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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 000-20985
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CALYPTE BIOMEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 06-1226727
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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1265 HARBOR BAY PARKWAY, ALAMEDA, CALIFORNIA 94502
(Address of principal executive offices) (Zip Code)
(510) 749-5100
(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 or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 15, 2000, 20,536,915 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 $67,603,804 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.
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PART I.
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 20
Item 3. Legal Proceedings........................................... 20
Item 4. Submission of Matters to a Vote of Security Holders......... 20
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 21
Item 6. Selected Consolidated Financial Data........................ 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 23
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 31
Item 8. Financial Statements and Supplementary Data................. 32
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 33
PART III.
Item 10. Executive Officers, Directors and Significant Employees of
the Registrant.............................................. 34
Item 11. Executive Compensation...................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 43
Item 13. Certain Relationships and Related Transactions.............. 44
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 46
Signatures.................................................. II-1
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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, UNCERTAIN MARKET ACCEPTANCE OF OUR NEW METHOD
OF DETERMINING THE PRESENCE OF HIV ANTIBODIES, LACK OF EXPERIENCE SELLING AND
MARKETING OUR HIV-1 URINE-BASED SCREENING TEST, LIMITED OPERATING HISTORY, AND
INABILITY TO OBTAIN ADDITIONAL FINANCING, IF NEEDED, AS WELL AS THE OTHER RISKS
AND UNCERTAINTIES DESCRIBED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS ANNUAL
REPORT ON FORM 10-K. 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 antibodies to the 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 clinical
trials, detected the presence of HIV antibodies in urine with 99.7% sensitivity
in subjects known to be HIV-1 infected (as identified through blood-based
screening tests). In subjects at low risk for HIV ("low risk subjects"), the
specificity of the screening test with a companion Western Blot supplemental
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.
In August 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. In May 1998, Cambridge Biotech
Corporation ("Cambridge Biotech") also received such licenses from the FDA with
respect to the urine HIV-1 Western Blot test that confirms the presence of
antibodies to HIV-1 in urine samples. This test is used on samples that are
repeatedly reactive in Calypte's HIV-1 urine antibody screening test. Calypte's
screening test, when used with the Western Blot supplemental test for urine,
provides the only complete FDA-approved urine-based HIV testing method.
In December 1998, Calypte acquired from Cambridge Biotech certain assets
relating to Cambridge Biotech's Western Blot product line for certain infectious
diseases. The acquisition included the urine-based and serum-based HIV-1 Western
Blot products, as well as a supplemental test for Lyme Disease and Human
T-Lymphotropic Virus (HTLV).
In November 1999, Calypte received FDA approval of a "Day Assay" format for
its "Cambridge Biotech" HIV-1 Western Blot assay. The FDA approval now permits
use of this supplemental test in either a "Day Assay" (five hour) or overnight
format, and will provide more rapid test results for customers and their
patients who need the results of their HIV tests as rapidly as possible.
The Company intends to develop additional or improved urine and blood-based
tests for other infectious and viral diseases. The Company will also continue to
explore the potential for an over-the-counter in-home urine collection kit.
Calypte markets 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 tests offer significant
advantages in terms 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 or maintain FDA clearance or approval
and become commercially available.
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BACKGROUND
HIV is the putative cause of AIDS, which is a 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 and the Joint United Nations
Programme on HIV/AIDS, by the end of 1999, an estimated 50 million people have
been infected with HIV, of whom over 16 million have already died from the
disease, and each day 16,000 more become infected. HIV is spread by a transfer
of bodily fluids primarily through sexual contact, blood transfusions, the
sharing intravenous needles, accidental needle sticks and transmission from
infected mothers to newborns. The World Health Organization reports that about
2.2 million people died of AIDS in 1998 and the annual death toll is likely to
continue to rise for years to come.
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. Outside of blood bank screening, physicians, the life
insurance industry, the military, the criminal justice system, and the
Immigration and Naturalization Service generate the largest domestic demand for
HIV testing.
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 supplemental test. The presence of HIV antibodies,
based on the results of the supplemental 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, clinics, 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 if healthcare
personnel are 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.
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 supplemental 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 initially designed 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
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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 enzyme
immunoassays licensed for use with DBS.
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 blood sampling and invasiveness.
The human immune system typically requires a number of weeks or 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.
THE CALYPTE URINE-BASED HIV-1 SCREENING AND SUPPLEMENTAL TESTS
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 supplemental test for urine provides the only complete urine-based HIV
testing method. Laboratories using the Company's method can complete the entire
testing profile for HIV-1 antibody using a single urine specimen. The Company
believes that the benefits of its testing method 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 antibody. 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. 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 injection 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 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. Unlike oral fluid,
the collection of urine does not require specially trained personnel, nor is its
collection restricted to patients of certain ages.
LOWER OVERALL COST. The Company's urine-based screening test may lower
significantly the overall cost of testing for HIV infection 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 cost savings may accrue as a function of
reduced needlestick incidents and their 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.
Nonetheless, the total cost of deploying urine, blood or oral-based HIV
screening tests or a combination thereof will vary according to the testing
purpose and protocol and whether other diagnostic tests are performed
simultaneously. The ancillary costs (such as collection method, accidental
exposure to HIV and sample disposal) associated with blood testing are more
expensive than urine testing.
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
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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 and the urine Western Blot supplemental test,
more than 11,000 paired blood and urine specimens were tested. Two measures of
the reliability of our urine-based HIV test were employed--specificity and
sensitivity. Specificity is the ability of an assay or method to identify all
non-HIV infected individuals correctly. Sensitivity is the ability of the assay
or method to detect truly HIV-infected individuals. In recent studies where
specificity was assessed by testing specimens from a combined subset of low risk
subjects, the resulting specificity was 100% for the screening test in
conjunction with the supplemental test. Sensitivity (correlation to blood tests)
of the urine testing method was estimated by testing samples from a subset of
individuals known to be infected with HIV-1, including those with a clinical
diagnosis of AIDS. The sensitivity in that subset was measured at 99.7%.
In spite of the benefits of the Company's urine-based screening and
supplemental tests, such tests represent 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 the
necessary regulatory and reimbursement approvals are obtained.
TEST METHODOLOGY. The Company's urine-based screening 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 screening test requires only 200 microliters of urine (approximately
four drops) and can be performed using standard laboratory equipment. 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, and therefore requires few, if any, modifications to existing
laboratory protocols.
The Company's urine-based supplemental test uses the same commercially
available Western Blot kit components as provided for the blood-based Cambridge
Biotech supplemental test. This urine-based supplemental test requires 1.0
milliliter of urine added directly to the standard kit diluent and is performed
with additional times of incubation for the two detection steps as the only
changes in procedure. The same laboratory equipment is used for both the blood
and urine supplemental tests.
The Cambridge HIV-1 Western Blot kit for use with urine is dedicated to
urine testing by virtue of the urine Western Blot controls included with the
Western Blot blood kit and a different blot interpretation criterion. For urine,
blots showing the presence of a single band, gp160, equal to or greater
intensity than the low positive urine Western Blot control are interpreted as a
positive HIV-1 result. Urine blots have a lower indeterminate rate than blood,
allowing more definitive negative or positive results.
In December 1998, Calypte acquired from Cambridge Biotech certain assets
relating to the Western Blot product line for certain infectious diseases. The
acquisition included Cambridge Biotech's urine-based and serum-based HIV-1
Western Blot products, as well as a supplemental test for Lyme Disease and Human
T-Lymphotropic Virus (HTLV).
THE CAMBRIDGE BIOTECH BLOOD-BASED HIV-1 SUPPLEMENTAL TEST
As the first of the four supplemental blot tests for blood HIV-1 antibodies
to be FDA-licensed, the Cambridge Biotech HIV-1 Western Blot kit has been in
commercial distribution for more than 8 years. Since the FDA's November 1999
approval of a "Day Assay" format, the supplemental test is available in both a
five-hour and an overnight format.
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THE SENTINEL TESTING SERVICE
In January 2000, the Company announced its participation in a new national
urine-based testing service for HIV-1 antibody, chlamydia, and gonorrhea. The
new service, called Sentinel, is a collaboration between the Company, Wampole
Laboratories, a division of Carter-Wallace, Inc. and Clinical Reference
Laboratory. The service is a painless, non-invasive, urine-based sampling method
designed to identify HIV-1 antibody, and the chlamydia and gonorrhea sexually
transmitted diseases ("STDs"). The Sentinel service provides a three-day
response and is priced below the Medicaid reimbursement level in most states.
The service will be targeted to medical clinics and physicians and is expected
to begin in the second quarter of 2000. The Company manufactures the HIV-1
antibody tests used in the Sentinel service. The Company and Wampole
Laboratories will jointly market the testing service. Clinical Reference
Laboratory will perform the laboratory analysis for the testing service.
PRODUCTS UNDER DEVELOPMENT
The Company's research and development efforts are directed toward process
improvements and the development of select high-priority new diagnostic
products. Priority is determined on the basis of feasibility, probable cost to
develop, regulatory complexity, market size and competition.
RAPID TEST. The Company has been investigating the feasibility of a rapid
test in response to the reports by the Center for Disease Control and Prevention
(CDC) on the value of immediate HIV antibody test results. The high number of
individuals who do not return for test results and counseling constitutes a
threat to the public health. In addition, in emergency rooms, delivery rooms and
other settings, there is an urgent need to know the HIV status of the patient.
Since AZT treatment of pregnant mothers, even at delivery and for the newborn,
has been shown to result in a substantial decrease in HIV transmission, there
appears to be a new market for the reliable rapid test format. The development
of the rapid test remains at an early stage. At this time, the Company believes
it would be premature to issue predictions as to the product's reliability and
cost or the likelihood of success and timing of product development.
OTHER DIAGNOSTICS. The Company intends to develop additional or improved
urine and blood-based tests for other infectious and viral diseases. The Company
is focusing development on products which are complementary to its existing
product line and market opportunities. These may include development of
urine-based tests for assessment of liver and cardiac risk to be used in the
insurance underwriting industry and a supplemental test for HTLV.
OTC. The Company will continue to explore the potential for an
over-the-counter in-home urine collection kit for use in HIV diagnosis. However,
due to regulatory approval uncertainties and cost concerns, this is not a
high-priority development for the Company.
RESEARCH AND DEVELOPMENT SPENDING. The Company has invested the funds in
research and development that it believes to be necessary and appropriate to
bring its innovative HIV-1 urine-based screening test to the market. The Company
spent $4.1 million, $3.9 million, and $3.7 million on product research and
development in 1999, 1998, and 1997, respectively. Future spending will be
devoted to product and process improvements and new product development and the
level of spending will, accordingly, vary from past spending levels.
SALES, MARKETING AND DISTRIBUTION
The Company's marketing strategy is to use distributors, focused direct
selling, telemarketers, and direct mail to penetrate certain targeted domestic
markets. The Company maintains a small direct sales force to sell the Company's
HIV-1 screening test and potential future products to laboratories serving the
life insurance market. International and other U.S. markets will be addressed
utilizing diagnostic product distributors. In late summer of 1998, the Company
began selling its combined urine-based HIV-1 test with the Western Blot
supplemental test in the U.S. To date, the Company has received approval for the
sale of
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its product outside of the U.S. only in Indonesia. Several international
approvals are pending, and the Company is working collaboratively with its
distributors to obtain regulatory approval to market and promote the products in
their local markets.
The Company anticipates that a 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 in foreign currency exchange
rates. 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.
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COMPANY GEOGRAPHIC REGION MARKETS
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Calypte...................... United States Laboratories serving the life
insurance testing market.
Calypte...................... Canada All
Wampole Laboratories......... United States All but the above
laboratories.
Otsuka....................... Japan All
Teva Medical Ltd............. Israel All
Pacific Business
Development, Inc........... South Korea All
Chemitech International
Company.................... Egypt, Oman, Yemen, Kuwait, All
Jordan, Lebanon, United
Arab Emirates
Professional Biotech Pvt.
Ltd........................ India All
POS Biological Espana,
S.L........................ Spain and Portugal All
Uni-Health Services Sdn.
Bhd........................ Malaysia All
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WAMPOLE LABORATORIES. In September 1999, the Company appointed Wampole as
its exclusive U.S. distributor to the hospital, public health, and reference lab
markets. The agreement has an initial five-year term and on-going exclusivity
within this term is predicated on the purchase of minimum volumes of the
Company's product.
OTSUKA PHARMACEUTICAL CO., LTD. Otsuka is a Japanese integrated health care
and consumer products conglomerate. In an agreement first created in
August 1994, and amended in December 1998, the Company appointed Otsuka as its
exclusive distributor for all market segments in Japan. The agreement extends
through 2004 and is terminable without cause by Otsuka upon 120 days notice.
TEVA MEDICAL LTD. (FORMERLY TRAVENOL LABORATORIES (ISRAEL) LTD.). In
December 1994 the Company entered into an agreement with TEVA Medical Ltd.
("TEVA"), which gives TEVA exclusive rights to distribute the HIV-1 test and to
use the trademark "Calypte" within Israel. Under the agreement, TEVA will
undertake registration of the product in Israel with the Company paying
regulatory fees. The agreement has no fixed term and requires no minimum
purchase levels.
PACIFIC BUSINESS DEVELOPMENT, INC. The Company appointed Pacific Business
Development ("Pacific") as its exclusive distributor for all market segments in
South Korea in July 1999. Pacific's business partner in Korea is Baecam Medical
Co. Ltd. This agreement has an initial three-year term. Continuing exclusivity
during the term of the agreement is predicated on the purchase of minimum
volumes of product following the product's successful registration in South
Korea.
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CHEMITECH INTERNATIONAL COMPANY. The Company appointed Chemitech
International Company as its exclusive distributor for all market segments in
seven Middle Eastern countries in March 1999. The agreement is extendable
year-by-year and on-going exclusivity is predicated upon specified minimum
purchases following successful local registration of the product.
PROFESSIONAL BIOTECH PVT. LTD. In March 1999, the Company appointed
Professional Biotech Pvt. Ltd. as its exclusive distributor for all market
segments in India. The agreement's initial term is eighteen months, extendable
thereafter. Extension of the agreement and on-going exclusivity are negotiable
following successful local registration of the product.
POS BIOLOGICAL ESPANA, S.L. The Company appointed POS Biological Espana,
S.L. as its exclusive distributor for all market segments in Spain and Portugal
in October 1999. This agreement has an initial term of three years. Continuing
exclusivity during the term of the agreement is contingent upon specified
minimum purchases following successful local product registration.
UNI-HEALTH SERVICES SDN. BHD. In October 1999, the Company appointed
Uni-Health Services Sdn. Bhd. as its exclusive distributor for all market
segments in Malaysia. The distribution agreement has an initial term of one
year. Extension of the agreement and continuing exclusivity are dependent upon
the purchase of specified minimum volumes of product following the product's
successful local registration.
The Company's products represent an alternative to the blood-based 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, 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 little
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.
In 1999, the Company's revenue from product sales totaled $3.7 million. Over
96% of Calypte's 1999 product sales revenues arose from sales to customers in
the United States. Consistent with its policy of maintaining inventory levels
that are adequate to minimize the lead time required to fulfill customer orders,
the Company had no backlog of unfilled orders at either December 31, 1999 or
1998.
The Company is currently negotiating with other potential distributors of
its HIV product line in various countries, including China, Brazil, and South
Africa. In March 1999, the Chinese National Center for AIDS Prevention and
Control (NCAIDS) and the Chinese Academy of Preventive Medicine (CAPM) signed a
letter agreement with Calypte to use Calypte's urine HIV-1 test in various HIV
screening applications including: STD clinics, military personnel, pregnant
women, children, marriage license applications and insurance applications. The
Company continues to pursue a definitive distribution agreement for its products
in China.
MANUFACTURING
The manufacture of the Company's urine-based HIV test involves antigen
production, plate processing and preparation of certain washes and other
reagents. All processes are carried out under FDA Good Manufacturing Practices
("GMP"). Antigen production involves cell culture, antigen expression and
purification. Following purification, the antigen is tested extensively and
optimized for plate coating. The
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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 for its HIV-1 screening test are located
in Berkeley, California with an estimated 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
for which FDA approval is pending. The capacity of the Alameda facility is
approximately 20 million tests per year. In February 2000, the Company filed a
new license application for the Alameda facility. The Company intends to
continue manufacturing in its Berkeley facility until the FDA approves the
license for its Alameda facility.
In December 1998, the Company acquired certain assets of Cambridge Biotech
Corporation, including the manufacturing facilities for its HIV-1 product line
in Rockville, Maryland. The Rockville facility also has an establishment license
from the FDA for the urine and blood-based Western Blots.
In November 1998, the Company received a Warning Letter from the FDA
following an inspection by the FDA of the Company's manufacturing facilities in
Berkeley and Alameda, California. On December 11, 1998, the Company responded in
writing to each of the deficiencies cited in the Warning Letter. The Company
subsequently received another letter from the FDA requesting further responses
regarding certain of the deficiencies. The Company responded to the subsequent
letter on June 1, 1999. The FDA conducted a follow-up inspection of the Berkeley
and Alameda facilities on September 28 through October 7, 1999, which resulted
in observations requiring corrective action or response from the Company. The
Company submitted its written responses to the FDA's inspection observations on
November 4, 1999. On March 21, 2000, the Company received a response from the
FDA requesting additional information. The Company is preparing its response to
this request.
In May 1999, the Company received a Warning Letter from the FDA following an
inspection by the FDA of its manufacturing plant in Rockville, Maryland. The
Warning Letter was based upon an inspection of the Rockville manufacturing
facility that was conducted between November 20 and December 11, 1998, which
cited a number of significant observations. On May 24, 1999, the Company
responded in writing to each of the deficiencies cited in the Warning Letter. On
November 19, 1999, the Company received a letter from the FDA stating that the
Company's responses were considered adequate, and the Warning Letter was
formally closed. Between November 30, and December 9, 1999, the FDA conducted a
follow-up inspection of the Rockville facility that resulted in observations
requiring corrective actions or response from the Company. On January 7, 2000,
the Company responded in writing to each of the FDA observations and is awaiting
the FDA's reply. On March 21, 2000, the Company received a response from the FDA
requesting additional information. The Company is preparing its response to this
request.
If the FDA is not satisfied with the Company's responses and corrective
actions regarding these matters at either its Alameda or Rockville facilities,
the FDA could take regulatory actions against the Company, including license
suspension, revocation, and/or denial, seizure of products and/or injunction,
and/or civil penalties or criminal sanctions. Any such FDA action is likely to
have a material adverse effect upon the Company's ability to conduct operations.
In addition, failure of the Company to satisfy the FDA on these matters may
adversely affect receiving approval for the Alameda facility and/or the
Company's ability to export its products to certain international markets.
Calypte purchases raw materials and uses components in the manufacture of
its products that it obtains from various suppliers and relies on single sources
for a few of these components. Establishment of additional or replacement
suppliers for these components cannot be accomplished quickly. The Company uses
some single-source components, and any delay or interruption in supply of these
components could
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significantly impair the Company's ability to manufacture products in sufficient
quantities, particularly as Calypte increases manufacturing activities in
support of commercial sales.
The Company has limited experience in the commercial-scale manufacture of
its products. The Company currently manufactures its products for sale, for
submission to FDA for ongoing compliance, for clinical trials, and for building
its inventory. Calypte may encounter difficulties in scaling-up production of
its products, including problems involving production yields, quality control
and assurance, raw material supply and shortages of qualified personnel. Due to
Calypte's limited manufacturing experience, its estimates with regard to these
and other operational requirements may be incomplete or inaccurate and
unanticipated events and circumstances are likely to occur. The larger Alameda
facility will be needed if and when demand for the screening test 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.
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 the Company
begins to produce products on a larger 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.
The manufacturing facility in Maryland is a specialized facility
incorporating Biosafety Level 3 controls for the manipulation of potentially
infectious biological agents (HIV and HTLV viruses) as well as the use of
hazardous chemical materials. As such, this facility and the products
manufactured there are subject to rigorous Federal, State and local regulatory
controls including registration, licensing and specific material use permits.
Should it become necessary at some future point to move the Maryland operations
to a different location, significant costs, time and resources would likely be
required to validate such a transfer and obtain the required regulatory
clearances.
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
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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 Berkeley, California facility.
The Company's products incorporate established 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.
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.
The Company's HIV-1 urine-based supplemental test uses the Cambridge Biotech
HIV-1 Western Blot kit with a procedure developed by Calypte for testing urine
specimens. The Cambridge Biotech HIV-1 Western Blot kit is based on the
combination of electrophoretic separation of complex mixtures of proteins with
the highly sensitive immunoblotting technique. This method has been highly
useful in characterizing the antigenic profile of HIV-1 and describing the
immune response to HIV-1 in exposed or infected persons.
The Cambridge Biotech HIV-1 Western Blot kit is used for testing both blood
and urine specimens. The manufacture of the kit involves the production of an
inactivated, partially purified HIV-1 lysate from HIV-1 propagated in an
H9/HTLV-III(b) T-lymphcyte cell line. HIV-1 proteins are separated by molecular
size using gel electrophoresis of the lysate in the presence of detergent
(sodium dodecylsulfate). These separated HIV-1 proteins are electrotransferred
from gel to a nitrocellulose membrane which is washed, blocked to minimize non-
specific immunoglobulin binding and packaged. The kit provides serum controls
and components which enable the detection and visualization of HIV-1 antibodies
present in the specimen incubated with individual nitrocellulose membrane
strips. Bands corresponding to specific location of HIV-1 proteins are used to
interpret a positive, negative or indeterminate result.
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INVESTMENT IN PEPGEN
In October 1995 Calypte purchased an equity interest in Pepgen Corporation
("Pepgen"), a development-stage therapeutic research and drug development
company with two lead compounds. The first compound is an interferon product,
called interferon-tau, which early animal trials have shown to be promising both
as an anti-viral and anti-tumor agent with less toxicity than other interferons.
In February 1999, Pepgen received clearance from the FDA to commence Phase I
human clinical trials of interferon-tau for patients who have multiple
sclerosis. Pepgen's second lead compound is hybrid interferon alpha. Preliminary
studies indicate that hybrid interferon alpha shows lower levels of toxicity
than currently available alpha interferons while retaining the anti-viral and
anti-tumor activity of alpha interferon. Pepgen expects to conduct additional IN
VITRO and IN VIVO preclinical studies on hybrid interferon alpha and, if such
studies are successful, Pepgen plans to submit an investigational new drug
application (IND) to the FDA.
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 shares were immediately exercisable and the
remaining 375,000 shares 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 is entitled to elect one of the five
Board members of Pepgen.
During 1998, the Company loaned Pepgen a total of $768,000 at an effective
interest rate of 10%. During the first quarter of 1999, the Company loaned
Pepgen an additional $64,000 at an interest rate of 10%. The notes receivable
from Pepgen were secured by all of Pepgen's intellectual property, as well as by
a personal guaranty from Pepgen's Founder and Chairman and a standby guaranty
from Pepgen's President. The entire loan plus interest was due July 1, 1999.
