribution agreements. Because of its safety, ease of
collection and lower costs, the Company believes that its urine-based
test may be widely employed in certain international markets not
presently served by HIV blood tests.
. Enter Emerging OTC Market. The Company intends to file a PMA for FDA
approval of its OTC urine collection kit for home collection. The Company
believes that its OTC urine collection kit would be used by consumers who
desire home urine collection and anonymous HIV testing through Calypte
Biomedical Laboratories. The Company intends to collaborate with a
corporate partner to market and distribute its collection kit to retail
outlets in the United States.
. Establish Calypte Biomedical Laboratories. The Company intends to
establish Calypte Biomedical Laboratories--a reference testing laboratory
to perform HIV testing of home-collected urine specimens.
. Develop Additional Urine-Based Diagnostics. The Company intends to
develop and commercialize additional urine-based tests for other sexually
transmitted diseases, other human retroviruses and non-sexually
transmitted diseases based on its enabling urine testing technologies.
Initially, the Company intends to focus on developing and commercializing
a urine-based screening test for HIV-2, Chlamydia and H. pylori.
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PRODUCTS UNDER DEVELOPMENT
OTC. The Company believes a market opportunity exists for home urine
collection and remote testing for HIV infection. The Company intends to submit
an application for FDA approval for an OTC home urine collection device, which
the consumer would purchase at retail outlets instead of visiting a
physician's office or laboratory for HIV testing. The consumer would provide a
specimen sent in a prepaid mailer to the Company's testing laboratory, Calypte
Biomedical Laboratories. The Company would perform the test, and the consumer
will obtain the results by telephoning the Company and identifying himself or
herself with a unique code to preserve anonymity. The Company believes that
the FDA will require that the results of the tests be reported under strictly
controlled protocols, including counseling. In the event that the Company's
OTC HIV home urine collection kit is approved by the FDA, the Company intends
to continue to manufacture the urine-based HIV-1 test and operate the testing
laboratory. The Company plans to enter into an agreement with an OTC marketing
partner to market and distribute the collection kit.
Chlamydia. The Company received a notice of allowance for a U.S. patent for
the detection of Chlamydia antibodies in urine and is developing a urine-based
Chlamydia detection test. It has been estimated that there are 4.0 million new
cases of Chlamydia occurring annually in the United States and more than 25
million tests for Chlamydia were performed in the United States in 1990, and
the annual Chlamydia test market has been estimated to increase by 15% per
year. Existing tests for Chlamydia, because they require a urethral swab or a
blood sample, are uncomfortable for the patient. The majority of Chlamydia
patients are asymptomatic and therefore, seldom seek medical treatment.
Chlamydia is considered to be a significant cause of pelvic inflammatory
disease, tubal infertility and ectopic pregnancies.
HIV-2. The Company is also developing a test for HIV-2, the less common form
of HIV. The Company believes that such a test is important in certain export
markets where the incidence of HIV-2 is higher or where such testing is
mandated by government regulation. In addition, the Company believes that the
ability to detect HIV-2 antibodies will be of value in protecting the
Company's competitive position. The Company has the first right of negotiation
with Cambridge Biotech for certain rights for the detection of HIV-2 under the
Cambridge Biotech patent license from Sanofi Diagnostic Pasteur.
H. pylori. The Company is in discussions with Otsuka Pharmaceutical Co.,
Ltd. ("Otsuka") to obtain a license to distribute Otsuka's urine-based
diagnostic for Helicobacter pylori (H. pylori), the putative cause of gastric
ulcers and other intestinal conditions. The H. Pylori urine-based test is
currently under development at Otsuka.
Other Diagnostics. The Company is also planning to evaluate the development
of urine-based diagnostic tests for syphilis and herpes. Ultimately, the
Company intends to expand its diagnostic test line so that it will be possible
to test for a wide range of sexually transmitted and other diseases with a
single, non-invasively collected urine sample. On January 27, 1997, the
Company entered into a collaborative research and product development
agreement with Trinity Biotech plc of Dublin, Ireland to develop a rapid, one-
step HIV test which can be performed on urine samples.
SALES, MARKETING AND DISTRIBUTION
The Company's marketing strategy is to use distributors, focused direct
selling and marketing partners to penetrate certain targeted domestic markets.
The Company plans to maintain a small direct sales force to sell the Company's
HIV-1 screening test and potential future products to 12 major laboratories
serving the life insurance, military, immigration and criminal justice
markets. Other U.S. and all international markets will be penetrated utilizing
diagnostic product distributors. The Company will work collaboratively with
its distributors to market and promote the products in their local markets.
The Company anticipates that a significant portion of its revenues for the
next several years will be derived from international distributor sales.
International sales and operations involve a number of inherent risks and may
be limited or disrupted by the imposition of government controls, export
license requirements, political instability, trade restrictions, changes in
tariffs, difficulties in managing international operations and fluctuations
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in foreign currency exchange rates. The Company's distribution agreement with
Otsuka Pharmaceutical Co., Ltd. is terminable without cause by Otsuka upon 120
days prior notice. Certain of the Company's distributors have limited
international marketing experience, and there can be no assurance that the
Company's distributors will be able to market successfully the Company's
products in any international market.
The following table summarizes the markets and geographic regions covered by
the Company and its distributors for its HIV-1 test.
<TABLE>
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COMPANY GEOGRAPHIC REGION MARKETS
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Calypte United States 12 laboratories serving the life
insurance, military, immigration and
criminal justice markets.
Calypte Canada All
Seradyn United States All but the above laboratories.
Seradyn Europe, Latin America, Africa, All
Middle East
Otsuka Asia, Australia, New Zealand All
Travenol Israel All
</TABLE>
Seradyn, Inc. Seradyn, Inc. ("Seradyn") a subsidiary of Mitsubishi Chemical
Corporation, is a manufacturer and distributor of clinical diagnostic and
industrial/analytical instrumentation products. In April 1995, the Company
entered into an agreement with Seradyn under which Seradyn was granted
exclusive distribution rights for the HIV-1 test under the trade name "Seradyn
Sentinel" for all non-Calypte accounts in the United States, and all customers
in Europe, Latin America, Africa and the Middle East (excluding Israel). The
agreement provides for certain minimum purchases by Seradyn. If such minimum
purchases are not met, the Company has the right to terminate the agreement or
render Seradyn's rights non-exclusive for the region in which the minimum
purchases were not met, provided that Seradyn will be guaranteed the prices
given to Calypte's most favored customers in the territory. The initial term
of the agreement extends through December 1998. Seradyn has the right to
extend the agreement for successive two-year terms provided it has met minimum
sales requirements. Seradyn has agreed to assist the Company in obtaining
regulatory approvals in its distribution territory at the Company's expense.
The agreement also grants Seradyn a right of first refusal on distribution
rights for certain new products which may be developed during the term of the
agreement.
Otsuka Pharmaceutical Co., Ltd. Otsuka Pharmaceutical Co., Ltd ("Otsuka") is
a Japanese integrated health care and consumer products conglomerate. In
August 1994 the Company entered into a distribution agreement with Otsuka,
which gives Otsuka exclusive distribution rights for the urine-based HIV-1
test and to use the trademark "Calypte" to market the test in 22 Asian
countries, Australia and New Zealand. To maintain exclusivity, the agreement
requires that Otsuka purchase certain annual minimums, which increase each
year, and total 70 million tests over ten years. Otsuka has agreed to use its
best efforts to obtain regulatory approvals for the product in its territory.
The agreement is for a term of ten years, and is terminable without cause by
Otsuka upon 120-days notice. The Company has committed up to one-half of its
total manufacturing capacity to Otsuka. If the Company is unable to meet
Otsuka's manufacturing requirements, Otsuka has a right to manufacture tests
itself. The agreement also grants Otsuka the right of first refusal to
distribute certain new products which may be developed during the term of the
agreement.
Travenol Laboratories (Israel) Ltd. In December 1994 the Company entered
into an agreement with Travenol Laboratories (Israel) Ltd. ("Travenol"), a
division of Baxter-Travenol Laboratories. The agreement gives Travenol
exclusive rights to distribute the HIV-1 test and to use the trademark
"Calypte" within Israel. Under the agreement, Travenol will undertake
registration of the product in Israel with the Company paying regulatory fees.
The term of the agreement is perpetual unless terminated earlier for specified
causes. No minimum purchase levels are required.
The Company's products represent a new method of determining the presence of
HIV antibodies and there can be no assurance that these products will gain any
significant degree of market acceptance among physicians,
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patients or health care payors, even if necessary international and U.S.
regulatory and reimbursement approvals are obtained. The Company believes that
recommendations and endorsements by the medical community will be essential
for market acceptance of the products, and there can be no assurance that any
such recommendations or endorsements will be obtained. The Company has no
experience marketing and selling its products either directly or through its
distributors. The Company's marketing strategy relies upon its alliance with
third-party distributors for the success of its products. There can be no
assurance that the Company's direct sales force will be effective, that its
distributors will market successfully the Company's products or that, if such
relationships are terminated, the Company will be able to establish
relationships with other distributors on satisfactory terms, if at all. Any
disruption in the Company's distribution, sales or marketing network, or
failure of the Company's products to achieve market acceptance, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
MANUFACTURING
The manufacture of the Company's urine-based HIV test involves antigen
production, plate processing and preparation of certain washes and other
reagents. Under current Good Manufacturing Practices ("cGMP"), all steps are
recorded, those requiring measurement or calculation are checked by a second
technician and all components are inspected and/or tested at four stages by
quality control technicians. Antigen production involves cell culture, antigen
expression and purification. Following purification, the antigen is tested
extensively and optimized for plate coating. The coating of standard 96 well
microtiter plates with antigen is completed using standard plate coating
equipment. Following binding of the antigen to the plates, the plates are
blocked and stabilized to prevent nonspecific binding of the antigen. The
plates are then dried and packaged in foil pouches. The washes and reagents
are produced using standard solution preparation techniques.
Calypte's manufacturing operations are located in Berkeley, California with
an annual capacity of approximately 4.5 million tests. The Company received an
establishment license from the FDA for the production of its HIV-1 screening
test at this facility on August 6, 1996. The Company has completed a larger
manufacturing facility in Alameda, California and is manufacturing pilot lots
required for an amendment to its pending FDA license for approval of this
facility. The capacity of the Alameda facility is approximately 20 million
tests per year. Additionally, the Company has entered into a manufacturing
agreement with Biomira Diagnostics, Inc., a Canadian corporation, for the
production of the Company's tests for export to certain international markets,
in compliance with Company specifications.
Calypte purchases raw materials and components used in the manufacture of
its product from various suppliers and relies on single sources for several of
these components. Establishment of additional or replacement suppliers for
these components cannot be accomplished quickly. The Company has a number of
single-source components, and any delay or interruption in supply of these
components could significantly impair the Company's ability to manufacture its
products in sufficient quantities, and therefore would have a material adverse
effect on the Company's business, financial condition and results of
operations, particularly as the Company scales up its manufacturing activities
in support of commercial sales.
The Company has limited experience in manufacturing its products. The
Company currently manufactures its products in limited quantities for
submission to FDA for ongoing compliance, international clinical trials and
building its inventory in anticipation of commercialization. The Company does
not have experience in manufacturing its products in commercial quantities.
Manufacturers often encounter difficulties in scaling-up production of new
products, including problems involving production yields, quality control and
assurance, raw material supply and shortages of qualified personnel. Such
assumptions may be incomplete or inaccurate and unanticipated events and
circumstances are likely to occur. The larger Alameda facility will be needed
if initial demand exceeds the more limited capacity of the Berkeley facility.
Difficulties encountered by the Company in manufacturing scale-up to meet
demand, including delays in receiving FDA approval for the Alameda facility,
could have a material adverse effect on its business, financial condition and
results of operations.
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Due to the nature of its manufacturing processes, the Company is subject to
stringent federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, discharge,
handling and disposal of certain materials and wastes. There can be no
assurance that the Company will not be required to incur significant costs to
comply with land use and environmental regulations as manufacturing is scaled-
up to commercial levels, nor that the operations, business or financial
condition of the Company will not be materially and adversely affected by
current or future environmental laws, rules, regulations and policies. There
can be no assurance that the Company will be able to obtain and maintain all
required permits in connection with the operation of its manufacturing
facilities. When and if the Company begins to produce products on a commercial
scale, it will be a significant user and disposer of water. The disposal of
water used in the Company's manufacturing processes must comply with
applicable federal, state and local environmental protection laws, and
compliance with these laws may be costly and difficult.
TECHNOLOGY
The Company's HIV-1 urine-based test is based on the finding of scientists
at the New York University Medical Center in 1988 that antibodies to HIV-1
could be found in urine. Prior to this discovery, it was commonly held that
antibodies to systemic infections could not pass through the kidneys, and
thus, could not be found in the urine of infected individuals. The researchers
showed that HIV-1 envelope antibodies were present in all urine samples from
HIV-1 seropositive subjects. Building on this discovery, the Company developed
an HIV-1 urine enzyme immunoassay ("EIA") to detect antibodies to HIV-1 in
urine. There are two proprietary features of the Company's HIV-1 urine-based
EIA that result in a format sensitive enough to detect the low levels of HIV
antibodies in urine: the antigen target and the sample buffer in the assay.
Recognizing the prominence of envelope antibodies in urine, the antigen
target in the assay is a full length, recombinant glycosylated HIV-1 envelope
protein, rgp160. Although this antigen is a recombinant glycoprotein, it is
identical to the viral envelope protein gp160 in amino acid sequence and in
the presence of carbohydrate at glycosylation sites. This kind of antigen
target can efficiently capture the full range of HIV-1 envelope specific
antibodies produced in the human polyclonal response to the virus. The
microwell assay format permits the high availability of epitopes of the
recombinant envelope glycoprotein for antibody binding. This availability of
epitopes results in the sensitivity verified in clinical trials.
The Company has non-exclusive rights to the proprietary process used to
express the recombinant HIV-1 envelope glycoprotein from Texas A&M University.
This proprietary process for manufacture of rgp160 begins with the baculovirus
expression vector system established in an insect cell culture. The consistent
and high levels of rgp160 expression in baculovirus infected insect cell
culture is a critical step in the overall manufacturing of rgp160. The Company
improved and upgraded the Repligen Corporation ("Repligen") process with a
proprietary process which uses a system in which the HIV-1 envelope protein is
produced in the insect cell membrane rather than typical tissue culture
systems where the protein is secreted into insect cell culture media. Rgp160
is an insoluble protein and requires detergent based extraction and
purification procedures which are proprietary.
The Company developed and has obtained a U.S. patent claiming a sample
buffer formulation, which is used in the HIV-1 urine test. This sample buffer
acts as a diluent for urine in the assay procedure and significantly increases
test specificity by reducing non-specific binding of immunoglobulins (non-
specific antibodies) and other substances in urine that would decrease
specificity and sensitivity of HIV-1 antibody binding. Sample buffer is
manufactured in the Company's facilities.
The Company's products incorporate classical immunoassay technology based on
antibody-antigen reactions. Antibodies are immune system proteins produced as
a result of an organism's immune response to substances (antigens) foreign to
the body and specifically bind to antigens and signal the immune system to
assist in eliminating them. Immunoassays are used for diagnostic applications
where the presence or absence of a specific analyte is being evaluated and
allow the detection of some analytes at levels as low as one part per billion.
Antigens include viruses, bacteria, parasites, chemical toxins and other
foreign substances and hormones.
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The HIV-1 urine assay format includes a standard 96 well microtiter plate
which is compatible with standard laboratory instrumentation. The microwell
plates are coated with proprietary recombinant HIV-1 envelope protein antigen.
Patient urine and the unique specimen diluent are introduced to the microwell
simultaneously. If HIV-1 antibodies are present, they bind to the antigen
coated well and remain during the subsequent wash steps. An enzyme labeled
conjugate is added to the well. This conjugate binds specifically to human
antibody which remains from the previous step. Following another wash,
substrate reagent is added and color development occurs due to the presence of
the enzyme conjugate in the well. This color is measured
spectrophotometrically on a standard laboratory microwell plate reader. The
presence of HIV antibody in the specimen is indicated by the development of
color in the microwell, and the intensity of the color is proportional to the
amount of antibody.
CLINICAL TRIALS
The Company has performed preclinical and clinical studies which support the
use of urine as a reliable and clinically valid sample. Four of the studies
are described below:
Metpath Laboratories, Inc. The feasibility of HIV-1 antibody detection in
urine was established in a large preclinical study at Metpath Laboratories,
Inc. which included 7,357 urine samples from a low risk population. A positive
prevalence rate for HIV-1 in urine of 0.80% agreed with the reported HIV-1
serum positive rate. Of the 1,746 urine samples matched to serum, five urine
positives agreed with the five serum positives. For urine negatives, 1,736 out
of 1,741 were correctly identified resulting in a 99.71% correlation to serum.
In addition, in a study of 94 paired urine and serum samples from subjects
previously determined to be HIV-1 seropositive, antibodies to HIV-1 were
detected in all urine samples by Calypte's urine-based HIV-1 screening test.
Center for AIDS Prevention Studies and the University of California at San
Francisco. Researchers at the Center for AIDS Prevention Studies and the
University of California at San Francisco ("UCSF") carried out a large
validation study of the diagnostic accuracy of the urine-based HIV-1 screening
test for HIV envelope antibodies in urine. Matched blood and urine specimens
collected from 586 recovering alcoholics were tested by two independent
laboratories blinded to results at the other site. The matched urine samples
were tested by and confirmed by a urine-based western blot. The urine-based
HIV-1 screening test when confirmed by a urine western blot led to a correct
diagnosis in all samples. The authors reported that the urine EIA demonstrated
a specificity of 100% and a sensitivity also estimated to be 100%.
Multicenter Trial. In clinical trials for the urine-based HIV-1 screening
test conducted at five geographic locations, approximately 11,000 matched
blood and urine specimens were tested. Assay specificity was assessed by
testing paired urine and serum samples from a combined subset of 7,074 low
risk individuals. Specificity of the screening test (prior to confirmation
with western blot) was determined to be 99.18%. In diagnosis of AIDS,
sensitivity was estimated to be 99.33%. Paired urine and serum specimens from
asymptomatic and symptomatic HIV-1 infected subjects and subjects at high risk
for HIV-1 infection were also tested. Urine correlation with blood for these
614 samples was 98.20%.
Japanese Ministry of Health Study. An independent study of the performance
of the urine-based HIV-1 screening test was carried out by the Japanese
Ministry of Health and reported at the 1994 International AIDS Conference in
Yokohama, Japan. Paired urine and serum samples from 200 HIV-1 infected
subjects and 700 healthy subjects in a low risk population were tested using
the urine-based HIV-1 screening test, confirmed by urine western blot and
compared with serum EIA and serum western blot results. There was agreement
between all 200 urine positives and serum positives and agreement between 700
urine negative and serum negative results. Urine correlation with serum was
100% for all urine samples tested.
INVESTMENT IN PEPGEN
In October 1995 Calypte purchased a 49% equity interest in Pepgen
Corporation ("Pepgen"), a therapeutic research and drug development company
with two lead compounds in preclinical evaluation. The first compound is an
interferon product, called interferon-tau, which in early animal trials has
shown to be effective both as an
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anti-viral and anti-tumor agent with less toxicity than other interferons.
Pepgen has planned further preclinical studies and if the preclinical studies
are successful, Pepgen anticipates seeking approval from the FDA to commence
human clinical trials. Pepgen's second lead compound is a growth factor called
uteroferrin. This compound has stimulatory effects on the growth and
differentiation of blood cells. Uteroferrin is a glycoprotein that is secreted
by the uterine endometrioepithelium. Based on animal studies, the stimulation
of hematopoietic cells by uteroferrin appears to act at an earlier stage of
stem cell development than other known hematopoietic growth factors.
Pepgen holds an exclusive worldwide license to both of these compounds from
the University of Florida. The Company purchased its equity position in Pepgen
for $2.5 million, comprised of $1.0 million paid at closing, $1.0 million
payable to Pepgen pursuant to a promissory note and options to purchase the
Company's Common Stock valued at $500,000. The $1.0 million promissory note
balance was paid in October 1996. The options were granted to Pepgen
shareholders for the purchase of an aggregate of 475,000 shares of the
Company's Common Stock at a price of $7.50 per share, of which 100,000 are
immediately exercisable and the remaining 375,000 are exercisable upon
attainment of certain milestones. The options expire at the earlier of
September 2005 or three years after becoming exercisable. In addition, Calypte
has the right of first negotiation to purchase the remaining 51% of Pepgen at
fair market value, and the Company is entitled to elect two of the seven Board
members of Pepgen. Calypte has no further commitments to fund Pepgen.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
The Company believes that its future success will depend in large part on
its ability to protect its patents and proprietary rights. Accordingly, the
Company's ability to compete effectively will depend in part on its ability to
develop and maintain proprietary aspects of its technology. The Company has
one U.S. patent, four pending U.S. patent applications, and thirteen foreign
patents, and sixteen pending foreign patent applications. In addition, the
Company has the right to utilize certain patents and proprietary rights under
licensing agreements with New York University ("NYU"), Cambridge Biotech,
Repligen, Texas A&M University System and Stanford University. These license
arrangements secure intellectual property rights for the manufacture and sale
of the Company's products.
The Company has licensed from NYU, on an exclusive basis, a U.S. patent for
the detection of antibodies to HIV in urine. The rights under the license
extend until the expiration of the U.S. patent in 2009 provided the Company
make certain payments. The Company has the right to make, use, sell and
sublicense products utilizing the technology described in the patent and is
obligated to make certain fixed and royalty payments to NYU to maintain
exclusivity of the license. In connection with the NYU license, the Company
also funded research at NYU, and expects to continue to do so through 1999.
The Company has exclusive worldwide license to NYU inventions that arise from
the research funded by the Company.
The Company has sublicensed from Cambridge Biotech proprietary technology
related to the HIV envelope glycoprotein. The Company has a non-exclusive
worldwide sublicense to make, have made, use and sell products that relate to
the licensed technology. The Company is required to pay Cambridge Biotech
royalties on products incorporating the licensed technology. The license
extends until the expiration of the licensed patents in 2005, although the
Company can terminate the agreement at any time upon 30-day's written notice.
The Company has been granted a non-exclusive license from Texas A&M
University to make, have made, use and sell products based on its proprietary
recombinant expression systems. The Company is required to pay certain fixed
and royalty payments to Texas A&M University on net sales varying with the
content of Texas A&M's technology in the Company's products.
The Company licensed from Repligen HIV-1 gp160 recombinant virus seed stock.
The Company has been granted (i) an exclusive license to make, have made, use
and sell products incorporating this material for diagnostic purposes, and
(ii) non-exclusive license to make, have made, use and sell the gp160 seed
stock for research purposes. For seven years beginning on the date the Company
first realizes net sales from products
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incorporating gp160, the Company must pay to Repligen certain royalties on net
sales derived from such products and certain royalties on net sublicensing
revenue derived from sales of products incorporating gp160. In addition, the
Company is required to pay certain fixed and royalty payments for a non-
transferrable, non-exclusive license from Stanford University to a patent
relating to recombinant DNA processes.
In the event that the Company does not receive approval for its urine-based
HIV-1 test or develop alternate sources of revenues, the obligation to make
minimum royalty payments could have a material adverse impact on the Company's
results of operations. Failure to make required minimum royalty payments may
result in the loss of exclusivity or termination of certain licenses.
The HIV testing industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Litigation or
interference proceedings could result in significant diversion of efforts by
the Company's management and technical personnel. There are a number of filed
and issued patents involved with the detection of HIV antibodies. One such
patent is currently owned by Chiron Corporation. While the Company, based on
the opinion of its patent counsel, believes that its urine-based HIV-1
screening test does not infringe the Chiron patent, there can be no assurances
that Chiron will not assert such claims against the Company. Patent litigation
can be costly and protracted. The expense of litigating a claim against the
Company for patent infringement could have a material adverse effect on the
Company's business, financial condition and results of operations. In the
event that the Company was found to be infringing a validly issued patent, and
the Company could not obtain a license to such patent on reasonable terms, the
Company could be forced to pay damages, obtain a license to such patent at a
significantly higher rate or, possibly, remove its urine-based HIV-1 screening
test from the market. Such an event would have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition, there can be no assurance that competitors, many of which have
substantial resources and have made substantial investments in competing
technologies, do not have, or will not seek to apply for and obtain, patents
that will prevent, limit or interfere with the Company's ability to make, use
or sell its products either in the U.S. or in international markets. There can
be no assurance that the Company will not be required to obtain additional
cross licenses in the future or that the Company will not in the future become
subject to patent infringement claims and litigation or interference
proceedings declared by the U.S. Patent and Trademark Office ("USPTO") to
determine the priority of inventions. The defense and prosecution of
intellectual property suits, USPTO interference proceedings and related legal
and administrative proceedings are both costly and time consuming. Litigation
may be necessary to enforce patents issued to or licensed by the Company, to
protect trade secrets or know-how owned by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others.
Although patent and intellectual property disputes in the medical diagnostic
area have often been settled through licensing or similar arrangements, costs
associated with such arrangements may be substantial and could include ongoing
royalties. Furthermore, there can be no assurance that necessary licenses
would be available to the Company on satisfactory terms if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling
its products, which would have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be able to maintain exclusivity under or
maintain its current license agreements. Termination of any of these licenses
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company relies on trade secrets and proprietary know-how, which it seeks
to protect, in part, through appropriate confidentiality and proprietary
information agreements. These agreements generally provide that all
confidential information developed or made known to the individual by the
Company during the course of the individual's relationship with the Company is
to be kept confidential and not disclosed to third parties, except in specific
circumstances. The agreements generally provide that all inventions conceived
by the individual in the course of rendering services to the Company shall be
the exclusive property of the Company; however, certain of the Company's
agreement with consultants, who typically are employed on a full-time basis by
academic
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institutions or hospitals, do not contain assignment of invention provisions.
There can be no assurance that proprietary information or confidentiality
agreements with employees, consultants and others will not be breached, that
the Company would have adequate remedies for any breach, or that the Company's
trade secrets will not otherwise become known to or independently developed by
competitors.
GOVERNMENT REGULATION
Overview
The Company's products are subject to extensive regulation by the FDA and,
to varying degrees, by state and foreign regulatory agencies. The Company's
products are regulated by the FDA under the Federal Food, Drug, and Cosmetic
Act (the "Act"), as amended by the Medical Device Amendments of 1976 and the
Safe Medical Devices Act of 1990, among other laws. Under the Act, the FDA
regulates the preclinical and clinical testing, manufacturing, labeling,
distribution, sale and promotion of medical devices in the U.S. The FDA
prohibits a device, whether or not cleared under a 510(k) premarket
notification or approved under a PMA, from being marketed for unapproved
clinical uses. If the FDA believes that a company is not in compliance with
the regulations, it can institute proceedings to detain or seize a product,
issue a recall, prohibit marketing and sales of the Company's products and
assess civil and criminal penalties against the Company, its officers or its
employees. Furthermore, the Company plans to sell products in certain foreign
countries which impose local regulatory requirements. The preparation of
required applications and subsequent FDA and foreign regulatory approval
process is expensive, lengthy and uncertain. Failure to comply with FDA and
similar foreign requirements could result in civil monetary penalties or
criminal sanctions, restrictions on or injunctions against marketing of the
Company's products. Additional enforcement actions may potentially include
seizure or recall of the Company's products, and other regulatory action.
There can be no assurance that the Company will be able to obtain necessary
regulatory approvals or clearances in a timely manner or at all, and delays in
receipt of or failure to receive such approvals or clearances, the loss of
previously received approvals or clearances, or failure to comply with
existing or future regulatory requirements would have a material adverse
effect on the Company's business, financial condition and results of
operations.
HIV-1 Screening and Diagnostic Tests
The Company's HIV-1 screening test is regulated by the FDA Center for
Biologics Evaluation and Research. When the test was submitted to the FDA in
September 1992, the FDA required a product license application ("PLA") and an
establishment licensing application ("ELA") for the Company's Berkeley,
California manufacturing facility. On August 6, 1996, the Company received a
product license and an establishment license from the FDA to manufacture and
sell, in interstate and foreign commerce, the Company's urine-based HIV-1
screening test for use in laboratory settings.
OTC Home Urine Collection Kit
The Company intends to file a PMA with the FDA for the HIV-1 home urine
collection kit which would allow consumers, in the privacy of their homes to
take a urine sample, mail it to Calypte Biomedical Laboratories for analysis
and then anonymously obtain results and professional counseling by telephone.
The Company believes that a submission for FDA approval of this product must
set forth the Company's plans for the reporting of results to the consumer and
consumer counseling services. In addition, the PMA will need to include the
results of extensive clinical studies and manufacturing information and may be
reviewed by a panel of experts outside the FDA. Clinical studies need to be
conducted in accordance with FDA requirements, and the failure to strictly
comply with such requirements could result in the FDA's refusal to accept the
data or in other sanctions.
There can be no assurance that the FDA will approve the Company's HIV-1 home
urine collection kit for OTC distribution and sale. Furthermore, there can be
no assurance that the FDA will not request additional data or require that the
Company conduct further clinical studies causing the Company to incur
additional costs and delay. In addition, there can be no assurance that the
FDA will not limit the intended use of the Company's
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products as a condition of PMA approval. Failure to receive or delays in
receipt of FDA approvals, or any FDA limitations on the intended use of the
Company's products, would have a material adverse effect on the Company's
business, financial condition and results of operations.
Manufacturing Facilities
The FDA requires the Company's products to be manufactured in compliance
with cGMP regulations. In addition, the Company is subject to certain
additional manufacturing regulations imposed by the State of California. These
regulations require that the Company manufacture its products and maintain
related documentation for testing and control activities. The Company's
facilities and manufacturing processes have been periodically inspected by the
State of California and other agencies and remain subject to audit from time
to time. The Company believes that it is in substantial compliance with all
applicable federal and state regulations. Nevertheless, there can be no
assurance its manufacturing facility will satisfy cGMP or California
manufacturing requirements. Enforcement of the cGMP regulations has increased
significantly in the last several years, and the FDA has publicly stated that
compliance will be more strictly enforced. In the event that the FDA
determines the Company to be out of compliance with its regulations and to the
extent that the Company is unable to convince the FDA of the adequacy of its
compliance, the FDA has the power to assert penalties, including injunctions
or temporary suspension of shipment until compliance is achieved. In addition,
the FDA will not approve an ELA or PMA if the facility is found in
noncompliance with cGMPs. Such penalties could have a material adverse effect
on the Company's business, financial condition and results of operations.