In May 1999, Pepgen received a financing offer from a third party that was
contingent upon Calypte converting its note receivable due from Pepgen into an
additional equity interest in Pepgen. At a meeting of the Calypte Board of
Directors, the Board agreed to the conversion. Consequently, effective
March 31, 1999, the Company wrote off its total investment in the note
receivable from Pepgen, including accrued interest, as research and development
costs. Additional amounts totaling $63,000 were spent on research and
development related to Pepgen during the second quarter of 1999. On October 6,
1999, Pepgen secured $3.8 million in a new round of financing. Calypte currently
owns 38% of Pepgen. See Item 13, "Certain Relationships and Related
Transactions."
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 two
U.S. patents, one pending U.S. patent application, six foreign patents, and
eight pending foreign patent applications. In addition, the Company currently
has the right to utilize certain patents and proprietary rights under licensing
agreements with New York University ("NYU"), Cambridge Biotech Corporation,
Repligen, and Texas A&M University System. 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 makes
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,
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the Company also funded research at NYU 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 Corporation proprietary
technology related to the HIV envelope glycoprotein. The sublicense grants to
the Company 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 Corporation 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 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 the event that the Company does not develop alternate sources of
revenues, its obligation to make minimum royalty payments under licenses
requiring such payments could have a material adverse impact on the Company's
results of operations. Failure to make required minimum royalty payments may
also result in the loss by the Company of exclusivity under, or termination of,
such 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.
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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 agreements
with consultants, who typically are employed on a full-time basis by academic
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, the Safe
Medical Devices Act of 1990, and the Modernization Act of 1997 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 or a product license application
("PLA"), from being marketed for unapproved 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 foreign regulatory 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.
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HIV-1 SCREENING AND SUPPLEMENTAL TESTS
The Company's HIV-1 screening and supplemental tests 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 PLA and an establishment licensing
application ("ELA") for the Company's Berkeley, California manufacturing
facility. 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
laboratory settings.
In December 1998, Calypte acquired the assets relating to the Western Blot
product line of Cambridge Biotech Corporation for HIV-1. Both the urine and
serum-based HIV-1 Western Blot products have received a product license and an
establishment license from the FDA. In March 1999, the licenses were transferred
from Cambridge Biotech Corporation to Calypte.
MANUFACTURING FACILITIES
The FDA requires the Company's products to be manufactured in compliance
with GMP regulations. In addition, the Company is subject to certain additional
manufacturing regulations imposed by the State of California and the State of
Maryland for the Rockville facility where the blots are manufactured. 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 facilities will satisfy GMP or California and
Maryland manufacturing requirements. Enforcement of the GMP 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 GMPs. Such penalties could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Manufacturing"
section with respect to Warning Letters received by the Company from the FDA in
November, 1998 and May 1999 and observations made in subsequent FDA inspections.
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 subject Calypte to risks of
product liability claims or product recalls, particularly in the event of false
positive or false negative reports. A product recall or a successful product
liability claim or claims that exceed our insurance coverage could have a
material adverse effect on us. We maintain a $10,000,000 claims made policy of
product liability insurance. However, product liability insurance is expensive.
In the future, we may not be able to obtain coverage on acceptable terms, if at
all. Moreover, our insurance coverage may not adequately protect us from
liability that we incur in connection with clinical trials or sales of our
products.
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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 that have not yet
been approved for domestic commercial distribution may be subject to FDA export
restrictions. To date, in countries operating their own agencies for the
evaluation and registration of HIV testing kits, the Company has received
approval for the sale of its product in Indonesia only. Approval and
registration processes are underway in several other countries. Failure to
obtain additional 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.
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 HIV tests, 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.
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 Bio-Rad
Laboratories. 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 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 designed to use 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"), now owned by
Abbott Laboratories 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 FDA-licensed SUDS 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 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 demanding 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.
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EMPLOYEES
As of December 31, 1999, the Company had 60 full time employees, thirteen of
whom were engaged in or directly supported the Company's research and
development activities, 30 of whom were in manufacturing, facilities and quality
assurance, seven of whom were in marketing and sales and 10 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.
William A. Boeger, the Chairman of the Board of Directors of the Company,
also serves as a board member of Pepgen. In addition, Mr. Boeger and Dr. Howard
B. Urnovitz, the Company's Chief Science Officer are both officers of the
Chronic Illness Research Foundation, a non-profit organization. In March 2000,
Mr. Boeger and Dr. Urnovitz announced the formation of a commercial company,
Chronix Biomedical, which will focus on novel ways to detect abberant genes in
individuals with chronic diseases. David E. Collins, Calypte's Chief Executive
Officer, also serves as a director of several private companies. Accordingly,
although these individuals devote such working hours as each deems reasonably
necessary to the business of the Company, they 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 an
as-needed 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, Chairman, Department of Pathology,
University of California, San Francisco Medical Center. 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 held the position of Professor of Pathology
at Harvard University Medical School from 1991 to 1999. Professor Abbas has also
received the Parke-Davis Award for Experimental Pathology (1987).
MARIO CLERICI, M.D., Associate Professor, Department of Immunology,
University of Milan, Italy. Dr. Clerici is a medical researcher with expertise
in the field of AIDS and HIV research. He is listed in Science Magazine as one
of the top ten quoted AIDS researchers from 1993-1995, and as a co-discoverer of
individuals with natural resistance to HIV. Dr. Clerici graduated in 1985 from
the University of Milan.
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. has served as the Company's 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. Her post-doctoral fellowship from 1980 until 1988 at the University of
California, Berkeley, was in the area of
18
<PAGE>
monoclonal antibody attachment to toxins for targeting cancer cells.
Dr. Gottfried received her Ph.D. in Biochemistry from the University of
Pennsylvania and her B.S. from Cornell University.
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 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.
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., Director of Viral Oncology, 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. In 1998, Professor
Montagnier expanded his research efforts to the United States by accepting an
endowed professorship at Queens College, New York. He is in charge of the Center
for Molecular and Cellular Biology, where research efforts are focused on HIV
therapeutics and vaccines. Professor Montagnier also continues his research
efforts in Paris at both the Pasteur Institute and his World Foundation AIDS
Research and Prevention. 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, a
Director, and its founder. 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 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.
RISK FACTORS
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
19
<PAGE>
ITEM 2. PROPERTIES
The Company leases approximately 22,000 square feet of office, research, and
manufacturing space in Alameda, California under a lease that expires in
November 2003 and includes an option to renew for one five-year period. The
Company also leases approximately 20,000 square feet of office, research, and
manufacturing space in Berkeley, California. The existing lease expires in
August 2000, with the option to renew on a monthly basis at the Company's
option.
Calypte also subleases properties in Rockville, Maryland. The sublease of
approximately 42,000 square feet of office and manufacturing space expires in
October 2006. An additional sublease of approximately 1,000 square feet of
manufacturing space expires March 2000, with no option to renew. During the
first quarter of 2000, the Company relocated the activities formerly conducted
in this facility to its primary leased space in Rockville. The Company believes
that existing facilities are adequate to support its activities for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Calypte's stockholders voted on four proposals at its 1999 annual meeting of
stockholders, which was held on November 18, 1999. Proposal 1 was to re-elect
all of the Calypte directors to serve as members of the Calypte Board of
Directors until the 2000 Annual Meeting.
Proposal 2 was to increase the number of shares of common stock reserved for
issuance under the 1991 Incentive Stock Plan by 500,000 shares.
Proposal 3 was to i) increase the number of shares of common stock reserved
for issuance under the 1999 Director Option Plan by 150,000 shares, ii) allow
option grantees thereunder to transfer some or all of their options so granted
to immediate family members during the lifetime of the grantee; iii) allow the
Board of Directors of Calypte to determine the number of options to be granted
to directors, provided that the number of options for each newly-elected
director in any given year will be the same for each such director and the
number of options for each re-elected director in any given year will be the
same for each such director; iv) provide for each grant under the plan to vest
monthly over the twelve month period commencing with the date of election or
re-election of the optionee as director, provided that such option will become
vested and fully exercisable on the date of the next annual meeting of
stockholders if such meeting ocurs less than one year after the date of grant;
v) provide that each option granted will be exercisable over a period of ten
years commencing with the date of such option grant to the extent the option has
become vested, regardless of whether the optionee has terminated service as a
board member provided, however, that if an optionee is removed from the board,
the option will terminate if it is not exercised within 90 days of the date of
such removal; and vi) allow non-employee directors who also serve as consultants
to the Company to participate in the Director Option Plan in order to account
for their separate service as directors.
Proposal 4 was to ratify the appointment by the Board of Directors of KPMG
LLP as independent auditors to audit the financial statements of the Company and
its consolidated subsidiaries for the fiscal year ending December 31, 1999.
20
<PAGE>
Each nominee for the Board of Directors was re-elected at the 1999 Annual
Meeting. The following number of votes was cast for and against each nominee:
<TABLE>
<CAPTION>
FOR AGAINST
---------- --------
<S> <C> <C>
William A. Boeger........................................... 14,380,850 136,642
David Collins............................................... 14,382,550 134,942
Nancy E. Katz............................................... 14,367,005 150,587
Howard B. Urnovitz, Ph.D.................................... 14,406,105 111,387
Paul Freiman................................................ 14,387,675 129,817
Julius R. Krevans, M.D...................................... 14,365,380 152,112
Mark Novitch, M.D........................................... 14,367,145 150,347
Zafar Randawa, Ph.D......................................... 14,418,579 98,913
John J. DiPietro............................................ 14,419,605 97,887
</TABLE>
The three remaining proposals were also approved by the stockholders. The
following votes were tabulated:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTE
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Proposal 2..................................... 13,816,486 659,748 41,258 0
Proposal 3..................................... 13,886,433 561,816 69,243 0
Proposal 4..................................... 14,392,244 51,130 74,118 0
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY 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>
1998........................................................ 1st 5 1/4 3 3/4
1998........................................................ 2nd 7 3/16 3 13/16
1998........................................................ 3rd 4 9/16 1 3/8
1998........................................................ 4th 4 7/16 1/2
1999........................................................ 1st 4 1/2 1 1/2
1999........................................................ 2nd 3 1/16 1
1999........................................................ 3rd 2 3/8 27/32
1999........................................................ 4th 2 1/16 11/16
</TABLE>
On March 15, 2000, there were 286 holders of record of the Common Stock, and
the closing price of the Common Stock was $3 3/4. 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.
SALES OF COMMON STOCK
The Company sold its Common Stock to institutional investors in three
private placements between 1997 and 1999. In each instance, the proceeds were
used to fund Calypte's continuing operations. The shares sold in each of the
private placements were exempt from registration with the Securities and
Exchange Commission pursuant to Rule 506 of Regulation D of the Securities Act
of 1993 as amended
21
<PAGE>
("Securities Act"). Shares were sold only to accredited investors as defined in
Rule 501 of the Securities Act. The transactions closed upon the effectiveness
of a Form S-3 Registration Statement that was filed in conjunction with each
private placement. Additional information regarding the common stock sales is
contained in the table below.
<TABLE>
<CAPTION>
CLOSING DATE OCTOBER 1997 JANUARY 1999(1) APRIL 1999
- ------------ ---------------- ----------------- ----------------
<S> <C> <C> <C>
Number of shares sold............ 2,600,999 3,102,500 3,398,000
Aggregate proceeds............... $11,054,246 $3,102,500 $7,645,500
Price per share.................. $ 4.25 $ 1.00 $ 2.25
Form S-3 Filing Date............. October 27, 1997 November 14, 1998 March 30, 1999
Form S-3 File Number............. 333-38417 333-66765 333-75239
</TABLE>
- ------------------------
(1) Subscription amounts for this offering were recorded in 1998.
SUBSEQUENT EVENT
On March 2, 2000, the Company signed definitive agreements for the sale of
4,096,000 shares of Common Stock to institutional investors in a private
placement at $2.05 per share with an aggregate offering price of $8,396,800.
Calypte expects to receive net proceeds of approximately $8.3 million after
deducting expenses associated with the private placement. The Company also
issued warrants for 100,000 shares of its common stock to one of the investors
in return for a bridge loan prior to the closing of the private placement. The
warrants are exercisable at $3.62 per share. The shares sold in the private
placement were exempt from registration with the Securities and Exchange
Commission pursuant to Rule 506 of Regulation D of the Securities Act of 1933 as
amended ("Securities Act"). Shares were sold only to accredited investors as
defined in Rule 501 of the Securities Act. The Company filed a Form S-3
Registration Statement (File No. 333-32246) on March 13, 2000 to register the
shares for resale by the accredited investors. The Common Stock sale will close
following the effectiveness of the S-3 Registration Statement. The Company will
use the proceeds from the private placement to finance its continuing
operations.
22
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Presented below is the selected consolidated financial data for the years
ended December 31, 1999, 1998, 1997, 1996, and 1995 (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales....................................... $ 3,728 $ 951 $ 376 $ 130 $ --
-------- ------- ------- -------- --------
Total revenue..................................... 3,728 951 376 130 --
-------- ------- ------- -------- --------
Operating expenses:
Product costs....................................... 4,721 1,912 2,305 1,085 --
Research and development............................ 4,123 3,881 3,685 5,751 7,518
Selling, general and administrative................. 5,081 3,925 2,317 3,333 2,862
-------- ------- ------- -------- --------
Total expenses.................................... 13,925 9,718 8,307 10,169 10,380
-------- ------- ------- -------- --------
Loss from operations............................ (10,197) (8,767) (7,931) (10,039) (10,380)
Interest income (expense), net........................ 171 308 139 (74) 78
Other income.......................................... 2 1 -- 15 12
-------- ------- ------- -------- --------
Loss before income taxes and extraordinary
item.......................................... (10,024) (8,458) (7,792) (10,098) (10,290)
Income taxes.......................................... (2) (2) (2) (2) (1)
-------- ------- ------- -------- --------
Net loss........................................ (10,026) (8,460) (7,794) (10,100) (10,291)
Less dividend on mandatorily redeemable Series A
preferred stock..................................... (120) (120) (120) (120) (120)
-------- ------- ------- -------- --------
Net loss attributable to common stockholders.... $(10,146) $(8,580) $(7,914) $(10,220) $(10,411)
======== ======= ======= ======== ========
Net loss per share attributable to common
stockholders.................................. $ (0.52) $ (0.64) $ (0.72) $ (1.17) $ (1.53)
======== ======= ======= ======== ========
Weighted average shares used to compute net loss
per share attributable to common
stockholders.................................. 19,333 13,432 11,028 8,753 6,792
======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 2,652 $ 3,121 $ 10,820 $ 7,924 $ 2,559
Securities available for sale............................ 503 650 -- -- --
Working capital.......................................... 1,860 4,444 8,917 6,067 (2,402)
Total assets............................................. 7,821 9,945 12,950 10,347 5,337
Long-term portion of capital lease obligations and notes
payable................................................ 50 23 282 764 543
Mandatorily redeemable Series A preferred stock.......... 2,216 2,096 1,976 1,856 1,736
Accumulated deficit...................................... (66,781) (56,755) (48,295) (40,501) (30,401)
Total stockholders' equity (deficit)..................... 1,330 4,631 8,069 5,416 (2,746)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Calypte's efforts currently are primarily focused on expanding the sales and
marketing of its HIV-1 urine-based and serum-based diagnostic tests and on
improving its products and processes. In the summer of 1998, upon receipt of
license for both its screening and supplemental tests, the Company began the
marketing and sale in the U.S. of the only available FDA-approved urine-based
HIV test method. There can be no assurance the Company will have significant
revenues from sales of the HIV-1 urine screening assay or the supplemental test.
23
<PAGE>
In December 1998, Calypte acquired from Cambridge Biotech certain assets
relating to the Western Blot product line for certain infectious diseases. The
acquisition included the urine-based and serum-based HIV-1 Western Blot
products, as well as a supplemental test for Lyme Disease and Human
T-Lymphotropic Virus (HTLV).
The Company expects operating losses to continue in the near future as it
continues to expand its marketing and sales activities for its current
FDA-approved products and conducts additional research and development for
process improvements and new products. The Company's marketing strategy is to
use distributors, focused direct selling and marketing partners to penetrate
certain targeted domestic markets. The Company maintains a small direct sales
force to sell the Company's urine-based HIV-1 test to laboratories serving the
life insurance market. International and other U.S. markets will be addressed
utilizing diagnostic product distributors. There can be no assurance that the
Company's products will be successfully commercialized or that the Company will
achieve significant product revenues. In addition, there can be no assurance
that the Company will achieve or sustain profitability in the future.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Calypte's product sales increased by $2.8 million to $3.7 million for the
year ended December 31, 1999 compared to $951,000 for the year ended December
31, 1998. $2.5 million of the increase in sales revenues in 1999 is due to the
inclusion of product sales related to the December 1998 acquisition of certain
assets of Cambridge Biotech Corporation. Sales of Calypte's HIV-1 urine
screening test also increased compared to 1998.
Product costs increased by $2.8 million from $1.9 million for the year ended
December 31, 1998 to $4.7 million for the year ended December 31, 1999. The
increase was a result of increased sales volume of the Company's HIV-1 screening
test, an increase of $2.0 million in costs from product sales related to
acquired assets of Cambridge Biotech Corporation and costs associated with the
production of non-saleable inventory during the validation of the Company's
Alameda manufacturing facility.
Research and development expenses increased by 6% to $4.1 million for the
year ended December 31, 1999 versus $3.9 million for the prior year. The
increase is a result of higher minimum product license fees, the write-off of
the notes and accrued interest from Pepgen as research and development costs and
the expense of consultants and other costs associated with the validation of the
Alameda manufacturing facility, offset by a reduction in research and
development personnel and the cost of clinical investigations.
Selling, general and administrative expenses increased 29% to $5.1 million
for the year ended December 31, 1999 versus $3.9 million for the year ended
December 31, 1998. The increase results primarily from the inclusion for the
entire year of 1999 of general and administrative expenses related to the
Maryland manufacturing facility acquired from Cambridge Biotech Corporation in
December 1998, offset by a reduction in the use of consultants in 1999.
Interest income, interest expense, and other income decreased by 44% to
$173,000 for the year ended December 31, 1999 from $309,000 for the year ended
December 31, 1998. The decrease was primarily due to a reduction in interest
earned on cash balances and securities available for sale coupled with an
increase in interest expense related to borrowings under the bank line of
credit.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Product sales for Calypte increased $575,000 to $951,000 for the year ended
December 31, 1998 from $376,000 for the year ended December 31, 1997. The
increase in product sales was primarily due to higher sales volume of our HIV-1
screening test in anticipation of and after FDA approval of the urine HIV-1
Western Blot test.
24
<PAGE>
Product costs decreased 17% to $1.9 million for the year ended December 31,
1998 from $2.3 million for the year ended December 31, 1997. Product costs for
the year ended December 31, 1997 were higher because a greater quantity of
product produced was expensed since it was not retained as saleable inventory.
During the year ended December 31, 1998, a greater quantity of product was
valued as inventory (raw materials, work-in-process and finished goods) after
FDA approval of the supplemental test for Calypte's HIV-1 urine screening test.
Research and development expenses increased 5% to $3.9 million for the year
ended December 31, 1998 from $3.7 million in the corresponding period of the
prior year. The increase was principally due to clinical investigations
performed for an unsuccessful study to determine if HIV-1 antibodies could be
found in urine when the same person tests negative for HIV-1 antibodies in
blood, higher minimum product license fees, research funding made to outside
organizations and more personnel hired to complete research and development
studies.
Selling, general and administrative expenses increased $1.6 million or 69%
to $3.9 million for the year ended December 31, 1998 from $2.3 million for the
year ended December 31, 1997. The increase was primarily related to the increase
in the use of consultants related to various projects and increased expenses
related to the launch and marketing of our HIV-1 urine screening test and
Western Blot supplemental test.
Net interest income increased $169,000 to $308,000 for the year ended
December 31, 1998 from $139,000 for the year ended December 31, 1997. The
increase was primarily due to the interest earned from proceeds of a private
placement of common stock in October 1997, the decrease in interest paid for
capital leases and interest earned on loans made to officers and employees and
Pepgen Corporation.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING ACTIVITIES
The Company has financed its operations from its inception primarily through
the private placement of preferred stock and common stock, its Initial Public
Offering (IPO) of common stock and, to a lesser extent, from payments related to
research and development agreements, a bank line of credit, equipment lease
financings and borrowings from notes payable.
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
down a $1.25 million bank line of credit, a $248,000 note payable to a former
related party 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. The equipment lease line of credit expired at the end of 1996. The
lease agreement expired in December 1999 and was subsequently renewed for an
additional three-year term.
In April 1997, the Company entered into a line of credit agreement with a
bank to borrow up to $2.0 million at an interest rate of prime plus 2%. The
agreement required the Company to maintain certain financial covenants and
comply with certain reporting and other requirements. In addition, the Company's
assets secured borrowings under the line of credit agreement. In June 1997, the
Company drew down $500,000 on the line of credit. Subsequently, in July 1997,
the Company drew down an additional $500,000 on the line of credit, thereby
increasing the note payable to $1.0 million. The $1.0 million was repaid in
September 1997 and the line of credit was terminated.
25
<PAGE>
In October 1997, the Company completed a private placement of 2,600,999
shares of its Common Stock at $4.25 per share. The Company received proceeds of
approximately $10.2 million after deducting placement agent commissions and
additional expenses associated with the private placement.
In January 1999, the Company completed a private placement of 3,102,500
shares of Common Stock to institutional investors at $1.00 per share. Calypte
received net proceeds of approximately $3.1 million after deducting placement
agent commissions and additional expenses associated with the private placement.
In April 1999, the Company completed a private placement of 3,398,000 shares
of its Common Stock to institutional investors at $2.25 per share. Calypte
received net proceeds of approximately $6.8 million after deducting agent
commissions and additional expenses associated with the private placement.
In January 1999, the Company entered into a line of credit agreement with a
bank to borrow up to $2.0 million at an interest rate of prime plus 1 1/4%. The
agreement requires the Company to maintain certain financial covenants and
comply with certain reporting and other requirements. In addition, the Company's
assets secure its borrowings under the line of credit agreement. In
January 1999, Calypte drew down $2.0 million on the line of credit. In
November 1999, the agreement was amended to increase the line of credit to $2.25
million and to extend the term through August 2000. In December 1999, Calypte
drew down the additional $250,000 available under the line. During 1999, the
Company repaid $1,406,000 on the line of credit. In January 2000 the agreement
was amended to extend the maturity to August 2001.
In March 2000, the Company announced the signing of definitive documents
relating to a private placement of 4,096,000 shares of its Common Stock at $2.05
per share. The Company expects to receive proceeds of approximately $8.3
million, after deducting expenses associated with the transaction, when the
transaction is completed following the effectiveness of a registration statement
filed by Calypte covering the resale of the shares by the investors. In
connection with a bridge loan of $1 million from one of the investors, Calypte
also issued warrants for 100,000 shares of Common Stock with an exercise price
of $3.62 per share. The bridge loan will be converted to equity when the
transaction closes.
Although the Company believes current cash will be sufficient to meet the
Company's operating expenses and capital requirements for the next twelve
months, the Company's future liquidity and capital requirements will depend on
numerous factors, including market acceptance of its products, improvements in
the costs and efficiency of its manufacturing processes, regulatory actions by
the FDA and other international regulatory bodies, intellectual property
protection, and the ability, if necessary, to raise additional capital in a
timely manner.
There can be no assurance that the Company will be able to achieve
improvements in its manufacturing processes 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. Any failure
to raise additional financing, if needed, will likely place us in significant
financial jeopardy. Therefore, the Company cannot predict the adequacy of its
capital resources on a long-term basis.
OPERATING ACTIVITIES
For the years ended December 31, 1999 and 1998, the Company's cash used in
operations was $8.0 million and $7.5 million, respectively. The cash used in
operations was primarily to fund research and development as well as
manufacturing expenses related to the urine-based and serum-based HIV-1 tests
along with selling, general and administrative expenses of the Company.
26
<PAGE>
YEAR 2000 PROGRAM
The Company experienced no problems as a result of the Year 2000 issue, and
expects none in the future. Expenditures relating to upgrading systems at our
California and Maryland facilities were within the Company's expectations.
SUBSEQUENT EVENT
In March 2000, Calypte announced that William Boeger, its Chairman, and
Howard Urnovitz, its founder and Chief Scientific Officer, had established a
commercial company named Chronix Biomedical that will focus on novel ways to
detect aberrant genes in individuals with chronic diseases. Chronix will be
financed independently of Calypte and Calypte will not have an equity interest
in Chronix. Calypte will have a right of first refusal to license any
urine-based diagnostic tests that result from Dr. Urnovitz's work, as well as
from Chronix' research efforts, pursuant to Technology Rights Agreements which
Calypte has with Dr. Urnovitz and with Chronix. Such Technology Rights
Agreements expire on March 1, 2007 unless otherwise agreed in writing by Calypte
with the relevant licensor. Under such Technology Rights Agreements, Calypte
will have a period of time, after disclosure to Calypte by Dr. Urnovitz or
Chronix, as the case may be, of the relevant developed technology, to license
such technology on an exclusive, worldwide basis in perpetuity; in exchange for
a license fee equal to the direct cost of the relevant licensor in developing
such technology, plus a running royalty equal to 5% of Calypte's net sales of
products and services using such licensed technology. Both Mr. Boeger and Dr.
Urnovitz will maintain their current positions at Calypte.
RISK FACTORS
Calypte has identified a number of risk factors and uncertainties faced by
the Company. These factors, among others, may cause actual results, events or
performance to differ materially from those expressed in any forward-looking
statements made in this Form 10-K. Investors should be aware of the existence of
these factors.
UNCERTAIN MARKET ACCEPTANCE OF OUR NEW METHOD OF DETERMINING THE PRESENCE OF
HIV ANTIBODIES. Our products incorporate a new method of determining the
presence of HIV antibodies. There can be no assurance that we will obtain:
- any significant degree of market acceptance among physicians, patients or
health care payors; or
- recommendations and endorsements by the medical community which are
essential for market acceptance of the products.
We have FDA approval to market our urine HIV-1 screening and supplemental
tests in the United States and in July, 1998 we began marketing this product.
However, to date this product has only generated limited revenues and not
achieved significant market penetration. The failure of our products to obtain
market acceptance would have a material adverse effect on us.
WE HAVE LIMITED EXPERIENCE SELLING AND MARKETING OUR HIV-1 URINE-BASED
SCREENING TEST. We have little experience marketing and selling our products
either directly or through our distributors. The success of our products depends
upon alliances with third-party distributors including the distribution
agreement announced in September 1999 with Carter-Wallace Inc. There can no
assurance that:
- our direct selling efforts will be effective;
- our distributors will market successfully our products; or
- if our relationships with distributors terminate, we will be able to
establish relationships with other distributors on satisfactory terms, if
at all.
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Any disruption in our distribution, sales or marketing network could have a
material adverse effect on us.
WE HAVE SUSTAINED LOSSES IN THE PAST AND WE EXPECT TO SUSTAIN LOSSES IN THE
FUTURE. We have incurred losses in each year since our inception. Our net loss
for the year ended December 31, 1999 was $10.0 million and our accumulated
deficit as of December 31, 1999 was $66.8 million. We expect operating losses to
continue as we continue our marketing and sales activities for our FDA-approved
products and conduct additional research and development for product and process
improvements and new products.
OUR QUARTERLY RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY, MARKETING AND
COMPETITIVE FACTORS OVER WHICH WE HAVE LITTLE OR NO CONTROL. The factors listed
below, some of which we cannot control, may cause our revenues and results of
operations to fluctuate significantly:
- actions taken by the FDA or foreign regulatory bodies relating to our
products;
- the extent to which our products and our Sentinel HIV and STD testing
service gain market acceptance;
- the timing and size of distributor purchases; and
- introductions of alternative means for testing for HIV by competitors.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING THAT WE MAY NEED IN THE
FUTURE. The report of KPMG LLP covering the December 31, 1999 consolidated
financial statements contains an explanatory paragraph that states that our
recurring losses from operations and accumulated deficit raise substantial doubt
about our ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
that uncertainty. We may need to raise more money to continue to finance our
operations. We may not be able to obtain additional financing on acceptable
terms, or at all. Any failure to raise additional financing, if needed, will
likely place us in significant financial jeopardy.
WE DEPEND UPON THE VIABILITY OF THREE PRODUCTS--OUR HIV-1 URINE-BASED
SCREENING TEST AND OUR URINE AND BLOOD BASED SUPPLEMENTAL TESTS. Our HIV-1
urine-base screening test and urine and blood-based supplemental tests are our
only products. Accordingly, we may have to cease operations if our tests fail to
achieve market acceptance or generate significant revenues.
OUR PRODUCTS DEPEND UPON RIGHTS TO TECHNOLOGY THAT WE HAVE LICENSED FROM
THIRD PARTY PATENT HOLDERS AND THERE CAN BE NO ASSURANCE THAT THE RIGHTS WE HAVE
UNDER THESE LICENSING AGREEMENTS ARE SUFFICIENT OR THAT WE CAN ADEQUATELY
PROTECT THOSE RIGHTS. We currently have the right to use patent and proprietary
rights which are material to the manufacture and sale of our HIV-1 urine-based
screening test under licensing agreements with New York University, Cambridge
Biotech Corporation, Repligen, and the Texas A&M University System.
WE RELY ON SOLE SOURCE SUPPLIERS THAT WE CANNOT QUICKLY REPLACE FOR CERTAIN
COMPONENTS CRITICAL TO THE MANUFACTURE OF OUR PRODUCTS. Any delay or
interruption in the supply of these components could have a material adverse
effect on us by significantly impairing our ability to manufacture products in
sufficient quantities, particularly as we increase our manufacturing activities
in support of commercial sales.
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR PRODUCTS AND LITTLE
EXPERIENCE IN MANUFACTURING OUR PRODUCTS IN COMMERCIAL QUANTITIES. We may
encounter difficulties in scaling-up production of new products, including
problems involving:
- production yields;
- quality control and assurance;
- raw material supply; and
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- shortages of qualified personnel.
THE SUCCESS OF OUR PLANS TO ENTER INTERNATIONAL MARKETS MAY BE LIMITED OR
DISRUPTED DUE TO RISKS RELATED TO INTERNATIONAL TRADE AND MARKETING AND THE
CAPABILITIES OF OUR DISTRIBUTORS. We anticipate that international distributor
sales will generate a significant portion of our revenues for the next several
years. We believe that our urine-based test can provide significant benefits in
countries that do not have the facilities or personnel to safely and effectively
collect and test blood samples. The following risks may limit or disrupt our
international sales:
- the imposition of government controls;
- export license requirements
- political instability;
- trade restrictions;
- changes in tariffs;
- difficulties in managing international operations; and
- fluctuations in foreign currency exchanges rates.
Some of our distributors have limited international marketing experience.
There can be no assurance that these distributors will be able to successfully
market our products in foreign markets.
WE FACE INTENSE COMPETITION IN THE MEDICAL DIAGNOSTIC PRODUCTS MARKET AND
RAPID TECHNOLOGICAL ADVANCES BY COMPETITORS. Competition in our diagnostic
market is intense and we expect it to increase. Within the United States, our
competitors include a number of well-established manufacturers of HIV tests
using blood samples, plus at least one system for the detection of HIV
antibodies using oral fluid samples. Many of our competitors have significantly
greater financial, marketing and distribution resources than we do. Our
competitors may succeed in developing or marketing technologies and products
that are more effective than ours. These developments could render our
technologies or products obsolete or noncompetitive or otherwise have a material
adverse effect on us.
OUR ABILITY TO MARKET OUR PRODUCTS DEPENDS UPON OBTAINING AND MAINTAINING
FDA AND FOREIGN REGULATORY APPROVALS. Numerous governmental authorities in the
United States and other countries regulate our products. The FDA regulates our
products under federal statutes and regulations related to pre-clinical and
clinical testing, manufacturing, labeling, distribution, sale and promotion of
medical devices in the United States.
If we fail to comply with FDA regulations, or the FDA believes that we are
not in compliance with such regulations, the FDA can:
- detain or seize our products;
- issue a recall of our products;
- prohibit marketing and sales of our products; and
- assess civil and criminal penalties against us, our officers or our
employees.
We also plan to sell our products in certain foreign countries where they
may be subject to similar local regulatory requirements. The imposition of any
of the sanctions described above could have a material adverse effect on us.
The regulatory approval process in the United States and other countries is
expensive, lengthy and uncertain. We may not obtain necessary regulatory
approvals or clearances in a timely manner, if at all. We
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may lose previously obtained approvals or clearances or fail to comply with
regulatory requirements. The occurrence of any of these events would have a
material adverse effect on Calypte.
Before we begin to manufacture our product at the Alameda facility, we must
obtain FDA approval for that facility. Delays in receiving the FDA's approval or
other difficulties which we encounter in scaling-up our manufacturing capacity
to meet demand could have a material adverse effect on us.
WE HAVE RECEIVED WARNING LETTERS FROM THE FDA REGARDING THE SUFFICIENCY OF
OUR MANUFACTURING RECORDS AND PRODUCTION PROCEDURES AND WE MUST SATISFY THE
FDA'S CONCERNS IN ORDER TO AVOID REGULATORY ACTION AGAINST US. See
"Business--Manufacturing" section with respect to these Warning Letters.
AS A SMALL MANUFACTURER OF MEDICAL DIAGNOSTIC PRODUCTS, WE ARE EXPOSED TO
PRODUCT LIABILITY AND RECALL RISKS FOR WHICH INSURANCE COVERAGE IS EXPENSIVE,
LIMITED AND POTENTIALLY INADEQUATE. We manufacture medical diagnostic products,
which subjects us to risks of product liability claims or product recalls,
particularly in the event of false positive or false negative reports. A product
recall or a successful product liability claim or claims which exceed our
insurance coverage could have a material adverse effect on us. We maintain a
$10,000,000 claims made policy of product liability insurance. However, product
liability insurance is expensive. In the future we may not be able to obtain
coverage on acceptable terms, if at all. Moreover, our insurance coverage may
not adequately protect us from liability which we incur in connection with
clinical trials or sales of our products.
OUR CHARTER DOCUMENTS MAY INHIBIT A TAKEOVER. Certain provisions of our
Certificate of Incorporation and Bylaws could:
- discourage potential acquisition proposals;
- delay or prevent a change in control of Calypte;
- diminish stockholders' opportunities to participate in tender offers for
our common stock, including tender offers at prices above the then current
market price; or
- inhibit increases in the market price of our common stock that could
results from takeover attempts.
WE HAVE ADOPTED A SHAREHOLDER RIGHTS PLAN THAT HAS CERTAIN ANTI-TAKEOVER
EFFECTS. On December 15, 1998, the Board of Directors of Calypte declared a
dividend distribution of one preferred share purchase right ("Right") for each
outstanding share of Common Stock of the Company. The dividend was payable to
the stockholders of record on January 5, 1999 with respect to each share of
Common Stock issued thereafter until a subsequent "distribution date" defined in
a Rights Agreement and, in certain circumstances, with respect to shares of
Common Stock issued after the Distribution Date.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on the Rights being redeemed or a substantial
number of Rights being acquired. However, the Rights should not interfere with
any tender offer, or merger, which is approved by the Company because the Rights
do not become exercisable in the event of an offer or other acquisition exempted
by Calypte's Board of Directors.
AN INVESTOR'S ABILITY TO TRADE OUR COMMON STOCK MAY BE LIMITED BY TRADING
VOLUME. The trading volume in our common shares has been relatively limited. A
consistently active trading market for our common stock may not develop.
WE MAY BE REMOVED FROM THE NASDAQ SMALLCAP MARKET IF WE FAIL TO MEET CERTAIN
MAINTENANCE CRITERIA. The Nasdaq Stock Market inquired on two occasions whether
we continue to meet the net capital surplus maintenance criterion for trading on
the Nasdaq SmallCap Market. We currently meet the maintenance criterion but our
ability to continue to do so will depend on whether we are able to maintain net
tangible assets of $2,000,000 and whether the minimum bid price for our common
stock exceeds $1.00 per share for
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at least ten consecutive business days during any period of 120 consecutive
business days. The public trading of our common stock and the ability of our
stockholders to sell their shares could be significantly impaired if we fail to
meet the maintenance criteria and are removed from the Nasdaq SmallCap Market.
In that case, our common stock would trade on either the OTC bulletin board, a
regional exchange or in the pink sheets, which would likely result in an even
more limited trading volume.
THE PRICE OF CALYPTE'S COMMON STOCK HAS BEEN HIGHLY VOLATILE DUE TO SEVERAL
FACTORS WHICH WILL CONTINUE TO EFFECT THE PRICE OF OUR STOCK. Our common stock
has traded as low as $0.69 per share and as high as $7.25 per share between
early-November 1999 and mid-March 2000. Some of the factors leading to the
volatility include:
- price and volume fluctuations in the stock market at large which do not
relate to our operating performance;
- fluctuations in our operating results;
- announcements of technological innovations or new products which we or our
competitors make;
- FDA and international regulatory actions;
- availability of reimbursement for use of our products from private health
insurers, governmental health administration authorities and other
third-party payors;
- developments with respect to patents or proprietary rights;
- public concern as to the safety of products that we or others develop;
- changes in health care policy in the United States or abroad; and
- changes in stock market analysts' recommendations regarding Calypte, other
medical products companies or the medical product industry generally.
CALYPTE AND THE PRICE OF CALYPTE SHARES MAY BE ADVERSELY EFFECTED BY THE
PUBLIC SALE OF A SIGNIFICANT NUMBER OF THE SHARES ELIGIBLE FOR FUTURE SALE. All
outstanding shares of our common stock are freely tradable. Sales of common
stock in the public market could materially adversely affect the market price of
our common stock. Such sales also may inhibit our ability to obtain future
equity or equity-related financing on acceptable terms.
OUR RESEARCH AND DEVELOPMENT OF HIV URINE TEST INVOLVES THE CONTROLLED USE
OF HAZARDOUS MATERIALS. There can be no assurance that our safety procedures for
handling and disposing of hazardous materials such as azide will comply with
applicable regulations. In addition, we cannot eliminate the risk of accidental
contamination or injury from these materials. We may be held liable for damages
from such an accident and that liability could have a material adverse effect on
us.
WE MAY NOT BE ABLE TO RETAIN OUR KEY EXECUTIVES AND RESEARCH AND DEVELOPMENT
PERSONNEL. As a small company with only 60 employees, our success depends on
the services of key employees in executive and research and development
positions. The loss of the services of one or more of such employees could have
a material adverse effect on us.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from investments without
significantly increasing risk. Some of the securities that we may invest in may
be subject to market risk. This means that a change in prevailing interest rates
may cause the value of the investment to fluctuate. For example, if we purchase
a security that was issued with a fixed interest rate and the prevailing
interest rate later rises, the value of our investment will probably decline. To
minimize this risk in the future, we intend to maintain our portfolio of
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cash equivalents and short-term investments in a variety of securities including
commercial paper, money market funds and government and non-government debt
securities. In general, money market funds are not subject to market risk
because the interest paid on such funds fluctuates with the prevailing interest
rate. As of December 31, 1999, we neither had any holdings of derivative
financial or commodity instruments, nor any foreign currency denominated
transactions, and all of our cash and cash equivalents were in money market and
checking funds.
The Company has a line of credit outstanding, which is carried at cost (see
Note 7 to the Consolidated Financial Statements), with an interest rate which is
referenced to market rates. Interest rate changes generally do not affect the
fair value of variable rate debt instruments, but do impact future earnings and
cash flows. Holding debt levels constant, a one percentage point increase in
interest rates would decrease earnings and cash flows for variable rate debt by
approximately $8,000.
Our Series A redeemable preferred stock is carried at its redemption value
which approximates fair value and it is not subject to interest rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements are included on pages F-1
through F-28 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, 1999 and 1998. 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-28 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.
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HISTORICAL QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1999 QUARTER QUARTER QUARTER QUARTER
- ---------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues........................................... $ 834 $ 914 $ 1,077 $ 903
Operating expenses....................................... 3,787 3,248 3,447 3,443
Interest income (expense) and other income............... 29 69 45 30
Income taxes............................................. (2) -- -- --
Dividend on mandatorily redeemable Series A preferred
stock.................................................. (30) (30) (30) (30)
------- ------- ------- -------
Net loss attributable to common stockholders............. $(2,956) $(2,295) $(2,355) $(2,540)
------- ------- ------- -------
Net loss per share attributable to common
stockholders*.......................................... $ (0.18) $ (0.11) $ (0.12) $ (0.12)
------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1998 QUARTER QUARTER QUARTER QUARTER
- ---------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues........................................... $ 241 $ 296 $ 147 $ 267
Operating expenses....................................... 1,964 2,576 2,799 2,379
Interest income (expense) and other income............... 117 86 63 43
Income taxes............................................. -- (2) -- --
Dividend on mandatorily redeemable Series A preferred
stock.................................................. (30) (30) (30) (30)
------- ------- ------- -------
Net loss attributable to common stockholders............. $(1,636) $(2,226) $(2,619) $(2,099)
------- ------- ------- -------
Net loss per share attributable to common
stockholders*.......................................... $ (0.12) $ (0.17) $ (0.20) $ (0.16)
------- ------- ------- -------
</TABLE>
- ------------------------
* The sum of earnings per share for the four quarters is different from the
full year amount as a result of computing the quarterly and full year
amounts on the weighted average number of common shares outstanding in the
respective periods.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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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 29, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------------------------------------
<S> <C> <C>
William A. Boeger..................... 50 Chairman of the Board of Directors
David E. Collins...................... 65 Vice Chairman of the Board of
Directors and Chief Executive Officer
Nancy E. Katz......................... 40 President, Chief Operating Officer,
Chief Financial Officer and Member of
the Board of Directors
Howard B. Urnovitz, Ph.D.............. 46 Chief Science Officer and Member of
the Board of Directors
John J. DiPietro...................... 41 Member of the Board of Directors
Paul Freiman(2)....................... 65 Member of the Board of Directors
Julius R. Krevans, M.D.(2)(3)......... 75 Member of the Board of Directors
Mark Novitch, M.D.(1)(2)(3)........... 67 Member of the Board of Directors
Zafar Randawa, Ph.D(1)................ 52 Member of the Board of Directors
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
WILLIAM A. BOEGER has served as the Company's Chairman of the Board since
January 1994. He is currently serving as a consultant to the Company under the
terms of an agreement extending through October 2000. From January 1994 until
September 1995, and from December 1997 until October 1999, Mr. Boeger also
served as the Company's 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. Prior to entering the
venture capital field, he worked in research 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 President, Chief Executive
Officer, and board member of Pepgen Corporation, a company in which Calypte has
a minority interest. Along with Dr. Urnovitz, the Company's Chief Science
Officer, Mr. Boeger has recently announced the formation of Chronix Biomedical,
a commercial company that will focus on novel ways to detect aberrant genes in
individuals with chronic diseases. Mr. Boeger also serves on the Board of
Directors of IRIDEX Corporation, Cell Pathways, Inc., 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.
DAVID E. COLLINS was elected as the Company's Chief Executive Officer in
October 1999. He has served as the Company's Vice Chairman of the Board of
Directors since December 1997, and has been a member of the Board of Directors
since December 1995. From September 1989 until September 1994 he served as
Executive Vice President with Schering-Plough Corporation, a pharmaceutical
company, and President of the HealthCare Products division, responsible for all
over-the-counter ("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. Mr. Collins is also a member of the Board of
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Directors of Lander, Inc., Advanced Corneal Systems, Inc., Beansprout Networks,
Inc., and Claneil Enterprises, Inc., all private companies. Mr. Collins received
his L.L.B. at Harvard Law School and his B.A. at the University of Notre Dame.
NANCY E. KATZ was elected the Company's President, Chief Operating Officer,
and Chief Financial Officer in October 1999. Prior to joining Calypte, Ms. Katz
served as president of Zila Pharm Inc., a prescription and non-prescription oral
health care products company. From 1995 to 1998, Ms. Katz led sales and
marketing efforts for LifeScan, the diabetes testing division of Johnson &
Johnson. Ms. Katz also served as vice president of U.S. marketing, directing
LifeScan's marketing and customer call center departments. During her seven-year
career at Shering-Plough Healthcare Products from 1987 to 1994, she held
numerous positions including senior director, and general manager, marketing
director, Footcare New Products, and product director, OTC New Products.
Ms. Katz also held various product management positions at Whitehall
Laboratories, a division of American Home Products, from 1981 to 1987. Ms. Katz
received her B.A. from the University of South Florida.
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. Along with
Mr. Boeger, the Company's Chairman of the Board of Directors, Dr. Urnovitz has
recently announced the formation of Chronix Biomedical, a commercial company
that will focus on novel ways to detect aberrant genes in individuals with
chronic diseases. Dr. Urnovitz also serves as Science Director of both Chronic
Illness Research Foundation, a non-profit organization that conducts basic
research, and Pepgen Corporation, a company in which Calypte has a minority
interest. 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 was elected to the Company's Board of Directors in October
1999. He also serves as a consultant to the Company under the terms of a
consulting contract extending through September 2000. He is presently the Chief
Financial Officer and Vice President--Finance and Administration of TriPath
Technology, Inc., a privately-held semi-conductor manufacturing company. He had
served as the Company's Chief Operating Officer, Vice President of Finance,
Chief Financial Officer and Secretary since December 1997. From October 1995
until December 1997, he served as the Vice President of Finance, Chief Financial
Officer and Secretary. 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. 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.
PAUL FREIMAN has served as a member of the Company's Board of Directors
since December 1997. He has served as the President and Chief Executive Officer
of Neurobiological Technologies, Inc since May 1997. In 1995, Mr. Freiman
retired from his position as Chairman and Chief Executive Officer of Syntex
Corporation, a pharmaceutical company. From 1962 until 1994, he held several
other positions at Syntex Corporation, including President and Chief Operating
Officer. Mr. Freiman is currently serving on the board of Penwest
Pharmaceuticals Corp., Neurobiological Technologies, Inc. and several other
biotechnology companies. He has been chairman of the Pharmaceutical
Manufacturers Association of America (PhARMA) and has also chaired a number of
key PhARMA committees. Mr. Freiman is also an advisor to Burrill & Co., a San
Francisco merchant bank.