In addition, the manufacture, sale or use of the Company's products are
subject to regulation by other federal entities, such as the Occupational
Safety and Health Agency, the Environmental Protection Agency, and by various
state agencies, including the California Environmental Protection Agency.
Federal and state regulations regarding the manufacture, sale or use of the
Company's products are subject to future change, and these changes could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Product Liability and Recall Risk; Limited Insurance Coverage. The
manufacture and sale of medical diagnostic products entail significant risk of
product liability claims or product recalls. While the Company maintains
product liability insurance, the Company faces the risk of litigation in the
event of false positive or false negative reports. There can be no assurance
that the Company's existing insurance coverage limits will be adequate to
protect the Company from any liabilities it might incur in connection with the
clinical trials or sales of its products. In addition, the Company may require
increased product liability coverage as its products are commercialized. Such
insurance is expensive and in the future may not be available on acceptable
terms, if at all. A successful product liability claim or series of claims
brought against the Company in excess of its insurance coverage, or a recall
of the Company's products, could have a material adverse effect on the
Company's business, financial condition and results of operations.
International
Distribution of the Company's products outside the United States is also
subject to regulatory requirements that vary from country to country. In a
number of foreign countries, FDA approval is required prior to approval in
that country. The export by the Company of certain of its products which have
not yet been approved for domestic commercial distribution may be subject to
FDA export restrictions. To date, the Company has not received approval for
the sale of its product in any foreign country. Failure to obtain necessary
regulatory approvals or failure to comply with regulatory requirements would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Calypte Biomedical Laboratories
The Company intends to establish a clinical reference laboratory in
connection with seeking approval for an OTC home urine collection kit for HIV-
1. There are a number of risks in establishing a reference laboratory
especially for testing for HIV. The Company must, among other actions, seek to
hire and retain key laboratory
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personnel, purchase necessary equipment, secure required permits, incur
marketing expenses, obtain customers, and comply with government regulations.
The Company's planned laboratory would test for HIV using the Company's urine-
based HIV-1 test and, if approvals are obtained, receive home collected urine
for HIV testing. The Company may be required to offer counseling in connection
with the reporting of results to laboratory customers. There can be no
assurance that the Company can establish or receive the necessary approval for
the laboratory.
If the Company establishes a reference laboratory for the testing of urine
samples using the Company's urine-based HIV-1 screening test, the Company's
laboratory would be regulated under the Clinical Laboratory Improvement
Amendments of 1988 ("CLIA"). CLIA is intended to ensure the quality and
reliability of all medical testing in laboratories in the U.S. by requiring
that any health care facility in which testing is performed meet specified
standards in the areas of personnel qualification, administration,
participation in proficiency testing, patient test management, quality
control, quality assurance, and inspections. The regulations have established
three levels of regulatory control based on the test's complexity: "waived,"
"moderately complex," and "highly complex." Calypte believes that its test
will be categorized as highly complex, which would require the Company and
laboratories using its test to meet certain quality control and personnel
standards that are more rigorous than those for moderately complex tests.
Under the CLIA regulations, all laboratories performing high or moderately
complex tests are required to obtain either a registration certificate or
certifications of accreditation from the Health Care Finance Administration
("HCFA"). There can be no assurance that the CLIA regulations and future
administrative interpretations of CLIA will not have an adverse impact on the
potential market for the Company's products. The Company would also be subject
to state laboratory licensure standards and laws governing the disposal of
infectious and/or hazardous wastes.
Therapeutic Products
If the Company exercises its rights to acquire a controlling interest in or
substantially all of Pepgen, Calypte will be required to obtain FDA approval
for Pepgen's therapeutic products, a process which has historically been
substantially more costly and time consuming than for diagnostic products. To
obtain such approval, the Company must conduct preclinical safety and
toxicology studies in the laboratory and Phase I, II, and III clinical studies
under FDA approved protocols. The results of the pre-clinical and clinical
testing for a new drug, together with detailed manufacturing and other
information, would then be submitted to the FDA in the form of a new drug
application. In responding to a new drug application, the FDA may refuse to
accept the application for filing, request additional information or deny the
application if the FDA determines that the application does not satisfy its
regulatory approval criteria. The process of completing clinical testing
usually takes a number of years and requires the expenditure of substantial
resources. The length of the FDA review period varies widely depending upon
the amount and quality of the data in the application and the nature and
indications of the proposed product. In addition, the FDA may require post-
marketing reporting and may require surveillance programs to monitor the usage
and side effects of the drug product after product approval. The Company has
no current plans to acquire the remaining equity ownership in Pepgen or to
develop Pepgen therapeutic products.
COMPETITION
Competition in the in vitro diagnostic market is intense and expected to
increase. Within the United States, the Company will face competition from a
number of well-established manufacturers of blood-based EIAs, plus at least
one system for the detection of HIV antibodies using oral fluid samples. In
addition, the Company may face intense competition from competitors with
significantly greater financial, marketing and distribution resources than the
Company, several of whom have already submitted applications to FDA for
approval of their OTC products.
The suppliers of blood-based HIV tests in the United States include Abbott
Laboratories ("Abbott"), Organon-Teknika Corporation ("Organon-Teknika"),
Sanofi Diagnostic Pasteur ("Sanofi"), Ortho Diagnostics ("Ortho") and
Cambridge Biotech. All of these companies have many years of HIV market
experience, and they typically offer a number of different testing products.
Abbott, Sanofi and Ortho currently sell FDA-licensed
15
<PAGE>
blood-based HIV-1/HIV-2 combination tests on the market in the United States,
and other companies may be developing HIV-1/HIV-2 products.
The Company believes that HIV screening tests which permit the use of oral
fluid may offer significant competition to the Company's urine-based HIV-1
screening test. The OraSure(TM) collection device manufactured by Epitope,
Inc. ("Epitope") used in conjunction with an HIV-1 EIA manufactured by
Organon-Teknika received FDA approval for marketing in the United States in
December 1994. In June 1996, Epitope received approval from the FDA for a
western blot oral-fluid confirmatory test.
The Company is not aware of any competitors which have submitted urine-based
HIV screening tests to the FDA, but there can be no assurance that such tests
will not be submitted in the future for approval by the FDA. The Company is
aware of only one other manufacturer, Murex Corporation ("Murex"), which has
publicly announced urine capability for an HIV test. Murex manufactures a
number of HIV assays in microtiter format, none of which have been submitted
to the FDA for review. One such microtiter assay, "gacelisa," is intended for
use on saliva and urine samples but is marketed only outside of the U.S.
primarily as a research assay. Murex markets one HIV product in the U.S., the
SUDS(TM) rapid test, which is intended for use on serum and plasma only.
Although urine capability for this test has been reported in scientific
literature, the Company is not aware of any applications for expanded sampling
claims for this assay. In addition, the SUDS(TM) assay format is not conducive
to high-volume testing.
Essentially all of the Company's competitors actively market their
diagnostic products outside of the U.S. In addition, outside of the U.S.,
where the regulatory requirements for HIV screening tests are less onerous
than those of the FDA, a much wider range of competitors can be found.
Manufacturers from Japan, Canada, Europe, and Australia offer a number of HIV
screening tests in those markets including HIV-1/HIV-2 tests, rapid tests and
other non-EIA format tests, which are not approved for sale in the U.S.
market. There can be no assurances that the Company's products will compete
effectively against these products in foreign markets, or that these competing
products will not achieve FDA approval.
Three companies have submitted applications to the FDA for OTC HIV blood
testing: Direct Access Diagnostics, a subsidiary of Johnson & Johnson, Home
Access Health Corp., and ChemTrak Incorporated. The FDA has approved a home
collection kit for HIV blood testing developed by Direct Access Diagnostics
and another home collection kit for HIV blood testing developed by Home Access
Health Corp. The Company believes that an OTC HIV testing system which does
not require consumers to collect their own blood may compete favorably against
DBS systems. However, there can be no assurances that the earlier market entry
of these competitors, their substantial promotional and distribution
resources, and future introduction of HIV-1/HIV-2 products will not prevent
the Company from competing favorably. The Company's inability to compete
favorably with respect to any of these factors could have a material adverse
effect on its business, financial condition, and results of operations.
If the Company is successful in developing and introducing urine-based
Chlamydia or other STD tests, it will face competition from established
diagnostic testing companies with greater financial, marketing and
distribution resources than the Company. Some of these companies are marketing
established tests in widely-used formats. In addition, Abbott Laboratories has
applied for FDA approval for a urine-based diagnostic test for Chlamydia
antigen.
EMPLOYEES
On October 14, 1996, the Company implemented an expense reduction program,
including a significant reduction in its workforce in an effort to reduce
spending and conserve cash.
As of December 31, 1996, the Company had 33 full time employees, eight of
whom were engaged in or directly supported the Company's research and
development activities, 16 of whom were in manufacturing, facilities and
quality assurance, three of whom were in marketing and sales and six of whom
were in administration. The Company's employees are not represented by a union
or collective bargaining entity. The Company believes its relations with its
employees are good.
16
<PAGE>
Dependence Upon Key Personnel. The Company is dependent upon a number of key
management and technical personnel. The Company has employment agreements with
some members of its core management team. The Company's ability to manage its
transition to commercial-scale operations, and hence its success, will depend
on the efforts of these individuals, among others. The loss of the services of
one or more key employees could have a material adverse effect on the Company.
The Company's success will also depend on its ability to attract and retain
additional highly qualified management and technical personnel. The Company
faces intense competition for qualified personnel, many of whom are often
subject to competing employment offers, and there can be no assurance that the
Company will be able to attract and retain such personnel.
William A. Boeger is the Chief Executive Officer, Chief Financial Officer
and board member of Pepgen, a 49% owned therapeutic subsidiary of the Company,
and Dr. Howard B. Urnovitz is President and Chief Science Officer. In
addition, Mr. Boeger and Dr. Urnovitz are both officers of the Chronic Illness
Research Foundation, a non-profit organization. Accordingly, although these
individuals will devote such amount of their working hours as they reasonably
deem necessary to the business of the Company, these individuals do not devote
all of their working hours to the Company's affairs.
SCIENTIFIC ADVISORY BOARD
The Scientific Advisory Board is composed of certain of the Company's
scientists and other leading scientists who have been actively involved in
pioneering HIV research. Scientific Advisory Board members meet as a group and
individually with management and key scientific employees of the Company on a
regular basis. Scientific Advisory Board members have taken an active role in
helping the Company identify scientific and product development opportunities
and recruiting and evaluating the Company's scientific staff. The Company has
granted options to acquire its Common Stock to members of the Scientific
Advisory Board.
The members of the Scientific Advisory Board and their experience are set
forth below:
ABUL K. ABBAS, M.D., Professor, Department of Pathology, Harvard Medical
School. Dr. Abul Abbas is an expert in the cellular interactions and cytokine
regulation of the immune response. Professor Abbas received his M.D. in India
in 1968 and interned at Harvard Medical School in 1970. He has held the
position of Professor of Pathology since 1991. Professor Abbas has also
received the Parke-Davis Award for Experimental Pathology (1987).
ALVIN FRIEDMAN-KIEN, M.D., Professor, New York University Medical Center,
New York. Since 1994, Dr. Friedman-Kien has been a Professor of Microbiology
and Dermatology at New York University Medical Center and Bellevue Hospital.
Dr. Friedman-Kien is a clinician and researcher with expertise in the field of
AIDS and AIDS related opportunistic infections. In particular, Professor
Friedman-Kien is an expert in the etiological relationship between HIV and
other human viruses. The detection of antibodies to HIV in urine was first
reported by Dr. Friedman-Kien. Dr. Friedman-Kien graduated in 1956 with a B.A.
degree from Brown University and received an M.D. degree from Yale University
Medical School in 1960.
TOBY D. GOTTFRIED, PH.D. is the Company's Director of Research and
Development. See Part III, "Executive Officers and Directors of the
Registrant."
HOWARD JOHNSON, PH.D., Graduate Research Professor, Department of
Microbiology and Cell Science at the University of Florida in Gainesville.
From 1985 to 1988 he was Professor in the Department of Comparative and
Experimental Pathology at the University of Florida. Prior to this, Dr.
Johnson was also on the faculty of the University of Texas. He was also
Founder and President of PepTech, Inc., a subsidiary of Pepgen, and holds the
patent on arginine vasopressin-binding antihypertensive peptide. He is
currently a member of a National Advisory Council for the National Institutes
of Health. Dr. Johnson received his B.S. and Ph.D. degrees from Ohio State
University.
17
<PAGE>
NORMAN KLINMAN, M.D., PH.D., Member, Department of Immunology, The Scripps
Research Institute, La Jolla, California. Dr. Klinman received his M.D. in
1962 and Ph.D. in Microbiology in 1965 from the University of Pennsylvania. He
served on the faculty of the Department of Pathology and Microbiology at the
University of Pennsylvania for 10 years before accepting his current position
in 1978 in the Department of Immunology at Scripps.
DANIEL LANDERS, M.D., Director for the Division of Reproductive and
Infectious Diseases and Immunology, Department of Obstetrics, Gynecology &
Reproductive Sciences, Magee-Womens Hospital at the University of Pittsburgh.
From 1992 to 1995, Dr. Landers was Associate Professor for the Department of
Obstetrics, Gynecology and Reproductive Sciences at UCSF. He is a well-known
expert in sexually transmitted diseases in women, and the recipient of
numerous awards, including the Susman Memorial Award for the Infectious
Diseases Society of America, Young Investigator Award for Infectious Disease
Society for OB/GYN, an NIH Physician-Scientist Award, and the Pediatric AIDS
Foundation Scholar Award. He received his M.D. in 1980 at UCSF.
LUC MONTAGNIER, M.D., Professor, Pasteur Institute, Paris, France. Professor
Montagnier began his career as a researcher at the Centre National de la
Recherche Scientifique. In 1972, he joined the Pasteur Institute and formed
the Division of Viral Oncology. In 1983, he discovered the HIV virus and
showed its etiologic role in AIDS. In 1985, his research team isolated the
second human AIDS virus (HIV-2) from West African patients. Among the numerous
honors and prizes received by Professor Montagnier are the Rosen Price (1971),
The Gallien Prize (1985), the Lasker Prize (1986), the Gairdner Price (1987),
the Japan Prize (1988), and the Amsterdam Prize (1994). He is also a Comandeur
de l'Ordre National merite and is a Director of the French National Center of
Scientific Research.
HOWARD B. URNOVITZ, PH.D. is the Company's Chief Science Officer and a
Director. See Part III, "Executive Officers and Directors of the Registrant."
ITEM 2. PROPERTIES
The Company leases approximately 20,000 square feet of office, research and
manufacturing space in Berkeley, California. The existing lease expires in
June 1998, with an option to renew the lease for one year. The Company also
leases approximately 22,000 square feet of office and manufacturing space in
Alameda, California. The existing lease expires in November 1998, with an
option to renew the lease for two successive five-year periods. The Company
believes that existing facilities are adequate to support the Company's
activities for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Annual Report on Form 10-K.
18
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock commenced trading on the NASDAQ SmallCap Market
on July 26, 1996 under the symbol "CALY." High and low sales prices reported
by NASDAQ during the periods indicated are shown below.
<TABLE>
<CAPTION>
FISCAL YEAR QUARTER HIGH LOW
----------- ------- ----- -----
<S> <C> <C> <C>
1996..................................................... 3rd 11 6
1996..................................................... 4th 8 3/4 3 5/8
</TABLE>
On February 28, 1996, there were 314 holders of record of the Common Stock,
and the closing price of the Common Stock was $8 1/4. The Company has never
paid any cash dividends, and the Board of Directors does not anticipate paying
cash dividends in the foreseeable future. The Company intends to retain any
future earnings to provide funds for the operation and expansion of its
business.
Possible Volatility of Stock Price. There can be no assurance than an active
trading market will be maintained in the Company's Common Stock. The stock
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock. In addition, the market price of the
shares of Common Stock is likely to be highly volatile. Factors such as
fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
FDA and international regulatory actions, actions with respect to
reimbursement matters, developments with respect to patents or proprietary
rights, public concern as to the safety of products developed by the Company
or others, changes in health care policy in the U.S. and internationally,
changes in stock market analysts' recommendations regarding the Company, other
medical products companies or the medical product industry generally and
general market conditions may have a significant effect on the market price of
the Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Presented below is the selected consolidated financial data for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
FEBRUARY 18,
1988
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
---------------------------------------- DECEMBER 31,
1996 1995 1994 1993 1992 1996
------- ------- ------ ------ ------ ------------
CONSOLIDATED STATEMENT OF
OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales........... $ 130 $ -- $ -- $ -- $ -- $ 130
Earned under research
and development
contracts,
substantially from
related parties........ -- -- -- -- -- 2,390
------- ------- ------ ------ ------ -------
Total revenue........... 130 -- -- -- -- 2,520
------- ------- ------ ------ ------ -------
Operating expenses:
Product costs........... 1,085 -- -- -- -- 1,085
Research and
development............ 5,751 5,018 3,644 4,519 2,604 26,098
Purchased in-process
research and
development costs...... -- 2,500 -- -- -- 2,500
Selling, general and
administrative......... 3,333 2,862 1,818 1,784 1,280 14,260
------- ------- ------ ------ ------ -------
Total expenses.......... 10,169 10,380 5,462 6,303 3,884 43,943
------- ------- ------ ------ ------ -------
Loss from operations... (10,039) (10,380) (5,462) (6,303) (3,884) (41,423)
Interest income
(expense), net.......... (74) 78 (35) 108 45 (107)
Other income............. 15 12 31 15 38 86
------- ------- ------ ------ ------ -------
Loss before income
taxes and
extraordinary item.... (10,098) (10,290) (5,466) (6,180) (3,801) (41,444)
Income taxes............. (2) (1) (1) (1) (1) (63)
------- ------- ------ ------ ------ -------
Loss before
extraordinary item.... (10,100) (10,291) (5,467) (6,181) (3,802) (41,507)
Extraordinary gain on
debt extinguishment..... -- -- -- -- -- 485
------- ------- ------ ------ ------ -------
Net loss............... (10,100) (10,291) (5,467) (6,181) (3,802) (41,022)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
FEBRUARY 18,
1988
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
--------------------------------------------- DECEMBER 31,
1996 1995 1994 1993 1992 1996
-------- -------- ------- ------- ------- ------------
CONSOLIDATED STATEMENT
OF OPERATIONS DATA
(CONTINUED): (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Less dividend on
mandatorily redeemable
Series A preferred
stock................. (120) (120) (120) (120) (120) (856)
-------- -------- ------- ------- ------- --------
Net loss attributable
to common
stockholders........ $(10,220) $(10,411) $(5,587) $(6,301) $(3,922) $(41,878)
======== ======== ======= ======= ======= ========
Net loss per share
attributable to
common
stockholders........ $ (1.17) $ (1.50) $ (0.99) $ (1.35) $ (1.13)
======== ======== ======= ======= =======
Weighted average
shares used to
compute net loss per
share attributable
to common
stockholders........ 8,703 6,934 5,671 4,666 3,469
======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents.... $ 7,924 $ 2,559 $ 4,478 $ 1,492 $ 7,254
Working capital.............. 6,067 (2,402) 3,117 867 6,042
Total assets................. 10,347 5,337 5,965 2,887 7,770
Long-term portion of capital
lease obligations and notes
payable..................... 764 543 196 462 310
Mandatorily redeemable Series
A preferred stock........... 1,856 1,736 1,616 1,496 1,376
Deficit accumulated during
development stage........... (40,501) (30,401) (20,110) (14,643) (8,461)
Total stockholders' equity
(deficit)................... 5,416 (2,746) 2,659 (26) 4,812
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since commencement of operations in 1988, Calypte Biomedical Corporation has
reported its results as a development stage company, engaged in research,
development and commercialization of its products. The Company's efforts have
been primarily focused on developing and obtaining approval for its urine-
based diagnostic tests for sexually transmitted diseases. In August 1996, the
Company received a product license and an establishment license from the FDA
to manufacture and sell in interstate and foreign commerce the Company's
urine-based HIV-1 screening test for use in professional laboratory settings.
In October 1996, Calypte received notification that the FDA will require
additional data before it will approve an amendment to Cambridge Biotech
Corporation's product license application for its HIV-1 Western Blot kit to
allow use of the Western Blot kit as a confirmatory test with Calypte's HIV-1
urine screening assay. There can be no assurance that Calypte will have
significant revenues from sales of the HIV-1 urine screening assay or the
confirmatory test, if approved.
The Company has a limited history of operations, and since its inception in
February 1988, the Company has experienced significant operating losses. As of
December 31, 1996, the Company had an accumulated deficit of $40.5 million.
The Company expects operating losses to continue as it initiates marketing and
sales activities and expands research and development. The Company's marketing
strategy is to use distributors, focused direct selling and marketing partners
to penetrate certain targeted domestic markets. The Company plans to maintain
a small direct sales force to sell the Company's urine-based HIV-1 test to 12
major laboratories serving the life insurance, military, immigration and
criminal justice markets. Other U.S. and all international markets will be
penetrated utilizing diagnostic product distributors. The Company does not
have experience in manufacturing, marketing or selling its products in
commercial quantities. There can be no assurance that the Company's products
will be successfully commercialized or that the Company will achieve
significant product revenues. In addition, there can be no assurance that the
Company will achieve or sustain profitability in the future.
20
<PAGE>
RESULTS OF OPERATIONS
Years Ended December 31, 1996 and 1995
Product sales from Calypte's HIV-1 screening test totaled $130,000 in 1996.
The HIV-1 screening test margin was negative during the year due to the
overhead expense incurred in relation to the number of units produced.
Research and development expense increased 15% to $5.8 million for the year
ended December 31, 1996 from $5.0 million for the year ended December 31,
1995. The increase was principally due to additional personnel, facility and
material costs required for increased research and product development
activity partially offset by the recognition of certain product costs and
inventory as separate financial statement items following FDA approval of the
Company's HIV-1 screening test.
Purchased in-process research and development costs of $2.5 million were
incurred in 1995; no such costs were incurred in 1996. The 1995 costs were
attributable solely to the Company's investment in Pepgen Corporation and the
resulting write-off of research and development in process acquired. Pepgen
Corporation is a research and development company engaged primarily in the
development of therapeutic compounds.
Selling, general and administrative expenses increased 16% to $3.3 million
for the year ended December 31, 1996 from $2.9 million for the year ended
December 31, 1995. The increase was primarily due to personnel additions prior
to the October 1996 reduction in workforce, relocation costs and other related
expenses.
Interest income (expense) and other income decreased $149,000 to ($59,000)
for 1996 from $90,000 in 1995. This decrease was primarily due to interest on
notes payable outstanding during 1996 partially offset by interest income
earned from Initial Public Offering (IPO) proceeds.
Years Ended December 31, 1995 and 1994
Research and development expenses increased 38% to $5.0 million in 1995 from
$3.6 million for 1994. This increase was principally due to additional
personnel and material costs required for increased activities.
Purchased in-process research and development costs of $2.5 million were
incurred in 1995; no such costs were incurred in 1994. The 1995 costs were
attributable solely to the Company's investment in Pepgen Corporation and the
resulting write-off of research and development in process acquired.
Selling, general and administrative expenses, increased 57% to $2.9 million
in 1995 from $1.8 million in 1994. This increase was primarily due to
additional legal and consulting fees relating to general corporate matters and
an increase in marketing personnel in anticipation of product launch.
Interest income (expense) and other income, increased $94,000 to $90,000 in
1995 from ($4,000) in 1994. This increase was primarily due to interest earned
on proceeds from preferred stock offerings.
LIQUIDITY AND CAPITAL RESOURCES
Financing Activities
The Company has financed operations from inception primarily through the
private placement of preferred stock and, to a lesser extent, from payments
related to research and development agreements, a bank line of credit,
equipment lease financings and borrowings from notes payable. Since inception
through December 31, 1996, the Company has received approximately $33.9
million in net proceeds from private placements of the Company's equity
securities and $13.2 million in net proceeds in its Initial Public Offering
(IPO). In addition, approximately $1.7 million was borrowed by the Company
through equipment lease financings, of which approximately $1.2 million was
outstanding as of December 31, 1996, and $2.4 million was received from
research and development agreements.
21
<PAGE>
In December 1995, the Company executed a $2.0 million line of credit with a
bank which was due in March 1996. In March 1996, the Company extended the due
date of the line of credit such that the line of credit was due July 5, 1996.
In connection with the extension, the Company made a $500,000 principal
payment in April 1996 and the available line of credit was reduced to $1.5
million. In July 1996, the Company extended the due date of the line of credit
from July 5, 1996 to August 5, 1996. In connection with the extension, the
Company made a $250,000 principal payment in July 1996 and the available line
of credit was reduced to $1.25 million. In August 1996, the Company paid the
remaining balance of $1.25 million from the proceeds from the Initial Public
Offering. In addition, in August 1996, the Company paid a note payable to a
former related party for $248,000.
During 1996, the Company completed its IPO of 2,536,259 shares of its Common
Stock at $6.00 per share. After deducting underwriters' discounts and
commissions and additional expenses associated with the IPO, the Company
received net proceeds of $13.2 million. Part of the proceeds was used to pay
the bank line of credit, the note payable to a former related party discussed
above and the Pepgen note payable of $1 million. The Pepgen note payable was
paid in October 1996.
In October 1996, the Company entered into an equipment lease line of credit
for $1.0 million expiring on December 31, 1996. Lease payments under the line
of credit are based on the total delivered equipment cost multiplied by a
monthly note factor of approximately 3.3% (approximate effective interest rate
of 18%). In December 1996, there was a drawdown of $362,000 on this equipment
lease line of credit.
Although the Company believes current cash will be sufficient to meet the
Company's operating expenses and capital requirements for at least the next
twelve months, the Company's future liquidity and capital requirements will
depend on numerous factors, including regulatory actions by the FDA and other
international regulatory bodies, market acceptance of its products, and
intellectual property protection. There can be no assurance that the Company's
products will be successfully commercialized or that the Company will achieve
significant product revenues. In addition, there can be no assurance that the
Company will achieve or sustain profitability in the future. There can be no
assurance that the Company will not be required to raise additional capital or
that such capital will be available on acceptable terms, if at all.
Operating Activities
For the years ended December 31, 1996 and 1995, the Company's cash used in
operations was $9.2 million and $6.6 million, respectively. The cash used in
operations was primarily to fund research and development expenses related to
the urine-based HIV-1 test along with selling, general and administrative
expenses of the Company.
In October 1996, the Company implemented an expense reduction program,
including a significant reduction in its workforce. Employee termination costs
associated with the expense reduction program were not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this Item is (i) set forth below and (ii)
contained in the Company's Consolidated Financial Statements included on pages
F-1 through F-23 of this Annual Report on Form 10-K.
The following table presents summarized historical quarterly results of
operations for each of the fiscal quarters in the Company's fiscal years ended
December 31, 1996 and 1995. These quarterly results are unaudited, but, in the
opinion of management, have been prepared on the same basis as the Company's
audited financial information and include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The data should be read in conjunction with the
Financial Statements and related notes included on pages F-1 through F-23 of
this Annual Report on Form 10-K.
The Company expects that its revenues and results of operations may
fluctuate significantly from quarter to quarter and will depend on a number of
factors, many of which are outside the Company's control. These factors
include actions relating to regulatory matters, the extent to which the
Company's products gain market acceptance, the timing and size of distributor
purchases, introduction of alternative means for testing for HIV, competition,
the timing and cost of new product introductions, and general economic
conditions.
22
<PAGE>
HISTORICAL QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1996 QUARTER QUARTER QUARTER QUARTER
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Product sales............................. $ -- $ -- $ 129 $ 1
Operating expenses........................ 2,724 2,563 2,737 2,145
Interest income (expense) and other
income................................... (92) (63) 32 64
Income taxes.............................. -- (2) -- --
Dividend on mandatorily redeemable Series
A preferred stock........................ (30) (30) (30) (30)
------- ------- ------- -------
Net loss attributable to common
stockholders............................. (2,846) (2,658) (2,606) (2,110)
------- ------- ------- -------
Net loss per share attributable to common
stockholders............................. (0.41) (0.35) (0.27) (0.20)
------- ------- ------- -------
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1995 QUARTER QUARTER QUARTER QUARTER
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Product sales............................. $ -- $ -- $ -- $ --
Operating expenses........................ 1,447 1,796 4,793 2,344
Interest income (expense) and other
income................................... 49 34 30 (23)
Income taxes.............................. -- (1) -- --
Dividend on mandatorily redeemable Series
A preferred stock........................ (30) (30) (30) (30)
------- ------- ------- -------
Net loss attributable to common
stockholders............................. (1,428) (1,793) (4,793) (2,397)
------- ------- ------- -------
Net loss per share attributable to common
stockholders............................. (0.21) (0.26) (0.69) (0.35)
------- ------- ------- -------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
23
<PAGE>
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers and directors of the Company as of February 28, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William A. Boeger(1) (2)... 47 Chairman of the Board of Directors
John P. Davis.............. 55 President, Chief Executive Officer and Member of the Board of
Directors
Howard B. Urnovitz, Ph.D... 43 Chief Science Officer and Member of the Board of Directors
John J. DiPietro........... 38 Chief Financial Officer, Vice President of Finance and Secretary
Toby Gottfried, Ph.D....... 59 Director of Research and Development
Richard Van Maanen......... 38 Director of Marketing, Sales and Business Development
Jeffrey Lang............... 47 Director of Operations
Cynthia Green.............. 50 Director of Regulatory Affairs and Quality Assurance and Quality
Control
Kuo-Yu (Frank) Chiang...... 45 Member of the Board of Directors
David Collins (1).......... 62 Member of the Board of Directors
Julius R. Krevans, M.D. (2).. 72 Member of the Board of Directors
Mark Novitch, M.D. (1)..... 64 Member of the Board of Directors
Roger Quy, Ph.D. (2)....... 46 Member of the Board of Directors
Zafar Randawa, Ph.D........ 49 Member of the Board of Directors
</TABLE>
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
WILLIAM A. BOEGER has served as the Company's Chairman of the Board since
January 1994. From January 1994 until September 1995, Mr. Boeger served as the
Company's Chairman, President and Chief Executive Officer. Mr. Boeger has been
a director of the Company since 1991. He is a founder and Managing General
Partner of Quest Ventures, a venture capital partnership founded in August
1985. Prior to that he was a General Partner of Continental Capital Ventures,
a venture capital partnership. Before entering the venture capital field, he
worked at Harvard Medical School and Peter Bent Brigham Hospital and served on
the faculty of the Amos Tuck Business School at Dartmouth College. Mr. Boeger
also serves as Chief Executive Officer, Chief Financial Officer and board
member of Pepgen Corporation, the 49% owned therapeutic subsidiary of Calypte.
He also serves on the Board of Directors of IRIDEX Corporation and several
private life sciences companies and non-profit corporations. Mr. Boeger
received his M.B.A. from Harvard Business School and his B.S. from Williams
College.
JOHN P. DAVIS has served as the Company's President and Chief Executive
Officer since September 1995. He joined the Company in May 1995 as President
and Chief Operating Officer. Prior to joining the Company, from 1984 until
1995, Mr. Davis was co-founder, President and, later, Chief Executive Officer
of Dianon Systems, Inc., a medical laboratory company specializing in
oncology, urology, and anatomic pathology testing services and information
systems. From 1981 until 1984, Mr. Davis was Division President of API, a
diagnostic products division of American Home Products Corporation. Mr. Davis
was employed from 1966 until 1981 by Abbott Laboratories, a multinational
health care corporation, where he held senior management positions in both the
Ross Laboratories and the Diagnostics Products Divisions, most recently as
Division Vice President and General Manager of the Diagnostic Products
Business Unit. Mr. Davis also serves as a director of Pepgen and is a member
of the Board of Directors of CytoLogics, Inc., a private biotechnology
company. He is a board member and Chairman of the Board of Directors of Dianon
Systems Inc. Mr. Davis received a B.S. from Ohio State University.
24
<PAGE>
HOWARD B. URNOVITZ, PH.D. is the founder of the Company and serves as Chief
Science Officer. Prior to founding the Company in 1988, Dr. Urnovitz was a
Senior Scientist at the Institute of Cancer Research in San Francisco from
1985 to 1987. He was Director of Molecular and Cellular Engineering at Xoma
Corporation, a biotechnology corporation, from 1983 to 1985. Prior to this, he
was Director of the Hybridoma Laboratory at the University of Iowa. Dr.
Urnovitz also serves as President and Chief Science Officer of Pepgen
Corporation, the 49% owned therapeutic subsidiary of Calypte. Dr. Urnovitz
received a B.S. in Microbiology and a Ph.D. in Microbiology from the
University of Michigan, and completed a post-doctoral study at Washington
University.
JOHN J. DIPIETRO has served as the Company's Vice President of Finance,
Chief Financial Officer and Secretary since October 1995. Prior to joining the
Company, he was Vice President of Finance, Chief Financial Officer and
Secretary of Meris Laboratories, Inc., a full service clinical laboratory,
from 1991 until 1995. While at Meris Laboratories, Mr. DiPietro, inter alia,
was a respondent in an SEC administrative proceeding (No. 3-8484), dated
September 26, 1994 in which, without admitting or denying the SEC's finding,
Mr. DiPietro consented to the entry of an order that Mr. DiPietro cease and
desist from committing or causing any violation, and any future violations of
Sections 17(a)(2) and (3) of the Securities Act, Section 13(a) of the Exchange
Act and Rules 126-20, 13a-1, and 13a-13 thereunder. From 1980 until 1983 and
from 1986 until 1991, Mr. DiPietro was a Senior Manager at Price Waterhouse.
Mr. DiPietro served as Credit Manager for Motorola, Inc. an electronics
company, from 1983 until 1986. Mr. DiPietro also consults with various private
companies. He is a Certified Public Accountant and received his M.B.A. from
the University of Chicago, Graduate School of Business and a B.S. in
Accounting from Lehigh University.
TOBY GOTTFRIED, PH.D. has served as Director of Research and Development
since joining the Company in 1988. From 1983 until 1988 she was a founding
Senior Scientist of Carcinex Corporation, a cancer therapeutic company. From
1978 until 1980, Dr. Gottfried was a scientist at the Hepatitis Research
Laboratory of the University of California, San Francisco Medical Center. Dr.
Gottfried received her Ph.D. in Biochemistry from the University of
Pennsylvania and her B.S. from Cornell University.
RICHARD VAN MAANEN has served as Director of Marketing, Sales and Business
Development since March 1993. Prior to joining Calypte, Mr. Van Maanen held
several positions from 1987 until 1993 at ADI Diagnostics, Inc., a medical
manufacturing company, including Director of Sales and Marketing, Marketing
Manager, and Canadian Business Manager. From 1983 until 1987 he held sales and
marketing positions with the Diagnostics Division of Abbott Laboratories and
from 1981 until 1983 he was with Millipore Corporation, a filtration products
company. Mr. Van Maanen received a B.S. in Biology from the University of
Guelph, Ontario.
JEFFREY LANG has served as Director of Operations since June 1993. From
January 1992 until May 1993 he was Director of Operations at Varian
Associates, a medical products company, supporting medical device operations.
Prior to that, from October 1983 until December 1991, Mr. Lang held several
positions with Airco Coating Technology, an engineering and glass coating
company, including Vice President of Manufacturing and Engineering, Director
of Manufacturing and Engineering, and Operations Manager. From February 1973
until October 1983, he held several positions with Miles Laboratories, a
pharmaceutical company, including Production Manager, Senior Manufacturing
Engineer, and Production Supervisor. Mr. Lang received his B.S. in Physics
from California State University, Hayward.
CYNTHIA GREEN has served as Director of Regulatory Affairs, Quality
Assurance and Quality Control since June 1992. From July 1990 until May 1992,
she worked at CellPro Inc., a biotechnology company and held the position of
Manager of Regulatory and Quality Assurance. Prior to that, from March 1983
until July 1990, Ms. Green held several positions at Genetic Systems, a
manufacturer of HIV and hepatitis diagnostic products, including Quality
Assurance and Quality Control Manager. Ms. Green received a B.S. in
Bacteriology and Public Health from Washington State University.
FRANK CHIANG has served on the Company's Board of Directors since March
1992. From 1972 to the present he has been employed by the Ta Chiang
Corporation, Ltd., a Taiwanese holding corporation, where he has served in a
number of executive capacities including his most recent position as
President. Mr. Chiang also
25
<PAGE>
serves on the Board of Directors of the G.C.H. Company, the Ta Security
Limited Company, and the Fidelity Venture Capital Corporation.
DAVID COLLINS has served on the Company's Board of Directors since December
1995. From October 1994 to the present, Mr. Collins has served as a consultant
in the health care industry. From September 1989 until September 1994 he
served as Executive Vice President with Schering-Plough Corporation, a medical
products company, and President of the HealthCare Products division,
responsible for all OTC and consumer health care products. From February 1988
to August 1989, he was a founding partner of Galen Partners, a venture capital
firm. From July 1962 to February 1988, he held several positions at Johnson &
Johnson, including Vice Chairman of the Board of Directors for Public Affairs
& Planning and Vice Chairman for the Executive Committee & Chairman of the
Consumer Sector. He is also a member and Chairman of the Board of Directors of
Penederm, Inc., and a member of the Board of Directors of Lander, Inc., and
Claneil Enterprises, Inc., a private company. Mr. Collins received his L.L.B.
at Harvard Law School and his B.A. at the University of Notre Dame.
JULIUS R. KREVANS, M.D. has served on the Company's Board of Directors since
March 1995. Dr. Krevans has been Chancellor Emeritus and Director of
International Medical Care at University of California at San Francisco since
1993. From 1982 until 1993, Dr. Krevans served as Chancellor at UCSF, and was
Dean of the School of Medicine at UCSF from 1971 until 1982. Prior to this,
Dr. Krevans served as Dean for Academic Affairs at John Hopkins University
School of Medicine where he also served on the faculty for 18 years and was
Professor of Medicine from 1968 until 1971. He is also a director of Neoprobe.
Dr. Krevans served as a director of Parnassus Pharmaceuticals Incorporated,
which was liquidated under Chapter 7 of the Federal Bankruptcy Code in 1995.
Dr. Krevans received his M.D. from New York University, College of Medicine
and completed a residency in Medicine at John Hopkins University School of
Medicine.
MARK NOVITCH, M.D. has served on the Company's Board of Directors since
September 1995. Dr. Novitch has been a Professor of Health Care Sciences at
George Washington University since October 1994. From 1993 until October 1994,
Dr. Novitch was a private consultant in the pharmaceutical industry. From 1985
until 1993, Dr. Novitch served in senior executive positions with the Upjohn
Company, a medical products company, including Vice Chairman of the Board of
Directors, Corporate Executive Vice President, Corporate Senior Vice President
for Scientific Administration and Corporate Vice President. Prior to this, for
14 years, Dr. Novitch served with the FDA where from 1983 until 1984 he was
Acting Commissioner. For seven years, Dr. Novitch was on the faculty at
Harvard Medical School. He is also a member of the Board of Directors of
Osiris Therapeutics, Inc., Neurogen Corporation, Guidant Corporation, Kos
Pharmaceutical, and Alteon, Inc. Dr. Novitch received his A.B. from Yale
University, and his M.D. from the New York Medical College.
ROGER QUY, PH.D. has served on the Company's Board of Directors since
November 1991. Dr. Quy has been general partner of Technology Partners, a
venture capital firm focused on early stage companies since 1989. From 1982 to
1989, Dr. Quy held several management positions with Hewlett-Packard
Corporation including member of Directors Staff for Hewlett-Packard Labs and
Research and Development for HP Labs Europe. He serves as a Chairman or
director of several early stage medical companies. Dr. Quy received an M.B.A.
in Finance from the Haas School of Business, University of California at
Berkeley, a Ph.D. in Neuroscience and a B.A. from the University of Keele,
England.
ZAFAR RANDAWA, PH.D. has served on the Company's Board of Directors since
December 1996. Dr. Randawa is currently the Director of the New Technology
Acquisition Division of Otsuka America Pharmaceutical, Inc. and has served in
this capacity since September 1995. From 1989 until September 1995, Dr.
Randawa served as a Chief Scientist at Otsuka America Pharmaceutical, Inc. Dr.
Randawa received his Ph.D. in Biochemistry at Oregon Health Sciences
University, his Master of Science degree in Biochemistry at Karachi University
in Karachi, Pakistan, his B.S. in Biochemistry from Karachi University and his
B.S. in Chemistry from Panjab University in Lahore, Pakistan.
26
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
The Company's directors are reimbursed for their out-of-pocket travel
expenses associated with their attendance at Board meetings. Under the
Company's 1995 Director Option Plan, non-employee directors of the Company
receive automatic grants of stock options to purchase shares of Common Stock.
In addition, all outside directors receive $5,000 per year in consideration of
their attendance on the Board of Directors.
DIRECTOR OPTION PLAN
The Company's Director Option Plan was adopted by the Company's Board of
Directors in December 1995 and stockholders in 1996. Under the Director Option
Plan, the Company has reserved 200,000 shares of Common Stock for issuance to
the directors of the Company pursuant to nonstatutory stock options. Under the
Director Option Plan, directors who are also not employees or consultants of
the Company automatically receive an option to purchase 12,000 shares of
Common Stock (the "First Option") on the date on which such person first
becomes a director, whether through election by the stockholders of the
Company or appointment by the Board to fill a vacancy. Thereafter, each such
person shall receive an option to acquire 3,000 shares of the Company's Common
Stock (the "Subsequent Option") on each date of the Company's Annual Meeting
of Stockholders where such outside director is reelected. Each option granted
under the Director Option Plan shall be exercisable at 100% of the fair market
value of the Company's Common Stock on the date such option was granted.
Twenty-five percent of the First Option shall vest one year after the date of
grant, with 25% vesting each anniversary thereafter. Twelve and one-half
percent of the shares subject to the Subsequent Option shall be exercisable on
the first day of each month following the date of grant. The Plan shall be in
effect for a term of ten years unless sooner terminated under the Director
Option Plan.
There were 40,000 Common Stock options granted in 1996 under the Director
Option Plan.
The following table sets forth certain compensation awarded or paid by the
Company during the years ended December 31, 1996 and 1995 to its Chief
Executive Officer and the other four most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
SECURITIES
UNDERLYING
OPTIONS ALL OTHER
NAME AND PRINCIPAL YEAR SALARY ($) BONUS ($) GRANTED (#) COMPENSATION ($)
POSITION ---- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
John P. Davis (1)....... 1996 195,000 0 0 322,810(2)
President and Chief
Executive Officer 1995 126,602 0 320,000 15,819(3)
William A. Boeger (4)... 1996 83,334(5) 0 0 11,560(3)
Chairman of the Board 1995 272,500(6) 0 220,000 7,210(3)
of Directors
Chief Executive Officer
and Chairman of the
Board of Directors
Howard B. Urnovitz...... 1996 132,231 61,552(7) 0 85,000(8)
Chief Science Officer 1995 139,961 16,816 180,000 0
John J. DiPietro (9).... 1996 126,346 0 10,000 32,201(3)
Chief Financial 1995 27,885 0 35,000 5,541(3)
Officer, Vice
President of Finance
and Secretary
Cynthia Green (10)...... 1996 176,000 0 0 9,895(3)
Director of Regulatory
Affairs and QA/QC 1995 192,000 0 0 9,961(3)
</TABLE>
- --------
(1) Mr. Davis joined the Company in May 1995 as its President and Chief
Operating Officer. In September 1995, Mr. Davis was named President and
Chief Executive Officer.
27
<PAGE>
(2) Represents $5,469 for reimbursement of living expenses and $317,341 for
reimbursement of relocation expenses (which includes the reimbursement
for taxes owed on such expenses).
(3) Represents reimbursement of living expenses.
(4) Mr. Boeger served as the Company's Chairman of the Board of Directors,
Chief Executive Officer, and President from January 1994 until May 1995.
From May 1995 to September 1995, he served as Chairman of the Board of
Directors and Chief Executive Officer. Since September 1995, he has
served as Chairman of the Board of Directors.
(5) $12,500 was paid in 1996 to an affiliate of Quest Ventures, a venture
capital partnership of which Mr. Boeger is Managing General Partner, for
services rendered by Mr. Boeger in 1995. $70,834 was paid to an affiliate
of Quest Ventures in 1996 for services rendered by Mr. Boeger in 1996.
(6) $135,000 was paid to an affiliate of Quest Ventures, a venture capital
partnership of which Mr. Boeger is Managing General Partner, in 1995 for
services rendered by Mr. Boeger in 1994. $118,750 was paid to an
affiliate of Quest Ventures in 1995 for services rendered by Mr. Boeger
in 1995. $18,750 was paid to Pepgen Corporation, a subsidiary of the
Company of which Mr. Boeger is President and Chief Financial Officer, in
1995 for services rendered by Mr. Boeger in 1995.
(7) Represents a one-time bonus to defray the tax liability on the deemed
income from the forgiveness of the note receivable from Dr. Urnovitz.
(8) Represents forgiveness of an $85,000 note receivable from Dr. Urnovitz.
(9) Mr. DiPietro joined the Company in October 1995 as Chief Financial
Officer and Vice President of Finance.
(10) Ms. Green is retained by the Company as a consultant.
The following table sets forth information concerning stock options granted to
the Named Executive Officers during the fiscal year ended December 31, 1996:
STOCK OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE FOR OPTION TERM (3)
OPTIONS FISCAL YEAR PRICE EXPIRATION ---------------------
NAME GRANTED (1) ($/SH) (2) DATE 0%($) 5%($) 10%($)
- ---- ---------- ------------- ---------- ---------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
John P. Davis........... -- -- -- -- -- -- --
William A. Boeger....... -- -- -- -- -- -- --
Howard B. Urnovitz...... -- -- -- -- -- -- --
John J. DiPietro........ 10,000(4) 9.03% $5.95 12/19/06 10,500 54,523 122,062
Cynthia Green........... -- -- -- -- -- -- --
</TABLE>
(1) Based on aggregate of 110,700 options granted under the Company's
Incentive Stock Plan to employees and directors of, and consultants to,
the Company during the year ended December 31, 1996, including the Named
Executive Officers.
(2) The exercise price was based on the closing price of the stock on the date
of grant on the NASDAQ Smallcap Market
(3) The assumed 5% and 10% compound rates of annual stock appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future common stock
prices. Assuming a ten-year option term, annual compounding results in
total appreciation of 62.9% (at 5% per year) and 159.4% (at 10% per year).
(4) Options granted to Mr. DiPietro become exercisable at the rate of 20% of
the shares subject to the option at December 19, 1997 and at the rate of
1.67% per month thereafter for the next four years. The options expire ten
years from the date of grant, or earlier upon termination of employment.
The options were granted at an exercise price of $5.95, which is based on
the closing price of the stock of $7.00 on the date of grant.
28
<PAGE>
The following table sets forth information concerning option exercises for
the year ended December 31, 1996, with respect to each of the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN 1996
AND DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISABLE VALUE OF UNEXERCISED IN-THE-
ACQUIRED ON OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
EXERCISE VALUE YEAR END (#) YEAR END ($)
NAME (#) REALIZED ($) (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)(1)
- ---- ----------- ------------ -------------------------- ------------------------------
<S> <C> <C> <C> <C>
John P. Davis...... -- -- 101,331 / 218,669 785,315 / 1,694,685
William A. Boeger.. -- -- 220,000 / -- 1,705,000 / --
Howard B.
Urnovitz.......... -- -- 191,249 / 93,751 1,511,580 / 726,570
John J. DiPietro... -- -- 8,750 / 36,250 63,438 / 213,312
Cynthia Green...... -- -- 37,041 / 1,209 287,268 / 9,420
</TABLE>
(1) Value realized and value of unexercised in-the-money options is based on a
value of $8.25 per share of the Company's Common Stock, the closing price
on December 31, 1996 as quoted on the NASDAQ Smallcap Market. Amounts
reflect such fair market value minus the exercise price multiplied by the
number of shares to be acquired on exercise and do not indicate that the
optionee actually sold such stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee consists of Dr. Krevans, Dr. Quy and
Mr. Boeger, who is a non-voting member and a current executive officer of the
Company.
INCENTIVE STOCK PLAN
A total of 2,740,992 shares of Common Stock have been reserved for issuance
under the Company's Incentive Stock Plan (the "Stock Plan"). As of December
31, 1996, 139,981 shares had been issued upon the exercise of stock options
granted under the Stock Plan. 1,375,465 shares were subject to outstanding
options and 1,225,546 remained available for future grant. The Stock Plan is
administered by the compensation committee of the Board of Directors. Under
the Stock Plan, options may be granted to employees, including directors who
are employees, and consultants. Only employees may receive "incentive stock
options," which are intended to qualify for certain tax treatment. In the
event of a change in control of the Company, including a merger or sale of
substantially all of the Company's assets, outstanding options may be assumed
by any successor corporation or may become exercisable. The exercise price of
incentive stock options under the Stock Plan must at least equal the fair
market value of the Common Stock on the date of grant, while the exercise
price of nonstatutory options must at least equal 85% of such market value.
Options granted under the Stock Plan generally vest on a cumulative monthly
basis over four or five years, and in the case of stock options, must be
exercised within six or ten years. The Board may amend or modify the Stock
Plan at any time. The Stock Plan will terminate in 2001, unless sooner
terminated by the Board.
1995 EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Company's Board of Directors in December 1995 and stockholders in 1996.
The Purchase Plan is intended to qualify under Section 423 of the Code. The
Company has reserved 300,000 shares of Common Stock for issuance under the
Purchase Plan. Under the Purchase Plan, an eligible employee may purchase
shares of Common Stock from the Company through payroll deductions of up to
10% of his or her compensation, at a price per share equal to 85% of the lower
of (i) the fair market value of the Company's Common Stock on the first day of
an offering period under the Purchase Plan or (ii) the fair market value of
the Common Stock on the last day of each six month purchase period during the
offering period. Except for the first offering period, each offering period
will last for twenty-four months;
29
<PAGE>
stock purchases take place every six months (April 30 and October 31 of each
year). The first period commenced on the first day of trading, July 26, 1996.
Any employee who is customarily employed for at least 20 hours per week and
more than five months per calendar year, who has been employed for at least
three consecutive months on or before the commencement date of an offering
period is eligible to participate in the Purchase Plan.
As of December 31, 1996, 3,643 shares had been purchased under the Purchase
Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company was reincorporated in Delaware during 1996, in part to take
advantage of certain provisions in Delaware's corporate law relating to
limitations on liability of corporate officers and directors. The Company
believes that the reincorporation into Delaware, the provision of the
Certificate of Incorporation and Bylaws and the separate indemnification
agreements outlined below are necessary to attract and retain qualified
persons as directors and officers.
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides the
directors of a company will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except for liability (i) for
any breach of their duty of loyalty to the Company or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments or
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of Delaware General Corporation Law or (iv) for transactions from which
the director derived an improper personal benefit.
The Company's Bylaws provide the Company shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest
extent provided by Delaware law, including those circumstances where
indemnification would otherwise be discretionary under Delaware law. The
Company believes that indemnification under its Bylaws covers at least
negligence on the part of indemnified parties. The Bylaws authorize the use of
indemnification agreements and the Company has entered into such agreements
with each of its directors and executive officers.
The Company has obtained officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters
arising under the Securities Act.
At present, there is no pending litigation or proceeding involving any
director or officer, employee or agent of the Company where indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Certain provisions of Calypte's Certificate of Incorporation and Bylaws
could discourage potential acquisition proposals and could delay or prevent a
change in control of Calypte. Such provisions could diminish the opportunities
for a stockholder to participate in tender offers, including tender offers at
a price above the then current market value of the Common Stock. Such
provisions may also inhibit increases in the market price of the Common Stock
that could result from takeover attempts. In addition, the Board of Directors
of Calypte, without further stockholder approval, may issue Preferred Stock
with such terms as the Board of Directors may determine, that could have the
effect of delaying or preventing a change in control of Calypte. The issuance
of Preferred Stock could also adversely affect the voting power of the holders
of Common Stock, including the loss of voting control to others.
EMPLOYMENT ARRANGEMENTS
For a description of executive employment arrangements, see "Employment
Arrangements" under Item 13 included herein.
30
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of February 28, 1997 for
(i) all persons is known by the Company to own beneficially more than 5% of
its outstanding Common Stock, (ii) each of the Company's directors, (iii) each
Named Executive Officer and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY % OF
5% STOCKHOLDERS, DIRECTORS AND OFFICERS (1) OWNED TOTAL
- ------------------------------------------- ------------ -----
<S> <C> <C>
Otsuka Pharmaceutical Co., Ltd. (2)
463-10 Kagsuno
Kawauchi-cho
Tokoshima Japan ......................................... 1,493,147 14.00%
Zafar Randawa, Ph.D. (2).................................. 1,493,147 14.00%
Entities Affiliated with Quest Ventures (3)
126 South Park
San Francisco, CA 94107.................................. 723,322 6.67%
William A. Boeger (3)..................................... 723,322 6.67%
Technology Partners (4)
1550 Tiburon Boulevard, Suite A
Belvedere, CA 94920...................................... 630,270 6.02%
Roger Quy, Ph.D. (4)...................................... 630,270 6.02%
Kuo-Yu (Frank) Chiang..................................... 561,744 5.37%
Suez Technology Fund (5)
3000 Sand Hill Road
Bldg. 2, Suite 160
Menlo Park, CA 94028..................................... 557,453 5.31%
Howard B. Urnovitz, Ph.D. (6)............................. 345,249 3.24%
John P. Davis (7)......................................... 124,664 1.18%
Cynthia Green (8)......................................... 43,322 *
Richard Van Maanen (9).................................... 32,792 *
Toby Gottfried, Ph.D. (10)................................ 22,241 *
Mark Novitch, M.D. (11)................................... 21,500 *
John J. DiPietro (12)..................................... 14,288 *
David Collins (13)........................................ 11,250 *
Julius Krevans, M.D. (14)................................. 9,000 *
Jeffrey Lang (15)......................................... 6,500 *
All directors and executive officers as a group (14
persons) ................................................ 4,039,289 35.16%
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
(1) To the Company's knowledge, except as set forth in the footnotes to this
table and subject to applicable community property laws, each person named
in this table has sole voting and investment power with respect to the
shares set forth opposite such person's name. Except as otherwise
indicated, the address of each of the persons in this table is as follows:
c/o Calypte Biomedical Corporation, 1440 Fourth Street, Berkeley,
California 94710.
(2) Includes 200,000 shares subject to warrants exercisable within 60 days.
Dr. Randawa is a director of the Company and an affiliate of Otsuka
Pharmaceutical Co., Ltd.
(3) Includes 154,276 shares subject to options exercisable within 60 days
owned by entities affiliated with Quest Ventures. Also includes 220,000
shares subject to options exercisable within 60 days owned by Mr. Boeger.
Mr. Boeger is a partner of Quest Ventures.
(4) Includes 620,270 shares owned by Technology Partners and 10,000 shares
owned by Dr. Quy. Dr. Quy is a director of the Company and an affiliate of
Technology Partners.
(5) Includes 26,500 shares subject to warrants exercisable within 60 days.
31
<PAGE>
(6) Includes 206,249 shares subject to options exercisable within 60 days.
(7) Includes 122,664 shares subject to options exercisable within 60 days.
(8) Includes 37,374 shares subject to options exercisable within 60 days.
(9) Includes 31,506 shares subject to options exercisable within 60 days.
(10) Includes 9,753 shares subject to options exercisable within 60 days.
(11) Includes 17,500 shares subject to options exercisable within 60 days.
(12) Includes 11,083 shares subject to options exercisable within 60 days.
(13) Includes 1,250 shares subject to options exercisable within 60 days.
(14) Includes 5,000 shares subject to options exercisable within 60 days.
(15) Includes 6,500 shares subject to options exercisable within 60 days.
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITIES
The Company's directors, executive officers and entities affiliated with
them, in the aggregate, beneficially own approximately 35.16% of the Company's
outstanding Common Stock. Accordingly, these stockholders, individually and as
a group, would be able to effectively control the Company on substantially all
matters requiring approval by the stockholders of the Company, including the
election of directors and the approval of mergers or other business
combination transactions.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EMPLOYMENT ARRANGEMENTS
On April 10, 1995, the Company entered into an employment agreement with
John P. Davis as the Company's President and Chief Executive Officer which was
originally effective from May 1, 1995 through December 31, 1996. Under the
agreement, Mr. Davis is receiving a salary of $195,000 per year and is
eligible for a bonus under the Company's bonus plan. The agreement is
automatically renewable each year subject to three months notice prior to the
end of each calendar year. This agreement has been renewed for the 1997
calendar year. Mr. Davis shall receive a $375 car allowance and reimbursement
for all operating expenses, maintenance, license fees, and insurance. Mr.
Davis shall also be entitled to vacation and other benefits provided to the
Company's employees generally. In the event Mr. Davis' employment with the
Company is terminated by the Company other than for cause, the officer is
entitled to receive his base salary for up to nine months. In addition, the
Company agreed to pay Mr. Davis' relocation expenses in connection with his
move to California including reimbursement for taxes owed on such expenses.
On January 25, 1995, the Company entered into an employment agreement with
Howard B. Urnovitz, as the Founder, Director and Chief Science Officer of the
Company for the year ended December 31, 1995. The agreement provides for an
annual salary of $140,000 plus an annual bonus not to exceed $35,000 per year.
The agreement is automatically renewable each year subject to three months
notice prior to the end of each calendar year. This agreement has been renewed
for the 1997 calendar year. Dr. Urnovitz will also be entitled to vacation and
other benefits available to the Company's employees generally. If the Company
terminates Dr. Urnovitz's employment other than for cause, Dr. Urnovitz would
be entitled to six months of base salary.
In October 1995, the Company entered into an employment agreement with John
J. DiPietro as the Company's Vice President, Finance and Chief Financial
Officer, for a term from October 1995 through December 1996. This agreement
provides an annual salary of initially $125,000, reimbursement for the cost of
a corporate apartment, which expenses shall be increased sufficiently to
reimburse for taxes owed on such expenses, and certain change in control
provisions. The agreement is automatically renewable each year subject to
three months notice prior to the end of the calendar year. This agreement has
been renewed for the 1997 calendar year. Mr. DiPietro is also eligible for a
bonus under the Company's bonus plan and shall be entitled to vacation and
other benefits provided to the Company's employees generally. In the event Mr.
DiPietro's employment is terminated by the Company other than for cause, he
will receive his base salary for six months.
32
<PAGE>
In May 1993, the Company entered into a Business Consultant Agreement with
Cynthia L. Green, the Company's Director of Regulatory Affairs and Quality
Assurance and Quality Control. The agreement is automatically renewable each
year subject to three months notice prior to the end of the calendar year. Ms.
Green's fee for acting as Director of Regulatory Affairs and Quality Assurance
and Quality Control for the Company was set at $16,000 per month. On October
1, 1996, the fee was reduced to $12,800 per month.
During 1996, the Company paid $72,000 to Pepgen Corporation for an exclusive
license to all technology that relates to urine-based diagnostics developed by
Pepgen. The Company expects to renew this license in 1997 under similar terms.
William A. Boeger is the Chief Executive Officer, Chief Financial Officer and
board member of Pepgen, a 49% owned therapeutic subsidiary of the Company. Dr.