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
35
<PAGE>
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 was a Professor of Health Care Sciences at George
Washington University from October 1994 to June 1997. He is presently an Adjunct
Professor at George Washington University Medical Center. Since 1993,
Dr. Novitch has also been a private consultant in the pharmaceutical industry.
From 1985 until 1993, he 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 Chairman of the Board of Directors of Alkon, Inc. and is
also a member of the Board of Directors of 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.
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
Evaluation 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.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors, and persons who own more than 10% of a registered
class of the Company's equity securities, to file report of ownership on Form 3
and changes in ownership on Form 4 or 5 with the Securities and Exchange
Commission and the National Association of Securities Dealers. Such officers,
directors and ten percent stockholders are also required by the Securities and
Exchange Commission rules to furnish the Company with copies of all Section
16(a) forms that they file.
The Company believes that during fiscal year 1999, all the Reporting Persons
complied with all applicable filing requirements subject to the following
exceptions: Mr. Collins had one late filing of a report on Form 5 with respect
to a stock option grant.
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 are eligible to
receive grants of options to purchase shares of Common Stock. In addition, all
outside directors receive $5,000 per year in consideration of their membership
on the Board of Directors.
The Company's Board of Directors adopted the Director Option Plan in
December 1995 and the stockholders approved it in 1996. It was amended at the
Company's November 1999 Annual Stockholder's Meeting. Under the Director Option
Plan, the Company has reserved 350,000 shares of common stock for issuance to
the directors of the Company pursuant to nonstatutory stock options. The
Company's Board of
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<PAGE>
Directors determines the number of shares of the Company's stock that will be
granted each year to newly-elected and re-elected directors, provided that the
number of options for each newly-elected director in any given year will be the
same for each such director and the number of options for each re-elected
director in any given year will be the same for each such director. Options may
be granted under this plan to non-employee directors or directors who also serve
as consultants of the Company. 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. Each grant under the plan will
vest monthly over the twelve month period commencing with the director's date of
election or re-election, provided that the option will become vested and fully
exercisable on the date of the next annual meeting of stockholders if such
meeting occurs less than one year after the date of the grant. The plan shall be
in effect for a term of ten years unless sooner terminated under the Director
Option Plan.
There were 140,000 Common Stock options granted in 1999 under the Director
Option Plan.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded or paid by the
Company during the years ended December 31, 1999, 1998 and 1997 to its Chief
Executive Officer and each of the other executive officers of the Company
(collectively, the "Named Executive Officers"). The compensation table excludes
other compensation in the form of perquisites and other personal benefits that
constitute the lesser of $50,000 or 10% of the total salary and bonus earned by
each of the named Executive Officers in each fiscal year.
37
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
SECURITIES
UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) GRANTED (1) COMPENSATION ($)
- --------------------------- -------- ---------- --------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
David E. Collins(2).................. 1999 26,500(3) 0 170,000(4) 7,083(5)
Chief Executive Officer and Vice- 1998 0 0 3,000(6) 5,000(7)
Chairman of the Board of Directors 1997 0 0 53,000(8) 5,000(7)
Nancy E. Katz(9)..................... 1999 42,308 0 450,000 0
President,Chief Operating Officer,
Chief Financial Officer and Member
of the Board of Directors
Howard B. Urnovitz................... 1999 152,000 500 0
Chief Science Officer and Member of 1998 157,846(10) 432 250,000(11)
the Board of Directors 1997 87,692 0 150,000(12)
William A. Boeger(13)................ 1999 222,354(14) 0 20,000(6) 135,979(15)
Chairman of the Board of Directors 1998 210,000(16) 74,686(17) 600,000(11) 25,881(18)
and former President and Chief 1997 50,000(19) 5,385(20) 195,000(12) 15,470(21)
Executive Officer
John J. DiPietro(22)................. 1999 148,116 40,000 20,000(6) 77,517(23)
Member of the Board of Directors 1998 144,911 432 300,000(11) 25,496(24)
and former Chief Operating Officer, 1997 131,250 0 80,000(12) 36,073(24)
Chief Financial Officer, Vice
President of Finance and Secretary
</TABLE>
- ------------------------
(1) All figures in this column represent options to purchase the Company's
common stock.
(2) Mr. Collins was elected Chief Executive Officer in October 1999. He has
served as Vice Chairman of the Board of Directors since December 1997 and
as member of the Board of Directors since December 1995.
(3) Represents $26,500 paid pursuant to the Consulting Agreement between Mr.
Collins and the Company.
(4) Reflects option grant for 150,000 shares under the terms of the October
1999 Consulting Agreement between Mr. Collins and the Company and an option
grant for 20,000 shares pursuant to service as a Director of the Company.
(5) Represents $7,083 in Director's fees for services rendered in 1998 and
1999.
(6) Option grant made pursuant to service as a Director of the Company.
(7) Represents Directors fees.
(8) Represents option grant for 3,000 shares pursuant to service as a Director
of the Company and option grant for 50,000 shares pursuant to Consulting
Agreement between Mr. Collins and the Company. The latter 50,000 share
grant was cancelled as of October 1999.
38
<PAGE>
(9) Ms. Katz joined the Company in October 1999 as President, Chief Operating
Officer, and Chief Financial Officer.
(10) $5,846 was paid to Dr. Urnovitz in 1998 for services rendered in 1997.
(11) Option grant was made upon cancellation of certain options previously
granted.
(12) These options were cancelled in October of 1998.
(13) Mr. Boeger served as the Company's Chairman of the Board of Directors from
September 1995 to December 1997. From December 1997 to October 1999, he
served as Chairman of the Board of Directors, Chief Executive Officer and
President. Since October 1999, Mr. Boeger has served as Chairman of the
Board of Directors.
(14) Represents $186,346 in salary and $36,008 paid pursuant to the terms of the
October 1999 Consulting Agreement between Mr. Boeger and the Company, of
which $5,000 represents payment for services to be rendered by Mr. Boeger
in 2000.
(15) Represents $112,500 in severance payments; $19,429 in living expenses and
$4,050 in car allowance.
(16) $15,000 was paid to Mr. Boeger in 1998 for services rendered by Mr. Boeger
in 1997.
(17) Represents $74,290 for non-cash bonus related to forgiveness of a portion
of a $70,000 note receivable including interest from Mr. Boeger and a $396
cash bonus.
(18) Represents $20,406 in living expenses and $5,475 in car allowance, $75 of
which relates to a 1997 car allowance.
(19) Represents amounts paid to an affiliate of Quest Ventures, a venture
capital partnership of which Mr. Boeger is Managing General Partner.
(20) Represents non-cash bonus related to forgiveness of a portion of a $70,000
note receivable including interest from Mr. Boeger.
(21) Represents $10,595 for living expenses and $4,875 for car allowance.
(22) Mr. DiPietro joined the Company in October 1995 as Chief Financial Officer
and Vice President of Finance. From December 1997 to September 1999,
Mr. DiPietro was Chief Operating Officer, Chief Financial Officer and Vice
President of Finance. Since October 1999, Mr. DiPietro has served as a
member of the Board of Directors.
(23) Represents $55,000 in severance payment; $17,898 in living expenses and
$4,619 car allowance.
(24) Represents living expenses.
39
<PAGE>
The following table sets forth information concerning stock options granted
to the Named Executive Officers during the fiscal year ended December 31, 1999:
STOCK OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR(1) ($/SH)(2) DATE 5% ($) 10% ($)
- ---- ---------- -------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
David E. Collins................. 150,000(4) 13.16% 0.7812 10/18/09 73,694 186,755
20,000(5) 1.75% 1.5625 11/18/09 19,653 49,804
Nancy E. Katz.................... 450,000(6) 39.47% 0.7812 10/18/09 221,082 560,264
Howard B. Urnovitz............... 0 N/A N/A N/A N/A N/A
William A. Boeger................ 20,000(5) 1.75% 1.5625 11/18/09 19,653 49,804
John J. DiPietro................. 20,000(5) 1.75% 1.5625 11/18/09 19,653 49,804
</TABLE>
- ------------------------
(1) Based on the aggregate of 1,080,000 options granted under the Company's
Incentive Stock Plan to employees and consultants to the Company and 60,000
options granted to Consultant Directors under the Company's 1995 Director
Option Plan during the year ended December 31, 1999, 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) Represents option grant for 150,000 shares pursuant to Consulting Agreement
between Mr. Collins and the Company. Options for 50,000 shares were
immediately exercisable upon the grant date, October 18, 1999. Options for
an additional 50,000 shares become exercisable on April 18, 2000, and
options for the remaining 50,000 shares become exercisable on October 18,
2000. The options expire ten years from the date of grant.
(5) Options granted under the Director Option Plan become exercisable at the
rate of 1,667 shares per month beginning December 18, 1999, continuing at
that rate on each monthly anniversary thereafter through the earlier of
November 18, 2000, or the date of the next stockholders' meeting, at which
time all unvested options will vest. The options expire ten years from the
date of grant. The grant was made pursuant to service as a Director of the
Company.
(6) Options for 150,000 shares were immediately exercisable on the grant date,
October 18, 1999. Options for an additional 150,000 shares become
exercisable on the first anniversary of the grant date and options on the
remaining 150,000 shares become exercisable on the second anniversary of the
grant date. The options expire ten years from the date of grant, or earlier
upon termination of employment. The grant was made pursuant to the
Employment Agreement between Ms. Katz and the Company.
40
<PAGE>
The following table sets forth information concerning option exercises for
the year ended December 31, 1999, with respect to each of the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN 1999
AND DECEMBER 31, 1999 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISABLE VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
ACQUIRED ON VALUE YEAR END (#) YEAR END ($)
NAME EXERCISE (#) REALIZED ($) (EXERCISABLE/UNEXERCISABLE)(1) (EXERCISABLE/UNEXERCISABLE)(1)(2)
- ---- ------------- ------------ ------------------------------ ---------------------------------
<S> <C> <C> <C> <C>
David E. Collins..... -- -- 58,000/100,000 33,375/62,500
Nancy E. Katz........ -- -- 150,000/300,000 93,750/187,500
Howard B. Urnovitz... -- -- 261,834/104,166 164,357/42,312
William A. Boeger.... -- -- 500,000/290,000 298,000/117,798
John J. DiPietro..... -- -- 184,500/150,500 74,944/61,133
</TABLE>
- ------------------------
(1) Reflects in-the-money options granted under both the 1991 Incentive Stock
Plan and the 1995 Director Option Plan.
(2) Value realized and value of unexercised in-the-money options is based on a
value of $1.4062 per share of the Company's Common Stock, the closing price
on December 31, 1999 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 Mr. Freiman, Dr. Krevans
and Dr. Novitch. Mr. Collins was a member of the Compensation Committee until
his election as Chief Executive Officer in October 1999.
In October 1999, the Company entered into a consulting agreement with
David E. Collins, Vice-Chairman of the Board of Directors, to serve as Chief
Executive Officer effective from October 1999 through October 2000. Under the
terms of the agreement, Mr. Collins receives compensation of $1,000 for each day
devoted to the Company's business and was granted options to purchase 150,000
shares of the Company's stock. In turn, Mr. Collins commits to spending at least
of five days per month on Company business.
EMPLOYMENT AGREEMENTS
In October 1999, the Company entered into an employment agreement with Nancy
E. Katz as the President, Chief Operating Officer, and Chief Financial Officer
of the Company, which provides for an annual salary of $220,000. In addition,
Ms. Katz was granted 450,000 stock options, 150,000 of which vested immediately
and the balance of which vest over 24 months. Ms. Katz is also entitled to a
bonus upon the achievement of milestones mutually agreed to by the officer and
the Board of Directors. In the event Ms. Katz' employment is terminated by the
Company other than for cause, she will receive her base salary for twelve
months. In the event of a change in control, any unvested stock options will
become fully vested.
In January 1995, the Company entered into an employment agreement with
Dr. Howard B. Urnovitz, as the Founder, Director and Chief Science Officer of
the Company 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.
41
<PAGE>
The agreement was amended in November 1999 to provide payment of Dr. Urnovitz'
base salary through April 2000, if he is terminated other than for cause prior
to such date.
In October 1998, the Company entered into an employment agreement with
William A. Boeger for a term effective immediately through December 31, 1999,
which provides for an annual salary of $225,000. In addition, Mr. Boeger was
granted 600,000 stock options, which vest over 24 months. Mr. Boeger was
entitled to a car allowance of $450 per month, 25% bonus upon the achievement of
milestones mutually agreed to by Mr. Boeger and the Board of Directors,
temporary housing, and travel between his home and the Company. In the event
Mr. Boeger's employment would have been terminated by the Company other than for
cause, he would have received his base salary for twelve months and all stock
options that would have vested during the 12 month period following termination
would have become vested. Additionally, if Mr. Boeger voluntarily terminated his
employment after July 1, 1999, he would have been entitled to receive severance
pay equal to six months of his base salary.
Concurrent with his October 1999 resignation as President and Chief
Executive Officer, the Company entered into a consulting agreement with William
Boeger effective from October 1999 through October 2000. Under the terms of the
agreement, Mr. Boeger received $26,008, as compensation for services in
October and November 1999, and is entitled to compensation of $5,000 per month
for the period December 1999 through October 2000. Additionally, Mr. Boeger's
stock option granted pursuant to his 1998 employment agreement continues to vest
at a rate of 5,000 shares per month from October 1999 through October 2000.
In October 1998, the Company entered into an employment agreement with John
DiPietro for a term effective immediately through December 31, 1999, which
provided for an annual salary of $170,000. In addition, Mr. DiPietro was granted
300,000 stock options, which vest over 24 months. Mr. DiPietro was also entitled
to a car allowance of $350 per month, 25% bonus under the Company's bonus plan,
reimbursement for the cost of a corporate apartment, which expenses were
increased sufficiently to reimburse for taxes owed on such expenses, and certain
change in control provisions. In the event Mr. DiPietro's employment would have
been terminated by the Company other than for cause, he would have received his
base salary for twelve months and all stock options that would have vested
during the term of this agreement would have become fully vested. Additionally,
if Mr. DiPietro voluntarily terminated his employment after July 1, 1999, he
would be entitled to receive severance pay equal to six months of his base
salary.
Concurrent with his September 1999 resignation as Chief Operating Officer
and Chief Financial Officer of the Company, the Company entered into a
consulting agreement with John DiPietro effective from September 1999 through
September 2000. Under the terms of the agreement, Mr. DiPietro receives no cash
compensation, however, his stock option granted pursuant to his 1998 employment
agreement continues to vest at the rate of 4,000 shares per month from
September 1999 through September 2000. Under the terms of the consulting
agreement, severance payments payable to Mr. DiPietro pursuant to the 1998
employment contract were fixed at $55,000.
In October 1999, the Company entered into a consulting agreement with David
Collins to serve as Chief Executive Officer. See "Compensation Committee
Interlocks."
42
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as set forth in the footnotes to this table, the following table sets
forth information known to the Company with respect to the beneficial ownership
of its Common Stock as of March 15, 2000 for (i) all persons 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>
Trilobite Lakes Corp.(2) ................................... 2,051,220(3) 9.99%
Silverside Carr Executive Center, Suite 14
501 Silverside Road
Wilmington, DE 19809
H&Q Healthcare Investors(4) ................................ 1,433,993 6.98%
50 Rowes Wharf-4th Floor
Boston, MA 02110
Otsuka Pharmaceutical Co., Ltd.(5) ......................... 1,310,480 6.38%
463-10 Kagsuno
Kawauchi-cho
Tokoshima Japan
Zafar Randawa, Ph.D.(6)..................................... 1,310,480 6.38%
William A. Boeger(7)........................................ 1,061,655 5.03%
David E. Collins(8)......................................... 112,584 *
Nancy E. Katz(9)............................................ 150,000 *
Howard B. Urnovitz, Ph.D.(10)............................... 443,701 2.13%
John DiPietro(11)........................................... 216,181 1.04%
Mark Novitch, M.D.(12)...................................... 44,833 *
Paul Freiman(13)............................................ 17,333 *
Julius Krevans, M.D.(14).................................... 29,833 *
All directors and executive officers as a group (9 3,386,600 15.68%
persons)..................................................
</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, 1265 Harbor Bay Parkway, Alameda, California 94502.
(2) This information was obtained from the Form 13D filing of Claneil
Enterprises, Inc., an affiliate of Trilobite, dated March 14, 2000.
David E. Collins, the Chief Executive Officer and Vice Chairman of the Board
of Calypte serves on the Board of Directors of Claneil Enterprises, Inc. and
is a member of Claneil's Compensation Committee.
(3) 1,951,220 shares are issuable pursuant to the private placement of shares
of the Company in March 2000 and 100,000 shares are issuable pursuant to a
warrant for the purchase of common stock. See "Liquidity and Capital
Resources--Subsequent Events."
(4) This information was obtained from the Form 13G/A filing of the entity
dated February 22, 2000.
(5) Includes 17,333 shares subject to options exercisable within 60 days.
43
<PAGE>
(6) Includes 17,333 shares subject to options exercisable within 60 days.
Dr. Randawa is a director of the Company and an affiliate of Otsuka
Pharmaceutical Co., Ltd. All shares listed are held by Otsuka. Dr. Randawa
disclaims beneficial ownership of the shares except to the extent of his
affiliation with Otsuka.
(7) Includes 67,303 shares subject to options exercisable within 60 days owned
by entities affiliated with Quest Ventures LP of which Mr. Boeger is a
partner. Mr. Boeger disclaims beneficial ownership of all shares held by
Quest Ventures except to the extent of his actual pecuniary ownership. Also
includes 528,334 shares subject to options exercisable within 60 days owned
by Mr. Boeger.
(8) Includes 72,584 shares subject to options exercisable within 60 days.
(9) Includes 150,000 shares subject to options exercisable within 60 days.
(10) Includes 303,501 shares subject to warrants exercisable within 60 days.
(11) Includes 208,833 shares subject to options exercisable within 60 days.
(12) Includes 40,833 shares subject to options exercisable within 60 days.
(13) Includes 17,333 shares subject to options exercisable within 60 days.
(14) Includes 18,333 shares subject to options exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, in recognition of a Technology Rights Agreement entered into
between the Company and Dr. Urnovitz, the Company partially funded the expenses
of the Chronic Illness Research Foundation, a research foundation started by
Dr. Urnovitz with which Mr. Boeger is also affiliated. The Company entered into
a loan agreement with Dr. Urnovitz to repay such funding to the Company and to
limit the funding to a maximum of $165,000. The loan is evidenced by a
promissory note and is secured by Dr. Urnovitz's stock options to purchase
common stock with a market value of 200% of the outstanding loan balance. The
interest on the outstanding principal balance of the loan is a variable rate of
the prime rate plus 1%. The principal amount and all accrued interest was
originally due on December 1, 1997 but was extended through December 31, 1999.
The Company's Board of Directors has subsequently extended the due date of the
note to June 12, 2000. The Technology Rights Agreement gives the Company the
first right of refusal for ten years of an exclusive, worldwide license to
practice, make or have made, use, sell, distribute and license to others any
invention or discovery related to urine-based diagnostics made by Dr. Urnovitz
in exchange for a one-time cash payment and the payment of royalties.
The note from Dr. Urnovitz is a full recourse obligation. It is secured by
Dr. Urnovitz's stock and vested employee options in the Company, and requires
maintenance of a collateral value of 200% of the loan value. This maintenance
covenant was not met at all times during 1998 and 1999. However, at all times
Calypte had the ability to reach Dr. Urnovitz's personal assets which Calypte
believed were adequate to provide for payment of the loan. Calypte has also
taken a security interest in additional collateral.
In 1997, the Company paid Pepgen, a minority-owned affiliate of the Company
$72,000 for an exclusive license to all technology that relates to urine-based
diagnostics developed by Pepgen. Mr. Boeger is a board member of Pepgen.
Dr. Urnovitz is the Science Officer of Pepgen.
In January 1998, Calypte loaned Pepgen $250,000 at an interest rate of 10%.
The loan is secured by all intellectual property of Pepgen and was due on
March 31, 1998. The due date was initially extended to May 15, 1998. During
June 1998, the loan was increased to $300,000 under the same terms of the
initial loan agreement and subsequent to June 1998, the due date was extended to
December 31, 1998. In August 1998, the loan was increased to $383,000 under the
same terms of the initial loan agreement. During the third quarter of 1998, the
Company loaned Pepgen Corporation an additional $468,000 under the same terms of
the initial note and extension, increasing the total amount due from Pepgen to
$768,000.
44
<PAGE>
The loan was further collateralized by a personal guaranty by the Founder and
Chairman of Pepgen and a standby guaranty from Pepgen's President in the event
that the guaranty by the Founder and Chairman proves insufficient. During the
third quarter of 1998, the due date was extended to July 1, 1999.
In May 1999, Pepgen received a financing offer from a third party that was
contingent upon Calypte converting its note receivable due from Pepgen into an
additional equity interest in Pepgen. At a meeting of the Calypte Board of
Directors, the Board agreed to the conversion. Consequently, effective
March 31, 1999, the Company wrote off its total investment in the note
receivable from Pepgen, including accrued interest, as research and development
costs. Additional amounts totaling $63,000 were spent on research and
development related to Pepgen during the second quarter of 1999. On October 6,
1999, Pepgen secured $3.8 million in a new round of financing. Following the
closing of the financing, Calypte now owns 38% of Pepgen.
SUBSEQUENT EVENT
In March 2000, Calypte agreed to sell 4,096,000 shares of Common Stock to
institutional investors in a private placement at $2.05 per share. 1,951,220 of
the shares were sold to Trilobite Lakes Corporation ("Trilobite"). Trilobite is
an affiliate of Claneil Enterprises, Inc. David Collins, the Chief Executive
Officer and Vice-Chairman of the Board of Calypte serves on the Board of
Directors of Claneil and is a member of Claneil's Compensation Committee.
Pursuant to the Common Stock Purchase Agreement dated March 2, 2000, a
representative designated by Trilobite will be elected to Calypte's Board of
Directors to serve until the 2000 annual stockholders meeting. The Calypte Board
will also nominate a representative selected by Trilobite for election to the
Calypte Board for so long as Trilobite holds one-half of the shares it acquired
through the Common Stock Purchase Agreement. In connection with the private
placement, Trilobite extended a $1 million line of credit to Calypte and Calypte
issued a warrant for the purchase of 100,000 shares of its common stock at $3.62
per share.
In March 2000, Calypte announced that William Boeger, its Chairman, and
Howard Urnovitz, its founder and Chief Scientific Officer, had established a
commercial company named Chronix Biomedical that will focus on novel ways to
detect aberrant genes in individuals with chronic diseases. Chronix will be
financed independently of Calypte and Calypte will not have an equity interest
in Chronix. Calypte will have a right of first refusal to license any
urine-based diagnostic tests that result from Dr. Urnovitz's work, as well as
from Chronix' research efforts, pursuant to Technology Rights Agreements which
Calypte has with Dr. Urnovitz and with Chronix. Such Technology Rights
Agreements expire on March 1, 2007 unless otherwise agreed in writing by Calypte
with the relevant licensor. Under such Technology Rights Agreements, Calypte
will have a period of time, after disclosure to Calypte by Dr. Urnovitz or
Chronix, as the case may be, of the relevant developed technology, to license
such technology on an exclusive, worldwide basis in perpetuity; in exchange for
a license fee equal to the direct cost of the relevant licensor in developing
such technology, plus a running royalty equal to 5% of Calypte's net sales of
products and services using such licensed technology. Both Mr. Boeger and Dr.
Urnovitz will maintain their current positions at Calypte.
45
<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
1. Financial Statements
2. Financial Statement Schedules
The following financial statement schedule of Calypte Biomedical Corporation
for the years ended December 31, 1999, 1998 and 1997 is filed as part of this
Report and should be read in conjunction with the Consolidated Financial
Statements of Calypte Biomedical Corporation.
<TABLE>
<CAPTION>
SCHEDULE PAGES
- -------- --------
<S> <C>
Report of KPMG LLP.......................................... S-1
II. Valuation and Qualifying Accounts....................... S-2
</TABLE>
Other schedules not listed 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>
<S> <C>
2.1^^^ Asset Purchase Agreement, dated as of November 18, 1998,
between Calypte and Cambridge.
3.3* Bylaws of the Registrant, as currently in effect.
3.4** Restated Certificate of Incorporation of Calypte Biomedical
Corporation, a Delaware corporation, filed July 31, 1996.
4.1^^^^ Rights Agreement between the Registrant and ChaseMellon
Shareholders L.L.C. as Rights Agents dated December 15,
1998.
10.1* Form of Indemnification Agreement between the Company and
each of its directors and officers.
10.2* 1991 Incentive Stock Plan, as amended.
10.3* 1995 Director Option Plan, as amended.
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.
10.12* Employment Agreement between the Registrant and Howard B.
Urnovitz, dated as of January 25, 1995.
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.
</TABLE>
46
<PAGE>
<TABLE>
<S> <C>
10.18^* Third Amendment to License Agreement between the Registrant
and New York University, dated as of January 31, 1996.
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.
10.27^* Distribution Agreement between the Registrant and Otsuka
Pharmaceutical Co., Ltd., dated as of August 7, 1994.
10.29^* Distribution Agreement between the Registrant and Travenol
Laboratories (Israel), Ltd., dated as of December 31, 1994.
10.33* Form of Option Agreement for Stockholders of Pepgen
Corporation, dated as 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.
10.39** Equipment Lease Agreement between the Registrant and
MMC/GATX, dated September 30, 1996.
10.40^** Joint Venture Agreement between the Registrant and Trinity
Biotech plc
10.41*** Second Addendum to Lease between the Registrant and
Commercial Center Bank dated as of July 21, 1997.
10.42*** Lease extension agreement between the Registrant and
Charles A. Grant and Mark Greenberg, dated December 9, 1997.
10.45^^ Lease extension agreement between the Registrant and
Charles A. Grant and Mark Greenberg, dated April 25, 1998.
10.46**** Employment Agreement between the Registrant and William A.
Boeger dated as of October 28, 1998.
10.47**** Employment Agreement between the Registrant and John J.
DiPietro dated as of October 28, 1998.
10.48**** Guaranty made by Chih Ping Liu for the benefit of the
Registrant dated September 30, 1998.
10.49# Loan and Security Agreement between the Registrant and
Silicon Valley Bank, dated December 21, 1998
10.50# Lease Extension Agreement between the Registrant and
Charles A. Grant and Mark Greenberg, dated February 26, 1999
10.51## Non-Exclusive Patent and License Agreement between the
Registrant and Public Health Service, dated June 30, 1999
10.52## Distribution Agreement between the Registrant and
Carter-Wallace, Inc., dated as of September 9,1999
10.53## Letter Agreement between the Registrant and John J.
DiPietro, dated as of September 17, 1999
</TABLE>
47
<PAGE>
<TABLE>
<S> <C>
10.54## Consulting Agreement between the Registrant and John J.
DiPietro, dated as of September 17, 1999
10.55 Master Lease Agreement between Aquila
Biopharmaceuticals, Inc., Landlord, and Biomerieux
Vitek, Inc., Tenant, dated as of October 22, 1996
10.56 First Amendment to Lease between Aquila
Biopharmaceuticals, Inc. Landlord, and Biomerieux
Vitek, Inc., Tenant, dated October 2, 1997
10.57 Sublease Agreement between Registrant and Cambridge Biotech
Corporation, assignee of Biomerieux, Inc. dated as of
December 17, 1998
10.58 Sublease Agreement between Registrant and Cambridge Biotech
Corporation, sublessee of DynCorp, dated as of December 17,
1998
10.59 Lease Extension Agreement between the Registrant and
Charles A. Grant and Mark Greenberg, dated October 12, 1999
10.60 Consulting Agreement between the Registrant and William A.
Boeger dated as of October 18, 1999
10.61 Consulting Agreement between the Registrant and David
Collins dated as of October 18, 1999
10.62 Employment Agreement between the Registrant and Nancy E.
Katz, dated as of October 18, 1999
10.63 Letter of Intent re Modification of Distribution Agreement
between Registrant and Otsuka Pharmaceutical Co., Ltd. dated
as of December 10, 1998
21.1* Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, Independent Auditors.
24.1 Power of Attorney (see page II-1).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
<TABLE>
<S> <C>
* 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
** Incorporated by reference from exhibits filed with the
Company's Report on Form 10-K dated March 28, 1997
*** Incorporated by reference from exhibits filed with the
Company's Report on Form 10-K dated March 25, 1998
**** Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-K dated March 25, 1999
^^ Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-Q dated August 12, 1998
^^^ Incorporated by reference from an exhibit filed with the
Company's Report on Form 8-K dated January 4, 1999
^^^^ Incorporated by reference from an exhibit filed with the
Company's Report on Form 8-K dated December 16, 1998
# Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-Q dated May 15, 1999
## Incorporated by reference from an exhibit filed with the
Company's Report on Form 10-Q dated November 15, 1999
</TABLE>
(b) Reports on Form 8-K
The Registrant filed a Report on Form 8-K on January 4, 1999 and an amended
Report on Form 8K/A on March 5, 1999 regarding the acquisition of certain assets
of Cambridge Biotech Corporation.
48
<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............. 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 (the Company) as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999. 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 as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations and has an accumulated deficit that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG LLP
San Francisco, California
March 9, 2000
F-2
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,652 $ 3,121
Securities available for sale............................. 503 650
Accounts receivable, net of allowance of $35 and $0 at
December 31, 1999 and 1998, respectively................ 583 157
Inventory................................................. 1,460 1,748
Notes receivable--officers and employees.................. 551 498
Note receivable--related party............................ -- 768
Prepaid expenses.......................................... 201 116
Stock subscription receivable............................. -- 450
Other current assets...................................... 110 100
-------- --------
Total current assets.................................... 6,060 7,608
Property and equipment, net................................. 1,543 1,783
Intangibles, net............................................ 42 346
Other assets................................................ 176 208
-------- --------
$ 7,821 $ 9,945
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,290 $ 1,147
Accrued expenses.......................................... 1,476 1,227
Note payable.............................................. 844 --
Capital lease obligations--current portion................ 90 290
Deferred revenue.......................................... 500 500
-------- --------
Total current liabilities............................... 4,200 3,164
Deferred rent obligation.................................... 25 31
Capital lease obligations--long-term portion................ 50 23
-------- --------
Total liabilities....................................... 4,275 3,218
-------- --------
Mandatorily redeemable Series A preferred stock, $0.001 par
value; no shares authorized at December 31, 1999 and 1998;
100,000 shares issued and outstanding at December 31,
1999 and 1998; aggregate redemption and liquidation value
of $1,000 plus cumulative dividends....................... 2,216 2,096
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; no shares issued or outstanding............. -- --
Common stock, $0.001 par value; 30,000,000 shares
authorized at December 31, 1999 and 1998; 20,425,403 and
13,870,453 shares issued and outstanding as of
December 31, 1999 and 1998, respectively................ 20 14
Common stock subscribed................................... -- 3
Additional paid-in capital................................ 68,226 61,476
Deferred compensation..................................... (135) (107)
Accumulated deficit....................................... (66,781) (56,755)
-------- --------
Total stockholders' equity.............................. 1,330 4,631
-------- --------
$ 7,821 $ 9,945
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Product sales............................................. $ 3,728 $ 951 $ 376
-------- ------- -------
Total revenue........................................... 3,728 951 376
-------- ------- -------
Operating expenses:
Product costs............................................. 4,721 1,912 2,305
Research and development.................................. 4,123 3,881 3,685
Selling, general and administrative....................... 5,081 3,925 2,317
-------- ------- -------
Total expenses.......................................... 13,925 9,718 8,307
-------- ------- -------
Loss from operations.................................. (10,197) (8,767) (7,931)
Interest income............................................. 353 424 350
Interest expense............................................ (182) (116) (211)
Other income................................................ 2 1 --
-------- ------- -------
Loss before income taxes.............................. (10,024) (8,458) (7,792)
Income taxes................................................ (2) (2) (2)
-------- ------- -------
Net loss.............................................. (10,026) (8,460) (7,794)
Less dividend on mandatorily redeemable Series A preferred
stock..................................................... (120) (120) (120)
-------- ------- -------
Net loss attributable to common stockholders................ $(10,146) $(8,580) $(7,914)
======== ======= =======
Net loss per share attributable to common stockholders
(basic and diluted)....................................... $ (0.52) $ (0.64) $ (0.72)
======== ======= =======
Weighted average shares used to compute net loss per share
attributable to common stockholders (basic and diluted)... 19,333 13,432 11,028
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM DECEMBER 31, 1996 THROUGH DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL COMPENSATION DEFICIT EQUITY
-------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996......... $10 $46,270 $(363) $(40,501) $ 5,416
Exercise of stock options for 117,437
shares of common stock.............. -- 60 -- -- 60
Net exercise of Series E convertible
warrant for 12,755 shares of common
stock............................... -- -- -- -- --
Issuance of 2,600,999 shares of common
stock through a Private Placement... 3 11,052 -- -- 11,055
Cost of issuance of common stock for
Private Placement (including
underwriters' fees)................. -- (824) -- -- (824)
Common stock of 8,089 shares issued
under the Employee Stock Purchase
Plan................................ -- 37 -- -- 37
Dividend requirements of mandatorily
redeemable Series A preferred
stock............................... -- (120) -- -- (120)
Compensation relating to granting of
stock options....................... -- 407 (407) -- --
Amortization of deferred
compensation........................ -- -- 239 -- 239
Deferred compensation reversed for
terminated personnel................ -- (35) 35 -- --
Net loss.............................. -- -- -- (7,794) (7,794)
--- ------- ----- -------- -------
Balances at December 31, 1997......... $13 $56,847 $(496) $(48,295) $ 8,069
=== ======= ===== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
F-5
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
PERIOD FROM DECEMBER 31, 1996 THROUGH DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON ADDITIONAL TOTAL
COMMON STOCK PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
STOCK SUBSCRIBED CAPITAL COMPENSATION DEFICIT EQUITY
-------- ---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997.......... $13 $-- $56,847 $(496) $(48,295) $ 8,069
Exercise of stock options for 265,787
shares of common stock............... -- -- 144 -- -- 144
Common stock of 5,885 shares issued
under the Employee Stock Purchase
Plan................................. -- -- 16 -- -- 16
Issuance of 400,000 shares of common
stock for purchase of certain assets
of Cambridge Biotech Corporation..... 1 -- 1,589 -- -- 1,590
Costs associated with purchase of
certain assets of Cambridge Biotech
Corporation.......................... -- -- (71) -- -- (71)
3,102,500 shares of common stock
subscribed through a Private
Placement............................ -- 3 3,099 -- -- 3,102
Cost of subscription of common stock
for a Private Placement.............. -- -- (30) -- -- (30)
Dividend requirements of mandatorily
redeemable Series A preferred
stock................................ -- -- (120) -- -- (120)
Compensation relating to granting of
stock options........................ -- -- 82 (82) -- --
Amortization of deferred
compensation......................... -- -- -- 360 -- 360
Deferred compensation reversed for
cancelled options.................... -- -- (80) 80 -- --
Compensation relating to acceleration
of stock option vesting
acceleration......................... -- -- -- 31 -- 31
Net loss............................... -- -- -- -- (8,460) (8,460)
--- --- ------- ----- -------- -------
Balances at December 31, 1998.......... $14 $ 3 $61,476 $(107) $(56,755) $ 4,631
=== === ======= ===== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
F-6
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
PERIOD FROM DECEMBER 31, 1996 THROUGH DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON ADDITIONAL TOTAL
COMMON STOCK PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
STOCK SUBSCRIBED CAPITAL COMPENSATION DEFICIT EQUITY
-------- ---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998.......... $14 $ 3 $61,476 $(107) $(56,755) $ 4,631
Exercise of stock options for 44,532
shares of common stock............... -- -- 35 -- -- 35
Common stock of 9,918 shares issued
under the Employee Stock Purchase
Plan................................. -- -- 5 -- -- 5
Cost associated with purchase of
certain assets of Cambridge Biotech
Corporation.......................... -- -- (68) -- -- (68)
Issuance of 3,102,500 shares of common
stock subscribed through a private
placement............................ 3 (3) -- -- -- --
3,398,000 shares of common stock issued
through a Private Placement.......... 3 -- 7,642 -- -- 7,645
Cost of issuance of common stock for
Private Placements (including
underwriters' fees).................. -- -- (854) -- -- (854)
Dividend requirements of mandatorily
redeemable Series A preferred
stock................................ -- -- (120) -- -- (120)
Compensation relating to granting of
stock options........................ -- -- 110 (110) -- --
Amortization of deferred
compensation......................... -- -- -- 82 -- 82
Net loss............................... -- -- -- -- (10,026) (10,026)
--- --- ------- ----- -------- -------
Balances at December 31, 1999.......... $20 $-- $68,226 $(135) $(66,781) $ 1,330
=== === ======= ===== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(10,026) $(8,460) $(7,794)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 622 536 637
Amortization of deferred compensation................... 82 391 239
Forgiveness of note receivable from officer............. -- 73 5
Write-off of note and interest to research and
development expense.................................... 890 -- --
Changes in operating assets and liabilities:
Accounts receivable................................... (426) (24) (109)
Inventory............................................. 581 (706) 44
Other current assets and prepaid expenses............. (133) (66) 20
Other assets.......................................... 32 20 37
Accounts payable, accrued expenses and deferred
revenue.............................................. 392 767 294)
Deferred rent obligation.............................. (6) (6) (18)
-------- ------- -------
Net cash used in operating activities............... (7,992) (7,475) (6,647)
-------- ------- -------
Cash flows from investing activities:
Purchase of equipment..................................... (370) (203) (95)
Notes receivable from officers and employees.............. (53) (332) (244)
Purchase of securities available for sale................. (1,454) (1,873) --
Sale of securities available for sale..................... 1,601 1,223 --
Loan to Pepgen............................................ -- (768) --
-------- ------- -------
Net cash used in investing activities............... (276) (1,953) (339)
-------- ------- -------
Cash flows from financing activities:
Proceeds from sale of stock............................... 7,682 160 11,152
Expenses paid related to sale of stock.................... (585) -- (824)
Proceeds from common stock subscribed..................... 450 2,652 --
Expenses related to subscription of common stock.......... (269) (30) --
Purchase of certain assets of Cambridge Biotech Corp...... -- (500) --
Expenses related to purchase of certain assets of
Cambridge Biotech Corp.................................. (68) (71) --
Principal payments on notes payable....................... (1,406) -- (1,000)
Principal payments on capital lease obligations........... (255) (482) (446)
Proceeds from notes payable............................... 2,250 -- 1,000
-------- ------- -------
Net cash provided by financing activities........... 7,799 1,729 9,882
-------- ------- -------
Net (decrease) increase in cash and cash equivalents........ (469) (7,699) 2,896
Cash and cash equivalents at beginning of period............ 3,121 10,820 7,924
-------- ------- -------
Cash and cash equivalents at end of period.................. $ 2,652 $ 3,121 $10,820
-------- ------- -------
Supplemental disclosure of cash flow activities:
Cash paid for interest.................................... $ 178 $ 116 $ 211
Cash paid for income taxes................................ 2 2 2
Supplemental disclosure of noncash activities:
Refinance of capital lease obligation..................... 82 -- --
Acquisition of equipment through obligations under capital
leases.................................................. -- 34 --
Dividend on mandatorily redeemable Series A preferred
stock................................................... 120 120 120
Deferred compensation attributable to stock grants........ 110 2 372
Purchase of certain assets of Cambridge Biotech
Corporation............................................. -- 1,590 --
Revaluation of acquisition of certain assets of Cambridge
Biotech Corporation..................................... 293 -- --
Conversion of common stock subscribed to common stock..... 3 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) THE COMPANY
Calypte Biomedical Corporation (the Company) was incorporated on
November 11, 1989. The Company's primary activities are to sell its FDA-approved
urine Human Immunodeficiency Virus Type I (HIV-1) enzyme immunoassay (EIA)
screening test, its FDA-approved urine and serum HIV-1 Western Blot supplemental
tests, perform research and development on new products and obtain FDA approval
for its urine-based diagnostic tests. Prior to March 31, 1998, Calypte was
considered a development stage enterprise. On June 1, 1998, the Company
announced that the FDA licensed the urine HIV-1 Western Blot test that confirms
the presence of antibodies to HIV-1 in urine samples. The new test is used on
samples that are repeatedly reactive in the Company's HIV-1 urine antibody
screening test. The new test completes the only available urine-based HIV-1 test
method. Accordingly, the Company ceased being a development stage enterprise.
In December 1998, Calypte acquired from Cambridge Biotech Corporation
certain assets relating to the Western Blot product line for certain infectious
diseases. The acquisition included the urine-based and serum-based HIV-1 Western
Blot products, as well as a supplemental test for Lyme Disease and Human
T-Lymphotropic Virus (HTLV).
The 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 laboratories serving the
life insurance markets. International and other U.S. markets will be addressed
utilizing diagnostic product distributors. To date, in countries that have an
approval process for diagnostic tests, the Company has received approval for the
sale of its product in Indonesia only. Several international approvals are
pending, and the Company will work collaboratively with its distributors to
obtain regulatory approval in order to market and promote the products in their
local markets.
The Company has incurred net losses of $10.0 million, $8.5 million, and $7.8
million, in 1999, 1998, and 1997, respectively. The accumulated deficit at
December 31, 1999 was $66.8 million. As discussed in Note 20, during the first
quarter of 2000 the Company signed definitive agreements for the sale of
4,096,000 shares of its common stock in a private placement that is expected to
result in proceeds of approximately $8.3 million. Although the Company believes
current cash plus the proceeds of the stock sale will be sufficient to meet its
operating expenses and capital requirements, the Company's future liquidity and
capital requirements will depend on numerous factors, including market
acceptance of its products, regulatory actions by the FDA and other
international regulatory bodies, intellectual property protection, and the
ability to raise additional capital in a timely manner. Management expects to be
able to raise additional capital, if necessary; however, the Company may not be
able to obtain additional financing on acceptable terms, or at all.
(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 Company's predecessor entity). All significant
intercompany accounts and transactions have been eliminated in consolidation.
F-9
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company accounts for its interest in Pepgen Corporation (Pepgen) under
the equity method (Note 13).
CASH AND CASH EQUIVALENTS
Cash equivalents consist primarily of investments in money market accounts
and commercial paper with original maturities of three months or less.
SECURITIES AVAILABLE FOR SALE
At December 31, 1999, securities available for sale represent high grade
commercial paper maturing in less than one year. At December 31, 1999,
unrealized gains and losses were insignificant.
INVENTORIES
Inventories are stated at the lower of cost or market with cost 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 lives of the assets, generally
four to seven 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.
INTANGIBLES
Intangibles consists of tradenames and trademarks related to the acquisition
of certain assets from Cambridge Biotech Corporation (Note 3), and are carried
at cost less accumulated amortization which is calculated on a straight-line
basis over five years. Accumulated amortization at December 31, 1999 was
$14,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial assets and liabilities have carrying values which approximate
their fair values for all periods presented, except for related party financial
assets. The carrying amounts of cash equivalents approximate fair value because
of their short-term nature and because such amounts are invested in accounts
earning market rates of interest. The fair market values of the notes receivable
from officers and employees are not readily determinable due to their related
party nature. The carrying amounts of all other financial instruments
approximate fair value because of their short-term maturity.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment to customers and when
all requirements related to the shipments have occurred.
F-10
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED REVENUE
Deferred revenue is accrued on payments received from customers or
distributors in advance of product shipment and will be recognized as revenue
upon shipment of the related products or when all obligations related to the
revenue are fulfilled.
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
Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, establishes a fair-value method of accounting for
stock options and similar equity instruments. The fair-value method requires
compensation cost to be measured at the grant date based on the value of the
award, and is recognized over the service period. SFAS No. 123 allows companies
to either account for stock-based compensation to employees under the provisions
of SFAS No. 123 or under the provisions of Accounting Principles Board (APB)
Opinion No. 25 and its related interpretations. The Company accounts for its
stock-based compensation to employees in accordance with the provisions of APB
Opinion No. 25 and provides the pro forma disclosures required under SFAS
No. 123.
The Company has recorded deferred compensation for the difference if any,
between the exercise price and the deemed fair market value of the common stock
for financial reporting purposes of stock options granted to employees. The
compensation expense related to such grants is amortized over the vesting period
of the related stock options on a straight-line basis.
The Company accounts for equity instruments issued to nonemployees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
(EITF) Issue No. 96-18 ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO
OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR
SERVICES.
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic net loss per share is computed by dividing net loss attributable to
common stockholders by the weighted average number of shares of common stock
outstanding during the year. The computation of diluted earnings per common
share is similar to the computation of basic net loss per share attributable to
common stockholders, except that the denominator is increased for the assumed
conversion of convertible securities and the exercise of dilutive options using
the treasury stock method. The weighted average shares used in computing basic
and diluted net loss per share attributable to common stockholders were
F-11
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the same for the three years ended December 31, 1999, 1998 and 1997. Options and
warrants were excluded from the computation of loss per share as their effect is
antidilutive.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash equivalents,
trade accounts receivable and notes receivable. The Company has investment
policies that limit investments to short-term, low-risk investments.
Concentration of credit risk with respect to trade accounts receivable are
limited due to the fact that the Company sells its products primarily to
established distributors and laboratories. Concentrations of credit risk with
respect to notes receivable are limited due to the fact that the notes are
either fully collateralized or guaranteed.
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.
RISKS AND UNCERTAINTIES
Calypte purchases raw materials and components used in the manufacture of
its product from various suppliers and relies on single sources for certain)
components. Establishment of additional or replacement suppliers for these
components cannot be accomplished quickly. The Company has some single-source
components, and any delay or interruption in the supply of these components
could have a material adverse effect on us by significantly impairing our
ability to manufacture products in sufficient quantities, particularly as we
increase our manufacturing activities in support of commercial sales.