Howard B. Urnovitz is President and Chief Science Officer of Pepgen, and John
P. Davis serves as a director of Pepgen.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Certain Documents Filed as Part of the Form 10-K
<TABLE>
<C> <S>
1. Financial Statements
2. Financial Statement Schedules
</TABLE>
SCHEDULE II. VALUATION ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT PROVISION BALANCE AT
BEGINNING CHARGED TO ACCOUNTS END
OF YEAR OPERATIONS WRITTEN OFF OF YEAR
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Inventory Reserves:
Year ended December 31,
1996................... $ -- $956 $(197) $759
</TABLE>
There were no inventory reserves at December 31, 1994 and 1995.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
3. Exhibits
<TABLE>
<C> <S>
3.1* Restated Articles of Incorporation Calypte Biomedical Corporation, a
California corporation, as currently in effect.
3.4 Restated Certificate of Incorporation of Calypte Biomedical
Corporation, a Delaware corporation, filed July 31, 1996.
3.3* Bylaws of the Registrant, as currently in effect.
10.1* Form of Indemnification Agreement between the Company and each of its
directors and officers.
10.2* Incentive Stock Plan.
10.3* 1995 Director Option Plan.
10.4* 1995 Employee Stock Purchase Plan.
10.5* Lease Agreement between the Registrant and Charles A. Grant and Mark
Greenberg, dated as of November 30, 1990.
10.6* Second Lease Extension Agreement between Registrant and Charles A.
Grant and Mark Greenberg, dated as of May 14, 1991.
10.7* Lease Extension Agreement between Registrant and Charles A. Grant and
Mark Greenberg, dated as of February 5, 1992.
10.8* Lease Extension Agreement between Registrant and Charles A. Grant and
Mark Greenberg, dated as of April 15, 1993.
10.9* Standard Form Lease 1255-1275 Harbor Bay Parkway Harbor Bay Business
Park between Commercial Center Bank and the Registrant, dated as of
August 22, 1992.
10.10* Employment Agreement between the Registrant and John P. Davis, dated
as of April 10, 1995 as amended.
10.11* Amendment No. 1 to Employment Agreement between the Registrant and
John P. Davis, dated as of April 22, 1996.
10.12* Employment Agreement between the Registrant and Howard B. Urnovitz,
dated as of January 25, 1995.
10.14* Business Consultant Agreement between the Registrant and Cynthia
Green, dated as of May 1, 1993.
10.15+* License Agreement between the Registrant and New York University,
dated as of August 13, 1993.
10.16* First Amendment to License Agreement between the Registrant and New
York University, dated as of January 11, 1995.
10.17* Second Amendment to License Agreement between the Registrant and New
York University, dated as of October 15, 1995.
10.18+* Third Amendment to License Agreement between the Registrant and New
York University, dated as of January 31, 1996.
</TABLE>
34
<PAGE>
<TABLE>
<C> <S>
10.19+* Research Agreement between the Registrant and New York University,
dated August 12, 1993.
10.20+* First Amendment to Research Agreement between the Registrant and New
York University, dated as of January 11, 1995.
10.21+* Sublicense Agreement between the Registrant and Cambridge Biotech
Corporation, dated as of March 31, 1992.
10.22+* Master Agreement between the Registrant and Cambridge Biotech
Corporation, dated as of April 12, 1996.
10.23+* Sub-License Agreement between the Registrant and Cambridge Biotech
Corporation, dated as of April 12, 1996.
10.24+* Agreement between the Registrant and Repligen Corporation, dated as of
March 8, 1993.
10.25+* Non-Exclusive License Agreement between the Registrant and The Texas
A&M University System, dated as of September 12, 1993.
10.26+* Non-Exclusive License Agreement between the Registrant and The Board
of Trustees of the Leland Stanford Junior University, dated as of
March 1, 1993.
10.27+* Distribution Agreement between the Registrant and Otsuka
Pharmaceutical Co., Ltd., dated as of August 7, 1994.
10.28+* Distribution Agreement between the Registrant and Seradyn, Inc., dated
as of April 10, 1995.
10.29+* Distribution Agreement between the Registrant and Travenol
Laboratories (Israel), Ltd., dated as of December 31, 1994.
10.30+* Manufacturing/Packing Agreement between the Registrant and Biomira
(formerly ADI) Diagnostics Inc., dated as of September 27, 1994.
10.31* Loan and Bridge Security Agreement between the Registrant and Silicon
Valley Bank, dated as of December 8, 1995.
10.32* First Amendment to Loan and Security Agreement between the Registrant
and Silicon Valley Bank, dated as of March 5, 1996.
Form of Option Agreement for Stockholders of Pepgen Corporation, dated
10.33* as of October 12, 1995.
$1.0 Million Promissory Note delivered to Pepgen Corporation, dated as
10.34* of October 12, 1995.
10.35* Equipment Lease Agreement between the Registrant and Phoenix Leasing,
dated as of August 20, 1993.
10.36* Equipment Lease Agreement between the Registrant and Meier
Mitchell/GATX, dated as of August 20, 1993.
10.37 Lease Extension Agreement between the Registrant and Charles A. Grant
and Mark Greenberg, dated as of February 3, 1997.
Employment Agreement between the Registrant and John J. DiPietro,
10.38 dated as of October 1, 1995.
Equipment Lease Agreement between the Registrant and MMC/GATX, dated
10.39 September 30, 1996.
10.40~ Joint Venture Agreement between the Registrant and Trinity Biotech plc
11.1 Statement of Computation of Net Income Per Share.
21.1* Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
24.1 Power of Attorney (see page 35).
27.1 Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference from exhibits filed with the Company's
Registration Statement on Form S-1 (File No. 333-04105) filed on May 20,
1996, as amended to June 25, 1996, July 15, 1996 and July 26, 1996.
+ Confidential treatment has been granted as to certain portions of this
exhibit.
~ Confidential treatment requested as to certain portions of this exhibit.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three month period ended December
31, 1996.
35
<PAGE>
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.
Calypte Biomedical Corporation
(Registrant)
Date: March 28, 1997
/s/ John P. Davis
By: _________________________________
JOHN P. DAVIS PRESIDENT AND CHIEF
EXECUTIVE OFFICER
and
/s/ John J. DiPietro
By: _________________________________
JOHN J. DIPIETROVICE PRESIDENT--
FINANCE, CHIEF FINANCIAL OFFICER
AND SECRETARY (PRINCIPAL
ACCOUNTING OFFICER)
POWER OF ATTORNEY
Each Director of the Registrant whose signature appears below, hereby
appoints John P. Davis and John J. DiPietro, and each of them individually as
his attorney-in-fact to sign in his name and on his behalf as a Director of
the Registrant, and to file with the Commission any and all Amendments to this
report on Form 10-K to the same extent and with the same effect as if done
personally.
PURSUANT TO THE REQUIREMENT OF THE SECURITIES AND EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW, BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED.
SIGNATURE TITLE DATE
/s/ William A. Boeger, III Chairman of the March 28, 1997
- ------------------------------------- Board of Directors
WILLIAM A. BOEGER, III
/s/ John P. Davis President, Chief March 28, 1997
- ------------------------------------- Executive Officer
JOHN P. DAVIS and Director
(Principal
Executive Officer)
/s/ Howard B. Urnovitz, Ph.D. Chief Science March 28, 1997
- ------------------------------------- Officer and
HOWARD B. URNOVITZ, PH.D. Director
36
<PAGE>
SIGNATURE TITLE DATE
/s/ John J. DiPietro Vice President of March 28, 1997
- ------------------------------------- Finance, Chief
JOHN J. DIPIETRO Financial Officer
and Secretary
(Principal
Accounting Officer)
/s/ Kuo-Yu (Frank) Chiang Director March 28, 1997
- -------------------------------------
KUO-YU (FRANK) CHIANG
/s/ David Collins Director March 28, 1997
- -------------------------------------
DAVID COLLINS
/s/ Julius R. Krevans, M.D. Director March 28, 1997
- -------------------------------------
JULIUS R. KREVANS, M.D.
/s/ Mark Novitch, M.D. Director March 28, 1997
- -------------------------------------
MARK NOVITCH, M.D.
/s/ Roger Quy, Ph.D. Director March 28, 1997
- -------------------------------------
ROGER QUY, PH.D.
/s/ Zafar I. Randawa, Ph.D. Director March 28, 1997
- -------------------------------------
ZAFAR I. RANDAWA, PH.D.
37
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................ F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)................... F-5
Consolidated Statements of Cash Flows....................................... F-8
Notes to Consolidated Financial Statements.................................. F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Calypte Biomedical Corporation:
We have audited the accompanying consolidated balance sheets of Calypte
Biomedical Corporation and subsidiary (a development stage enterprise) (the
Company) as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 1996, and for
the period from February 18, 1988 (inception) through December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 financial position of Calypte
Biomedical Corporation and subsidiary (a development stage enterprise) as of
December 31, 1996 and 1995, and the consolidated results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1996, and for the period from February 18, 1988 (inception)
through December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
San Francisco, California
February 19, 1997
F-2
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
ASSETS -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 7,924 $ 2,559
Accounts receivable...................................... 24 --
Inventory................................................ 205 --
Prepaid expenses......................................... 151 406
Other current assets..................................... 19 349
-------- --------
Total current assets................................... 8,323 3,314
Property and equipment, net................................ 1,761 1,854
Note receivable from officer............................... -- 43
Other assets............................................... 263 126
-------- --------
$ 10,347 $ 5,337
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................... $ 418 $ 1,054
Accrued expenses......................................... 768 644
Notes payable............................................ -- 3,258
Capital lease obligations--current portion............... 443 260
Deferred revenue......................................... 627 500
-------- --------
Total current liabilities.............................. 2,256 5,716
Deferred rent obligation................................... 55 88
Capital lease obligations--long-term portion............... 764 543
-------- --------
Total liabilities...................................... 3,075 6,347
Mandatorily redeemable Series A preferred stock, $0.001 par
value; no shares and 100,000 shares authorized at December
31, 1996 and 1995, respectively; 100,000 shares issued and
outstanding at December 31, 1996 and 1995; aggregate
redemption and liquidation value of $1,000 plus cumulative
dividends................................................. 1,856 1,736
Commitments and contingencies
Stockholders' equity (deficit):
Series B convertible preferred stock, $0.001 par value;
no shares and 804,860 shares authorized at December 31,
1996 and 1995, respectively; no shares and 804,846
shares issued and outstanding as of December 31, 1996
and 1995, respectively.................................. -- 1
Series C convertible preferred stock, $0.001 par value;
no shares and 1,702,727 shares authorized at December
31, 1996 and 1995, respectively; no shares and 1,702,705
shares issued and outstanding as of December 31, 1996
and 1995, respectively.................................. -- 2
Series D convertible preferred stock, $0.001 par value;
no shares and 2,130,051 shares authorized at December
31, 1996 and 1995, respectively; no shares and 2,116,999
shares issued and outstanding as of December 31, 1996
and 1995, respectively.................................. -- 2
Series E convertible preferred stock, $0.001 par value;
no shares and 4,000,000 shares authorized at December
31, 1996 and 1995, respectively; no shares and 1,967,866
shares issued and outstanding as of December 31, 1996
and 1995, respectively.................................. -- 2
Preferred stock, $0.001 par value; 5,000,000 shares
authorized at December 31, 1996; no shares issued or
outstanding at December 31, 1996........................ -- --
Common stock, $0.001 par value; 20,000,000 and 12,000,000
shares authorized at December 31, 1996 and 1995,
respectively; 10,459,501 and 573,899 shares issued and
outstanding as of December 31, 1996 and 1995,
respectively............................................ 10 1
Additional paid-in capital............................... 46,270 28,013
Deferred compensation.................................... (363) (366)
Deficit accumulated during development stage............. (40,501) (30,401)
-------- --------
Total stockholders' equity (deficit)................... 5,416 (2,746)
======== ========
$ 10,347 $ 5,337
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 18,
1988
(INCEPTION)
YEARS ENDED DECEMBER 31, THROUGH
--------------------------- DECEMBER 31,
1996 1995 1994 1996
-------- -------- ------- ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales..................... $ 130 $ -- $ -- $ 130
Earned under research and
development contracts,
substantially from related
parties.......................... -- -- -- 2,390
-------- -------- ------- --------
Total revenue................... 130 -- -- 2,520
-------- -------- ------- --------
Operating expenses:
Product costs..................... 1,085 -- -- 1,085
Research and development costs.... 5,751 5,018 3,644 26,098
Purchased in-process research and
development costs................ -- 2,500 -- 2,500
Selling, general and
administrative................... 3,333 2,862 1,818 14,260
-------- -------- ------- --------
Total expenses.................. 10,169 10,380 5,462 43,943
-------- -------- ------- --------
Loss from operations.......... (10,039) (10,380) (5,462) (41,423)
Interest income..................... 266 195 47 836
Interest expense.................... (340) (117) (82) (943)
Other income........................ 15 12 31 86
-------- -------- ------- --------
Loss before income taxes and
extraordinary item........... (10,098) (10,290) (5,466) (41,444)
Income taxes........................ (2) (1) (1) (63)
-------- -------- ------- --------
Loss before extraordinary
item......................... (10,100) (10,291) (5,467) (41,507)
Extraordinary gain on debt
extinguishment..................... -- -- -- 485
-------- -------- ------- --------
Net loss...................... (10,100) (10,291) (5,467) (41,022)
Less dividend on mandatorily
redeemable Series A preferred
stock.............................. (120) (120) (120) (856)
-------- -------- ------- --------
Net loss attributable to common
stockholders....................... $(10,220) $(10,411) $(5,587) $(41,878)
-------- -------- ------- ========
Net loss per share attributable to
common stockholders................ $ (1.17) $ (1.50) $ (0.99)
======== ======== =======
Weighted average shares used to
compute net loss per share
attributable to common
stockholders....................... 8,703 6,934 5,671
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM FEBRUARY 18, 1988 (INCEPTION) THROUGH DECEMBER 31, 1996
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
JOINT CONVERTIBLE PREFERRED STOCK ADDITIONAL DURING STOCKHOLDERS'
VENTURERS' ----------------------------------- COMMON PAID-IN DEFERRED DEVELOPMENT EQUITY
CAPITAL SERIES B SERIES C SERIES D SERIES E STOCK CAPITAL COMPENSATION STAGE (DEFICIT)
---------- -------- -------- -------- -------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock as
of February 18,
1988 (date of
inception)..... $ -- $-- $-- $-- $-- $75 $ -- $-- $ -- $ 75
Capital
Contributions.. 1,611 -- -- -- -- -- -- -- -- 1,611
Exchange of
Calypte, Inc.
stock for
100,000 shares
of common stock
and 100,000
shares of
mandatorily
redeemable
Series A
preferred stock
of the Company
on November 11,
1989 at $.001
per share...... -- -- -- -- -- (75) -- -- (925) (1,000)
Common stock of
60,035 shares
issued for
cash........... -- -- -- -- -- -- 100 -- -- 100
Compensation
paid by
issuance of
170,610 shares
of common
stock.......... -- -- -- -- -- -- 34 -- -- 34
Conversion of
notes payable
to 61,426
shares of
common stock... -- -- -- -- -- -- 12 -- -- 12
Conversion of
notes payable
to 29,506
shares of
Series B
convertible
preferred
stock.......... -- -- -- -- -- -- 55 -- -- 55
Series B
convertible
preferred stock
of 775,340
shares issued
for cash....... -- 1 -- -- -- -- 1,387 -- -- 1,388
Series C
convertible
preferred stock
of 810,812
shares issued
for cash....... -- -- 1 -- -- -- 2,946 -- -- 2,947
Dividend
requirements on
mandatorily
redeemable
Series A
preferred
stock.......... -- -- -- -- -- -- (90) -- (166) (256)
Net loss........ (1,611) -- -- -- -- -- -- -- (3,568) (5,179)
------- ---- ---- ---- ---- --- ------ ---- ------ ------
Balances as of
December 31,
1991........... -- 1 1 -- -- -- 4,444 -- (4,659) (213)
Exercise of
stock options
for 68,083
shares of
common stock... -- -- -- -- -- -- 13 -- -- 13
Compensation
paid by
issuance of
31,670 shares
of common
stock.......... -- -- -- -- -- -- 5 -- -- 5
Series C
convertible
preferred stock
of 891,893
shares issued
for cash....... -- -- 1 -- -- -- 3,209 -- -- 3,210
Series D
convertible
preferred stock
of 800,000
shares issued
for cash....... -- -- -- 1 -- -- 5,718 -- -- 5,719
Dividend
requirements on
mandatorily
redeemable
Series A
preferred
stock.......... -- -- -- -- -- -- (120) -- -- (120)
Net loss........ -- -- -- -- -- -- -- -- (3,802) (3,802)
------- ---- ---- ---- ---- --- ------ ---- ------ ------
Balances as of
December 31,
1992........... -- 1 2 1 -- -- 13,269 -- (8,461) 4,812
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
PERIOD FROM FEBRUARY 18, 1988 (INCEPTION) THROUGH DECEMBER 31, 1996
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
JOINT CONVERTIBLE PREFERRED STOCK ADDITIONAL DURING STOCKHOLDERS'
VENTURERS' ----------------------------------- COMMON PAID-IN DEFERRED DEVELOPMENT EQUITY
CAPITAL SERIES B SERIES C SERIES D SERIES E STOCK CAPITAL COMPENSATION STAGE (DEFICIT)
---------- -------- -------- -------- -------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of
December 31,
1992........... $-- $ 1 $ 2 $ 1 $-- $-- $13,269 $-- $ (8,461) $ 4,812
Common stock of
2,500 shares
issued for
cash........... -- -- -- -- -- -- 2 -- -- 2
Exercise of
stock options
for 22,444
shares of
common stock... -- -- -- -- -- -- 9 -- -- 9
Compensation
paid by
issuance of
10,000 shares
of common
stock.......... -- -- -- -- -- 1 7 -- -- 8
Series D
convertible
preferred stock
of 199,999
shares issued
for cash....... -- -- -- -- -- -- 1,445 -- -- 1,445
Dividend
requirements on
mandatorily
redeemable
Series A
preferred
stock.......... -- -- -- -- -- -- (120) -- -- (120)
Net loss........ -- -- -- -- -- -- -- -- (6,182) (6,182)
---- --- --- --- ---- ---- ------- ---- -------- -------
Balances as of
December 31,
1993........... -- 1 2 1 -- 1 14,612 -- (14,643) (26)
Conversion of
Series D
convertible
preferred stock
into 1.5 shares
for each share
outstanding as
of March 3,
1994; 500,000
additional
shares issued.. -- -- -- -- -- -- -- -- -- --
Common stock of
11,250 shares
issued for
cash........... -- -- -- -- -- -- 9 -- -- 9
Exercise of
stock options
for 31,334
shares of
common stock... -- -- -- -- -- -- 12 -- -- 12
Series D
convertible
preferred stock
of 617,000
shares issued
for cash....... -- -- -- 1 -- -- 2,885 -- -- 2,886
Series E
convertible
preferred stock
of 1,077,500
shares issued
for cash....... -- -- -- -- 1 -- 5,364 -- -- 5,365
Dividend
requirements on
mandatorily
redeemable
Series A
preferred
stock.......... -- -- -- -- -- -- (120) -- -- (120)
Net loss........ -- -- -- -- -- -- -- -- (5,467) (5,467)
---- --- --- --- ---- ---- ------- ---- -------- -------
Balances as of
December 31,
1994........... -- 1 2 2 1 1 22,762 -- (20,110) 2,659
Series E
convertible
preferred stock
of 888,446
shares issued
for cash, 1,920
issued for
other than
cash........... -- -- -- -- 1 -- 4,302 -- -- 4,303
Exercise of
stock options
for 4,547
shares of
common stock... -- -- -- -- -- -- 2 -- -- 2
Dividend
requirements on
mandatorily
redeemable
Series A
preferred
stock.......... -- -- -- -- -- -- (120) -- -- (120)
Options issued
upon the
investment in
Pepgen
Corporation.... -- -- -- -- -- -- 500 -- -- 500
Compensation
relating to
granting of
stock options.. -- -- -- -- -- -- 567 (567) -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- -- 201 -- 201
Net loss........ -- -- -- -- -- -- -- -- (10,291) (10,291)
---- --- --- --- ---- ---- ------- ---- -------- -------
Balances as of
December 31,
1995........... -- 1 2 2 2 1 28,013 (366) (30,401) (2,746)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
PERIOD FROM FEBRUARY 18, 1988 (INCEPTION) THROUGH DECEMBER 31, 1996
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
JOINT CONVERTIBLE PREFERRED STOCK ADDITIONAL DURING STOCKHOLDERS'
VENTURERS' ----------------------------------- COMMON PAID-IN DEFERRED DEVELOPMENT EQUITY
CAPITAL SERIES B SERIES C SERIES D SERIES E STOCK CAPITAL COMPENSATION STAGE (DEFICIT)
---------- -------- -------- -------- -------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of
December 31,
1995........... $-- $ 1 $ 2 $ 2 $ 2 $ 1 $28,013 $(366) $(30,401) $ (2,746)
Exercise of
Series E
convertible
warrants for
732,571 shares
of Series E
convertible
preferred
stock.......... -- -- -- -- -- -- 4,924 -- -- 4,924
Cost of issuance
of Series E
preferred
stock.......... -- -- -- -- -- -- (129) -- -- (129)
Exercise of
stock options
for 13,577
shares of
common stock... -- -- -- -- -- -- 11 -- -- 11
Issuance of
2,300,000
shares of
common stock
through an
Initial Public
Offering....... -- -- -- -- -- 2 13,798 -- -- 13,800
Conversion of
Series B, C, D
and E
convertible
preferred stock
to common
stock.......... -- (1) (2) (2) (2) 7 -- -- -- --
Exercise of
underwriters'
overallotment
of 236,259
shares of
common stock... -- -- -- -- -- -- 1,417 -- -- 1,417
Cost of issuance
of common stock
for initial
public offering
(including
underwriters'
fees).......... -- -- -- -- -- -- (1,995) -- -- (1,995)
Exercise of
warrants for
7,136 shares of
common stock... -- -- -- -- -- -- 37 -- -- 37
Common stock of
3,643 shares
issued under
the Employee
Stock Purchase
Plan........... -- -- -- -- -- -- 15 -- -- 15
Dividend
requirements of
mandatorily
redeemable
Series A
preferred
stock.......... -- -- -- -- -- -- (120) -- -- (120)
Compensation
relating to
granting of
stock options.. -- -- -- -- -- -- 299 (299) -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- -- 302 -- 302
Net loss........ -- -- -- -- -- -- -- -- (10,100) (10,100)
---- --- --- --- --- --- ------- ----- -------- --------
Balances at
December 31,
1996........... -- -- -- -- -- 10 46,270 (363) (40,501) 5,416
==== === === === === === ======= ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 18,
1988
(INCEPTION)
YEARS ENDED DECEMBER 31, THROUGH
--------------------------- DECEMBER 31,
1996 1995 1994 1996
-------- -------- ------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(10,100) $(10,291) $(5,467) $(41,022)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 797 465 332 2,614
Loss on sale or disposal of
equipment.......................... -- 73 -- 115
Extraordinary gain on debt
extinguishment..................... -- -- -- (485)
Amortization of deferred
compensation....................... 302 201 -- 503
Compensation paid by stock
issuance........................... -- -- -- 47
Forgiveness of note receivable from
officer............................ 43 42 -- 85
Purchased in-process research and
development costs.................. -- 2,500 -- 2,500
Changes in operating assets and
liabilities:
Accounts receivable................ (24) -- -- (24)
Inventory.......................... (205) -- -- (205)
Other current assets and prepaid
expenses.......................... 585 (714) 254 69
Organizational costs............... -- -- -- (123)
Other assets....................... (137) (21) (53) (586)
Accounts payable, accrued expenses
and deferred revenue.............. (385) 1,162 320 1,715
Deferred rent obligation........... (33) (4) 58 54
Note payable in exchange for
expenses paid on behalf of the
Company........................... -- -- -- 192
-------- -------- ------- --------
Net cash used in operating
activities....................... (9,157) (6,587) (4,556) (34,551)
-------- -------- ------- --------
Cash flows from investing activities:
Proceeds from disposition of
equipment.......................... -- -- -- 25
Purchase of equipment, net.......... 29 (476) (625) (2,247)
Investment in Pepgen Corporation.... -- (1,000) -- (1,000)
-------- -------- ------- --------
Net cash provided by (used in)
investing activities............. 29 (1,476) (625) (3,222)
-------- -------- ------- --------
Cash flows from financing activities:
Proceeds from sale of stock......... 20,204 4,445 8,493 48,483
Expenses paid related to sale of
stock.............................. (2,124) (139) (222) (2,994)
Prepaid license fee................. -- -- -- 500
Principal payments on notes
payable............................ (3,258) (29) (76) (4,174)
Principal payments on capital lease
obligations........................ (329) (133) (28) (496)
Proceeds from notes payable......... -- 2,000 -- 2,692
Capital contributions............... -- -- -- 75
Joint ventures' capital
contributions...................... -- -- -- 1,611
-------- -------- ------- --------
Net cash provided by financing
activities....................... 14,493 6,144 8,167 45,697
-------- -------- ------- --------
Net increase (decrease) in cash and
cash equivalents.................... 5,365 (1,919) 2,986 7,924
Cash and cash equivalents at
beginning of period................. 2,559 4,478 1,492 --
-------- -------- ------- --------
Cash and cash equivalents at end of
period.............................. $ 7,924 $ 2,559 $ 4,478 $ 7,924
======== ======== ======= ========
Supplemental disclosure of cash flow
activities:
Cash paid for interest.............. $ 359 $ 105 $ 83 $ 837
Cash paid for income taxes.......... 2 1 1 62
Supplemental disclosure of noncash
activities:
Acquisition of equipment through
obligations under capital leases... 733 661 -- 1,703
Accrued liabilities converted to
notes payable...................... -- -- -- 363
Accrued liabilities converted to
common stock....................... -- -- -- 39
Notes payable converted to common
stock.............................. -- -- -- 459
Notes payable converted to Series B
convertible preferred stock........ -- -- -- 50
Notes payable issued upon investment
in Pepgen Corporation.............. -- 1,000 -- 1,000
Options issued upon investment in
Pepgen Corporation................. -- 500 -- 500
Dividend on mandatorily redeemable
Series A preferred stock........... 120 120 120 856
Deferred compensation attributable
to stock grants.................... 299 567 -- 866
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(1) THE COMPANY
Calypte Biomedical Corporation (the Company) was incorporated on November
11, 1989 and is a development stage enterprise. The Company's primary
activities have been to obtain funding, to perform research and development
and to obtain approval for its urine-based diagnostic tests.
(2) SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the results of
operations of the Company and its wholly owned subsidiary, Calypte, Inc., and
Calypte Biomedical Company (the Joint Venture). All significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company accounts for its 49% interest in Pepgen Corporation (Pepgen)
under the equity method (Note 13).
Cash and Cash Equivalents
Cash equivalents consist primarily of investments in money market and
commercial paper with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market and the cost is
determined using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Machinery and equipment,
furniture and fixtures, and computer equipment are depreciated using the
straight-line method over the estimated useful life of the assets, generally
four to five years. Leasehold improvements and equipment under capital leases
are amortized or depreciated over the shorter of the remaining lease term or
the useful life of the improvement.
Fair Value of Financial Instruments
Financial assets and liabilities have carrying values which approximate
their fair values for all periods presented. The carrying amounts of cash and
cash equivalents approximate fair value because of the short-term nature and
because such amounts are invested in accounts earning market rates of
interest. The carrying values of notes payable, except for the note payable to
Pepgen, approximate fair value because the interest rates on the notes payable
approximate current market rates available to the Company. The fair market
values of the note payable to Pepgen and the note receivable from officer are
not readily determinable due to their related party nature.
Revenue Recognition
Revenue from product sales is recognized upon shipment to customers.
Deferred Revenue
Deferred revenue is accrued on payments received from customers in advance
of product shipment and will be recognized as revenue upon shipment of the
related products.
F-9
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
Income Taxes
The Company accounts for income taxes under the Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. SFAS No. 109
requires an asset and liability approach for the financial reporting of income
taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Stock-Based Compensation
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-
Based Compensation, which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
Net Loss Per Share Attributable to Common Stockholders
Except as noted below, net loss per share attributable to common
stockholders is computed using the weighted average number of shares of common
stock outstanding. Common equivalent shares from stock options and warrants
are excluded from the computation as their effect is antidilutive, except
that, pursuant to the SEC Staff Accounting Bulletin No. 83, common stock
issued for consideration below the Company's $6.00 per share Initial Public
Offering (IPO) price and warrants exercised, warrants granted and stock
options granted with exercise prices below the IPO price during the 12-month
period preceding May 20, 1996, the date of the initial filing of the
Registration Statement, even when antidilutive, have been included in the
calculation of common equivalent shares for periods prior to April 1, 1996,
using the treasury stock method based on the $6.00 per share IPO price, as if
they were outstanding for all periods presented.
Furthermore, common equivalent shares include convertible preferred stock
that were converted upon completion of the Company's IPO using the as if
converted method.
Reclassification
Certain reclassifications in the accompanying consolidated financial
statements have been made in order to conform to the December 31, 1996
consolidated financial statement presentation.
Use of Estimates
The preparation of 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, the
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.
F-10
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(3) INVENTORIES
Inventories as of December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Raw materials............................................. $ 80
Work-in-process........................................... 108
Finished goods............................................ 17
----
Total inventory......................................... $205
====
</TABLE>
The Company had no inventory as of December 31, 1995.
(4) OTHER CURRENT ASSETS
Other current assets as of December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Receivable under equipment lease line of
credit..................................... $ -- $316
Other....................................... 19 33
---- ----
Total other current assets................ $ 19 349
==== ====
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Computer equipment............................ $ 349 $ 237
Machinery and equipment....................... 1,903 1,404
Furniture and fixtures........................ 236 188
Leasehold improvements........................ 1,460 1,415
------- -------
3,948 3,244
Accumulated depreciation and amortization..... (2,187) (1,390)
------- -------
Property and equipment, net................... $ 1,761 $ 1,854
======= =======
</TABLE>
During 1988, property was purchased from an unrelated party subject to a
note for $442,000. The note was subsequently assigned to Purdue Frederick
Diagnostics, Inc., a former related party of the Company (Note 7). The Company
paid the remaining portion of the obligation during 1996 with proceeds from
the Initial Public Offering. The Company recognized depreciation expense of
$797,000, $446,000 and $315,000 for the years ended December 1996, 1995, and
1994, respectively.