COMPREHENSIVE LOSS
The Company has no components of other comprehensive loss other than its net
loss, and, accordingly, its comprehensive loss is equivalent to our net loss for
all periods presented.
SEGMENT AND GEOGRAPHIC INFORMATION
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information," requires an enterprise to report segment information based on how
management internally evaluates the operating performance of its business units
(segments). Our operations are confined to one business segment: the development
and sale of HIV diagnostics.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 is effective for all fiscal years beginning after June 15, 1999. SFAS
No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or
F-12
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133." SFAS No. 137 delays the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. The Company does not expect that the adoption of
SFAS Nos. 133 will have a material impact on its consolidated financial
statements because the Company does not currently hold any derivative
instruments.
(3) ACQUISITIONS
On December 17, 1998, the Company acquired the assets relating to the
Western Blot product line for certain infectious diseases from Cambridge Biotech
Corporation for a total purchase price of $2,090,000. The consideration was
$500,000 in cash, 400,000 shares of Calypte common stock, 200,000 warrants for
Calypte common stock with an exercise price of $8.00 per share, 200,000 warrants
for Calypte common stock with an exercise price of $10.00 per share, and 200,000
warrants of Calypte common stock with an exercise price of $12.00 per share. The
warrants expire on December 17, 2001 and were valued at $440,000 using the
Black-Scholes option pricing model. In connection with the acquisition,
approximately $139,000 of acquisition-related expenses were incurred during 1998
and 1999.
The acquisition was accounted for using the purchase method of accounting.
The allocation of the purchase price was initially made using the estimated fair
values of the assets acquired which include values based on management
estimates. The allocation of the $2,090,000 purchase price at December 31, 1998
was as follows: inventory $881,000, property & equipment $860,000 and
intangibles $349,000. During the first quarter of 1999, management adjusted its
allocation of the estimated fair value. As a result, intangible assets were
reduced and inventory was increased by $293,000.
Results of operations of the Western Blot product line from Cambridge
Biotech Corporation are included in the Consolidated Statement of Operations
since the acquisition date. The following unaudited pro forma information has
been prepared assuming the Western Blot product line acquisition had taken place
on January 1, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Product sales............................................... $ 4,184 $ 3,518
Total expenses.............................................. 14,975 14,147
Loss from operations........................................ (10,791) (10,629)
Net loss.................................................... $(10,484) $(10,492)
======== ========
Net loss attributable to common stockholders................ $(10,604) $(10,612)
======== ========
Net loss per share attributable to common stockholders...... $ (0.77) $ (0.93)
======== ========
</TABLE>
F-13
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(4) INVENTORY
Inventory as of December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Raw materials............................................. $ 233 $ 300
Work-in-process........................................... 862 1,134
Finished goods............................................ 365 314
------ ------
Total inventory......................................... $1,460 $1,748
====== ======
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Computer equipment........................................ $ 497 $ 452
Machinery and equipment................................... 3,046 2,756
Furniture and fixtures.................................... 264 257
Leasehold improvements.................................... 1,703 1,675
------- -------
5,510 5,140
Accumulated depreciation and amortization................. (3,967) (3,357)
------- -------
Property and equipment, net............................... $ 1,543 $ 1,783
======= =======
</TABLE>
The Company recognized depreciation expense of $610,000, $533,000, and
$637,000, for the years ended December 1999, 1998 and 1997, respectively.
(6) ACCRUED EXPENSES
Accrued expenses as of December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Accrued royalty payments.................................. $1,006 $ 521
Accrued bonus............................................. -- 188
Other..................................................... 470 518
------ ------
Total accrued expenses.................................. $1,476 $1,227
====== ======
</TABLE>
(7) LINE OF CREDIT
In January 1999, the Company entered into a line of credit agreement with a
bank to borrow up to $2.0 million at an interest rate of prime plus 1 1/4%. At
December 31, 1999, the prime rate was 8.50%. The agreement requires the Company
to maintain certain financial covenants and comply with certain reporting and
other requirements. In addition, borrowings under the line of credit agreement
are secured by the Company's assets. In November 1999, the agreement was
modified to increase the line of credit by
F-14
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(7) LINE OF CREDIT (CONTINUED)
an additional $250,000, and to extend the repayment term through August 2000. In
January 2000, the agreement was modified to extend the repayment term to
August 2001.
(8) LEASE COMMITMENTS
CAPITAL LEASES
To date, the Company has obtained three equipment lease lines of credit
which aggregated $3.3 million 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 has expired. Lease payments under the lines of
credit are based on the total delivered equipment cost multiplied by a monthly
rate factor of approximately 3.3%-3.5% (approximate effective interest rate of
18% per annum).
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. These warrants expire in 2003.
During 1999, the Company exercised its option to renew one of the capital
leases for an additional three year term.
Equipment acquired under the lease lines of credit and included in property
and equipment as of December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Machinery and equipment................................... $ 1,632 $ 1,632
Other..................................................... 105 105
------- -------
1,737 1,737
Accumulated depreciation and amortization................. (1,665) (1,353)
------- -------
$ 72 $ 384
======= =======
</TABLE>
Future minimum lease payments under capital leases as of December 31, 1999
were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
- ----------------------- --------------
<S> <C>
2000........................................................ $ 98
2001........................................................ 45
2002........................................................ 9
-----
151
Amount representing interest................................ (11)
-----
Present value of capital lease obligations.................. 140
Current portion of capital lease obligations................ (90)
-----
Capital lease obligations--long-term portion................ $ 50
=====
</TABLE>
F-15
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
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. The Company also leases space in Rockville, Maryland under two
operating subleases. Total rent expense under these leases was $1,262,000,
$581,000, and $541,000 for the years ended December 1999, 1998, and 1997,
respectively. Future minimum rental payments under all noncancelable operating
leases as of December 31, 1999 were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
- ----------------------- --------------
<S> <C>
2000........................................................ $1,101
2001........................................................ 380
2002........................................................ 377
2003........................................................ 330
2004........................................................ 8
Thereafter.................................................. --
------
Total....................................................... $2,196
======
</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, 1999, cumulative preferred dividends totaling
$1,216,000 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
re-incorporation 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, 1999 it remains outstanding. The holders of such shares maintain
the same rights as held before the re-incorporation.
F-16
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(10) STOCKHOLDERS' EQUITY
PRIVATE PLACEMENTS
In October 1997, the Company completed a private placement of 2,600,999
shares of its common stock at $4.25 per share. The Company received proceeds of
$10.2 million after deducting placement agent commissions and additional
expenses associated with the private placement.
In January 1999, the Company completed an additional private placement of
3,102,500 shares of its common stock at $1.00 per share. The Company received
proceeds of approximately $3.1 million after deducting placement agent
commissions and additional expenses associated with the private placement.
In April 1999, the Company completed a private placement of 3,398,000 shares
of its common stock at $2.25 per share. The Company received net proceeds of
approximately $6.8 million after deducting agent commissions and additional
expenses associated with the private placement.
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.
On December 15, 1998, the Board of Directors of Calypte declared a dividend
distribution of one preferred share purchase right (a "Right") for each
outstanding share of Common Stock, par value $.001 of the Company. The dividend
was payable to the stockholders of record on January 5, 1999 with respect to
share of Common Stock issued thereafter until the Distribution Date (as defined
in a Rights Agreement) and, in certain circumstances, with respect to shares of
Common Stock issued after the Distribution Date. Except as set for in the Rights
Agreement, each Right, when it becomes exercisable, entitles the registered
holder to purchase from the Company one one-thousandth (1/1000th) of a share of
Series RP Preferred Stock of the Company, $.001 par value per share, at a price
of $15 per one one-thousandth (1/1000th) of a share of Preferred Stock, subject
to adjustment. The description and terms of the Rights are set forth in a Rights
Agreement between the Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent, dated as of December 15, 1998.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on the Rights being redeemed or a substantial
number of Rights being acquired. However, the Rights should not interfere with
any tender offer or merger approved by the Company because the Rights do not
become exercisable in the event of a permitted offer or other acquisition
exempted by the Board.
(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). A total of 4,240,992 shares of
common stock have been reserved for issuance under the Stock Plan.
Under the terms of the Stock Plan, nonstatutory stock options may be granted
to employees, including directors who are employees, and consultants. Incentive
stock options may be granted only to employees.
F-17
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(11) INCENTIVE STOCK AND STOCK OPTIONS PLANS (CONTINUED)
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. 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.
Compensation is recorded related to options granted below fair market value,
if any, or options granted to non-employees. For the years ended December 31,
1999, 1998 and 1997, the Company has recorded deferred compensation of $110,000,
$82,000, and $407,000, 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, 1999, 1998, and
1997, $82,000, $391,000, and $239,000, respectively, were amortized.
The following table summarizes activity under the Stock Plan:
<TABLE>
<CAPTION>
OPTIONS
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
- ------------------------------------------------------------ --------------
<S> <C> <C>
Outstanding as of December 31, 1996......................... 1,375,465 $0.88
Granted................................................... 699,599 4.05
Exercised................................................. (117,437) 0.51
Canceled.................................................. (128,051) 0.63
--------- -----
Outstanding as of December 31, 1997......................... 1,829,576 2.13
Granted................................................... 1,905,108 1.18
Exercised................................................. (265,787) 0.54
Canceled.................................................. (910,891) 3.51
--------- -----
Outstanding as of December 31, 1998......................... 2,558,006 1.09
Granted................................................... 1,080,000 1.07
Exercised................................................. (44,532) 0.80
Canceled.................................................. (401,834) 1.82
--------- -----
Outstanding as of December 31, 1999......................... 3,191,640 $0.99
========= =====
Exercisable as of December 31, 1997......................... 1,019,933 $1.39
========= =====
Exercisable as of December 31, 1998......................... 783,453 $1.09
========= =====
Exercisable as of December 31, 1999......................... 1,567,967 $0.90
========= =====
</TABLE>
F-18
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(11) INCENTIVE STOCK AND STOCK OPTIONS PLANS (CONTINUED)
As of December 31, 1999, 481,615 shares of common stock were available for
grant under the Stock Plan. The per share weighted-average fair value of stock
options granted during 1999, 1998, and 1997 was $0.63, $0.92, and $3.36 on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: 1999--expected dividend yield 0.00%, risk free
interest rate of 6.03%, volatility of 80%, and an expected life of 3.6 years;
1998--expected dividend yield 0.0%, risk free interest rate of 4.5%, volatility
of 80%, and an expected life of 8 years; 1997--expected dividend yield 0.0%,
risk free interest rate of 6.0%, volatility of 80%, and an expected life of
9 years.
The following table summarizes information about stock options outstanding
under the Stock Plan at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -----------------------------
NUMBER WEIGHTED-AVG NUMBER
OUTSTANDING REMAINING YEARS WEIGHTED-AVG EXERCISABLE WEIGHTED-AVG
RANGE OF EXERCISE PRICES AT 12/31/99 TO EXPIRATION EXERCISE PRICE AT 12/31/999 EXERCISE PRICE
- ------------------------ ----------- --------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$0.50.................. 529,326 4.98 $0.50 528,503 $0.50
$0.78.................. 795,000 9.80 $0.78 200,032 $0.78
$1.00.................. 1,560,564 8.68 $1.00 807,126 $1.00
$1.19--$7.00........... 306,750 9.25 $2.36 32,306 $5.82
--------- ---------
$0.50--$7.00........... 3,191,640 8.40 $0.99 1,567,967 $0.90
========= =========
</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). Under the Director Option Plan,
the Company has reserved 350,000 shares of common stock for issuance to the
directors of the Company pursuant to nonstatutory stock options. Under the
Director Option Plan, the Company's Board of Directors determines the number of
shares of the Company's stock that will be granted each year to newly-elected
and re-elected directors, provided that the number of options for each
newly-elected director in any given year will be the same for each such director
and the number of options for each re-elected director in any given year will be
the same for each such director. Options may be granted under this plan to
non-employee directors or directors who also serve as consultants of the
Company. 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. Each grant under the plan will vest monthly over the twelve
month period commencing with the director's date of election or re-election,
provided that the option will become vested and fully exercisable on the date of
the next annual meeting of stockholders if such meeting occurs less than one
year after the date of the 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.
F-19
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(11) INCENTIVE STOCK AND STOCK OPTIONS PLANS (CONTINUED)
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, 1996......................... 40,000 $7.00
Granted................................................... 21,000 4.72
Exercised................................................. -- --
Canceled.................................................. (24,000) 7.00
------- -----
Outstanding as of December 31, 1997......................... 37,000 5.71
Granted................................................... 30,000 2.72
Exercised................................................. -- --
Canceled -- --
------- -----
Outstanding as of December 31, 1998......................... 67,000 4.37
Granted................................................... 140,000 1.56
Exercised................................................. -- --
Canceled.................................................. -- --
------- -----
Outstanding as of December 31, 1999......................... 207,000 $2.47
======= =====
Exercisable as of December 31, 1997......................... 6,250 $6.53
======= =====
Exercisable as of December 31, 1998......................... 26,000 $5.13
======= =====
Exercisable as of December 31, 1999......................... 59,669 $3.73
======= =====
</TABLE>
As of December 31, 1999, 143,000 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 1999, 1998 and 1997 was $0.75, $2.72, and $4.01
on the date of grant using the Black-Scholes option-pricing model with the
following assumptions: 1999--expected dividend yield 0.0%, risk free interest
rate 6.00%, volatility of 80%, and an expected life of 2.2 years; 1998--expected
dividend yield 0.0%, risk free interest rate 5.0%, volatility of 80%, and
expected life of 10 years; 1997--expected dividend yield 0.0%, risk free
interest rate 5.9%, volatility of 80%, and an expected life of 10 years.
The following table summarizes information about stock options outstanding
under the Director Option Plan at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -----------------------------
NUMBER WEIGHTED-AVG NUMBER
OUTSTANDING REMAINING YEARS WEIGHTED-AVG EXERCISABLE WEIGHTED-AVG
RANGE OF EXERCISE PRICES AT 12/31/99 TO EXPIRATION EXERCISE PRICE AT 12/31/999 EXERCISE PRICE
- ------------------------ ----------- --------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$1.38.................. 15,000 8.82 $1.38 15,000 $1.38
$1.56.................. 140,000 9.88 $1.56 11,669 $1.56
$4.00--$5.69........... 36,000 8.13 $4.45 21,000 $4.74
$7.00.................. 16,000 6.97 $7.00 12,000 $7.00
--------- ---------
$1.38--$7.00........... 207,000 9.28 $2.47 59,669 $3.73
========= =========
</TABLE>
F-20
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(11) INCENTIVE STOCK AND STOCK OPTIONS PLANS (CONTINUED)
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). 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, 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, 1999, 1998 and 1997, 27,535, 17,617, and 11,732 shares,
respectively, had been purchased under the Purchase Plan.
Under SFAS No. 123, compensation cost is recognized for the fair value of
the employees' purchase rights. No purchase rights were granted in 1997. The per
share weighted-average fair value of those purchase rights granted in 1999 and
1998 were $0.46 and $3.04, respectively on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
1999--expected dividend yield 0.0%, risk free interest rate of 5.1%, volatility
of 80%, and an expected life of 0.49 years; 1998--expected dividend yield 0.0%,
risk free interest rate of 5.6%, volatility of 80%, and an expected life of
2 years.
PRO FORMA DISCLOSURE
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options and purchase rights under SFAS No. 123, the
Company's net loss would have been increased to the pro forma amounts indicated
below for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Net loss attributable to common
stockholders................................
As reported................................. $(10,146) $(8,580) $(7,914)
Pro forma................................... (11,057) (9,718) (8,851)
Net loss per share attributable to common
stockholders................................
As reported................................. $ (0.52) $ (0.64) $ (0.72)
Pro forma................................... (0.57) (0.72) (0.80)
</TABLE>
Pro forma net loss reflects only options granted since 1995 as well as
purchase rights granted in 1999, 1998 and 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 and compensation cost for
options granted prior to January 1, 1995 is not considered.
F-21
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(12) SECTION 401(k) PLAN
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 contributions 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 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 of the Company's common stock at a price of $7.50 per share,
of which 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 portion 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 may, but has no
obligation nor plans to, provide additional funding to Pepgen.
During 1996, the Company entered into an agreement with Pepgen to pay
$72,000 for an exclusive license to all technology that relates to urine-based
diagnostics developed by Pepgen. This agreement was renewed in 1997 for $60,000.
The Company did not subsequently renew this license.
During 1998, the Company loaned Pepgen $768,000 at an interest rate of 10%.
The loan was secured by all intellectual property of Pepgen as well as a
personal guaranty from Pepgen's Founder and Chairman and a standby guaranty from
Pepgen's President in the event that the guaranty by the Founder and Chairman
proved insufficient. The entire loan plus interest was due July 1, 1999.
In May 1999, Pepgen received a financing offer from a third party that was
contingent upon the Company converting its note receivable due from Pepgen into
an additional equity interest in Pepgen. At a meeting of the Company's Board of
Directors, the Board agreed to the conversion. Consequently, effective
March 31, 1999, the Company wrote off its total investment in the note
receivable from Pepgen, including accrued interest, as research and development
costs. Additional amounts totaling $63,000 were spent on research and
development related to Pepgen during 1999. On October 6, 1999, Pepgen secured
$3.8 million in a new round of financing. Following the closing of the
financing, the Company now owns 38% of Pepgen.
F-22
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(14) INCOME TAXES
The provision for income taxes for all periods presented in the accompanying
consolidated statements of operations represents minimum California franchise
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,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense........................... $(3,408) $(2,876) $(2,649)
Meals and entertainment expenses, and officer's life
insurance not deductible for income taxes............... 17 8 5
Research expenses......................................... 39 32 50
State tax expense......................................... 1 1 1
Losses and credits for which no benefits have been
recognized.............................................. 3,360 2,885 2,595
Stock option compensation................................. -- (48) --
Other..................................................... 5 -- --
------- ------- -------
$ 2 $ 2 $ 2
------- ------- -------
</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,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Employee benefit reserves, including accrued vacation and
bonuses................................................. $ 41 $ 128
Start-up and other capitalization......................... 722 547
Fixed assets, due to differences in depreciation.......... 412 424
Deferred rent and revenue................................. 209 211
Net operating loss carryovers............................. 21,524 17,505
Research and development credits.......................... 1,320 1,164
Other operating reserves.................................. 210 146
Other..................................................... 237 164
-------- --------
Total gross deferred tax assets......................... 24,675 20,289
Valuation allowance......................................... (24,675) (20,289)
-------- --------
Net deferred tax asset.................................... $ -- $ --
======== ========
</TABLE>
The net change in the valuation allowance for the years ended
December 1999, 1998 and 1997 was an increase of $4,386,000, $1,371,000, and
$3,906,000, 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 $171,000 of deferred tax assets will
be creditable to paid-in capital.
As of December 31, 1999, the Company had federal tax net operating loss
carryforwards of approximately $58,845,000, which will expire in the years 2004
through 2019. The Company also has federal
F-23
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(14) INCOME TAXES (CONTINUED)
research and development credit carryforwards as of December 31, 1999 of
approximately $1,003,000, which will expire in the years 2005 through 2019.
State tax net operating loss carryforwards were approximately $25,998,000
and state research and development credit carryforwards were $474,000 as of
December 31, 1999. The state net operating loss carryforwards will expire in the
years 2000 through 2004 and the state research and development credits will
carryforward indefinitely.
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.
(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
WAMPOLE LABORATORIES
In September 1999, the Company appointed Wampole Laboratories, a division of
Carter-Wallace Inc., as its exclusive U.S. distributor to the hospital, public
health, and reference lab markets. The agreement has an initial five-year term
and on-going exclusivity within this term is predicated on the purchase of
minimum volumes of the Company's product.
OTSUKA PHARMACEUTICAL CO., LTD.
Otsuka is a Japanese integrated health care and consumer products
conglomerate. In an agreement first created in August 1994, and amended in
December 1998, the Company appointed Otsuka as its exclusive distributor for all
market segments in Japan. The agreement extends through 2004 and is terminable
without cause by Otsuka upon 120 days notice.
F-24
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(16) DISTRIBUTION AGREEMENTS (CONTINUED)
TEVA MEDICAL LTD (FORMERLY TRAVENOL LABORATORIES(ISRAEL) LTD.)
In December 1994 the Company entered into an agreement with TEVA Medical
Ltd. ("TEVA"), which gives TEVA exclusive rights to distribute the HIV-1 test
and to use the trademark "Calypte" within Israel. Under the agreement, TEVA will
undertake registration of the product in Israel with the Company paying
regulatory fees. The agreement has no fixed term and requires no minimum
purchase levels.
PACIFIC BUSINESS DEVELOPMENT, INC.
The Company appointed Pacific Business Development ("Pacific") as its
exclusive distributor for all market segments in South Korea in July 1999.
Pacific's business partner in Korea is Baecam Medical Co. Ltd. This agreement
has an initial three-year term. Continuing exclusivity during the term of the
agreement is predicated on the purchase of minimum volumes of product following
the product's successful registration in South Korea.
CHEMITECH INTERNATIONAL COMPANY
The Company appointed Chemitech International Company as its exclusive
distributor for all market segments in seven Middle Eastern countries in March
1999. The agreement is extendable year-by-year and on-going exclusivity is
predicated upon specified minimum purchases following successful local
registration of the product.
PROFESSIONAL BIOTECH PVT. LTD.
In March 1999, the Company appointed Professional Biotech Pvt. Ltd. as its
exclusive distributor for all market segments in India. The agreement's initial
term is eighteen months, extendable thereafter. Extension of the agreement and
on-going exclusivity are negotiable following successful local registration of
the product.
POS BIOLOGICAL ESPANA, S.L.
The Company appointed POS Biological Espana, S.L. as its exclusive
distributor for all market segments in Spain and Portugal in October 1999. This
agreement has an initial term of three years. Continuing exclusivity during the
term of the agreement is contingent upon specified minimum purchases following
successful local product registration.
UNI-HEALTH SERVICES SDN. BHD.
In October 1999, the Company appointed Uni-Health Services Sdn. Bhd. as its
exclusive distributor for all market segments in Malaysia. The distribution
agreement has an initial term of one year. Extension of the agreement and
continuing exclusivity are dependent upon the purchase of specified minimum
volumes of product following the product's successful local registration.
(17) CONSULTING AND EMPLOYEE AGREEMENTS
In January 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
F-25
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(17) CONSULTING AND EMPLOYEE AGREEMENTS (CONTINUED)
exceed $35,000 per year. The agreement was amended in November 1999 to provide
payment of the officer's base salary through April 2000, if he is terminated for
cause prior to such date.
In December 1997, the Company entered into a consulting agreement with a
Board member effective from December 1997 to June 1998. Under the agreement, the
consultant received compensation of $6,000 per month and was granted 50,000
stock options which vested over the period of the agreement. The options were
cancelled as of October 1999.
In December 1997, the Company entered into a consulting agreement with a
Board member effective from January 1998 through June 1998. Under the agreement,
the consultant received compensation of $2,500 per month and was granted 50,000
stock options which vested over a 36 month period with the possibility of
immediate vesting under certain conditions. The options were cancelled as of
October 1999.