F-11
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(6) ACCRUED EXPENSES
Accrued expenses as of December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Accrued minimum royalty payments............... $221 $160
Other.......................................... 547 484
---- ----
Total accrued expenses....................... $768 $644
==== ====
</TABLE>
(7) NOTES PAYABLE
The Company had no notes payable as of December 31, 1996. Notes payable as
of December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Prime plus 3.5%; 12% as of December 31, 1995; note payable to
a bank; secured by property and equipment; paid August
1996........................................................ $2,000
10% note payable to a former related party; secured by
property and equipment; paid August 1996.................... 248
12% note payable; secured by equipment; paid April 1996...... 10
4% note payable to Pepgen, paid October 1996................. 1,000
------
Notes payable................................................ 3,258
Current portion.............................................. (3,258)
------
Long-term portion............................................ $ --
======
</TABLE>
In December 1995, the Company entered into a line of credit agreement with a
bank to borrow up to $2,000,000 at an interest rate of prime plus 3.5%. The
agreement required the Company to maintain a balance of cash and cash
equivalents of not less than $700,000 as of the last day of each month during
the term of the agreement. In addition, borrowings under the line of credit
agreement were secured by the Company's assets.
In March 1996, the Company extended the due date of the line of credit such
that the line of credit was due July 5, 1996. In connection with the
extension, the Company made a $500,000 principal payment in April 1996 and the
available line of credit was reduced to $1,500,000. In July 1996, the Company
extended the due date of the line of credit from July 5, 1996 to August 5,
1996. In connection with the extension, the Company made a $250,000 principal
payment in July 1996 and the available line of credit was reduced to
$1,250,000. On August 5, 1996, the Company paid the remaining balance of
$1,250,000 from a portion of the proceeds from the Initial Public Offering.
The note payable to Pepgen is related to the Company's September 1995
investment in Pepgen (Note 13). The entire principal payment for the Pepgen
note as well as the note payable to a former related party were paid from a
portion of the proceeds from the Initial Public Offering.
F-12
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(8) LEASE COMMITMENTS
Capital Leases
In 1993, and as amended in 1995, the Company obtained two equipment lease
lines of credit which aggregated $2,300,000 and were collateralized by the
related equipment acquired with the borrowings. The Company's ability to draw
additional funds on these lease lines of credit expired in December 1995.
However, drawdowns subsequent to the expiration have been allowed under one of
the lease lines. Lease payments under the lines of credit are based on the
total delivered equipment cost multiplied by a monthly rate factor of
approximately 3.5% (approximate effective interest rate of 18% per annum). In
addition, as partial consideration for obtaining the lease lines, the Company
issued certain warrants to purchase common stock of the Company (Note 10).
In October 1996, the Company obtained an additional lease line of credit of
$1,000,000 with an expiration of December 31, 1996. Lease payments under the
line of credit are based on the total delivered equipment cost multiplied by a
monthly note factor of approximately 3.3% (approximate effective interest rate
of 18% per annum).
Equipment acquired under the lease lines of credit and included in property
and equipment as of December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Machinery and equipment....................... $1,598 $ 888
Other......................................... 105 82
------ -----
1,703 970
Accumulated depreciation and amortization..... (628) (250)
------ -----
$1,075 $ 720
====== =====
</TABLE>
Future minimum lease payments under capital leases as of December 31, 1996
were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
----------------------- --------------
<S> <C>
1997.......................................................... $ 630
1998.......................................................... 582
1999.......................................................... 312
------
1,524
Amount representing interest.................................. (317)
------
Present value of capital lease obligations.................... 1,207
Current portion of capital lease obligations.................. (443)
------
Capital lease obligations--long-term portion.................. $ 764
======
</TABLE>
Operating Leases
The Company leases office and manufacturing space in Berkeley and Alameda,
California, under two noncancelable operating leases. Under the Alameda lease
agreement, the Company is required to provide a security deposit in the form
of a letter of credit in the amount of $50,000, secured by a $50,000
certificate of deposit which is included in other assets in the accompanying
consolidated balance sheets. Total rent expense,
F-13
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
net of income from a one-year sublease agreement of $184,000 in 1995, under
these leases was $517,000, $327,000 and $505,000 for the years ended December
1996, 1995 and 1994, respectively. Future minimum rental payments under all
noncancelable operating leases as of December 31, 1996 were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
----------------------- --------------
<S> <C>
1997..................................................... $ 564
1998..................................................... 429
1999..................................................... 11
2000..................................................... 9
------
Total.................................................... $1,013
======
</TABLE>
(9) MANDATORILY REDEEMABLE PREFERRED STOCK
In February 1988, a Joint Venture was formed between Calypte, Inc. and CBC
Diagnostics, Inc. (CBC), formerly known as Purdue Frederick Diagnostics, Inc.
When the Company was incorporated, the Company issued common stock and
mandatorily redeemable Series A preferred stock in exchange for all the common
stock of Calypte, Inc. and all the interests of the venturers in the Joint
Venture. The Joint Venture's losses up to total capital contributions were
allocated to CBC, who reported the losses on its income tax return.
The Company has the option to voluntarily redeem all or a portion of the
mandatorily redeemable Series A preferred stock at any time that funds are
legally available. The Company is required to redeem all shares of mandatorily
redeemable Series A preferred stock within 60 days of any fiscal year-end in
which the Company attains $3,000,000 in retained earnings, and funds are
legally available. The mandatorily redeemable Series A preferred stock is
nonvoting.
Holders of mandatorily redeemable Series A preferred stock shares are
entitled to receive cumulative dividends at the rate of $1.20 per share per
annum. Through December 31, 1996, cumulative preferred dividends totaling
$856,000 have been charged to stockholders' equity to accrete for the
mandatorily redeemable Series A preferred stock redemption value with a
corresponding increase in the recorded amount of the mandatorily redeemable
Series A preferred stock.
In anticipation of using a portion of the proceeds from its Initial Public
Offering to redeem the Series A preferred stock, the Company eliminated the
Series A preferred stock from its articles of incorporation upon
reincorporation of the Company in Delaware in July 1996. However, management
subsequently chose not to redeem the Series A preferred stock and as of
December 31, 1996 it remains outstanding. The holders of such shares maintain
the same rights as held before the reincorporation.
(10) STOCKHOLDERS' EQUITY
Reverse Stock Split
On November 22, 1994, the stockholders and the Board of Directors approved a
1-for-10 reverse stock split of the Company's common and preferred stock. Par
value remained at $0.001. The stock accounts have been reduced and additional
paid-in capital has been increased to reflect the change in the cumulative par
value of the stock issued. All share and per share information in the
accompanying consolidated financial statements have been adjusted to reflect
this reverse stock split.
F-14
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
Convertible Preferred Stock
Upon the closing of the Company's Initial Public Offering in July 1996, a
total of 7,324,987 shares of convertible preferred stock were automatically
converted into an equal number of shares of common stock.
Initial Public Offering
On July 31, 1996, the Company completed an IPO of 2,300,000 shares of its
common stock at $6.00 per share. The Company received proceeds of $12,834,000
after deducting underwriters' discounts and commissions. Total additional
expenses associated with the IPO were approximately $930,000, resulting in
estimated net proceeds of $11,904,000.
On August 8, 1996, the underwriters exercised an over-allotment option to
purchase an additional 236,259 shares of the Company's common stock at $6.00
per share. Proceeds of approximately $1,318,000 after deducting underwriters'
discounts and commissions were received on August 13, 1996.
Preferred Stock
Effective upon the closing of the Company's IPO, which occurred in July
1996, the Board of Directors received the authority to issue up to 5,000,000
shares of $0.001 par value preferred stock. No shares were issued or
outstanding at December 31, 1996.
Stock Warrants and Options
During 1993, the Company issued stock warrants for the purchase of 35,155
shares of the Company's common stock at exercise prices ranging from $5.00 to
$7.50 per share as partial consideration for obtaining two lease lines of
credit (Note 8). These warrants expire in 2003.
During 1995, the Company made an investment in Pepgen, a development stage
enterprise. The Company's investment consisted in part, of options for the
purchase of up to 475,000 shares of the Company's common stock at an exercise
price of $7.50 per share (Note 13). The options expire at the earlier of
September 2005 or three years after becoming exercisable.
In conjunction with the Series D convertible preferred stock offerings
during 1993 and 1994, the Company issued stock warrants for the purchase of
2,800 shares of the Company's Series D convertible preferred stock at an
exercise price of $6.00 per share. Upon the closing of the IPO, these warrants
became common stock warrants. These warrants expire during 1997.
In conjunction with the Series E convertible preferred stock offering in
1994 and 1995, the Company issued stock warrants for the purchase of 1,964,146
shares of the Company's Series E convertible preferred stock. Upon the closing
of the IPO, these warrants became common stock warrants. 371,539 stock
warrants expired during 1996. The remaining warrants are exercisable at $5.00
per share and expire in November 1997. As of December 31, 1996, there were
852,900 warrants outstanding.
Change of Control Provisions
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying any change in the
control of the Company and may maintain the incumbency of the Board of
Directors and management. The authorization of undesignated preferred stock
makes it possible for the Board of Directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of the Company.
F-15
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(11) INCENTIVE STOCK AND STOCK OPTIONS PLANS
In April 1991, the Company's Board of Directors approved the adoption of the
Company's Incentive Stock Plan (the Stock Plan) which authorized the issuance
of up to 290,992 shares of the Company's common stock. In January 1992 and
November 1994, 200,000 and 1,000,000 additional shares, respectively, of
common stock were authorized by the Company's Board of Directors for issuance
under the Stock Plan. In December 1995, 1,250,000 additional shares of common
stock were authorized by the Company's Board of Directors. Under the Stock
Plan, employees or consultants may be granted options that allow for the
purchase of shares of the Company's common stock.
Under the terms of the Stock Plan, nonstatutory stock options may be granted
only to employees, including directors who are employees, and consultants.
Incentive stock options may be granted only to employees.
Nonstatutory stock options may be granted under the Stock Plan at a price
not less than 85% of the fair market value of the common stock on the date the
option is granted. Incentive stock options may be granted under the Stock Plan
at a price not less than 100% of the fair market value of the common stock on
the date the option is granted. Stock options granted subsequent to the IPO
were based upon market price of stock on the date of grant. Prior to the IPO,
the fair value of the common stock was determined by the Board of Directors
and included consideration of a variety of factors including other equity
transactions of the Company. Subsequent to the IPO, the fair value of common
stock is determined by the closing market price on the date of grant. Options
granted under the Stock Plan generally vest monthly over four to five years.
The term of the nonstatutory and incentive stock options granted is 10 years
or less from the date of the grant, as provided in the option agreements.
Incentive and nonstatutory stock options granted to employees and
consultants who, on the date of grant, own stock representing more than 10% of
the voting power of all classes of stock of the Company are granted at an
exercise price not less than 110% of the fair market value of the common
stock. Any options granted are exercisable at the time and under conditions as
determined by the Company's Board of Directors. The Board of Directors may
amend or modify the Stock Plan at any time. The Stock Plan will terminate in
2001, unless sooner terminated by the Board of Directors.
For the years ended December 31, 1996 and 1995, the Company has recorded
deferred compensation of $299,000 and $567,000, respectively, for certain of
the Company's common stock options granted under the Stock Plan. This amount
is being amortized over the relevant period of benefits. For the years ended
December 31, 1996 and 1995, $302,000 and $201,000, respectively, was
amortized. There was no deferred compensation or related amortization recorded
in 1994.
F-16
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
The following table summarizes activity under the Stock Plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding as of December 31, 1993.............. 281,893 $0.33
Granted........................................ 148,582 0.56
Exercised...................................... (31,334) 0.39
Canceled....................................... (84,314) 0.39
--------- -----
Outstanding as of December 31, 1994.............. 314,827 0.42
Granted........................................ 992,371 0.57
Exercised...................................... (4,547) 0.50
Canceled....................................... (17,237) 0.55
--------- -----
Outstanding as of December 31, 1995.............. 1,285,414 0.54
Granted........................................ 110,700 4.91
Exercised...................................... (13,577) 0.78
Canceled....................................... (7,072) 0.93
--------- -----
Outstanding as of December 31, 1996.............. 1,375,465 $0.88
========= =====
Exercisable as of December 31, 1995.............. 543,799 $0.45
========= =====
Exercisable as of December 31, 1996.............. 841,478 $0.63
========= =====
</TABLE>
As of December 31, 1996, 1,225,546 shares of common stock were available for
grant under the Stock Plan. The per share weighted-average fair value of stock
options granted during 1996 and 1995 was $5.02 and $0.91 on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions: 1996--expected dividend yield 0.0%, risk free interest
rate of 6.2%, volatility of 50%, and an expected life of 7 years; 1995--
expected dividend yield of 0.0%, risk-free interest rate of 6.2%, volatility
of 50%, and expected life of 6 years.
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------------
NUMBER WEIGHTED-AVG NUMBER
OUTSTANDING REMAINING YEARS WEIGHTED-AVG EXERCISABLE WEIGHTED-AVG
RANGE OF EXERCISE PRICES AT 12/31/96 TO EXPIRATION EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ------------------------ ----------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.20--$0.22............ 117,690 0.32 $0.22 117,690 $0.22
$0.40--$0.50............ 1,043,901 4.04 $0.50 669,553 $0.50
$1.00................... 124,024 5.93 $1.00 32,485 $1.00
$5.00--$7.00............ 89,850 9.89 $6.05 21,750 $6.38
--------- -------
$0.20--$7.00............ 1,375,465 841,478
========= =======
</TABLE>
1995 Director Option Plan
In December 1995, the Company's Board of Directors approved the Company's
Director Option Plan (the Director Option Plan) subject to the closing of the
Company's IPO of its common stock. Under the Director Option Plan, the Company
has reserved 200,000 shares of common stock for issuance to the directors of
the Company pursuant to nonstatutory stock options. Under the Director Option
Plan, directors who are not employees or consultants of the Company
automatically receive an option to purchase 12,000 shares of common stock (the
First Option) on the date on which such person first becomes a director,
whether through election by
F-17
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
the stockholders of the Company or appointment by the Board of Directors to
fill a vacancy. Thereafter, each person shall receive an option to acquire
3,000 shares of the Company's common stock (the Subsequent Option) on each
date such outside director is reelected. Each option granted under the
Director Option Plan shall be exercisable at 100% of the fair market value of
the Company's common stock on the date such option was granted. Twenty-five
percent of the First Option shall vest one year after the date of grant, with
25% vesting each anniversary thereafter. Twelve and one-half percent of the
shares subject to the Subsequent Option shall be exercisable on the first day
of each month following the date of grant. The plan shall be in effect for a
term of ten years unless sooner terminated under the Director Option Plan.
The Company has not recorded any deferred compensation for the Company's
common stock options granted under the Director Option Plan.
The following table summarizes activity under the Director Option Plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding as of December 31, 1995................. -- $ --
Granted........................................... 40,000 7.00
Exercised......................................... -- --
Canceled.......................................... -- --
------ ------
Outstanding as of December 31, 1996................. 40,000 $ 7.00
====== ======
Exercisable as of December 31, 1996................. -- $ --
====== ======
</TABLE>
As of December 31, 1996, 160,000 shares of common stock were available for
grant under the Director Option Plan. The per share weighted-average fair
value of stock options granted during 1996 was $3.91 on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
expected dividend yield 0.0%, risk free interest rate of 6.2%, volatility of
50%, and an expected life of 6 years.
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------------
NUMBER WEIGHTED-AVG NUMBER
OUTSTANDING REMAINING YEARS WEIGHTED-AVG EXERCISABLE WEIGHTED-AVG
RANGE OF EXERCISE PRICES AT 12/31/96 TO EXPIRATION EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ------------------------ ----------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$7.00... 40,000 9.97 $7.00 -- --
</TABLE>
1995 Employee Stock Purchase Plan
In December 1995, the Company's Board of Directors approved the Company's
Employee Stock Purchase Plan (the Purchase Plan) subject to the closing of the
Company's IPO of its common stock. The Purchase Plan is intended to qualify
under Section 423 of the Internal Revenue Code (the Code). The Company has
reserved 300,000 shares of common stock for issuance under the Purchase Plan.
Under the Purchase Plan, an eligible employee may purchase shares of common
stock from the Company through payroll deductions of up to 10% of his or her
compensation, at a price per share equal to 85% of the lower of (i) the fair
market value of the Company's common stock on the first day of an offering
period under the Purchase Plan or (ii) the fair market value of the common
stock on the last day of the six month purchase period during the offering
period. Except for the first offering period, each offering period will last
for twenty-four months; stock purchases take place every 6 months (April 30
and October 31 of each year). The first period commenced on the first day of
trading,
F-18
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
July 26, 1996. Any employee who is customarily employed for at least 20 hours
per week and more than five months per calendar year, who has been employed
for at least three consecutive months on or before the commencement date of an
offering period is eligible to participate in the Purchase Plan. As of
December 31, 1996, 3,643 shares had been purchased under the Purchase Plan.
Under SFAS No. 123, compensation cost is recognized for the fair value of
the employees' purchase rights. The per share weighted-average fair value of
those purchase rights granted in 1996 was $2.50 on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: expected
dividend yield 0.0%, risk free interest rate of 5.5%, volatility of 50%, and
an expected life of 1.25 years.
Pro Forma Disclosure
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Net loss
As reported.................................. $(10,220) $(10,411)
Pro forma.................................... (10,297) (10,736)
Net loss per share
As reported.................................. $ (1.17) $ (1.50)
Pro forma.................................... (1.18) (1.55)
</TABLE>
Pro forma net loss reflects only options granted in 1996 and 1995 as well as
purchase rights granted in 1996. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net loss amounts presented above because compensation cost is
reflected over the options' vesting period of five years or less and
compensation cost for options granted prior to January 1, 1995 is not
considered.
(12) SECTION 401(K) PLAN
In October 1995 (effective January 1, 1995), the Company adopted a
Retirement Savings and Investment Plan (the 401(k) Plan) covering the
Company's full-time employees located in the United States. The 401(k) Plan is
intended to qualify under Section 401(k) of the Internal Revenue Code, so that
contribution to the 401(k) Plan by employees or by the Company, and the
investment earnings thereon, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by the Company, if any will be
deductible by the Company when made. Pursuant to the 401(k) Plan, employees
may elect to reduce their current compensation by up to the statutorily
prescribed annual limit and to have the amount of such reduction contributed
to the 401(k) Plan. The 401(k) Plan permits, but does not require, additional
matching contributions to the 401(k) Plan by the Company on behalf of all
participants in the 401(k) Plan. The Company has not made any contributions to
the 401(k) Plan.
(13) INVESTMENT IN PEPGEN CORPORATION
During 1995, the Company purchased a 49% equity interest in Pepgen for $1.0
million paid at closing, $1.0 million payable to Pepgen pursuant to a
promissory note (Note 7) and options to purchase the Company's common stock
valued at $500,000. The options were granted to Pepgen's stockholders for the
purchase of an aggregate of 475,000 shares (Note 10) of the Company's common
stock at a price of $7.50 per share, of which
F-19
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
100,000 of such shares were immediately exercisable upon signing of the
agreement and the remaining 375,000 shares become exercisable upon attainment
of certain milestones. The Company valued the options utilizing the Black-
Scholes option-pricing model which considered the terms of the options, other
market assumptions consistent with those as determined by an independent
valuation appraiser, a volatility index for the biotechnology industry and
certain other factors related to the probability and timing of attaining
related milestones. The options expire at the earlier of September 2005 or
three years after becoming exercisable. In addition, Calypte has the right of
first negotiation to purchase the remaining 51% of Pepgen at fair market
value, and the Company is entitled to elect two of the seven Board members of
Pepgen. The Company paid the $1.0 million promissory note during 1996. The
Company has no further commitments to provide funds to Pepgen.
(14) INCOME TAXES
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to pretax losses as a result of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense.................. $(3,413) $(3,418) $(1,830)
Meals and entertainment expenses, and officer's
life insurance
not deductible for income taxes................. 8 5 7
Research expenses................................ 32 86 63
State tax expense................................ 1 1 1
Losses and credits for which no benefits has been
recognized...................................... 3,466 3,334 1,790
Change in the beginning of year valuation
allowance due to
change in state tax rate........................ (38) -- --
Other............................................ (54) (7) (30)
------- ------- -------
$ 2 $ 1 $ 1
======= ======= =======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Employee benefits reserves, including accrued
vacation............................................ $ 37 $ 26
Start-up and other capitalization.................... 6 7
Fixed assets, due to differences in depreciation..... 341 299
Deferred rent........................................ 221 35
Net operating loss carryover......................... 12,011 8,941
Research and development credit...................... 832 921
Loss contingency..................................... 60 20
Purchased research and development................... 871 978
Other operating reserves............................. 410 --
Other................................................ 223 --
-------- --------
Total gross deferred tax assets.................... 15,012 11,227
Valuation allowance.................................... (15,012) (11,227)
-------- --------
Net deferred tax asset............................. $ -- $ --
======== ========
</TABLE>
F-20
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
The net change in the valuation allowance for the years ended December 1996,
1995 and 1994 was an increase of $3,785,000, $4,033,000, $2,142,000,
respectively. Because there is uncertainty regarding the Company's ability to
realize its deferred tax assets, a 100% valuation allowance has been
established. When realized, approximately $30,000 of deferred tax assets will
be creditable to paid-in capital.
As of December 31, 1996, the Company had federal tax net operating loss
carryforwards of approximately $32,547,000, which will expire in the years
2004 through 2011. The Company also has federal research and development
credit carryforwards as of December 31, 1996 of approximately $648,000, which
will expire in the years 2005 through 2011.
State tax net operating loss carryforwards were approximately $16,203,000
and state research and development credit carryforwards were $278,000 as of
December 31, 1996. The state net operating loss carryforward will expire in
the years 1997 through 2001 and the state research and development credits
will expire in the years 2005 through 2011.
The Company's ability to utilize its net operating loss and research and
development tax credit carryforwards may be limited in the future if it is
determined that the Company experienced an ownership change, as defined in
Section 382 of the Internal Revenue Code, as a result of prior transactions or
upon the completion of the IPO.
(15) ROYALTY, LICENSE, AND RESEARCH AGREEMENTS
Royalty and License Agreements
The Company has entered into an agreement that provides for royalty payments
to former related parties based on sales of certain products conceived by the
former related parties prior to March 30, 1989.
The Company has entered into arrangements with various organizations to
receive the right to utilize certain patents and proprietary rights under
licensing agreements in exchange for the Company making certain royalty
payments based on sales of certain products and services. The royalty
obligations are based on a percentage of net sales of licensed products and
include minimum annual royalty payments under some agreements.
Research Agreement
As amended in 1994, the Company entered into a research agreement that
allowed for a university to perform certain research on behalf of the Company
for a seven-year period. Under the terms of the agreement, the Company may
negotiate certain license rights to the inventions made by the university
resulting from this research. The Company's annual payment under this
agreement is approximately $150,000 through 1999.
(16) DISTRIBUTION AGREEMENTS
Seradyn, Inc.
In April 1995, the Company entered into an agreement of Seradyn, Inc.
(Seradyn), under which Seradyn was granted exclusive distribution rights for
the Company's urine-based HIV-1 test under the trade name "Seradyn Sentinel"
for all non-Calypte accounts in the United States and all customers in Europe,
Latin America, Africa, and the Middle East (excluding Israel). The agreement
provides for certain minimum purchases by Seradyn. If such minimum purchases
are not met, the Company has the right to terminate the agreement or render
Seradyn's rights non-exclusive for the region in which the minimum purchases
were not met provided
F-21
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
that Seradyn will be guaranteed the prices given to Calypte's most favored
customers in the territory. The initial term of the agreement extends through
December 1998. Seradyn has the right to extend the agreement for successive
two-year terms provided it has met minimum sales requirements. Seradyn has
agreed to assist the Company in obtaining regulatory approvals in its
distribution territory at the Company's expense. The agreement also grants
Seradyn a right of first refusal on distribution rights for certain new
products which may be developed during the term of the agreement.
Otsuka Pharmaceutical Co., Ltd.
In August 1994, the Company entered into a distribution agreement with
Otsuka Pharmaceutical Co., Ltd. (Otsuka), a drug development and distribution
company incorporated in Japan. Otsuka is also a stockholder of the Company.
The agreement gives Otsuka exclusive distribution rights for the Company's
urine-based HIV-1 test and to use the name "Calypte" to market the test in 22
Asian countries, Australia and New Zealand. To maintain exclusivity, the
agreement requires that Otsuka purchase certain annual minimums, which
increase each year, and total 70 million tests over ten years. Otsuka has
agreed to use its best efforts to obtain regulatory approvals for the product
in its territory. In 1993, Otsuka paid $500,000 to the Company to be applied
against future commercial product purchases from the Company. The Company
recorded this $500,000 payment as deferred revenue as of December 31, 1996 and
1995.
The agreement between the Company and Otsuka is for a term of ten years, and
is terminable without cause by Otsuka upon 120-days notice. The Company has
committed up to one-half of its total manufacturing capacity to Otsuka. If the
Company is unable to meet Otsuka's manufacturing requirements, Otsuka has a
right to manufacture tests itself. The agreement also grants Otsuka the right
of first refusal to distribute certain new products which may be developed
during the term of the agreement.
Travenol Laboratories (Israel) Ltd.
In December 1994, the Company entered into an agreement with Travenol
Laboratories (Israel) Ltd. (Travenol). The agreement gives Travenol exclusive
rights to distribute the Company's urine-based HIV-1 test under the trade name
"Calypte" within Israel. Under the agreement, Travenol will undertake
registration of the product in Israel with the Company paying regulatory fees.
The term of the agreement is perpetual unless terminated earlier for specified
causes. No minimum purchase levels are required under this agreement.
(17) CONSULTING AND EMPLOYEE AGREEMENTS
On April 10, 1995, the Company entered into an employment agreement with an
officer which was originally effective from May 1, 1995 through December 31,
1996. Under the agreement the officer is receiving a salary of $195,000 per
year and is eligible for a bonus under the Company's bonus plan. The agreement
is automatically renewable each year subject to three months notice prior to
the end of each calendar year. This agreement has been renewed for the 1997
calendar year. In the event the officer's employment with the Company is
terminated by the Company other than for cause, the officer is entitled to
receive his base salary for up to nine months. In addition, the Company agreed
to pay the officer's relocation expenses in connection with his move to
California.
On January 1, 1995, the Company entered into an employment agreement with an
officer for the year ended December 31, 1995, which provided for an annual
salary of $140,000 plus an annual bonus not to exceed $35,000 per year. The
agreement is automatically renewable each year subject to three months notice
prior to the end of each calendar year. This agreement has been renewed for
the 1997 calendar year. In the event the officer's employment is terminated by
the Company other than for cause, the officer is entitled to receive his base
salary for six months.
F-22
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
In October 1995, the Company entered into an employment agreement with an
officer for a term from October 1995 through December 1996, which provided for
an annual salary of $125,000 and a bonus under the Company's bonus plan,
reimbursement for the cost of a corporate apartment, which expenses shall be
increased sufficiently to reimburse for taxes owed on such expenses, and
certain change in control provisions. The agreement is automatically renewable
each year subject to three months notice prior to the end of the calendar
year. In the event the officer's employment is terminated by the Company other
than for cause, the officer will receive his base salary for six months. This
agreement has been renewed for the 1997 calendar year.
The Company has entered into other employee and consulting agreements with
varying terms, in the ordinary course of business.
(18) RELATED PARTY TRANSACTIONS
Included in revenue earned under research and development contracts is
$2,099,000 for the period from February 18, 1988 (inception) to December 31,
1996 earned from CBC or its affiliates. The founders of the Company included
entities affiliated with CBC.
In March 1992, the Company advanced $85,000 to a stockholder and officer of
the Company in exchange for a note receivable issued by the stockholder and
officer. In anticipation of the forgiveness of a portion of the note, the
Company wrote-off half of the note during 1995. The entire note was forgiven
during 1996. Interest income recognized by the Company and paid by the
borrower was $4,000, $6,000, and $6,000 in 1996, 1995, and 1994, respectively.
In January 1994, the Company entered into an agreement with a stockholder of
the Company for management services. Expense related to cash payments under
this agreement for such services was $83,000, $138,000 and $135,000 for 1996,
1995 and 1994, respectively. In addition, options to purchase 154,276 shares
of the Company's common stock at a per share price of $0.50 were granted to
the stockholder.
During 1996, the Company paid $72,000 to Pepgen for an exclusive license to
all technology that relates to urine-based diagnostics developed by Pepgen.
The Company expects to renew this license in 1997 under similar terms.
F-23
<PAGE>
EXHIBIT 3.4
RESTATED CERTIFICATE OF INCORPORATION
OF
CALYPTE BIOMEDICAL CORPORATION
The following Restated Certificate of Incorporation of Calypte Biomedical
Corporation (i) restates the provisions of the Certificate of Incorporation of
Calypte Biomedical Corporation filed with the Secretary of State of the State of
Delaware on June 11, 1996, and (ii) supersedes the original Certificate of
Incorporation and all prior restatements thereof and amendments thereto in their
entirety.
ARTICLE I
The name of the corporation is Calypte Biomedical Corporation. (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.001 par value, and Preferred Stock,
$0.001 par value. The total number of shares that the Corporation is authorized
to issue is 25,000,000 shares. The number of shares of Common Stock authorized
is 20,000,000. The number of shares of Preferred authorized is 5,000,000.
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the board of directors (authority to do so being hereby expressly vested in the
board). The board of directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The board of directors, within the limits and restrictions stated in any
resolution or resolutions of the board of directors originally fixing the number
<PAGE>
of shares constituting any series, may increase or decrease (but not below the
number of shares in any such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.
The authority of the board of directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and the number of
shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or series shall
be declared and paid, or set aside for payment, whether dividends at the rate so
determined shall be cumulative or accruing, and whether the shares of such class
or series shall be entitled to any participating or other dividends in addition
to dividends at the rate so determined, and if so, on what terms;
(c) the right or obligation, if any, of the corporation to redeem shares of
the particular class or series of Preferred Stock and, if redeemable, the price,
terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and the amount
or amounts per share, which the shares of such class or series of Preferred
Stock shall be entitled to receive upon any voluntary of involuntary
liquidation, dissolution or winding up of the Corporation;
(e) the terms and conditions, if any, upon which shares of such class or
series shall be convertible into, or exchangeable for, shares of capital stock
of any other class or series, including the price or prices or the rate or rates
of conversion or exchange and the terms of adjustment, if any.
(f) the obligation, if any, of the corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, on the issuance of additional shares of such
class or series or any shares of any other class of series of Preferred Stock;
(h) limitations, if any, on the issuance of additional shares of such class
or series or any shares of any other class or series of Preferred Stock; and
(i) such other preferences, powers, qualifications, special or relative
rights and privileges thereof as the board of directors of the corporation,
acting in accordance with this Restated Certificate of Incorporation, may deem
advisable and are not inconsistent with law and the provisions of this Restated
Certificate of Incorporation.
-2-
<PAGE>
ARTICLE V
The Corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
1. Limitation of Liability. To the fullest extent permitted by the
-----------------------
General Corporation Law of the State of Delaware as the same exists or as may
hereafter be amended, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
2. Indemnification. The Corporation may indemnify to the fullest extent
---------------
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the Corporation, or any predecessor of
the Corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the Corporation or any predecessor to the
Corporation.
3. Amendments. Neither any amendment nor repeal of this Article VII, nor
----------
the adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of this
Article VII, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VII, would accrue or arise,
prior to such amendment, repeal, or adoption of an inconsistent provision.
ARTICLE VIII
In the event any shares of Preferred Stock shall be redeemed or converted
pursuant to the terms hereof, the shares so converted or redeemed shall not
revert to the status of authorized but unissued shares, but instead shall be
canceled and shall not be re-issuable by the Corporation.
-3-
<PAGE>
ARTICLE IX
Holders of stock of any class or series of this corporation shall not be
entitled to cumulate their votes for the election of directors of any other
matter submitted to a vote of the stockholders, unless such cumulative voting is
required pursuant to Sections 2115 and/or 301.5 of the California Corporations
Code, in which event each such holder shall be entitled to as many votes as
shall equal the number of votes which (except for this provision as to
cumulative voting) such holder would be entitled to cast for the election of
directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and the holder may cast all of such votes for a
single director or may distribute them among the number of directors to be voted
for, or for any two or more of them as such holder may see fit, so long as the
name of the candidate for director shall have been placed in nomination prior to
the voting and the stockholder, or any other holder of the same class or series
of stock, has given notice at the meeting prior to the voting of the intention
to cumulate votes.
ARTICLE X
1. Number of Directors. The number of directors which constitutes the
-------------------
whole Board of Directors of the corporation shall be designated in the Bylaws of
the corporation.
2. Election of Directors. Elections of directors need not be by written
---------------------
ballot unless the Bylaws of the corporation shall so provide.
ARTICLE XI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the corporation.
ARTICLE XII
Immediately upon the closing of a public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
any of the corporation's securities (as that term is defined under the
Securities Act of 1933, as then in effect), no action shall be taken by the
stockholders of the corporation except at an annual or special meeting of the
stockholders called in accordance with the Bylaws of the corporation and no
action shall be taken by the stockholders by written consent.
ARTICLE XIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
-4-
<PAGE>
This Restated Certificate of Incorporation has been duly adopted by the
board of directors of the Corporation in accordance with the provisions of
Sections 242 and 245 of the General Corporation Law of the State of Delaware, as
amended.
This Restated Certificate of Incorporation has been duly approved by the
shareholders of the Corporation in accordance with the provisions of Section 228
of the General Corporation Law of the State of Delaware, as amended.
IN WITNESS WHEREOF, Calypte Biomedical Corporation has caused this
certificate to be signed by John P. Davis, its President and Chief Executive
Officer, and John J. DiPietro, its Secretary, this 31st day of July, 1996.
By: /s/ John P. Davis
--------------------------------------------
John P. Davis, President and Chief Executive
Officer
ATTEST:
/s/ John J. DiPietro
- ---------------------------
John J. DiPietro, Secretary
-5-
<PAGE>
EXHIBIT 10.37
26 SUNSET DRIVE
KENSINGTON, CALIFORNIA 94707
-------------------
510/524-5525
LEASE EXTENSION AGREEMENT
This agreement is dated January 23, 1997 for reference purposes and is an
additional modification to the current Lease dated November 30, 1990 between
Charles A. Grant and Mark Greenberg (LESSOR) and Urnotech Calypte Biomedical
Corporation (LESSEE) for the property known as 1440 Fourth Street, Berkeley,
California:
1) DECLINATION OF TWO YEAR EXTENSION OPTION. LESSEE hereby declines to exercise
its option to extend the Lease through June 1999.
2) LEASE EXTENDED THROUGH JUNE 1998. The Lease is hereby extended for one year
through June 30, 1998. The lease rate for this extension period will continue at
$16,000 per month through December 1997 and will increase to $17,000 per month
beginning January 1998.
3) LEASE EXTENSION OPTION THROUGH JUNE 1999. LESSEE is granted an option to
extend the lease through June 30, 1999. LESSEE may exercise this option by
giving written notice to LESSOR by January 15, 1998. The lease rate for the
extended period will continue at $17,000 per month through December 1998 and
increase to $18,000 per month thereafter.
SIGNED: /s/ Charles A. Grant Gen. Part. 1-23-97
------------------------------------------------
FOR LESSOR TITLE DATE
SIGNED: /s/ John J. DiPietro CFO 2-3-97
------------------------------------------------
FOR LESSEE TITLE DATE
<PAGE>
EXHIBIT 10.38
EMPLOYMENT AGREEMENT
AGREEMENT made and entered into effective as of October 1, 1995, between
Calypte Biomedical Corporation, a California corporation with its principal
office at 1440 Fourth Street, Berkeley, California, 94710 (the "Company") and
John J. DiPietro whose residence is 6458 Oberlin Way, San Jose, CA 95123 (the
"Executive").
WITNESSETH
WHEREAS, the Company desires to induce the Executive to join the Company as
its Chief Financial Officer and Vice President; and
WHEREAS, Executive desires to accept such employment with the Company upon
and subject to the terms herein provided.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and undertakings herein set forth, the parties hereto covenant and agree as
follows:
Section 1. At-Will Employment. The Company and the Executive acknowledge
------------------
that the Executive's employment shall be at-will, as defined under applicable
law. Executive's employment relationship may be terminated by either party, with
or without good cause or for any or no cause, with ninety (90) days notice. If
the Executive's employment terminates for any reason, the Executive shall not be
entitled to any payments, benefits, damages, awards or compensation other than
as provided by this Agreement, or as may otherwise be available in accordance
with the Company's established Executive plans and practices or in accordance
with other agreements between the Company and the Executive. This Agreement
shall remain in effect until the date upon which this Agreement terminates by
consent of the parties hereto.
Section 2. Compensation. The Company will pay Executive for his services
------------
a base salary at an initial annual rate of One Hundred Twenty Five Thousand
Dollars ($125,000) (the "Base Compensation") payable in accordance with normal
Company practice, but in any event not less often than monthly, subject only to
such payroll and withholding deductions as are required by law. The Executive's
salary shall be adjusted in accordance with normal merit increases consistent
with Company's policy with regard to senior management. This agreement also
provides Mr. DiPietro with reimbursement for the cost of a corporate apartment,
which expenses shall be increased sufficiently to reimburse Mr. DiPietro for the
taxes owed on such expenses. Mr. DiPietro is also eligible for a bonus under the
Company's bonus plan and shall be entitled to vacation and other benefits
provided to the Company's employees generally.
<PAGE>
Section 3. Office and Duties. Executive shall have the duties of
-----------------
Chief Financial Officer and Vice President. Executive shall have the
responsibility, subject to the Chief Executive Officer, for overseeing the
financial activities of the Company. The Board of Directors (the "Board") and
the Chief Executive Officer shall have the right to revise such compensation
from time to time as the Board and Chief Executive Officer may deem necessary or
appropriate. Executive covenants and agrees that during the term of this
agreement he will devote all of his working time, attention, and efforts to the
performance of his duties hereunder and will not engage in any other employment
or business activities, other than assisting companies discussed with the CEO or
serving on the boards of directors of other entities, without the approval of
the CEO.
Section 4. Expenses. Executive shall be entitled to reimbursement for
--------
business expenses incurred by him in connection with the performance of his
duties hereunder upon receipt of vouchers therefore in accordance with such
procedures as the Company has heretofore or may hereafter establish.
Section 5. Vacation During Employment. Executive shall be entitled to
--------------------------
four weeks vacation each year.
Section 6. Additional Benefits. To the extent he is otherwise eligible,
-------------------
Executive and his qualified dependents shall be entitled to participate in all
group insurance programs, retirement plans, profit sharing plans or other fringe
benefit plans which the Company in its sole and absolute discretion makes
available generally to its employees, provided, however, nothing herein shall
require the Company to establish or maintain any such program or plan.
Section 7. Equity Ownership. Executive shall be granted incentive stock
----------------
options to purchase 35,000 shares of Common Stock at $1.00 per share under the
terms and conditions of the Company's 1991 Stock Option Plan (attached hereto as
Exhibit B). Such options shall have a term of ten (10) years and shall be fully
vested after five (5) years. Except as otherwise provided in this Section,
vesting of such options shall cease in the event the Executive's employment is
terminated. In the event that a Change in Control (as defined below) shall
occur, then all unvested options (current and future option grants) held by
Executive to acquire stock of the Company or such successor shall become vested
and fully exercisable by Executive.
For the purpose of this Agreement, a "Change in Control" shall mean
(i) any sale of all or substantially all of the Company's assets; (ii) the
resignation or termination or other form of removal, including retirement or
death of Jack Davis, as Chief Executive Officer; (iii) any tender offer or
merger or other transaction which results in the transfer of ownership of more
than 50% of the Company's outstanding stock, or any one Company owning 50% or
more of the Company's outstanding stock; (iv) any transactions or series of
transactions within any 90 day period which, taken together, result in the
transfer of ownership of more than 25% of the Company's outstanding stock (or
the issuance of new stock such that the issuees own more than 25% of the
Company's
-2-
<PAGE>
outstanding stock) which transfer of ownership (or which issuance), within 90
days thereafter, results in either (A) the resignation or termination of the
Chief Executive Officer in office at the time of such transfer (or issuance), or
(B) the resignation or termination of a majority of the Company's officers (as
such term is defined in Rule 16a-l(f) under the Securities Exchange Act of 1934)
in office at the time of such transfer (or issuance) (including, without
limitation, the Company's Chief Executive Officer and Executive); (v) a change
in the composition of the Board as of the date hereof such that a majority of
such Board members cease to be comprised of individuals who either (A) have been
Board members continuously since the date hereof or (B) have been appointed or
nominated for election by at least a majority of the Board members described in
(A) above; or (vi) any other transaction or series of transactions which the
Board designates as a Change in Control for purposes of this Agreement.
The provisions of this Section supersede all other provisions of this
Agreement so that the termination of Executive's employment by the Company
without Cause shall not deprive Executive of Executive's rights and benefits
hereunder. Any Change in Control occurring within twelve months of termination
of Executive shall automatically extend this Agreement for such period of time
as shall permit Executive to make all determinations and exercise all rights
provided Executive hereunder, and any termination of Executive by the Company
without Cause or termination by Executive for good reason within twelve months
following a Change in Control shall automatically be deemed to be an exercise by
Executive of Executive's rights under this Section.
Notwithstanding the foregoing, in the event that the successor in a
Change in Control shall assume the Company's obligations hereunder, or there
shall be no successor in a Change in Control, and the Company shall reaffirm the
Company's obligations hereunder, Employee shall at a minimum for the twelve
month period following the Change in Control be eligible for all of the
Severance Benefits identified in Section 8 of this agreement, as well as any
other benefits under this agreement.
8. Severance Benefits.
-------------------
(a) Benefits upon Termination. If the Executive's employment with
-------------------------
the Company terminates as described in this Section 8(a) and Executive signs a
Release of Claims, the Executive shall be entitled to receive severance benefits
as follows:
(i) Involuntary Termination in the First Twelve Months of
-----------------------------------------------------
Employment. If the Executive's employment terminates as a result of Involuntary
- ----------
Termination other than Cause within twelve (12) months of Executive's date of
hire, then the Company shall pay the Executive Executive's Base Compensation for
twelve (12) months after the Termination Date with each monthly installment
payable on the last day of such month.
-3-
<PAGE>
(ii) Termination After Twelve Months. If the Executive's employment
-------------------------------
terminates as a result of Involuntary Termination other than Cause more than
twelve (12) months after Executive's date of hire, then the Company shall pay
Executive Executive's Base Compensation for six (6) months after the Termination
Date with each monthly installment payable on the last day of such month.
(b) Benefits; Miscellaneous. If the Executive is entitled to severance
-----------------------
benefits under Section 8(a), then in addition to such severance benefits, the
Executive shall receive health, dental and life insurance coverage as provided
to the Executive immediately prior to the Termination Date. Such coverage shall
continue for three months following the termination date. In addition, (i) the
Company shall pay the Executive any unpaid base salary due for periods prior to
the Termination Date; (ii) the Company shall pay the Executive all of the
Executive's accrued and unused vacation through the Termination Date; and (iii)
following submission of proper expense reports by the Executive, the Company
shall reimburse the Executive for all expenses reasonably and necessarily
incurred by the Executive in connection with the business of the Company prior
to termination. These payments shall be made promptly upon termination and
within the period of time mandated by applicable law.
Section 9. Termination of Employment. Notwithstanding any other provision of
-------------------------
this Agreement.
(a) Death. Executive's employment shall terminate immediately in the
-----
event of Executive's death during the term of his employment, in which event
this Agreement shall terminate without further obligation to Executive's legal
representative under this Agreement other than those obligations accrued
hereunder as of the date of his death.
(b) Disability. The Company may terminate this Agreement after having
----------
established the Executive's Disability, by giving the Executive written notice
of its intention to terminate his employment. For purposes of this Agreement,
the term "Disability" shall mean an injury or illness which prevents the
Executive from substantially performing the duties and responsibilities for a
period of 120 days. Termination due to a Disability shall not be considered an
Involuntary Termination for purposes of this Agreement.
(c) Involuntary Termination. By a majority vote of the Board of
-----------------------
Directors, the Company may terminate the Executive's Employment at any time
during the term of this Agreement. In the event that the Employment of the
Executive is terminated by the Company, the Company shall continue to pay
Executive compensation in accordance with the provisions of Section 8.
(d) Voluntary Termination. The Executive may voluntarily terminate his
---------------------
employment at any time, in which event he shall receive no severance pay other
than accrued salary, vacation and
-4-
<PAGE>
any other such compensation, if any, which is applicable and is generally
required to be paid to a terminating Executive.
(e) For Cause. The Company may terminate the Executive for Cause. If
---------
terminated for Cause, the Company shall pay Executive his Base Compensation
through the date of termination. In addition, the vesting of stock options shall
cease as of the date of termination and the Company shall have no further
obligations to the Executive. The term "Cause" shall mean 1) acts of dishonesty
or misconduct, 2) repeated violations of Company policies, or 3) failure to
perform his duties following a written warning from the CEO, or 4) breach of any
term of this Agreement.
Section 10. Non-Competition and Confidentiality Agreement. Concurrently with the
---------------------------------------------
execution hereof, Executive shall execute and deliver a Non-Competition,
Confidentiality and Invention Assignment Agreement (attached hereto as Exhibit
C).
Section 11. No Conflict. Executive represents and warrants to the Company that
-----------
he is not now under any obligations to any person, firm or corporation, and has
no other interest which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair, in any way, the performance by him of any
of the covenants or his duties in his said employment.
Section 12. Signature by the CEO. This Agreement must be signed by the CEO prior
--------------------
to its becoming effective.
Section 13. Successors.
-----------
(a) Company's Successors. Any successor to the Company (whether direct
--------------------
or indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and assets which executes and
delivers the assumption agreement described in this Section 13(a) or which
becomes bound by the terms of this Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and all rights
----------------------
of the Executive hereunder shall inure to the benefit of, and be enforceable by,
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, devisees and legatees.
Section 14. Notice. Notices and all other communications contemplated by this
------
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the
-5-
<PAGE>
Executive, mailed notices shall be addressed to him at the home address from
which he most recently communicated to the Company in writing. In the case of
the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its Secretary. Any
termination of employment by the Company of the Executive as a result of an
Involuntary Termination shall be communicated by a notice of termination given
in accordance with this Section. Such notice shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
and shall specify the termination date (which shall be not more than fifteen
(15) days after the giving of such notice).
Section 15. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. The Executive shall not be required to mitigate
-------------------
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that the Executive may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified, waived or
------
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Executive and by an authorized officer of the Company (other
than the Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Whole Agreement. This Agreement is intended to supplement and not
---------------
replace any existing agreement between the Executive and the Company. However,
no agreements, representations or understandings (whether oral or written and
whether express or implied) which are not expressly set forth in this Agreement
have been made or entered into by either party with respect to the subject
matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
(f) Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
Santa Clara County, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Punitive damages shall not
be awarded.
-6-
<PAGE>
(g) No Assignment of Benefits. The rights of any person to payments or
-------------------------
benefits under this Agreement shall not be made subject to option or assignment,
either by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this Section 15(g) shall be void.
(h) Employment Taxes. All payments made pursuant to this Agreement will
----------------
be subject to withholding of applicable income and employment taxes.
(i) Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
EXECUTIVE CALYPTE BIOMEDICAL
CORPORATION
By: /s/ John J. DiPietro By: /s/ John P. Davis
---------------------- --------------------
John J. DiPietro John P. Davis
-7-
<PAGE>
EXHIBIT 10.39
MASTER EQUIPMENT LEASE AGREEMENT
Agreement No.__________________ Dated as of September 30, 1996
between
MMC/GATX PARTNERSHIP NO. I
c/o GATX Capital Corporation, as Agent
Four Embarcadero Center
Suite 2200
San Francisco, CA 94111
as Lessor
and
CALYPTE BIOMEDICAL CORPORATION
a Delaware corporation
1265 Harbor Bay Parkway
Alameda, CA 94502
as Lessee
LESSOR'S COMMITMENT: $1,000,000
Initial Rent Factor: 3.2979% Initial Lease Term: 36 months
Treasury Base Rate: 5.98% Treasury Constant Maturity: 42 months
Initial Implicit Rate: 12.21% Minimum Implicit Rate: 10.00%
Minimum Funding Amount: $75,000 Maximum No. of Fundings: One per month
Minimum Renewal Percentage: 1.3% Minimum Purchase Option Percentage: 10%
Commitment Termination Date: December 31, 1996
Eligible Equipment: Scientific laboratory and test equipment; manufacturing
equipment; and up to $200,000 of tenant improvements.
The terms and information set forth on this cover page are a part of the
MASTER EQUIPMENT LEASE AGREEMENT, dated as of the date first written above (this
"Lease"), entered into by and between MMC/GATX PARTNERSHIP NO. I ("Lessor") and
the Lessee set forth above, the terms and conditions of which are as follows:
<PAGE>
LESSOR'S OBLIGATIONS UNDER THIS LEASE AND EACH SCHEDULE ARE SUBJECT TO THE
PRIOR SATISFACTION OF THE CONDITIONS SET FORTH ON RIDER I HERETO.
1. DEFINITIONS: Unless otherwise defined in this Lease (which term shall
include the cover page, any Rider, any Exhibit or any Schedule hereto),
capitalized terms shall have the following meanings:
"Commitment Termination Date" means the date set forth opposite such term
---------------------------
on the cover page of this Lease, or such earlier date on which Lessor terminates
its commitment to fund pursuant to the terms of this Lease.
"Delivery Date" means, with respect to any Schedule, the date first set
-------------
forth on such Schedule.
"Eligible Equipment" means Equipment of the types listed following such
------------------
term on the cover page of this Lease to the extent acceptable to Lessor.
"Environmental Law" means the Resource Conservation and Recovery Act of
-----------------
1987, the Comprehensive Environmental Response, Compensation and Liability Act,
and any other Federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree (in each case having the force of law) regulating or
imposing liability or standards of conduct concerning, any Hazardous Materials
or other hazardous, toxic or dangerous waste, constituent, or other substance,
whether solid, liquid or gas, as now or at any time hereafter in effect.
"Equipment" means all equipment, fixtures and personal property listed in
---------
any Schedule together with all replacement parts, additions, accessions and
accessories to such equipment, fixtures and personal property.
"Event of Default" shall have the meaning set forth in Section 12 hereof.
----------------
"Hazardous Materials" means any hazardous substance, pollutant or
-------------------
contaminant defined as such in any Environmental Law.
"Implicit Rate" means, with respect to a Schedule, an implicit interest
-------------
rate used in calculating the Rent Factor applicable to such Schedule, calculated
as set forth in Section 3(b) of this Lease.
"Initial Implicit Rate" means the implicit interest rate specified on the
---------------------
cover page of this Lease.
"Initial Lease Term" means the period of months set forth opposite such
------------------
term on the cover page of this Lease.
"Initial Rent Factor" means the Rent Factor set forth on the cover page of
-------------------
this Lease calculated using the Initial Implicit Rate.
"Interim Rental Payment" shall have the meaning set forth in Section 3(a)
----------------------
of this Lease.
"Lessor's Commitment" means the maximum amount that Lessor may be obligated
-------------------
to fund under the Lease, which amount is set forth opposite such term on the
cover page of this Lease.
"Lessor's Cost" with respect to a Unit of Equipment means the total cost to
-------------
Lessor of purchasing such Unit of Equipment, as indicated on the applicable
Schedule.
"Maximum Number of Fundings" means the number of fundings under this Lease
--------------------------
specified opposite such term on the cover page hereof.
"Minimum Funding Amount" means the amount set forth opposite such term on
----------------------
the cover page of this Lease.
"Minimum Implicit Rate" means the interest rate set forth opposite such
---------------------
term on the cover page to this Lease.
2
<PAGE>
"Minimum Purchase Option Percentage" means the percentage of Lessor's Cost
----------------------------------
set forth opposite such term on the cover page of this Lease.
"Minimum Renewal Percentage" means the percentage set forth opposite such
--------------------------
term on the cover page of this Lease.
"Rent Commencement Date" means the date, with respect to any Schedule, set
----------------------
forth in Section 3(a) of such Schedule, which shall be the first day of the
calendar quarter immediately following the Delivery Date for such Schedule.
"Rent Factor" means, with respect to a Schedule, the rent factor calculated
-----------
using the Implicit Rate applicable on the Delivery Date of such Schedule.
"Rental Payment" means, for any Schedule, the monthly rent payment for the
--------------
Units identified in such Schedule.
"Schedule" or "Schedule No." means a schedule in the form of Exhibit E to
-------- ------------
this Lease identifying this Lease and incorporating this Lease by reference,
which is executed by both parties hereto.
"Stipulated Loss Value" shall have the meaning set forth in Section 11(e).
---------------------
"Term" means the Initial Lease Term, together with any renewal or extension
----
thereof.
"Treasury Base Rate" means the interest rate set forth opposite such term
------------------
on the cover page of this Lease.
"Treasury Constant Maturity" means the period of months set forth opposite
--------------------------
such term on the cover page of this Lease.
"Unit" means an item of Equipment.
----
2. LEASE: Lessor agrees to lease to Lessee and Lessee agrees to lease from
Lessor the Equipment described in each Schedule on the terms and subject to the
conditions specified herein and therein. Lessor's obligation to fund Schedules
under this Lease shall terminate on the Commitment Termination Date. Lessor may,
in its sole discretion, terminate its commitment herein to fund the Lessor's
Commitment or any unfunded portion thereof at any time if: (a) there is any
material adverse change to the general affairs, management, results of
operations, condition (financial or otherwise) or prospects of Lessee, whether
or not arising from transactions in the ordinary course of business, (b) there
is any material adverse deviation by Lessee from the business plan of Lessee
presented to and not disapproved in writing by Lessor, since the date first
written on the cover page of this Lease, (c) any Event of Default exists, or (d)
if any term or condition in any Schedule is not satisfied by the Delivery Date
of such Schedule. This Lease shall constitute a "Finance Lease" under Division
10 of the California Uniform Commercial Code ("UCC"); provided, however, that
the characterization of this Lease as a "Finance Lease" is for purposes of
Division 10 of the UCC only, and shall not affect the accounting treatment of
this Lease. This Lease, and Lessee's obligation to pay all rent and other sums
hereunder, shall be absolute and unconditional, and shall not be subject to, and
Lessee hereby waives any right of or to, abatement, reduction, set-off, defense
or counterclaim. Lessee waives any and all rights and remedies conferred upon
Lessee by UCC Sections 10508 through 10522, including (without limitation)
Lessee's rights to (i) cancel or repudiate this Lease, (ii) reject or revoke
acceptance of the leased property, (iii) recover damages from Lessor for breach
of warranty or for any other reason, (iv) claim a security interest in any
rejected property in Lessee's possession or control, (v) deduct from Rental
Payments all or any part of any claimed damages resulting from Lessor's default
under this Lease, (vi) accept partial delivery of the Equipment, (vii) "cover"
by making any purchase or lease of other property in substitution for property
due from Lessor, (viii) recover from the Lessor any general, special, incidental
or consequential damages, for any
3
<PAGE>
reason whatsoever, and (ix) seek specific performance, replevin or the like for
any of the Equipment. Lessee acknowledges that, at the time of each Schedule, it
will have received and approved the terms of the agreements with the vendors
under which Lessor will, subject to the terms and conditions of this Lease,
purchase the Units covered by such Schedule. The Units shall be leased for
commercial purposes only, and not for consumer, personal, home or family
purposes. This Lease describes the terms of, and is intended by the parties
hereto to be, a true lease; provided, however, that the parties acknowledge that
the terms and conditions of the Lease may, alternatively, create a secured
financing or lease for security. If this Lease as supplemented by any Schedule
constitutes a security agreement or lease for security, the Lessee hereby grants
a security interest to Lessor in all of Lessee's right, title and interest in
the Units described in Annex A to such Schedule and the proceeds thereof, to
secure all of Lessee's obligations under this Lease and such Schedule.
3. TERM AND RENTALS: THIS LEASE SHALL BE EFFECTIVE UPON EXECUTION AND
DELIVERY HEREOF by Lessee and Lessor. (a) The Initial Lease Term for each
Schedule shall commence upon the Rent Commencement Date set forth in such
Schedule. For the Initial Lease Term of such Schedule, Lessee agrees to pay
Lessor aggregate rentals equal to the number of months in the Initial Lease Term
of such Schedule multiplied by the amount of the Rental Payment specified in
such Schedule. In addition, for the period from the Delivery Date of each
Schedule until such Schedule's Rent Commencement Date, Lessee shall pay an
interim rental ("Interim Rental Payment") equal to the product of (i) the total
annual rental for the first year of the Initial Lease Term of such Schedule
divided by 360 and (ii) the actual number of days between the Delivery Date and
the Rent Commencement Date, including the Delivery Date but excluding the Rent
Commencement Date. Lessor will make reasonable efforts to send Lessee invoices
for Rental Payments, but the failure to do so or the incorrectness of any
invoice will not relieve Lessee of its obligation to pay all amounts, including
Rental Payments, due under this Lease. The Interim Rental Payment for each
Schedule is due on the Delivery Date for such Schedule and the remaining Rental
Payments are due commencing on the Rent Commencement Date and thereafter on the
same date of each succeeding month of the term, or as specified in the
applicable Schedule. A late charge on any overdue payments shall accrue at the
rate of 1.5% per month on the overdue amount, or the highest lawful rate,
whichever is less. (b) The Rent Factor will be calculated for each Schedule
based on a basis point for basis point adjustment (if any) to the Initial
Implicit Rate equal to the change from the Treasury Base Rate in the U.S.
Treasury note rate for notes of a term equal to the Treasury Constant Maturity
as quoted three business days prior to the Delivery Date for such Schedule in
The Wall Street Journal. The Implicit Rate used for calculating the Rent Factor
- -----------------------
for any Schedule shall not be less than the Minimum Implicit Rate. (c) It is not
the intent of the parties to create rent or other payment obligations of Lessee
which will be considered usurious under applicable law. However, if any such
payment shall be found to be usurious by a court of competent jurisdiction, then
Rental Payments or such other amounts shall automatically be reduced to the
highest rate or amounts permitted by applicable law and the usurious portion of
the Rental Payments or such other amounts shall be applied to the Lessee's
remaining obligations under the Lease in a manner reasonably determined by
Lessor. If Lessee retains possession of any Unit after the expiration or
termination of this Lease, Rental Payments shall continue to be paid with
respect to such Unit at the rate set forth in Section 3(a) of the Schedule
relating to such Unit until all obligations of Lessee under this Lease relating
to such Unit, including, without limitation, Rental Payments and payments due
under Section 4 of this Lease, have been satisfied. This Lease may be terminated
only as expressly provided herein.
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4. LESSEE'S PURCHASE OF TENANT IMPROVEMENTS; OPTIONS AT END OF INITIAL
LEASE TERM FOR NON-TENANT IMPROVEMENTS:
4A. Tenant Improvements. At the expiration of the Initial Lease Term of
-------------------
each Schedule covering tenant improvements, Lessee shall purchase all of the
Units that are tenant improvements under such Schedule for a purchase price
equal to fifteen percent (15%) of Lessor's Cost of all such Units, plus any
applicable sales or other transfer tax.
4B. Non-Tenant Improvements.
-----------------------
(a) Provided that the Lease has not been terminated and that no Event of
Default or event which, with notice or lapse of time or both, would become an
Event of Default shall have occurred and be continuing, Lessee shall elect one
of the following options in clauses (i) or (ii) below:
(i) Lessee's Option to Renew: At the expiration of the Initial Lease
------------------------
Term of the first Schedule covering Units other than tenant improvements,
Lessee may elect to renew the Lease with respect to all, but not less than
all, of such Units under all Schedules to the Lease at their respective
expiration dates for not less than twelve (12) months nor more than thirty-
six (36) months for a rent equal to the "Fair Rental Value" (as defined in
Section 4B(b) below) of such Units for such additional period, but in no
event less than the Minimum Renewal Percentage of Lessor's Cost of such
Units per month, which rent shall be paid monthly in advance. At the end of
the renewal term, Lessee must purchase all of such Units for a purchase
price equal to the Fair Market Value (as defined in Section 4B(b) below)
plus any applicable sales or other transfer tax.