In October 1998, the Company entered into employment agreements with two
officers. Those agreements expired upon the termination of employment and
execution of Consulting Agreements that extend from 1999 to 2000 between the
Company and each of the officers.
In October 1999, the Company entered into an employment agreement with an
officer and director of the Company that provides for an annual salary of
$220,000. In addition, the officer was granted 450,000 stock options, which vest
over 24 months. The officer is also entitled to a bonus upon the achievement of
milestones mutually agreed to by the officer and the Board of Directors. In the
event the officer's employment is terminated by the Company other than for
cause, the officer is entitled to receive her base salary for twelve months.
In October 1999, the Company entered into a consulting agreement with a
Board member to serve as an officer of the Company effective from October 1999
through October 2000. Under the terms of the agreement, the director receives
compensation of $5,000 per month and was granted options to purchase 150,000
shares of the Company's stock. The options for 50,000 shares of the Company's
stock vested immediately upon execution of the Agreement, an additional 50,000
shares vest after six months, and the remaining 50,000 shares vest on the one
year anniversary of the agreement.
The Company has entered into other employee and consulting agreements with
varying terms, in the ordinary course of business.
(18) RELATED PARTIES
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. Half of the note was written off in 1995; the remainder of the note was
forgiven during 1997.
During 1997, in recognition of a Technology Rights Agreement entered into
between the Company and an officer, the Company partially funded the expenses of
a research foundation started by the officer. The officer entered into a loan
agreement with the Company to repay such funding to the Company and to limit the
funding to a maximum of $165,000. The loan is evidenced by a promissory note and
is secured by the officer's owned stock and vested stock options to purchase
common stock. The interest on the outstanding principal balance of the loan is a
variable rate of the prime rate plus 1%. The principal amount and all accrued
interest was originally due on December 1, 1997, but the due date was extended
to December 31, 1999. The Company's Board of Directors has subsequently extended
the due date of the
F-26
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(18) RELATED PARTIES (CONTINUED)
note to June 12, 2000. The Technology Rights Agreement gives the Company the
first right of refusal for ten years of an exclusive, worldwide license to
practice, make or have made, use, sell, distribute and license to others any
invention or discovery related to urine-based diagnostics made by the officer in
exchange for a one-time cash payment and the payment of royalties.
The note from the officer is a full recourse obligation. It is secured by
the officer's stock and employee options in the Company, and requires
maintenance of a collateral value of 200% of the loan value. This maintenance
covenant was not met at all times during 1998 and 1999. However, at all times
the Company had the ability to reach the officer's personal assets which the
Company believed were adequate to provide for payment of the loan. The Company
has also taken a security interest in additional collateral.
In January 1998, the Company entered into an agreement with a venture
capital firm, of which the Chairman of the Board of Directors of the Company is
a general partner, for the services of the Chairman of the Board. The venture
capital firm is also a stockholder of the Company. Under the terms of the
agreement, the Company paid the venture capital firm $50,000 during 1998. The
agreement was not renewed for 1999 or 2000.
(19) COMMITMENTS AND CONTINGENCIES
On November 13, 1998, the Company received a Warning Letter from the FDA
following an inspection by the FDA of the Company's manufacturing facilities in
Berkeley and Alameda, California. On December 11, 1998, the Company responded in
writing to each of the alleged deficiencies cited in the Warning Letter. The
Company subsequently received another letter from the FDA requesting further
responses regarding certain of the alleged deficiencies. The Company responded
to the subsequent letter on June 1, 1999. The FDA conducted a follow-up
inspection of the Berkeley and Alameda facilities on September 28 through
October 7, 1999, which resulted in observations requiring corrective action or
response from the Company. The Company submitted its written responses to the
FDA's inspection observations on November 4, 1999. On March 21, 2000, the
Company received the FDA's request for additional information and is in the
process of responding to the request. If the FDA is not satisfied with the
Company's responses and corrective actions, it could take regulatory actions
against the Company, including license suspension, revocation, and/or denial,
seizure of products and/or injunction, and/or civil penalties or criminal
sanctions. Any such FDA action is likely to have a material adverse effect upon
the Company's ability to conduct operations. In addition, failure of the Company
to satisfy the FDA as to the Warning Letter may adversely affect receiving
approval for manufacturing at the Company's Alameda facility.
In May 1999, the Company received a Warning Letter from the FDA following an
inspection by the FDA of its manufacturing plant in Rockville, Maryland. The
Warning Letter was based upon an inspection of the Rockville manufacturing
facility that was conducted between November 20 and December 11, 1998, which
cited a number of significant observations. On May 24, 1999, the Company
responded in writing to each of the alleged deficiencies cited in the Warning
Letter. On November 19, 1999, the Company received a letter from the FDA stating
that the Company's responses were considered adequate, and the Warning Letter
was formally closed. Between November 30, and December 9, 1999, the FDA
conducted a follow-up inspection of the Rockville facility that resulted in
observations requiring corrective actions or response from the Company. On
January 7, 2000, the Company responded in writing to each of the FDA
observations. On March 21, 2000, the Company received the FDA's request for
additional information and
F-27
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(19) COMMITMENTS AND CONTINGENCIES (CONTINUED)
is in the process of responding to the request. If the FDA is not satisfied with
the Company's responses and corrective actions, it could take regulatory actions
against the Company, including license suspension, revocation, and/or denial,
seizure of products and/or injunction, and/or civil penalties or criminal
sanctions. Any such FDA action is likely to have a material adverse effect upon
the Company's ability to conduct operations.
(20) SUBSEQUENT EVENT
On March 2, 2000, the Company signed definitive agreements for the sale of
4,096,000 shares of common stock in a private placement that is expected to
raise approximately $8.3 million after deducting the expenses of the
transaction. Approximately one-half of the new financing came from a private
holding company that was not a prior investor in the Company and with which one
of the Company's Directors is affiliated. A representative of the holding
company will join the Company's Board of Directors. The balance of the financing
came primarily from the Company's existing investors. The closing of the
transaction is conditioned upon the effectiveness of a registration statement
that was filed by the Company on March 13, 2000.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Calypte Biomedical Corporation:
Under date of March 9, 2000, we reported on the consolidated balance sheets
of Calypte Biomedical Corporation and subsidiary as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999, which are included in this Form 10-K. In connection with our
audits of the aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedule. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
The audit report on the consolidated financial statements of Calypte
Biomedical Corporation and subsidiary referred to above contains an explanatory
paragraph that states that the Company's recurring losses from operations and
accumulated deficit raise substantial doubt about the entity's ability to
continue as a going concern. The financial statement schedule included in this
Form 10-K does not include any adjustments that might result from the outcome of
this uncertainty.
KPMG LLP
San Francisco, California
March 9, 2000
S-1
<PAGE>
CALYPTE BIOMEDICAL CORPORATION AND SUBSIDIARY
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Allowance for sales returns and
doubtful accounts receivable......... $-- $ 35 -- -- $35
YEAR ENDED DECEMBER 31, 1998
Allowance for sales returns and
doubtful accounts receivable......... -- -- -- -- --
YEAR ENDED DECEMBER 31, 1997
Allowance for sales returns and
doubtful accounts receivable......... -- -- -- -- --
</TABLE>
S-2
<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.
<TABLE>
<S> <C> <C>
CALYPTE BIOMEDICAL CORPORATION
(Registrant)
Date: March 29, 2000 By: /s/ DAVID E. COLLINS
------------------------------------------
David E. Collins
CHIEF EXECUTIVE OFFICER AND VICE CHAIRMAN
OF THE BOARD OF DIRECTORS
and
By: /s/ NANCY E. KATZ
------------------------------------------
Nancy E. Katz
PRESIDENT; CHIEF OPERATING OFFICER, AND
CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting
Officer)
</TABLE>
POWER OF ATTORNEY
Each Director of the Registrant whose signature appears below, hereby
appoints David E. Collins and Nancy E. Katz, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chief Executive Officer and
/s/ DAVID E. COLLINS Vice Chairman of the
------------------------------------------- Board of Directors March 29, 2000
David E. Collins (Principal Executive
Officer)
President, Chief Operating
/s/ NANCY E. KATZ* Officer, and Chief
------------------------------------------- Financial Officer March 29, 2000
Nancy E. Katz (Principal Financial and
Accounting Officer)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM A. BOEGER
------------------------------------------- Chairman of the Board March 29, 2000
William A. Boeger
/s/ HOWARD B. URNOVITZ, PH.D.
------------------------------------------- Chief Science Officer and March 29, 2000
Howard B. Urnovitz, Ph.D. Director
/s/ JOHN J. DIPIETRO
------------------------------------------- Director March 29, 2000
John J. DiPietro
/s/ PAUL FREIMAN
------------------------------------------- Director March 29, 2000
Paul Freiman
/s/ JULIUS R. KREVANS, M.D.
------------------------------------------- Director March 29, 2000
Julius R. Krevans, M.D.
/s/ MARK NOVITCH, M.D.
------------------------------------------- Director March 29, 2000
Mark Novitch, M.D.
/s/ ZAFAR I. RANDAWA, PH.D.
------------------------------------------- Director March 29, 2000
Zafar I. Randawa, Ph.D.
/s/ NANCY E. KATZ
-------------------------------------------
Nancy E. Katz
(ATTORNEY-IN-FACT)
</TABLE>
II-2
<PAGE>
CALYPTE BIOMEDICAL CORPORATION
1991 STOCK OPTION PLAN
AMENDED AS OF NOVEMBER 18, 1999
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(d) "Common Stock" shall mean the Common Stock of the Company.
(e) "Company" shall mean Calypte Biomedical Corporation, a California
corporation.
(f) "Consultant" shall mean any person who is engaged by the Company
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, and any director of the Company who is not an Employee
whether compensated for such services or not; provided that if and in the event
the Company registers any class of any equity security pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(g) "Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Board; provided that such leave is for a period
of not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(h) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the company.
(i) "Incentive Stock option" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
<PAGE>
(j) "Nonstatutory Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option.
(k) "Option" shall mean a stock option granted pursuant to the Plan.
(l) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(m) "Optionee" shall mean an Employee or Consultant who receives an
Option.
(n) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" shall mean this 1991 Stock Option Plan.
(p) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 4,240,992 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should expire
or become unexercisable for any reason without having been exercised in full,
the unpurchased Shares which were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant under the Plan. Shares
issued under the Plan and later repurchased by the Company shall also become
available for future grant or sale under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure. The Plan shall be administered by the Board of
Directors of the Company.
(i) Subject to subparagraph (ii), the Board of Directors may
appoint a committee consisting of not less than two members of the Board of
Directors to administer the Plan on behalf of the Board of Directors, subject to
such terms and conditions as the Board of Directors may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board of Directors. Members of the Board who are either eligible for Options or
have been granted Options may vote on any matters affecting the administration
of the Plan or the grant of any Options pursuant to the Plan, except that no
such member shall act upon the granting of an option to himself, but any such
member may be counted in determining the existence of a quorum at any meeting of
the Board during which action is taken with respect to the granting of Options
to him.
(ii) Notwithstanding the foregoing subparagraph (i), if the
Company registers any class of any equity security pursuant to Section 12 of the
Exchange Act, from the effective date of such registration until six months
after the termination of such registration, any grants of Options to officers or
directors shall only be made by the Board of Directors; provided, however, that
if a majority of the Board of Directors is eligible to participate in this Plan
or any other stock option or other stock plan of the Company or any of its
affiliates, or has been eligible
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<PAGE>
at any time during the prior one-year period (or, if shorter, the period
following the initial registration of the Company's equity securities under
Section 12 of the Exchange Act), any grants of Options to directors must be
made by, or only in accordance with the recommendation of, a Committee
consisting of three or more persons, who may but need not be directors or
employees of the Company, appointed by the Board of Directors and having full
authority to act in the matter, none of whom is eligible to participate in
this Plan or any other stock option or other stock plan of the Company or any
of its affiliates, or has been eligible at any time during the prior one-year
period (or, if shorter, the period following the initial registration of the
Company's equity securities under Section 12 of the Exchange Act). Any
Committee administering the Plan with respect to grants to officers who are
not also directors shall conform to the requirements of the preceding
sentence. Once appointed, the Committee shall continue to serve until
otherwise directed by the Board of Directors. (iii) Subject to the
foregoing subparagraphs (i) and (ii), from time to time the Board of
Directors may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer the Plan.
(b) Powers of the Board. Subject to the provisions of the Plan,
the Board shall have the authority, in its discretion: (i) to grant Incentive
Stock Options or Nonstatutory Stock Options; (ii) to determine, upon review
of relevant information and in accordance with Section 8(b) of the Plan, the
fair market value of the Common Stock; (iii) to determine the exercise price
per share of Options to be granted, which exercise price shall be determined
in accordance with Section 8(a) of the Plan; (iv) to determine the Employees
or Consultants to whom, and the time or times at which, Options shall be
granted and the number of shares to be represented by each Option; (v) to
interpret the Plan; (vi) to prescribe, amend and rescind rules and
regulations relating to the Plan; (vii) to determine the terms and provisions
of each Option granted (which need not be identical) and, with the consent of
the holder thereof, modify or amend each Option; (viii) to defer (with the
consent of the Optionee) the exercise date of any Option, consistent with the
provisions of Section 5 of the Plan; (ix) to authorize any person to execute
on behalf of the Company any instrument required to effectuate the grant of
an Option previously granted by the Board; and (x) to make all other
determinations deemed necessary or advisable for the administration of the
Plan.
(c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding and all Optionees and
any other holders of any Options granted under the Plan.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted only to Employees
and Consultants. Incentive Stock Options may be granted only to Employees.
An Employee or Consultant who has been granted an Option may, if he is
otherwise eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
fair market value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company, its Parent or
Subsidiaries) exceeds $100,000, such Options shall be treated as Nonstatutory
Stock Options.
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<PAGE>
(c) For purposes of Section 5(b), Options shall be taken into
account in the order in which they were granted, and the fair market value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's
right to terminate his employment or consulting relationship at any time,
with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
7. TERM OF OPTION. The term of each option shall be ten (10) years
from the date of grant thereof or such shorter term as may be provided in the
Option Agreement. However, in the case of an Option granted to an optionee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, if the Option is an Incentive Stock Option, the
term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Incentive Stock Option Agreement.
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110%
of the fair market value per Share on the date of grant;
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the fair market value per Share
on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
fair market value per Share on the date of the grant;
(B) granted to any other person, the per Share exercise
price shall be no less than 85% of the fair market value per Share on the
date of grant.
For purposes of this Section 8(a), in the event that an Option is amended to
reduce the exercise price, the date of grant of such Option shall thereafter
be considered to be the date of such amendment.
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<PAGE>
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid
and asked prices (or the closing price per share if the Common Stock is
listed on the National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System) of the Common Stock for the date of grant,
as reported in the Wall Street Journal (or, if not so reported, as otherwise
reported by the NASDAQ System) or, in the event the Common Stock is listed on
a stock exchange, the fair market value per Share shall be the closing price
on such exchange on the date of grant of the Option, as reported in the Wall
Street Journal.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined
by the Board and may consist entirely of cash, check, promissory note, other
Shares of Common Stock which (i) either have been owned by the Optionee for
more than six (6) months on the date of surrender or were not acquired,
directly or indirectly, from the Company, and (ii) have a fair market value
on the date of surrender equal to the aggregate exercise price of the Shares
as to which said Option shall be exercised, or any combination of such
methods of payment, or such other consideration and method of payment for the
issuance of Shares to the extent permitted under Sections 408 and 409 of the
California General Corporation Law. In making its determination as to the
type of consideration to accept, the Board shall consider if acceptance of
such consideration may be reasonably expected to benefit the Company (Section
315(b) of the California General Corporation Law).
9. EXERCISE OF OPTION.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan. An Option may not be exercised for a fraction of a
Share. An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue
(or cause to be issued) such stock certificate promptly upon exercise of the
Option. In the event that the exercise of an Option is treated in part as
the exercise of an Incentive Stock Option and in part as the exercise of a
Nonstatutory Stock Option pursuant to Section 5(b), the Company shall issue a
separate stock certificate evidencing the Shares treated as acquired upon
exercise of an Incentive Stock Option and a separate stock certificate
evidencing the Shares treated as acquired upon exercise of a Nonstatutory
Stock Option, and shall identify each such certificate accordingly in its
stock transfer records. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 11 of the Plan. Exercise of an Option
in any manner shall resul in a decrease in the number of Shares which
thereafter may be available, both for purposes of the Plan and for sale
under the Option, by the number of Shares as to which the Option is
exercised.
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<PAGE>
(b) Termination of Status as an Employee or Consultant. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant (as the case may be), such Optionee may, but only within three (3)
months (or such shorter period of time as is determined by the Board and
specified in the Option Agreement) after the date of such termination (but in
no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), exercise his Option to the extent that he was
entitled to exercise it at the date of such termination. To the extent that
he was not entitled to exercise the Option at the date of such termination,
or if he does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9 (b) above, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of his total and permanent
disability (as defined in Section 22(e)(3) of the Code), he may, but only
within six (6) months from the date of such termination (but in no event
later than the date of expiration of the term of such Option as set forth in
the Option Agreement), exercise his Option to the extent he was entitled to
exercise it at the date of such termination. To the extent that he was not
entitled to exercise the Option at the date of termination, or if he does not
exercise such Option (which he was entitled to exercise) within the time
specified herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section
9(b) above, in the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months
following the date of termination (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement),
by the Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent that the right
to exercise had accrued as of the date of death of the Optionee; or
(ii) within thirty (30) days after the termination of
Continuous Status as an Employee or Consultant, the Option may be exercised,
at any time within six (6) months following the date of death (but in no
event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent of the right to exercise that had accrued at the date of
termination.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the shareholders of the Company, the number of shares
of Common Stock covered by each outstanding Option, and the number of shares
of Common Stock which have been authorized for issuance under the Plan but as
to which no Options have yet been granted or which have been returned to the
Plan upon cancellation or expiration of an Option, as well as the price per
share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common
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<PAGE>
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion
of any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option. In the event of the proposed dissolution or liquidation
of the Company, the Board shall notify the Optionee at least fifteen (15)
days prior to such proposed action. To the extent it has not been previously
exercised, the Option will terminate immediately prior to the consummation of
such proposed action.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall
unless otherwise fixed by the Board, be the date on which the Board makes the
determination granting such Option. Notice of the determination shall be
given to each Employee or Consultant to whom an Option is so granted within a
reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment and Termination. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval
of the shareholders of the Company in the manner described in Section 17 of
the Plan:
(i) any increase in the number of Shares subject to the
Plan, other than in connection with an adjustment under Section 11 of the
Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) if the Company has a class of equity securities
registered under Section 12 of the Exchange Act at the time of such revision
or amendment, any material increase in the benefits accruing to participants
under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section
12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 17 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee
and the Board, which agreement must be in writing and signed by the Optionee
and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
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<PAGE>
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance. As a condition to
the exercise of an Option, the Company may require the person exercising such
Option to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the
lawful issuance and sale of any Shares hereunder, shall relieve the Company
of any liability in respect of the failure to issue or sell such Shares as to
which such requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. SHAREHOLDER APPROVAL.
(a) continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted.
(b) If and in the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) if any required approval by the shareholders of the Plan
itself or of any amendment thereto is solicited at any time otherwise than in
the manner described in Section 17(b) hereof, then the Company shall, at or
prior to the first annual meeting of shareholders held subsequent to the
later of (1) the first registration of any class of equity securities of the
Company under Section 12 of the Exchange Act or (2) the granting of an option
hereunder to an officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for
the Plan substantially the same information which would be required (if
proxies to be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is
first sent or given to shareholders.
18. INFORMATION TO OPTIONEES. The Company shall provide to its security
holders financial statements at least annually. The Company shall not be
required to provide such information to key employees whose duties in
connection with the Company assure their access to equivalent information.
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CALYPTE BIOMEDICAL CORPORATION
1995 DIRECTOR OPTION PLAN
AMENDED AS OF NOVEMBER 18, 1999
1. Purposes of the Plan. The purposes of this Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive
to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be "non-statutory stock options."
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Calypte Biomedical Corporation, a Delaware
corporation.
(e) "Continuous Status as a Director" means the absence of any
interruption or termination of service as a Director.
(f) "Director" means a member of the Board.
(g) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company. Any person who is not employed by the
Company but who is engaged by the Company to render services as a consultant is
not considered an Employee under this Plan.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the date of grant, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
<PAGE>
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the bid and asked prices for
the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "Immediate Family Members" means the spouse, children or
grandchildren of the Optionee.
(k) "New Director" means any person elected to the Board to fill a
vacancy and/or at an annual meeting of the Company's stockholders who was not
serving as a Director immediately prior to such election. In addition, the
Board shall determine whether a person who had previously been a Director but
was not a Director immediately prior to his or her election shall be considered
a New Director under the Plan.
(l) "Option" means a stock option granted pursuant to the Plan.
(m) "Optioned Stock" means the Common Stock subject to an Option.
(n) "Optionee" means an Outside Director who receives an Option.
(o) "Outside Director" means a Director who is not an Employee.
(p) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(q) "Plan" means this Director Option Plan.
(r) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(s) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
(t) "Term of Office" means the period of time commencing with the
date of any annual meeting of the Company's stockholders at which Directors are
elected and the date of the next subsequent stockholders' meeting at which
Directors are elected.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 350,000 Shares (the "Pool") of Common Stock. The Shares may
be authorized but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan.
4. Administration of and Grants of Options under the Plan.
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(a) Procedure for Grants. The provisions set forth in this
Section 4(a) shall not be amended more than once every six months, other than
to comport with changes in the Code, the Employee Retirement Income Security
Act of 1974, as amended, or the rules thereunder. All grants of Options to
Outside Directors under this Plan shall be discretionary provided such grants
are made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) The Board shall have discretionary authority to
determine the number of shares of Common Stock to be granted to Optionees on
the date on which each person first becomes a Director, provided that during
any given Term of Office the number of Options granted to each newly-elected
Director shall be equal.
(iii) The Board shall have discretionary authority to determine
the number of Options to be granted to each re-elected Director, provided a)
that in any given Term of Office the number of Options granted will be the same
for each such re-elected Director, and b) that if such re-elected Director has
not served on the Board for at least six (6) months prior to the date of the
Company's Annual Meeting of Shareholders the Board may adjust the number of
Options granted to such Director.
(b) Option Grants. Each Option granted hereunder will include the
following terms:
(i) The term of the Option will be ten (10) years.
(ii) The Option will be exercisable at any time during the term
of the Option to the extent that the Option has become vested, regardless of
whether the Optionee has terminated service as a member of the Board, provided
however that if an Optionee is removed from the Board, the Option will terminate
if it is not exercised within 90 days of the date of such removal, but in no
event later than the expiration of the ten (10) year term of the Option.
(iii) The exercise price per Share will be 100% of the fair
market value per Share on the date of grant of the Option.
(iv) During the period that an Optionee serves as a Director,
the Option will vest monthly at a rate of 8.33% per month over the twelve (12)
month period commencing with the date of election of the Optionee as Director.
The Option will vest at such rate on the first day of each month subsequent to
such election, provided that such Option will become vested and fully
exercisable on the date of the next annual meeting of stockholders if such
meeting occurs less than twelve months after the date of the grant.