(ii) Lessee's Option to Purchase: At the expiration of the Initial
---------------------------
Lease Term of the first Schedule covering Units other than tenant
improvements, Lessee may elect to purchase all, but not less than all, of
such Units under all Schedules to the Lease at their respective expiration
dates for a purchase price equal to the "Fair Market Value" (as defined in
Section 4(b) below) thereof as of the end of the Initial Lease Term of the
first Schedule covering Units other than tenant improvements, but in no
event less than the Minimum Purchase Option Percentage of Lessor's Cost of
all such Units nor greater than twenty-five percent (25%) of Lessor's Cost
of all such Units, plus any applicable sales or other transfer tax.
(iii) If neither of the foregoing options in clauses (i) or (ii) of
this Section 4B(a) is duly exercised by Lessee, this Lease shall be renewed
at the rental in effect immediately prior to the renewal with respect to all
Units other than tenant improvements covered by the applicable Schedule from
the expiration date of the Initial Lease Term of such Schedule on a month-
to-month basis. Lessee may terminate any such extended term on 90 days'
notice to Lessor and shall along with such notice elect one of the options
in clauses (i) or (ii) above.
Either of the foregoing options in clauses (i) or (ii) shall be exercised by
written notice delivered to Lessor not more than 180 days and not less than 120
days prior to the expiration of the Initial Lease Term of the Units which are
subject to the first Schedule covering Units other than tenant improvements.
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(b) Fair Market Value or Fair Rental Value, as the case may be, shall be
determined on the basis of and shall be equal in amount to the value which
would obtain in an arm's-length transaction between an informed and willing
buyer-user or lessee-user (other than a used equipment dealer) and an informed
and willing seller or lessor under no compulsion to sell or lease, on the
assumptions that: such Units (i) are being sold "in place and in use"; (ii) are
free and clear of all liens and encumbrances; and (iii) are in the condition
required upon the return of the Units under Section 9 of this Lease. In such
determination, costs of removal from the location of current use shall not be a
deduction from such value(s).
(c) If the Lessor and Lessee have not agreed upon a determination of the
Fair Market Value or Fair Rental Value of any Unit within 30 days after one of
the parties has requested such determination, that determination shall be made
by a certified independent appraiser approved by both Lessor and Lessee, such
approvals not to be unreasonably withheld. The appraiser shall be furnished
with a letter of instruction concerning the preparation of the appraisal,
together with a copy of the Lease and Schedule and, to the extent available,
related purchase orders and/or invoices. The appraiser shall be instructed to
make such determination within 30 days following appointment. The determination
made by the appraiser shall be final and binding on both Lessor and Lessee. The
fees and expenses of any appraisal shall be paid by the Lessee, if such
appraisal is needed for the Lessor's exercise of its remedies under Sections 12
and 13 hereof, and equally by the Lessor and Lessee otherwise.
4C. General. The purchase of the Units by Lessee pursuant to this Section
-------
4 shall be "AS IS, WHERE IS", without recourse to or any warranty by Lessor,
other than a warranty that the Units are free and clear of liens and
encumbrances resulting from acts of Lessor.
5. WARRANTIES; INDEMNITY:
(a) Lessee acknowledges that it has made the selection of each Unit based
upon its own judgment. LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES INCLUDING,
WITHOUT LIMITATION, THOSE OF DESCRIPTION, INFRINGEMENT, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR USE OR PURPOSE WITH RESPECT TO THE EQUIPMENT AND
HEREBY DISCLAIMS THE SAME. Lessor shall have no liability for any damages,
whether direct or consequential, incurred by Lessee as a result of any defect or
malfunction of a Unit. Lessee agrees to look solely to the manufacturer or
vendor of any defective or malfunctioning Unit for the repair or replacement of
such Unit and to continue to make all Rental Payments with respect to such Unit
in spite of such defect or malfunction. Lessor hereby assigns to Lessee, for
and during the Term, any warranty, guaranty or indemnity of the manufacturer or
vendor issued to Lessor with respect to any Unit.
(b) Lessee shall indemnify, reimburse and hold Lessor (including, without
limitation, each of its partners) and each of their respective successors,
assigns, officers, directors, shareholders, servants, agents and employees
harmless from and against all liabilities, losses, damages, actions, suits,
demands, claims of any kind and nature (including, without limitation, claims
relating to environmental discharge, cleanup or compliance), and all costs and
expenses whatsoever to the extent they may be incurred or suffered by such
indemnified party in connection therewith (including, without limitation,
reasonable attorneys' fees and expenses), fines, penalties (and other charges
of
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<PAGE>
applicable governmental authorities), licensing fees relating to any Unit,
damage to or loss of use of property (including, without limitation,
consequential or special damages to third parties or damages to Lessee's
property), or bodily injury to or death of any person (including, without
limitation, any agent or employee of Lessee) (each a "Claim"), directly or
indirectly relating to or arising out of the acquisition, use, lease or
sublease, ownership, operation, possession, control, storage or condition of any
Unit (regardless of whether such Unit is at the time in the possession of
Lessee), the falsity of any non-tax representation or warranty of Lessee or
Lessee's failure to comply with the terms of the Lease during the Term. The
foregoing indemnity shall cover, without limitation, (i) any Claim in connection
with a design or other defect (latent or patent) in any Unit, (ii) any Claim for
infringement of any patent, copyright,trademark or other intellectual property
right, (iii) any Claim resulting from the presence on or under or the escape,
seepage, leakage, spillage, discharge, emission or release from any Unit of any
Hazardous Materials, including, without limitation, any Claims asserted or
arising under any Environmental Law, or (iv) any Claim for negligence or strict
or absolute liability in tort; provided, however, that Lessee shall not
-----------------
indemnify Lessor for any liability incurred by Lessor as a direct and sole
result of Lessor's gross negligence or willful misconduct. Such indemnities
shall continue in full force and effect, notwithstanding the expiration or
termination of this Lease. Upon Lessor's written demand, Lessee shall assume and
diligently conduct, at its sole cost and expense, the entire defense of Lessor
and its agents, employees, successors and assigns against any indemnified Claim
described in this Section 5. Lessee shall not settle or compromise any Claim
against or involving Lessor without first obtaining Lessor's written consent
thereto, which consent shall not be unreasonably withheld.
6. TITLE, LOCATION AND RETURN: Lessor and Lessee hereby confirm their
intent that the Equipment remain and be deemed personal property and that title
thereto shall remain in Lessor. If requested by Lessor, Lessee will affix plates
or markings on the Equipment indicating the interests of Lessor. Lessee may not
remove the Equipment from its place of installation without Lessor's prior
written consent, which consent shall not be unreasonably withheld. Lessor shall
have the right to inspect the Equipment during regular business hours, with
reasonable notice, and in compliance with Lessee's reasonable security
procedures. If for any reason the Equipment is to be returned to Lessor on
Lessor's demand hereunder, Lessee at its own risk and expense, will cause the
Equipment to be delivered promptly to Lessor free of all Hazardous Materials and
in the same condition as when delivered hereunder, ordinary wear and tear
excepted, to such point in the United States as Lessor may designate and in such
a manner as is consistent with the manufacturer's recommendations, if any, for
transportation and packaging of such Equipment. All charges to cover Equipment
transportation, deinstallation, storage until returned, packing, and handling
and all other costs associated with a return of the Equipment to the location
designated by Lessor shall be paid by Lessee.
7. SUBLEASE, ASSIGNMENT: Lessee acknowledges and agrees that Lessor may,
subject to the terms of this Lease, sell, assign, grant a security interest in,
or otherwise transfer all or any part of its rights, title and interest in this
Lease and the Equipment. Upon Lessor's written notice, Lessee shall, if
requested, pay directly to such assignee without abatement, deduction or set-off
all amounts which become due hereunder. Lessee waives and agrees it will not
assert against such assignee any counterclaim or set-off in any action for rent
under the Lease. Such assignee shall have and be entitled to exercise any and
all rights and remedies of Lessor hereunder, and all references herein to Lessor
shall include Lessor's assignee. Lessee acknowledges that such a sale,
assignment,
7
<PAGE>
grant or transfer would neither materially change Lessee's duties nor materially
increase the burdens or risks imposed on the Lessee under this Lease. LESSEE MAY
NOT, WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, (i) SUBLEASE, TRANSFER, DISPOSE OF
OR ASSIGN ITS RIGHTS IN RESPECT OF ANY UNIT OR ITS OBLIGATIONS UNDER THIS LEASE
OR (ii) ASSIGN, GRANT A SECURITY INTEREST IN, OR OTHERWISE TRANSFER ALL OR ANY
PART OF ITS RIGHTS, TITLE AND INTEREST IN AND TO THIS LEASE OR THE EQUIPMENT.
8. TAXES: Lessee agrees to pay if and when due, in addition to other
amounts due hereunder and under each Schedule, all fees and assessments, and all
sales, use, property, excise and other taxes and charges (including all interest
and penalties) (collectively "Taxes"), now or hereafter imposed by any
governmental body or agency upon any of the Equipment or upon the purchase,
ownership, possession, leasing, operation, use, rentals or other payments, or
disposition hereunder whether payable by Lessor or Lessee (exclusive of taxes on
or measured by Lessor's net income). Lessee agrees to prepare and file promptly
with the appropriate offices any and all tax and similar returns required to be
filed with respect thereto, or, if requested by Lessor, to notify Lessor of such
requirements and furnish Lessor with all information required by Lessor so that
it may effect such filing, at Lessee's expense. Any Taxes paid by or imposed on,
Lessor on behalf of Lessee shall become immediately due and payable on Lessor's
demand. Lessor, as owner, shall be entitled to any and all depreciation and
modified cost recovery deductions provided under the Internal Revenue Code of
1986, as amended from time to time and any other such tax benefits which may now
or hereafter be available to an owner of such Equipment (collectively, "Tax
Benefits"). If as a result of (i) the inaccuracy or breach of any of Lessee's
representations, warranties and covenants herein or in any Schedule, or (ii) the
acts or failure to act of Lessee or any person claiming an interest in the
Equipment through the Lessee (other than a casualty or other event described in
Section 11 with respect to which Stipulated Loss Value shall have been paid by
Lessee), Lessor or any of its assigns shall lose, or shall not, in its
reasonable opinion, have the right to claim, or there shall be disallowed,
deferred or recaptured, any portion of the Tax Benefits with respect to a Unit
(a "Loss of Tax Benefits") or there shall be included in Lessor's gross income
any amounts other than Rental Payments in respect of the purchase price of any
Unit (an "Inclusion"), then, on and after the next succeeding Rent Payment date
after written notice to Lessee by Lessor, Lessee agrees as follows: The rent for
the Equipment shall, on the Rent Payment date next succeeding Lessor's written
notice to Lessee of Lessor's payment of any tax payment attributable to such
Inclusion or of a Loss of Tax Benefits, be increased to such amount or amounts
as shall, by the end of the original term of the last Schedule to this Lease, in
the reasonable opinion of Lessor, after deduction of all fees, taxes, or other
charges required to be paid by Lessor in respect of the receipt of all amounts
payable by Lessee to Lessor under this Section 8 under the laws of any federal,
state, or local government or taxing authority in the United States, cause
Lessor's after-tax yield and cash flow in respect of the Equipment to equal
those which would have been realized by Lessor if Lessor had not incurred such a
Loss of Tax Benefits or had such an Inclusion. If any claim or contest regarding
any tax indemnity covered by this Section 8 shall arise, such claim or contest
shall be addressed or conducted, at Lessee's expense, in the manner reasonably
specified by Lessor.
9. USE; MAINTENANCE: (a) Lessee, at its expense, shall make all necessary
site preparations and cause the Equipment to be operated in accordance with any
applicable manufacturer's manuals or instructions. So long as no Event of
Default has occurred and is
8
<PAGE>
continuing, Lessee shall have the right to quietly possess and use the Equipment
as provided herein without interference by Lessor. (b) Lessee, at its expense,
shall maintain the Equipment in good condition, reasonable wear and tear
excepted, and will comply with all laws, ordinances and regulations to which the
use and operation of the Equipment may be or become subject. Such obligation
shall extend to repair and replacement of any partial loss or damage to the
Equipment, regardless of the cause. If maintenance is mandated by the
manufacturer, Lessee shall obtain and keep in effect at all times during the
Term maintenance service contracts with suppliers approved by Lessor, such
approval not to be unreasonably withheld. All parts furnished in connection with
such maintenance or repair shall immediately become part of the Equipment. All
such maintenance, repair and replacement services shall be paid for and
discharged by Lessee when due with the result that no lien will attach to the
Equipment. Only qualified personnel of Lessee shall operate the Equipment. The
Equipment shall be used only for the purposes for which it was designed.
10. INSURANCE: (a) Lessee shall obtain and maintain for the Term, at its
own expense, (i) "all risk" insurance against loss or damage to the Equipment,
(ii) commercial general liability insurance (including contractual liability,
products liability and completed operations coverages) reasonably satisfactory
to Lessor, and (iii) such other insurance against such other risks of loss and
with such terms, as shall in each case be reasonably satisfactory to or
reasonably required by Lessor (as to carriers, amounts and otherwise). (b) The
amount of the "all risk" insurance shall be the greater of the replacement value
of the Equipment (as new) or the "Stipulated Loss Value" specified in the
applicable Schedules, which amount shall be determined to Lessor's reasonable
satisfaction as of each anniversary date of this Lease with the amount so
determined being put into effect on the next succeeding renewal or inception
date of such insurance. (c) The deductible with respect to "all-risk" insurance
required by clause (b) above and product liability insurance required by clause
(a) above shall not exceed $25,000; otherwise there shall be no deductible with
respect to any insurance required to be maintained hereunder. (d) The amount of
commercial general liability insurance (other than products liability coverage
and completed operations insurance) required by clause (a) above shall be at
least $2,000,000 per occurrence. The amount of the products liability and
completed operations insurance required by clause (a) above shall be at least
$2,000,000 per occurrence. (e) Each "all risk" policy shall: (i) name Lessor as
sole loss payee with respect to the Equipment, (ii) provide for each insurer's
waiver of its right of subrogation against Lessor and Lessee, and (iii) provide
that such insurance (A) shall not be invalidated by any action of Lessee, or any
breach by Lessee of any provision of any of its insurance policies, and (B)
shall waive set-off, counterclaim or offset against Lessor. Each liability
policy shall (w) name Lessor as an additional insured and (x) provide that such
insurance shall have cross-liability and severability of interest endorsements
(which shall not increase the aggregate policy limits of Lessee's insurance).
All insurance policies (y) shall provide that Lessee's insurance shall be
primary without a right of contribution of Lessor's insurance, if any, or any
obligation on the part of Lessor to pay premiums of Lessee, and (z) shall
contain a clause requiring the insurer to give Lessor at least 30 days' prior
written notice of its cancellation (other than cancellation for non-payment for
which 10 days' notice shall be sufficient). Lessee shall on or prior to the
Delivery Date of Schedule No. 1 and prior to each policy renewal, furnish to
Lessor certificates of insurance or other evidence satisfactory to Lessor that
such insurance coverage is in effect. Lessee further agrees to give Lessor
prompt notice of any damage to, or loss of, the Equipment, or any part thereof.
9
<PAGE>
11. LOSS; DAMAGE; DESTRUCTION AND SEIZURE: (a) Lessee shall bear the risk
of the Units being lost, stolen, destroyed, damaged or seized by governmental
authority for any reason whatsoever at any time until the latest to occur of (i)
the expiration or termination of the Term or (ii) any storage period thereafter
or (iii) the return of the subject Unit to Lessor (if authorized hereunder), and
shall proceed diligently and cooperate fully to recover any and all damages,
insurance proceeds or condemnation awards. (b) Except as described in Section
11(c) hereof, if during the Term or the storage period thereafter, any Unit
shall be lost, stolen, destroyed, irreparably damaged or seized by governmental
authority for a period equal to at least the remainder of the Term, Lessor shall
receive from the proceeds of insurance obtained pursuant to Section 10 hereof,
from any award paid by the seizing governmental authority and, to the extent not
received from the proceeds of such insurance or award or both, from Lessee, on
or before the Rental Payment date next succeeding such loss, theft, destruction,
damage or governmental seizure: (i) all accrued and unpaid rent in respect of
such Unit including rent due on the rental payment date next succeeding the date
of such loss or seizure if the rent is in arrears; (ii) the Stipulated Loss
Value of such Unit, determined as of such Rental Payment date; (iii) all other
sums, if any, that shall have become due and payable hereunder; and (iv)
interest on the foregoing at the lower of the rate equal to 1.5% per month or
the highest rate then permitted by applicable law from the due dates(s) of such
payment(s) to the date of payment. On receipt by Lessor of the amount specified
hereinabove with respect to each such Unit so lost, stolen, destroyed, damaged
or seized, (i) this Lease shall be deemed terminated as to such Unit and rent in
respect of such Unit shall be deemed abated, as of the Rental Payment date next
succeeding such loss, theft, damage, destruction or seizure; and (ii) so long as
no default or Event of Default has occurred and is continuing hereunder, Lessor
shall on demand, transfer title to such Unit, "AS IS, WHERE IS, WITHOUT
RECOURSE, REPRESENTATION OR WARRANTY," to Lessee, or, if appropriate in Lessor's
sole judgment, which judgment shall be exercised in a reasonable manner, and on
prior notice to Lessee, to Lessee's insurance carrier. Any proceeds of insurance
payable to Lessor pursuant to this Section 11 and Section 10 hereof received by
Lessee shall be paid to Lessor promptly upon their receipt by Lessee. If any
proceeds of insurance or awards received from governmental authorities are in
excess of the amount owed under this Section 1l(b), Lessor shall promptly remit
to Lessee the amount in excess of the amount owed to Lessor. (c) So long as no
Event of Default shall have occurred and be continuing, any proceeds of
insurance obtained pursuant to Section 10 hereof received with respect to any
Unit the repair of which is practical shall, at the election of Lessee, be
applied either to the repair of such Unit or, upon Lessor's receipt of evidence
of the repair of the Unit reasonably satisfactory to Lessor, to the
reimbursement of Lessee for the cost of such repair. (d) Lessee shall promptly,
but in any event within 30 days thereafter, notify Lessor in writing in
reasonable detail of any loss, theft, destruction or seizure described in this
Section 11. (e) The Stipulated Loss Value payable by Lessee under this Lease
shall be that percentage of Lessor's Cost of the affected Unit(s) set forth in
the table attached to the applicable Schedule as Annex B opposite the Rental
Payment date next following the event giving rise to Lessee's obligation to pay
Stipulated Loss Value. Stipulated Loss Values and Rental Payments shall not be
prorated.
12. EVENTS OF DEFAULT: An "Event of Default" shall occur if Lessee: (a)
fails to pay/make any Rental Payment or other payment required hereunder when
due and such failure continues for a period of 10 days; or (b) fails to perform
or observe any other material covenant, condition or agreement hereunder or
breaches any provision contained herein or in any other document furnished
Lessor in connection herewith, and such failure or breach continues for a period
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of 30 days after written notice by Lessor; or (c) makes any representation or
warranty herein or in any document furnished in connection herewith, which shall
have been materially false or inaccurate when made; or (d) fails to maintain
insurance under this Lease or otherwise required by the Lessor hereunder; or (e)
shall admit in writing that it is unable to pay its debts as they become due,
become insolvent or bankrupt or make an assignment for the benefit of its
creditors or consent to the appointment of a trustee or receiver or insolvency
proceedings shall be instituted by or against Lessee.
13. REMEDIES: Upon the occurrence of any Event of Default and at any time
thereafter, provided such Event of Default is then continuing (which occurrence,
for purposes of clause (a)(ii)(B) below is the day Lessee shall be deemed to
tender possession of the Equipment to Lessor), (a) Lessor may, in its
discretion, do any one or more of the following, all of which Lessor and Lessee
expressly agree are commercially reasonable under the UCC and any other
applicable law: (i) terminate this Lease; (ii) declare to be immediately due and
payable: (A) all unpaid rent and sums then due and payable under this Lease
(other than amounts payable under clause (B) hereof, if any,) plus (B) an
amount equal to the greater of the then applicable Stipulated Loss Value (which
value Lessee acknowledges has a reasonable discount rate implicit therein) or
the then applicable fair market value of the Equipment as determined by Lessor
(but in no event less than an amount equal to the Minimum Purchase Option
Percentage of Lessor's Cost); (iii) require that Lessee return all Equipment to
Lessor in accordance with Section 6 hereof; (iv) enter upon the premises where
such Equipment is located and take immediate possession of and remove the same,
all without liability to Lessor or its agents for such entry; (v) sell any or
all of the Equipment at public or private sale, with or without notice to Lessee
or advertisement, or otherwise dispose of, hold, use, operate, lease to others
or keep idle such Equipment, all free and clear of any rights of Lessee and
without any duty to account to Lessee for such action or inaction or for any
proceeds with respect thereto subject to applicable law; (vi) exercise any other
right or remedy which may be available under the UCC or other applicable law
including the right to recover damages for the breach hereof. (b) In addition,
Lessee shall be liable for, and reimburse Lessor for, all reasonable and
necessary attorneys' fees and other expenses incurred by Lessor as a result of
the foregoing defaults, or the exercise of Lessor's remedies, including without
limitation placing any Equipment in the condition required by Section 9 hereof.
No remedy referred to in this Section 13 is intended to be exclusive, but each
shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law or in equity. (c) There shall be no waiver
by Lessor of any default unless in writing and such waiver shall not constitute
a waiver of any other default by Lessee, or a waiver of any of Lessor's other
rights. Lessee waives any rights now or hereafter conferred by statute or
otherwise that may require Lessor to sell, re-lease or otherwise use or dispose
any Unit in mitigation of the Lessor's damages or that might otherwise limit or
modify any of Lessor's rights or remedies under this Lease.
14. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS: (a) Lessee
warrants and represents the following as of the date hereof: (i) Lessee is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and is duly qualified and authorized to do
business in the state where the Equipment will be located; (ii) Lessee has the
full corporate power, authority and legal right and has obtained all necessary
approvals and consents and given all notices to execute and deliver this Lease
and perform the terms hereof and of each Schedule; (iii) there is no action,
proceeding or patent claim pending or, insofar as Lessee knows, threatened
against Lessee or any of its subsidiaries before any court or administrative
agency which might have a materially adverse effect on the business, condition
or
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operations of Lessee or such subsidiary; and (iv) this Lease has been and each
Schedule will be duly executed and delivered by Lessee and constitute or will
constitute the valid, binding and enforceable obligations of Lessee. (b) Lessee
agrees that by its signature on each Schedule it shall be deemed to have
warranted and represented the following as of the Delivery Date of such
Schedule: (i) all of the Units being delivered on the Delivery Date of such
Schedule are accurately described in Annex A attached to such Schedule, have
been fully assembled and conform to all applicable performance criteria; (ii)
the requirements of this Lease and of Lessor with respect to the identification
of the Units have been met; and (iii) except as set forth in Annex C to the
applicable Schedule, each of the representations and warranties set forth in
clause (a) of this Section 14 remains true and correct. (c) Lessee covenants and
agrees that it shall not, without Lessor's prior written consent, attempt, cause
or permit another to sell, transfer, encumber, part with possession, or sublet,
voluntarily or involuntarily, any Unit.
15. NOTICES. All notices (and financial information required to be
delivered to Lessor under section 16(c) of this Lease) shall be addressed as
follows:
If to Lessor:
MMC/GATX PARTNERSHIP NO. I
c/o GATX CAPITAL CORPORATION, Agent
Four Embarcadero Center, Suite 2200
San Francisco, CA 94111
Attn: Contract Administration
With a copy of required financial information to:
MEIER MITCHELL & COMPANY
4 Orinda Way, Suite 200-B
Orinda, California 94563
Attn: Contract Administration
If to Lessee, at the address set forth on the cover page of this
Lease.
16. MISCELLANEOUS: (a) Any notices hereunder shall be in writing and shall
be deemed given when delivered personally, by private courier, by facsimile
transmission or sent by certified mail, postage prepaid, addressed to the other
party at its address set forth herein or to such other address as either party
may designate in writing. Such notices or demands shall be deemed given upon
receipt in the case of personal delivery, mailing or facsimile transmission. (b)
Lessee will promptly execute and deliver to Lessor such further reasonable
documents (including, but not limited to, financing statements) and take such
further reasonable action (such as obtaining landlord or mortgagee's waivers),
as Lessor may request in order to more effectively carry out the intent and
purpose of this Lease or an assignment of Lessor's interest herein. (c) Lessee
shall furnish to Lessor monthly and audited annual financial statements and such
other financial information as Lessor may reasonably request from time to time.
(d) This Lease constitutes the entire agreement on the subject matter hereof
between the parties hereto (other than any document executed in connection
herewith) and shall be binding upon and inure to the benefit of the parties
hereto, their permitted successors and
12
<PAGE>
assigns. (e) Any provision of the Lease which is unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof; and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. (f) Time is of the essence with respect to the Lease. (g)
The captions set forth herein are for convenience only and shall not define or
limit any of the terms hereof. (h) The language in this Lease and the related
documents is to be construed as to its fair meaning and not strictly for or
against any party. (i) All payments shall be paid to the address designated by
Lessor in the applicable Schedule or otherwise in a writing signed by Lessor.
(j) Lessee's and Lessor's obligations hereunder shall survive the expiration and
termination of the Term to the extent required for full performance and
satisfaction thereof. (k) ALL MATTERS INVOLVING THE CONSTRUCTION, VALIDITY,
PERFORMANCE AND ENFORCEMENT OF THIS LEASE WILL BE GOVERNED BY THE LAWS OF THE
STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW OR
CHOICE OF LAW. This Lease is being executed in the State of California and is to
be performed in such State. Lessee agrees and consents that the Superior Court
of the State of California for the County of San Francisco or the Federal
District Court for the jurisdiction in that County shall have jurisdiction and
shall be the venue for determination of all controversies, disputes and actions
arising under this Lease. Nothing contained herein is intended to preclude
Lessor from commencing any action under this Lease in any court having
jurisdiction thereof. (l) This Lease may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and same
instrument; provided, however, that to the extent, if any, that this Lease
-------- -------
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Lease may be created through the transfer or possession of any counterpart of
this Lease other than the original executed counterpart of this Lease, which
shall be identified as such counterpart.
17. AMENDMENTS, MODIFICATIONS, WAIVERS: NONE OF THE PROVISIONS OF THIS
LEASE MAY BE AMENDED, MODIFIED OR WAIVED EXCEPT IN A WRITING SIGNED BY LESSOR
AND LESSEE.
INITIALS /s/ JD (LESSEE) INITIALS /s/ JS (LESSOR)
--------------- --------------
13
<PAGE>
This Lease is hereby duly executed by the parties hereto as set forth below.
LESSEE: LESSOR:
CALYPTE BIOMEDICAL CORPORATION MMC/GATX PARTNERSHIP NO. I
By Meier Mitchell & Company, General Partner
BY: /s/ John DiPietro BY: /s/ James V. Mitchell
----------------------------- -------------------------------
NAME(PRINT): John DiPietro NAME(PRINT): James V. Mitchell
-------------------- ----------------------
TITLE: CFO TITLE: Secretary
-------------------------- ----------------------------
DATE: 12/26/96 DATE: 12-30-96
--------------------------- -----------------------------
This Lease incorporates the following Riders as if set forth herein:
Rider I; Rider II; Rider III
INITIALS /s/ JD (LESSEE) INITIALS /s/ JM (LESSOR)
-------- -------
Exhibit A- Intentionally omitted
Exhibit B - Landlord Waiver
Exhibit C - Purchase Order and Invoice Assignment
Exhibit D - Bill of Sale
Exhibit E - Form of Schedule
Exhibit F - Security Deposit Pledge Agreement
14
<PAGE>
RIDER I
TO MASTER EQUIPMENT
LEASE AGREEMENT NO._____
DATED SEPTEMBER 30, 1996
Conditions to Lessor's Obligations
----------------------------------
By their initials below and on the signature page of the Master Equipment
Lease Agreement referenced in the upper right corner of this page, Lessor and
Lessee agree that the Lease incorporates the following terms:
1. On or prior to the date of execution of the Lease by Lessor, Lessor
shall have received in form and substance satisfactory to Lessor:
(a) A commitment fee in the amount of $20,000. The commitment fee will
be applied to Lessee's obligations under the Lease on a pro-rata
basis with draw downs.
(b) A Security Deposit Pledge Agreement in the form of Exhibit F
hereto.
(c) Intentionally omitted.
(d) Copies, certified by the Secretary or Assistant Secretary or Chief
Financial Officer of Lessee, of: (A) the Articles of Incorporation
and By-Laws of Lessee (as amended to the date of the Lease) and
(B) the resolutions adopted by Lessee's board of directors
authorizing the execution and delivery of this Lease, the
Schedules and the other documents referred to herein and the
performance by Lessee of its obligations hereunder and thereunder;
(e) A Good Standing Certificate (including franchise tax status) with
respect to Lessee from Lessee's state of incorporation, dated a
date reasonably close to the date of acceptance of the Lease by
Lessor.
(f) Evidence of the insurance coverage required by Section 10 of the
Lease.
(g) All necessary consents of shareholders and other third parties with
respect to the subject matter of the Lease and the Schedules.
(h) All other documents as Lessor shall have reasonably requested.
2. Prior to any funding on a Delivery Date, Lessee shall have satisfied
all of the conditions set forth in the applicable Schedule.
Initials JM (Lessor)
--------
Initials JD (Lessee)
--------
RIDER I
<PAGE>
RIDER II
TO MASTER EQUIPMENT
LEASE AGREEMENT NO.______
DATED SEPTEMBER 30, 1996
LESSOR: MMC/GATX PARTNERSHIP NO. I
LESSEE: CALYPTE BIOMEDICAL CORPORATION
Lessor and Lessee hereby agree that the Master Equipment Lease Agreement
referenced in the upper right corner of this page (the "Lease") incorporates the
following amended terms:
Notwithstanding the provisions of Section 10 of the Lease, the amount of
products liability and completed operations insurance required by clause
(a) of Section 10 of the Lease shall be at least $5,000,000 per occurrence.
This Rider II is hereby duly executed by the parties hereto as set forth
below.
LESSEE: LESSOR:
CALYPTE BIOMEDICAL CORPORATION MMC/GATX PARTNERSHIP NO. I
By Meier Mitchell Company, General Partner
By: /s/John DiPietro By: /s/James V. Mitchell
---------------- --------------------
Name: John DiPietro Name: James V. Mitchell
------------- -----------------
Title: VP Finance Title: Secretary
---------- ---------
Date: 10/18/96 Date: 12-1-96
-------- -------
<PAGE>
RIDER III
TO MASTER EQUIPMENT
LEASE AGREEMENT NO.______
DATED SEPTEMBER 30, 1996
LESSOR: MMC/GATX PARTNERSHIP NO. I
LESSEE: CALYPTE BIOMEDICAL CORPORATION
Lessor and Lessee hereby agree that the Master Equipment Lease Agreement
referenced in the upper right corner of this page (the "Lease") incorporates the
following amended terms:
On or before January 17, 1997, Lessor shall have received from Lessee, in
form and substance satisfactory to Lessor, copies, certified by the
Secretary or Assistant Secretary or Chief Financial Officer of Lessee, of
the resolutions adopted by Lessee's board of directors authorizing the
execution and delivery of this Lease, the Schedules and the other documents
referred to herein and the performance by Lessee of its obligations
hereunder and thereunder. If Lessee fails to fully perform its obligations
under this Rider III, Lessee shall, upon Lessor's demand, repurchase all
Units from Lessor for an amount equal to the Lessor's Cost of the Units,
plus any applicable sales or other transfer tax. If Lessee fails to
repurchase the Units on demand, Lessee shall also pay interet on the
repurchase price at the Initial Implicit Rate from the date of such demand
until paid, plus all reasonable attorneys' fees and costs incurred by
Lessor in enforcing the provisions of this Rider III and the Lease. Any
repurchase of the Units by Lessee pursuant to this Rider III shall be "AS
IS, WHERE IS", without recourse to or any warranty by Lessor, other than a
warranty that the Units are free and clear of liens and encumbrances
resulting from acts of Lessor.
This Rider III is hereby duly executed by the parties hereto as set forth
below.
LESSEE: LESSOR:
CALYPTE BIOMEDICAL CORPORATION MMC/GATX PARTNERSHIP NO. I
By Meier Mitchell Company, General Partner
By: /s/John DiPietro By: /s/James V. Mitchell
---------------- --------------------
Name: John DiPietro Name: James V. Mitchell
------------- -----------------
Title: CFO Title: Secretary
---------- ---------
Date: 12/26/96 Date: 12-30-96
-------- --------
<PAGE>
EXHIBIT A
Intentionally omitted.
<PAGE>
EXHIBIT B
LANDLORD WAIVER
<PAGE>
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
MMC/GATX PARTNERSHIP NO. I
c/o GATX CAPITAL CORPORATION, Agent
Four Embarcadero Center, Suite 2200
San Francisco, CA 94111
Attn: Contract Administration
________________________________________________________________________________
CONSENT TO REMOVAL OF PERSONAL PROPERTY
KNOW ALL PERSONS BY THESE PRESENTS:
(i) The undersigned has an interest as owner and landlord in the following
described real property (the "Real Property"):
That certain real property in the County of Alameda, State of California, with
the street address of______________________________and more fully described as:
SEE ATTACHMENT 1 ATTACHED HERETO FOR FULL LEGAL DESCRIPTION
(ii) Calypte Biomedical Corporation, a California corporation ("Lessee"), has
entered into or will enter into a Master Equipment Lease Agreement with MMC/GATX
Partnership No. I ("Lessor") dated as of September 30, 1996 (the "Lease
Agreement") and certain Schedules related thereto (collectively the "Lease").
(iii) Lessor, as a condition to entering into the Lease Agreement, requires
that the undersigned consent to the removal by Lessor of the equipment and other
assets covered by the Lease (hereinafter called "Equipment") from the Real
Property, no matter how it is affixed thereto, and to the other matters set
forth below.
NOW, THEREFORE, for good and sufficient consideration, receipt of which is
hereby acknowledged, the undersigned consents to the placing of the Equipment on
the Real Property, and agrees with Lessor as follows:
<PAGE>
1. Undersigned waives and releases each and every right which undersigned now
has, under laws of California or by virtue of the lease for the Real Property
now in effect, to levy or distrain upon for rent, in arrears, in advance or
both, or to claim or assert title to the Equipment that is already on said Real
Property, or may hereafter be delivered or installed thereon.
2. The Equipment shall be considered to be personal property and shall not be
considered part of the Real Property regardless of whether or by what means it
is or may become attached or affixed to the Real Property.
3. The undersigned will permit Lessor to enter upon the Real Property for the
purpose of exercising any right it may have under the terms of the Lease or
otherwise, including, without limitation, the right to remove the Equipment;
provided, however, that if Lessor, in removing the Equipment damages any
- -------- -------
improvements of the undersigned on the Real Property, Lessor will, at its
expense, cause same to be repaired.
4. This agreement shall be binding upon the heirs, successors and assigns of
the undersigned and shall inure to the benefit of Lessor and its successors and
assigns. Upon any sale, transfer or other assignment of the Real Property, the
undersigned shall notify the transferee of the existence of this agreement and
that it is binding on the transferee.
IN WITNESS WHEREOF, the undersigned has executed this instrument at___________,
this_____day of_____,19__.
By:________________________
Title:_____________________
Date:______________________
The foregoing Consent must be acknowledged before a Notary Public.
[ATTACH NOTARY JURAT]
2
<PAGE>
ATTACHMENT 1
------------
LEGAL DESCRIPTION OF PREMISES
-----------------------------
[To Be Provided By Tenant]
<PAGE>
State of_____________)
)
County of____________)
On _____________________, 19_____ before me, the undersigned, personally
appeared _________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature __________________________ (Seal)
<PAGE>
EXHIBIT C
PURCHASE ORDER AND INVOICE ASSIGNMENT
<PAGE>
PURCHASE ORDER AND INVOICE ASSIGNMENT
THIS PURCHASE ORDER ASSIGNMENT, dated as of ______________, 199__ (this
"Assignment"), between Calypte Biomedical Corporation ("Assignor") and MMC/GATX
Partnership No. I ("Assignee");
WITNESSETH:
----------
WHEREAS, Assignor has submitted its Purchase Orders and Invoices listed in
Schedule 1 hereto (collectively, the "Purchase Orders"), to ___________________
___________________________________________________ (the "Vendor") concerning
certain Units of equipment (the "Units") listed in Schedule 1 hereto to be
subject to a Master Equipment Lease Agreement, dated as of September 30, 1996
(the "Lease"), between Assignor and Assignee (all terms used but not otherwise
defined herein shall have the meaning given to them in the Lease):
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties
hereto agree as follows:
1. Assignor does hereby sell, assign, transfer and set over unto
Assignee, all of the Assignor's rights to and interests in the Purchase Orders
as and to the extent that the same relates to the Units. The assignment herein
shall include, without limitation, the right of Assignee to purchase the Units
pursuant to the Purchase Orders and to take title to the Units, all claims for
damages in respect of the Units arising as a result of any default by Vendor
under the Purchase Orders, together with any and all rights of Assignor to
compel performance of the terms of the Purchase Orders in respect of the Units.
2. The exercise by Assignee of any of the rights assigned hereunder shall
not release Assignor from any of its duties or obligations to Vendor under the
Purchase Orders except to the extent that such exercise by Assignee shall
constitute performance of such duties and obligations.
3. Upon satisfaction of the conditions set forth in the applicable
Schedule to the Lease with respect to the Units, Assignee shall purchase such
Unit by paying or causing to be paid, by check mailed or delivered to Vendor, on
such date or thereafter as permitted by Vendor, an amount equal to the purchase
price of the Unit, as such amount may be adjusted in accordance with the terms
of the Purchase Orders and reflected on invoices prepared by Vendor to Assignee
on or before the date of delivery and acceptance of the Unit.
4. Assignor agrees that it will, at any time and from time to time, upon
the written consent of Assignee, promptly and duly exercise and deliver any and
all such further instruments and documents and take such further action as
Assignee may reasonably request in order that Assignee may obtain the full
benefits of this Agreement and of the rights and powers herein granted.
<PAGE>
5. Assignor does hereby represent and warrant that the Purchase Orders
are in full force and effect and that Assignor is not in default under any of
them. Assignor does hereby further represent and warrant that Assignor has not
assigned or pledged, and so long as this Assignment shall remain in effect, will
not assign or pledge, the whole or any part of the rights hereby assigned or any
of its rights with respect to the Units under the Purchase Orders to anyone
other than Assignee.
IN WITNESS WHEREOF, the parties hereto have caused this Purchase Order
Assignment to be duly executed as of the day and year first above written.
CALYPTE BIOMEDICAL CORPORATION MMC/GATX PARTNERSHIP NO. I
(Lessee) (Lessor)
By Meier Mitchell & Company, General Partner
By ____________________________ By _______________________________
Title _________________________ Title ____________________________
Acknowledged and Consented to this
________ day of______________________, 199_____
_______________________________________ (Vendor)
By:______________________________________
Title:______________________________________
<PAGE>
SCHEDULE I
TO
PURCHASE ORDER AND INVOICE ASSIGNMENT
-------------------------------------
<PAGE>
EXHIBIT D
BILL OF SALE
<PAGE>
BILL OF SALE
For valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, CALYPTE BIOMEDICAL CORPORATION ("Seller") does hereby sell, grant,
transfer and deliver to MMC/GATX Partnership No. I ("Buyer"), all of Seller's
right, title and interest in and to the property listed on Annex A attached
hereto (the "Equipment"), together with all warranties, guarantees and
indemnities owned by Seller with respect to the Equipment (the "Equipment
Warranties"), to have and to hold the Equipment and the Equipment Warranties
forever.
Seller covenants and warrants that:
(1) it is the owner of, and has absolute title to, the Equipment and the
Equipment Warranties, which, as of the date hereof, are free and clear of all
claims, liens and encumbrances;
(2) it has not made any prior sale, assignment, or transfer of the Equipment or
the Equipment Warranties;
(3) it has the present right, power and authority to sell the Equipment and the
Equipment Warranties to Buyer; and
(4) all action has been taken which is required to make this Bill of Sale a
legal, valid and binding obligation of Seller.
Seller shall forever warrant and defend the sale of the Equipment and the
Equipment Warranties to Buyer, its successors and assigns, against all claims,
liens and encumbrances and against any and every person or persons claiming any
interest in the Equipment or the Equipment Warranties, except with respect to
any claims, liens or encumbrances caused by any action of Buyer not contemplated
under that certain Master Equipment Lease Agreement dated as of September 30,
1996 by and between Buyer and Seller (together with all Schedules thereto, the
"Lease") or under any agreement, instrument or other document delivered in
connection with the Lease.
This Bill of Sale shall be binding on the successors and assigns of the Seller
and shall inure to the benefit of the successors and assigns of Buyer.
Executed as of____________,199__,at______________________.
CALYPTE BIOMEDICAL CORPORATION
By:________________________
Title:_____________________
<PAGE>
ANNEX A
TO
BILL OF SALE
------------
<PAGE>
EXHIBIT E
---------
SCHEDULE NO. ______
TRUE LEASE
This Schedule No.________(this "Schedule"), dated_________________,199___
(such date being the "Delivery Date" for this Schedule), is a part of the Master
Equipment Lease Agreement, dated as of September 30, 1996 (the "Lease"), between
MMC/GATX PARTNERSHIP NO. I ("Lessor") and CALYPTE BIOMEDICAL CORPORATION
("Lessee") and is incorporated therein by this reference. The terms used in this
Schedule shall have the meanings given to them in the Lease unless otherwise
defined herein.
1. Description and Cost of Units
-----------------------------
The Units subject to this Schedule are described in Annex A hereto. The
Lessor's Cost for this Schedule is:
$____________________
2. Acceptance; Obligations
-----------------------
Lessee confirms that on the Delivery Date hereof (i) all of the Units
described in Annex A attached hereto were duly accepted by Lessee and became
subject to the Lease; and (ii) Lessee became obligated to make Rental Payments
to Lessor and perform certain other obligations with respect to such Units as
provided in the Lease and this Schedule.
3. Rent
----
(a) Commencing on_______________,19__(the "Rent Commencement Date") and
on the first day of each month thereafter, the rent for each Unit shall be paid
by Lessee in advance by check (or if requested by Lessor, by wire transfer), to
the location prescribed by Lessor in writing, in thirty-six (36) consecutive
installments, each calculated based upon a Rent Factor of ______________% of the
Lessor's Cost for this Schedule, which is:
$________________ for each such installment.
(b) The Lease Term for the Units subject to this Schedule is 36 months
and commences on the Rent Commencement Date. The Lease Term for the Units
subject to this Schedule shall expire on:
_____________________
(c) The Interim Rental Payment for the period from the Delivery Date of
this Schedule through the Rent Commencement Date, which is due on the Delivery
Date, is:
$____________________
<PAGE>
4. Conditions. Lessor's obligations under the Lease and this Schedule
----------
are subject to the prior satisfaction of the following conditions on or before
the Delivery Date of this Schedule:
(a) Lessor shall have received, in form and substance satisfactory to
Lessor:
(i) A Consent to Removal of Personal Property substantially in the form
of Exhibit B to the Lease.
(ii) To the extent Lessor deems it necessary, a release or other
arrangement with any other lessor or lender to the Company to insure that
there will be no impairment of Lessor's interest in the Units subject to
this or other Schedules.
(iii) A sales tax exemption or other similar certificate from Lessee with
respect to any Units included in this Schedule, but not placed in service
by Lessee before the Delivery Date of this Schedule.
(iv) Copies of invoices, purchase orders and canceled checks relating to
all Units being placed under the Lease pursuant to a sale/leaseback on the
Delivery Date of this Schedule and/or a Purchase Order and Invoice
Assignment from Lessee to Lessor substantially in the form of Exhibit C to
the Lease, instead of copies of canceled checks, for all Units to be
purchased by Lessor directly from the vendor.
(v) For all sales of Units by Lessee to Lessor, a Bill of Sale,
substantially in the form of Exhibit D to the Lease.
(vi) An executed copy of each manufacturer's service contract entered
into by Lessee pursuant to Section 9 of the Lease.
(b) Lessee shall have filed or recorded, to the satisfaction of Lessor,
all instruments and documents, including, but not limited to, Financing
Statements on Form UCC-1 and Releases and Termination Statements on Form UCC-2,
then deemed necessary by Lessor to preserve and protect its rights hereunder,
under the Uniform Commercial Code (including the termination of any after-
acquired property clause of third parties with respect to any Unit) and, if
applicable, not less than ten days before the Delivery Date, a notice of the
proposed transfer to Lessor by Lessee of title to the Units to be placed under
the Lease on such Delivery Date shall have been published as and to the extent
required by Section 3440 of the Civil Code of the State of California.
(c) Lessor shall have received all other documents and Lessee shall have
performed all other acts as Lessor shall have reasonably requested to consummate
the transaction contemplated by this Schedule.
(d) Except with the prior consent of Lessor which shall not be
unreasonably withheld, (i) Lessor's Cost for the Units subject to this Schedule
shall be equal to or exceed the Minimum Funding Amount, (ii) Lessor's Cost for
the Units subject to this Schedule when aggregated with Lessor's Cost for all
Units under all previously funded Schedules shall not exceed the Lessor's
Commitment set forth on the cover page of the Lease, and (iii) the funding
contemplated by this
<PAGE>
Schedule when aggregated with all previous fundings under the Lease shall not
exceed the Maximum Number of Fundings.
(e) Except with the prior written consent of Lessor which shall not be
unreasonably withheld, the aggregate of Lessor's Cost of all Units subject to
this Schedule and all Schedules previously made subject to the Lease which
consist of tenant improvements, computer software, equipment manufactured
specially for Lessee and/or delivery and installation costs shall not exceed 20%
($200,000 of Lessor's Cost if the entire Lessor's Commitment is funded) of the
total Lessor's Cost of Equipment funded.
(f) The Delivery Date of this Schedule shall not be later than the
Commitment Termination Date.
(g) On the Delivery Date of this Schedule no Event of Default or event,
which with the passage of time or the giving of notice or both would constitute
an Event of Default, shall exist.
(h) Except with the prior written consent of Lessor which shall not be
unreasonable withheld, all of the Units listed on Annex A shall consist of
Eligible Equipment.
5. Representations and Warranties. Lessee hereby makes the
------------------------------
representations and warranties set forth in Section 14 of the Lease.
6. Payments. Pursuant to Section 16(h) of the Lease, all payments shall
--------
be made to Lessor c/o GATX Capital Corporation, as Agent, Box 71316, Chicago,
Illinois 60694 unless otherwise indicated in a writing signed by Lessor.
<PAGE>
This Schedule is hereby duly executed by the parties hereto as of the date
first written above.
MMC/GATX PARTNERSHIP NO. I
By Meier Mitchell & Company, General Partner
By:____________________________
Title:_________________________
LESSEE'S ADDRESS
FOR NOTICES: CALYPTE BIOMEDICAL CORPORATION
165 Harbor Bay Parkway
Alameda, CA 94502 By:___________________________
ATTN: John DiPietro Title:________________________
Chief Financial Officer
Annex A - Description of Units
Annex B - Stipulated Loss Values
Annex C - Exceptions to Representations and Warranties
<PAGE>
ANNEX A
-------
DESCRIPTION OF UNITS
--------------------
Units are Located at Lessee's Offices at
_____________________,CA_____.
Major
Equipment Description Manufacturer Identification Lessor's
Category of Unit or Vendor or Serial No. Cost
- -------- ------------ ------------ -------------- --------
Subtotal BY
Equipment Category $______________
<PAGE>
ANNEX B
STIPULATED LOSS VALUES
Rental Stipulated Loss Value
Payment Date Percentage of Lessor's Cost
- ------------ ---------------------------
Thereafter__________________ *
* If Lessee renews the Lease, the Stipulated Loss Value during any extended
Term shall be an amount equal to the fair market value of the Units as at the
end of the applicable initial lease term, as reasonably determined by Lessor, or
in the event of disagreement between Lessor and Lessee, as determined by the
independent appraiser selected under the provisions of Section 4(b) of the
Lease; provided, however, that such Stipulated Loss Value shall not be less than
-----------------
25% of Lessor's Cost of the Units.
<PAGE>
ANNEX C
-------
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
--------------------------------------------
<PAGE>
EXHIBIT F
---------
SECURITY DEPOSIT PLEDGE AGREEMENT
<PAGE>
SECURITY DEPOSIT PLEDGE AGREEMENT
AGREEMENT made and entered into as of September 30, 1996, by and between
Calypte Biomedical Corporation, a California corporation, with a principal place
of business at 1440 Fourth Street, Berkeley, CA 94710 ("Pledgor") and MMC/GATX
Partnership No. I, a California general partnership, with its place of business
at c/o GATX Capital Corporation, Four Embarcadero Center, San Francisco, CA
94111, as Agent (the "Agent" or "Pledgee").
W I T N E S S E T H
- - - - - - - - - -
In consideration of, and as an inducement for Pledgee (i) to enter into and
advance funds under the Equipment Lease Agreement, dated as of September 30,
1996 (as amended from time to time, the "Lease"), with Pledgor and one or more
Schedules in connection with the Lease (the "Schedules"), and (ii) to secure the
payment of rentals and performance of all Pledgor's other obligations under this
Agreement, the Lease and all exhibits and Schedules thereto (collectively, the
"Obligations"), Pledgor shall deposit and pledge with Pledgee, on the Delivery
Date of each Schedule, a cash collateral security deposit (the "Security
Deposit") in the amount of six percent (6%) of Lessor's Cost under such Schedule
(such terms and other terms not otherwise defined herein having the meaning
therefor as set forth in the Lease or the Schedules).
NOW THEREFORE, it is agreed:
1. Delivery of Deposit; Earnings. Pledgor shall, on or before the Delivery
--------------------------------
Date of each Schedule, deliver the Security Deposit for such Schedule to Pledgee
to secure the due and punctual payment and performance of the Obligations.
Pledgor will receive simple interest on the Security Deposit at a rate equal to
four and one-half percent (4.5%) per annum (the "Earnings"), such Earnings to be
paid to Pledgor when and if the Security Deposit is returned to Pledgor in
accordance with the terms hereof. The Agent may commingle the Security Deposit
and Earnings with its own funds or funds of the Pledgee or otherwise deposit
such Security Deposit in any bank selected by Pledgee.
2. Grant of Security. All funds held by the Pledgee, representing the
-----------------
Security Deposit and any Earnings, shall constitute collateral security for the
performance by Pledgor of all its Obligations. Accordingly, Pledgor assigns,
delivers, pledges and conveys to Pledgee, and grants to Pledgee a first
priority, perfected security interest in and to the Security Deposit and all
Earnings for the prompt and unconditional fulfillment of the Obligations.
3. Deposit Defaults. If any default or Event of Default under the Lease (each
----------------
being a "Deposit Default") by Pledgor shall occur and be continuing, earnings
accrued on the Security Deposit for Pledgor's benefit shall cease on notice of
such Deposit Default to Pledgor. Pledgee may thereupon apply the Security
Deposit and any Earnings (accrued to the date of such default notice),
<PAGE>
in such manner as Pledgee reasonably determines, towards the satisfaction of the
Obligations, including the payment of all costs and expenses incurred by Pledgee
as a result of any Deposit Default.
4. Enforcement. Pledgee shall have no duty to commence an action against or
-----------
seek recourse from Pledgor in the event of a Deposit Default first before
enforcing the provisions of this Agreement. The Obligations of Pledgor shall be
absolute and unconditional, and shall remain in force and effect without regard
to, and shall not be released or discharged or in any way affected by:
(a) any amendment or modification of or supplement to the Lease or any
exhibit or Schedule thereto, or to this Agreement;
(b) any exercise or non-exercise of any right, remedy or privilege under
or in respect to this Agreement, the Lease or any exhibit or Schedule thereto,
or any other instrument provided for in any thereof, or any waiver, consent,
indulgence or actions or inaction with respect to any such instrument;
(c) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceeding of or against
Pledgor; or
(d) any payment received by Pledgee and subsequently refunded or returned
to Pledgor or anyone on behalf of Pledgor.
5. Return of Security Deposit. So long as no Event of Default shall have
--------------------------
occurred and be continuing under the Lease, at the end of the Term of each
Schedule, the Security Deposit with respect to such Schedule shall be applied
first to Pledgor's end-of-Term obligations to Pledgee with respect to such
Schedule, and the balance (if any) of such Security Deposit with respect to such
Schedule and Earnings attributable thereto (less any portion thereof applied or
otherwise utilized pursuant to this Agreement) shall be delivered to Pledgor.
6. Further Assurances. Pledgor will promptly execute and deliver to Pledgee
------------------
such further reasonable documents and take such further reasonable action as
Pledgee may request in order to more effectively carry out the intent and
purpose of this Agreement or an assignment of Pledgee's interest herein.
7. Notices. Notices required or permitted hereunder shall be given in
-------
accordance with the Lease.
8. Amendments and Supplements. No agreement shall be effective to amend,
--------------------------
supplement or discharge this Agreement in whole or in part unless such agreement
is in writing, signed by the parties hereto.
9. Assignability. This Agreement shall be binding upon and shall inure to
-------------
the benefit of the successors and assigns of the parties hereto. Pledgor hereby
acknowledges that Lessor's rights under this Agreement may be assigned at any
time to any person having an interest in the Lease.
<PAGE>
10. Governing Law. This Agreement shall be governed by and construed under
-------------
the laws of the State of California.
11. Assignment. Pledgor shall not transfer or assign, in whole or in part,
----------
any of its rights under this Agreement. Pledgee shall have the absolute right to
transfer or assign to any person, firm, partnership, corporation or other
entity, for security or otherwise, any or all of Pledgee's obligations, benefits
and interests under this Agreement without the consent of or notice to Pledgor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
MMC/GATX PARTNERSHIP NO. I
Pledgee
By Meier Mitchell & Company, General Partner
By:________________________________
Its:_______________________________
CALYPTE BIOMEDICAL CORPORATION,
Pledgor
By:________________________________
Its:_______________________________
<PAGE>
EXHIBIT 10.40
CALYPTE BIOMEDICAL, TRINITY BIOTECH plc
JOINT VENTURE AGREEMENT
OBJECTIVE. To form a joint venture between Calypte Biomedical and Trinity
Biotech in order to develop an immunogold based rapid test for the detection of
antibodies to HIV1 and HIV2 in human urine samples.
NATURE OF JOINT VENTURE. Calypte Biomedical is skilled in the art of the
detection of HIV antibodies in urine and can provide know how, expertise and
patent protection in the area. Trinity Biotech is expert in the development of
rapid assays for HIV antibody diagnosis and can provide a proven immunogold HIV
rapid assay format and patent protection in the form of Trinity Biotech's own
format patents and a license to the Becton Dickinson immunochromatography
patents.
PROJECT. It is proposed that the overall product development project will take
approximately twelve (12) months to complete. The project will be broken down
into two distinct phases. Phase 1 is a feasibility stage which is expected to
last no more than 4 months and which will be used to establish if the UniGold
HIV1/2 assay is capable to achieving the required levels of sensitivity and
specificity using urine as the sample.
If Phase 1 of the project proves successful, i.e., that the results generally
indicate, as agreed by all parties, that an assay can be developed to the
desired specifications then the project will move into phase 2 or product
development proper. It is envisaged that Phase 2 will last up to 9 months.
If Phase 1 of the project proves unsuccessful, i.e. it is deemed unlikely that
continuing the project further will result in the desired product then the
project will be terminated at this point.
For both phases of the project, the product development program, the desired
specifications and the results achieved will be reviewed and agreed by a joint
technical committee comprising of Dr. Edward Balbirnie R&D Manager and Dr. Jim
Walsh, COO on behalf of Trinity biotech, and Dr. Toby Gottfried, Director of
Research and Dr. Dean Schroer Director of Development on behalf of Calypte
Biomedical. The product development work will be carried out at Trinity Biotech
and will be supervised on a day to day basis by Dr. Balbirnie.
*****
MANUFACTURING. Final product will be manufactured by Trinity Biotech.
MARKETING. Both Calypte and Trinity have rights to sell the product world-wide
in their own livery.
*****
As it is envisaged that OEM's/Strategic Alliances are the means by which the
maximum sales potential of this product may be realized, both partners will have
the right to pursue OEM/Strategic alliance arrangements. Selection of
OEM/Strategic partners will be jointly agreed on a common sense basis.
*****
***** Confidential treatment requested as to certain portions of this exhibit.
<PAGE>
It is agreed by both parties that for the duration of the feasibility phase of
this project this document is adequate to cover the understanding between the
companies. Should the feasibility phase prove successful and the project moves
into phase two, the parties will meet and a more comprehensive agreement will be
negotiated and put in place.
This memorandum of understanding is non-binding and subject to the approval of
the Board of Directors of the parties hereto.
Signed on behalf of:
TRINITY BIOTECH plc. CALYPTE BIOMEDICAL CORPORATION
/s/ Jim Walsh /s/ Jack Davis
- ----------------------------- -------------------------------
Dr. Jim Walsh, Director & COO Mr. Jack Davis, President & CEO
***** Confidential treatment requested as to certain portions of this exhibit.
<PAGE>
EXHIBIT 11.1
COMPUTATION OF LOSS PER SHARE (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
Net loss attributable to common stockholders.... $ (10,220) $ (10,411) $(5,587)
========= ========= =======
Weighted average shares used to compute net loss
per share
Weighted average number of shares outstanding:
Convertible Preferred Stock..................... 3,682 5,706 4,461
Common Stock.................................... 4,857 569 551
Number of common equivalents as a result of
warrants granted using the treasury stock
method in accordance with Staff Accounting
Bulletin 83.................................... 46 185 185
Number of common equivalents as a result of
stock options granted using the treasury stock
method in accordance with Staff Accounting
Bulletin 83.................................... 118 474 474
--------- --------- -------
Total........................................... 8,703 6,934 5,671
========= ========= =======
Net loss per share attributable to common
stockholders................................... $ (1.17) $ (1.50) $ (0.99)
--------- --------- -------
</TABLE>
The calculations for all periods shown include the shares and warrants of
convertible preferred stock as if they had converted to common stock on their
respective original dates of issuance, because such shares automatically
converted to common stock upon the closing of the initial public offering of
the Company's common stock.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Calypte Biomedical Corporation:
We consent to the incorporation by reference in the registration statement (No.
333-16769) on Form S-8 of Calypte Biomedical Corporation of our report dated
February 19, 1997 relating to the consolidated balance sheets of Calypte
Biomedical Corporation and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the three year period ended December 31,
1996 and for the period from February 18, 1988 (inception) through December 31,
1996, which report appears in the December 31, 1996 annual report on Form 10-K
of Calypte Biomedical Corporation.
KPMG Peat Marwick LLP
San Francisco, California
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,924
<SECURITIES> 0
<RECEIVABLES> 24
<ALLOWANCES> 0
<INVENTORY> 205
<CURRENT-ASSETS> 8,323
<PP&E> 3,948
<DEPRECIATION> (2,187)
<TOTAL-ASSETS> 10,347
<CURRENT-LIABILITIES> 2,256
<BONDS> 1,207
1,856
0
<COMMON> 10
<OTHER-SE> 5,406
<TOTAL-LIABILITY-AND-EQUITY> 10,347
<SALES> 130
<TOTAL-REVENUES> 130
<CGS> 1,085
<TOTAL-COSTS> 1,085
<OTHER-EXPENSES> 9,084
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (340)
<INCOME-PRETAX> (10,098)
<INCOME-TAX> (2)
<INCOME-CONTINUING> (10,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,220)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> 0
</TABLE>