(v) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board to increase the number of Shares which may be issued under
the Plan; provided, further that such Options shall not be exercisable until
such time, if any, as the increased approved by the Board is approved by the
shareholders.
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5. Eligibility. Options may be granted only to Outside Directors.
All Options shall be granted in accordance with the terms set forth in
Section 4 hereof. An Outside Director who has been granted an Option may, if
he is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate his or her directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 11 of the
Plan.
7. Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment,
shall consist of (i) cash, (ii) check, (iii) delivery of a properly executed
exercise notice together with such other documentation as the Company and the
broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (iv) any combination of the foregoing methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof, provided, however, that no Options shall be exercisable
until shareholder approval of the Plan in accordance with Section 16 hereof
has been obtained. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. A share certificate for the number of Shares so
acquired shall be issued to the Optionee as soon as practicable after
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
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<PAGE>
(b) Rule 16b-3. Options granted to Outside Directors must comply
with the applicable provisions of Rule 16b-3 promulgated under the Exchange
Act or any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(c) Termination of Continuous Status as a Director. In the event
an Optionee's Continuous Status as a Director terminates, the Optionee's
vesting in his or her Options granted under this Plan will cease as of the
date of such termination.
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance may exercise the Option to the extent that the
Optionee was entitled to exercise it at the date of death (but in no event
later than the expiration of its ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option at the date of death, and to
the extent that the Optionee's estate or a person who acquired the right to
exercise such Option does not exercise such Option (to the extent otherwise
so entitled) within the time specified herein, the Option shall terminate.
9. Assignment or Transfer.
(a) All or any portion of any Option may be transferred by an
Optionee to (i) the Immediate Family Members of the Optionee, (ii) a
partnership in which such Immediate Family Members are the only partners, or
(iii) a trust or trusts for the exclusive benefit of such Immediate Family
Members, provided that (x) there may be no consideration for such transfer,
(y) the agreement pursuant to which such Options are transferred must be in a
form consistent with the Plan, and must expressly provide for transferability
in a manner consistent with this Section 9, and (z) subsequent transfers of
transferred Options shall be prohibited except those by will or the laws of
descent and distribution. Following transfer, any such Options shall continue
to be subject to the same terms and conditions as were applicable immediately
prior to transfer. The effect of termination of the Optionee's service on
the Board of Directors shall continue to be applied with respect to the
original Optionee, following which the Options shall be exercisable by the
transferee only to the extent, and for the periods specified in the Plan on
the occurrence of such termination. Neither the Company nor the administrator
of the Plan shall have any obligation to provide the transferee with notice
of termination of an Optionee.
(b) Options shall be transferable only in accordance with Section
9(a) or by will or the laws of descent and distribution.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
Sale or Change of Control.
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<PAGE>
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of Shares covered by each
outstanding Option and the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company; provided, however, that conversion
of an convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of Shares subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has
not been previously exercised, it will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the
assets of the Company, each outstanding Option shall be assumed or an
equivalent option shall be substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation does not agree to assume the Option or to substitute an
equivalent option, each outstanding Option shall become fully vested and
exercisable, including as to Shares as to which it would not otherwise be
exercisable, unless the Board, in its discretion, determines otherwise. If
an Option becomes fully vested and exercisable in the event of a merger or
sale of assets, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of thirty (30) days from the date of such
notice, and the Option will terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale
of assets by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares).
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. Except as set forth in Section 4,
the Board may at any time amend, alter, suspend, or discontinue the Plan, but
no amendment, alteration, suspension, or discontinuation shall be made which
would impair the rights of any Optionee under any grant theretofore made,
without his or her consent. In addition, to the extent necessary and
desirable to comply with Rule 16b-3 under the Exchange Act (or any other
applicable law or regulation), the Company shall obtain shareholder approval
of any Plan amendment in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
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<PAGE>
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date determined in accordance with Section 4 hereof.
Notice of the determination shall be given to each Outside Director to whom
an Option is so granted within a reasonable time after the date of such grant.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, state securities laws, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option
hereunder. Such shareholder approval shall be obtained in the degree and
manner required under applicable state and federal law.
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<PAGE>
CALYPTE BIOMEDICAL CORPORATION
DIRECTOR OPTION AGREEMENT
Calypte Biomedical Corporation, a Delaware corporation (the "Company"), has
granted to _______________________ (the "Optionee"), an option to purchase a
total of [_________________________ (________)] shares of the Company's Common
Stock (the "Optioned Stock"), at the price determined as provided herein, and in
all respects subject to the terms, definitions and provisions of the Company's
Director Option Plan (the "Plan") adopted by the Company which is incorporated
herein by reference. The terms defined in the Plan shall have the same defined
meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is
not intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $ _______ for each share of
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its
term in accordance with the provisions of Sections 4 and 8 of the Plan as
follows:
(i) Right to Exercise.
(a) During the period that the Optionee serves as a Director of the
Company, this Option will vest monthly at a rate of 8.33% per month over the
twelve (12) month period commencing with the date of election or re-election
of the Optionee as Director on the first day of each month subsequent to such
election, provided that such Option will become vested and fully exercisable
on the date of the next annual meeting of stockholders if such meeting occurs
less than twelve months after the date of grant.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, removal or other termination of
service as a Director, the exercisability of the Option is governed by
Sections 4 and 8 of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise the Option and the
number of Shares in respect of which the Option is being exercised. Such
written notice, in the form attached hereto as Exhibit A, shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment
of the exercise price.
4. Method of Payment. Payment of the exercise price shall be by any
of the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check; or
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<PAGE>
(iii) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option,
the Company may require Optionee to make any representation and warranty to
the Company as may be required by any applicable law or regulation.
6. Assignment or Transfer of Option. This Option may be transferred
to (i) the spouse, children or grandchildren of the Optionee ("Immediate
Family Members"), (ii) a partnership in which such Immediate Family Members
are the only partners, or (iii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, provided that (x) there may be no
consideration for such transfer, (y) the agreement pursuant to which such
Options are transferred must be in a form consistent with the Plan, and (z)
subsequent transfers of transferred Options shall be prohibited except those
by will or the laws of descent and distribution. Following transfer, any
such Options shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer. The effect of termination of
the Optionee's service on the Board of Directors shall continue to be applied
with respect to the original Optionee, following which the Options shall be
exercisable by the transferee only to the extent, and for the periods
specified in the Plan on the occurrence of such termination. Neither the
Company nor the administrator of the Plan shall have any obligation to
provide the transferee with notice of termination of an Optionee. The terms
of this Option shall be binding upon the transferees, executors,
administrators, heirs, successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten
(10) years from the date of grant of this Option, and may be exercised during
such period only in accordance with the Plan and the terms of this Option.
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<PAGE>
8. Taxation Upon Exercise of Option. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in
an amount equal to the excess of the then Fair Market Value of the Shares
purchased over the exercise price paid for such Shares. Since the Optionee
is subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, under certain limited circumstances the measurement and timing of
such income (and the commencement of any capital gain holding period) may be
deferred, and the Optionee is advised to contact a tax advisor concerning the
application of Section 83 in general and the availability of a Section 83(b)
election in particular in connection with the exercise of the Option. Upon a
resale of such Shares by the Optionee, any difference between the sale price
and the Fair Market Value of the Shares on the date of exercise of the
Option, to the extent not included in income as described above, will be
treated as capital gain or loss.
DATE OF GRANT:
CALYPTE BIOMEDICAL CORPORATION,
a Delaware corporation
By:
Title:
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under the Plan.
Dated: ____________________________
Optionee
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<PAGE>
LEASE
between
AQUILA BIOPHARMACEUTICALS, INC.
Landlord
and
BIOMERIEUX VITEK, INC.
Tenant
Dated: October 22, 1996
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
Table of Contents ...........................................................i
1. Introductory Provisions ..............................................1
(a) Fundamental Lease Provisions .....................................1
(b) References and Conflicts .........................................2
(c) Exhibits..........................................................2
2. Premises .............................................................2
(a) Leased Premises ..................................................2
(b) The Property .....................................................2
(c) Tenant's Proportionate Share......................................3
3. Term and Acceptance by Tenant ........................................3
(a) Lease Term .......................................................3
(b) Renewal Option ...................................................3
(c) Acceptance of Leased Premises.....................................5
(d) Permits...........................................................5
4. Rent ................................................................5
(a) Minimum Annual Rent ..............................................5
(b) Additional Rent ..................................................5
(i) General ................................................5
(ii) Real Estate Taxes ......................................6
(iii) Insurance ..............................................7
(iv) Utility Expenses Not Separately Metered ................9
(v) Landlord's Enforcement Costs ...........................9
(c) Payment of Rent ..................................................9
5. Use .................................................................10
(a) Use .............................................................10
(b) Compliance With Laws, Fire Insurance, Condition of
Leased Premises ...............................................10
6. Common Areas ........................................................11
(a) Common Areas Defined ............................................11
(b) Landlord's Control ..............................................11
(c) Parking Spaces ..................................................12
7. Rules and Regulations ...............................................12
8. Utilities ...........................................................12
9. Landlord's Right of Entry............................................12
10. Maintenance and Repair...............................................12
(a) Tenant's Responsibility .........................................12
(b) Landlord's Responsibility .......................................13
11. Alternations or Improvements by Tenant ..............................14
12. Surrender ...........................................................14
13. Tenant Holding Over .................................................15
14. Assignment and Subletting............................................15
(a) Assignment by Tenant ............................................15
(b) Assignment by Landlord ..........................................17
15. Bankruptcy .........................................................17
16. Default .............................................................18
17. Landlord's Rights Upon Tenant's Default..............................18
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<PAGE>
18. Lender Requirements ....................................................20
(a) Subordination ...................................................20
(b) Attornment ......................................................20
(c) Notice to Mortgagee Upon Landlord's Default .....................21
19. Estoppel Certificates ..................................................21
20. Damage by Fire or Other Casualty .......................................21
(a) Restoration .....................................................21
(b) Termination .....................................................22
(c) Lender's Approval ...............................................23
21. Condemnation ...........................................................23
22. Landlord's Liability ...................................................24
23. Tenant's and Landlord's Liability ......................................24
24. Indemnity ..............................................................24
(a) By Tenant .......................................................24
(b) By Landlord .....................................................24
25. Tenant's Insurance......................................................25
(a) Coverages .......................................................25
(i) Comprehensive Liability ..............................25
(ii) All-Risk Casualty ....................................25
(iii) Workers' Compensation ................................25
(b) Policy Requirements..............................................25
(c) No Limitation of Liability ......................................26
26. Waiver of Subrogation ..................................................26
27. No Liens Permitted; Discharged .........................................26
28. Signs, Awnings and Canopies ............................................27
29. Environmental Protection ...............................................27
30. Notices ................................................................28
31. Time ..................................................................28
32. Postponement of Performance ............................................29
33. Brokers ................................................................28
34. No Waiver ..............................................................29
35. Amendments .............................................................29
36. Applicable Law .........................................................29
37. Transfer of the Property................................................29
38. Option to Purchase .....................................................30
39. Option on Additional Space .............................................31
40. Procedure to Require Purchase or Termination of Option .................31
41. Waiver of Counterclaim and Trail by Jury/Attorneys Fees.................31
42. Separability ...........................................................32
43. Corporate Authority ....................................................32
44. Interpretation .........................................................32
(a) Captions .....................................................32
(b) Gender .......................................................32
(c) Covenants ....................................................32
(d) Interpretation ...............................................32
45. Landlord's Agreement re: Contract of Sale of the
Property ...........................................................32
46. Reasonableness of Expenses .............................................33
47. Limits of Landlord's Liability .........................................33
48. Binding Effect..........................................................33
49. Recording...............................................................33
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<PAGE>
EXHIBITS
- --------
EXHIBIT A Description of Premises
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<PAGE>
LEASE AGREEMENT
THIS LEASE is made as of this 22ND day of October, 1996, by and between
Aquila Biopharmaceuticals, Inc. (the "Landlord"), with a business and mailing
address of 365 Plantation Street, Worcester, Massachusetts 01605, and bioMerieux
Vitek, Inc., a Missouri Corporation, (the "Tenant"), with a business and mailing
address of 595 Anglum Drive, Hazelwood, Missouri 63242-2395.
WITNESSETH:
For and in consideration of the covenants herein contained and upon the
terms and conditions herein set forth, the parties agree as follows:
1. INTRODUCTORY PROVISIONS.
(a) FUNDAMENTAL LEASE PROVISIONS. Certain Fundamental Lease
provisions are presented in this Section in summary form solely to facilitate
convenient reference by the parties hereto:
(1) LEASED PREMISES
3 1/2 Taft Court
1500 East Gude Drive
Rockville, Maryland
(2) GROSS LEASABLE AREA
revised First Amendment
2,000 square feet at 3 1/2 Taft Court and
38,543 square feet at 1500 E. Gude Drive
(3) 1500 E. GUDE 3 1/2 TAFT
DRIVE COURT
------------ ----------
A. PROPORTIONATE SHARE - 85% 8%
B. R.E. PROPORTIONATE SHARE - 85% 34%
C. INSURANCE PROPORTIONATE SHARE - 85% 34%
(4) RENT COMMENCEMENT DATE October 22, 1996
(5) EXPIRATION DATE - Tenth Anniversary of the
Rent Commencement Date
(6) MINIMUM ANNUAL RENT
Lease Year 1-3 $466,244.50 per year
Lease Year 4-7 $506,787.50 per year
Lease Year 8-10 $547,330.50 per year
<PAGE>
(7) BASIC MONTHLY RENT
Lease Year 1-3 $38,853.71 per month
Lease Year 4-7 $42,232.29 per month
Lease Year 8-10 $45,610.88 per month
(8) TENANT'S USE CLAUSE - Manufacturing; general
office, research and
development, and uses
incidental thereto
(b) REFERENCES AND CONFLICTS. Each reference in this Lease to
any of the fundamental Lease provisions contained in Section 1(a) shall be
construed to incorporate all of the terms provided for under such provisions,
and such provisions shall be read in conjunction with all other provisions of
this Lease applicable thereto. If there is any conflict between any of the
fundamental Lease provisions set forth in Section 1(a) and any other provisions
of the Lease, the latter shall control.
(c) EXHIBITS. The following drawings and special provisions
are attached hereto as exhibits and hereby made a part of this Lease:
Exhibit A. Description of Leased Premises
2. PREMISES.
(a) LEASED PREMISES. Landlord hereby leases to Tenant, and
Tenant hereby rents from Landlord, certain premises (the "Leased Premises")
situated at 1500 East Gude Drive and 3 1/2 Taft Court, Rockville, MD 20850 and
as more fully described on Exhibit A, and as set forth on the floor plan (or
site plan) attached hereto as Exhibit A-1, together with the non-exclusive right
to use the common areas of the Property as more fully described in Section 7
hereof. The Leased Premises shall consist of the agreed square footage of floor
space as specified in Section 1(a)(2).
(b) THE PROPERTY. The Leased Premises is (i) a part of
improved real property owned by Landlord which is more fully described as "Lot
5, Block A, in the Red Gate Industrial Park Subdivision as shown on a plat
thereof recorded in Plat Book 102, Plat 11503 among the Land Records of
Montgomery County, Maryland" ("Parcel 1"), and (ii) "Lot numbered Nine (9) in
Block lettered "B" in the subdivision known as "RED GATE INDUSTRIAL PARK" as per
Plat thereof recorded in Plat Book 114 at Plat 13548 among the Land Records of
Montgomery County, Maryland, more commonly known as 1500 East Gude Drive,
Rockville, Maryland 20850 ("Parcel 2"). (Parcel 1 and Parcel 2 are sometimes
collectively referred to herein as the "Property"). Landlord represents and
warrants to Tenant that it is the owner in fee simple of the Property, subject
to certain encumbrances, rights of way, easements, and other matters of record,
none of which interfere with or adversely
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<PAGE>
affect the continued use and occupancy of the Leased Premises as contemplated
herein. Located on Parcel 1 is a portion of the Leased Premises, and a building
known as 3 Taft Court, Rockville, Maryland currently leased to BTRL Contracts
and Services, Inc. pursuant to a lease dated June 30, 1992. The gross leasable
area of the Property is specified in Section 1(a)(3) ("Gross Leasable Area" or
"GLA"). The GLA of the Property shall be used hereinafter for purposes of
Tenant's ",Proportionate Share" (as hereinafter defined)of certain expenses
payable to Landlord as "Additional Rent" (as hereinafter defined). Landlord
reserves the right to modify the GLA of the Property, and shall modify the GLA
of the Property, from time to time during the Lease Term as a result of
construction of new leasable improvements or the demolition of existing leasable
improvements on the Property. Landlord's right to modify the GLA of the Property
shall not be construed to provide Landlord with any right to modify the floor
plan of the Leased Premises, or to deprive Tenant of the reasonable use of any
portion of the parking areas or other common areas allocated to it.
(c) TENANT'S PROPORTIONATE SHARE. Tenant's Proportionate Share
of certain expenses hereinafter made payable to Landlord as Additional Rent is
specified in Section 1 (a)(4). Said computation is based upon the ratio of the
total area of floor space in the Leased Premises to the GLA of the Property. The
Proportionate Share shall be modified during the Lease Term in the event that
the GLA of the Property is modified as described in Section 2 (b) above.
3. TERM AND ACCEPTANCE BY TENANT.
(a) LEASE TERM. The term of this Lease (sometimes herein
called the "Lease Term") shall begin as of the date specified in Section 1(a)(5)
("Rent Commencement Date") and, unless sooner terminated as herein provided,
continue thereafter through the date specified in Section 1(a)(6) ("Expiration
Date"). The period commencing with the Rent Commencement Date and ending on the
last day of the TWELFTH (12TH) FULL CALENDAR MONTH thereafter shall constitute
the first "LEASE YEAR" as such term is used herein. Each successive FULL twelve
(12) month period during the Lease Term shall constitute a "Lease Year".
(b) RENEWAL OPTION. Tenant may extend the original term of
this Lease for two (2) consecutive additional terms of ten (10) Lease Years each
by giving to Landlord notice of each such election at least one hundred eighty
(180) days prior to the expiration of the original term or then renewal term
hereof, as applicable; provided, however, that Tenant shall not have such right
to extend if it shall then be in default under the terms of this Lease (at the
time of election) or if this Lease shall have earlier expired or terminated, and
that there shall only be two (2) such renewal terms. The Minimum Annual Rent
payable during each renewal term shall be a sum equal to the fair rental value
(the "Fair Rental Value") of the Leased Premises on the date which
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<PAGE>
is one hundred eighty (180) days prior to the commencement date of said renewal
term (such Fair Rental Value being determined by agreement between Landlord and
Tenant), but in no event shall such minimum Annual Rent be less than the Minimum
Annual Rent payable by Tenant for the last Lease Year of the prior term or more
than one hundred twenty-five percent (125%) of the Minimum Annual Rent payable
by Tenant for the last Lease Year of the prior term.
If, at least five (5) months prior to the expiration of
the then current term of this Lease, Landlord and Tenant are unable to agree
upon said Fair Rental Value for the next renewal term, either party may serve a
written notice on the other party nominating and appointing an appraiser who
shall have at least five years experience in real estate in the Rockville,
Maryland area and in the case of the third appraiser shall not have acted in any
manner for either Landlord or Tenant within four years of the appointment, and
within fifteen (15) days thereafter the other party shall appoint an appraiser.
Upon the appointment of the two appraisers as hereinabove provided, said
appraisers shall forthwith, and within fifteen (15) days after the appointment
of the second appraiser, and before exchanging views to the question at issue,
appoint in writing a third appraiser and give written notice of such appointment
to each of the parties. In the event the two appraisers shall fail to appoint or
agree upon third appraiser within said fifteen (15) day period, a third
appraiser shall be selected by the parties themselves if they so agree upon such
third appraiser within a further period of ten (10) days. If any appraiser shall
not be appointed or agreed upon within the time herein provided, then either
party may apply to the appropriate Court of the State of Maryland having
jurisdiction for appointment of such appraiser. Said appraisers shall be sworn
faithfully and fairly to determine the Fair Rental value. The three appraisers
shall afford to the parties a hearing and the right to submit evidence, with the
privilege of cross-examination, on the question at issue and shall, with all
possible speed, make their determination in writing and shall give notice to the
parties of such determination. The concurring determination of any two of said
three appraisers shall be binding upon the parties, or, in case no two of the
three appraisers shall render a concurring determination, then the determination
of the third appraiser appointed shall be binding upon the parties. The fees and
expenses of the appraisers shall be divided equally between the parties.
If Tenant shall have exercised an option to extend the
term of this Lease within the time period herein provided, this Lease shall be
deemed extended upon all of the then executory terms, covenants and conditions
contained herein except that the Minimum Annual Rent payable during such
extended term shall be as set forth above in this paragraph. Time shall be of
the essence as to any notice which may be given by Tenant under this paragraph.
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(c) ACCEPTANCE OF LEASED PREMISES. Tenant accepts possession
of the Leased Premises in "as is" condition, Tenant expressly acknowledges and
agrees that Landlord has made no representations or warranties with respect to
the Leased Premises, and that no promises to alter, repair or improve the Leased
Premises or the Property have been made by Landlord or its agents or employees,
unless specifically set forth herein. Notwithstanding the foregoing, Landlord
agrees that on the commencement date of the Lease the leaks in the roof and/or
surrounding areas of the buildings on the property situated at 1500 E. Gude
Drive and 3 1/2 (Taft Court shall be repaired, or that Landlord shall continue
to use diligent efforts to remove the cause of any continuing or new leaks.
(d) PERMITS. Tenant shall be responsible for obtaining any
permits or licenses necessary, because of any change in Tenant's use of the
Leased Premises from that use contemplated herein, for its lawful occupancy of
the Leased Premises. This requirement shall not relieve Tenant of its liability
for the payment of Minimum Annual Rent and Additional Rent, and the performance
of all other obligations contained herein, from and after the Rent Commencement
Date, in the event that all of said approvals, permits and licenses have not
been acquired prior thereto.
4. RENT.
(a) MINIMUM ANNUAL RENT. The Minimum Annual Rent reserved
hereunder in Section 1(a) (7) shall be payable by Tenant to Landlord during each
Lease Year of the Lease Term in equal monthly installments of Basic Monthly Rent
in the amounts set forth in Section 1(a) (8), due in advance, without notice or
demand, and without set-off, deduction, recoupment or abatement of any kind
except as otherwise set forth herein, on the Rent Commencement Date and the
first (1st) day of each and every calendar month thereafter during the Lease
Term. In the event that the Rent Commencement Date occurs on a day other than
the first day of a calendar month or the Lease Term ends on a day other than the
last day of a calendar month, then the Basic Monthly Rent or Additional Rent for
such partial month(s) shall be computed on a per diem basis by dividing the
Basic Monthly Rent or Additional Rent by thirty (30) and multiplying it by the
number of days in the partial calendar month. Rent shall be paid to landlord, or
to such other person(s), or at such other address as Landlord may designate to
Tenant from time to time.
(b) ADDITIONAL RENT.
(i) GENERAL. Whenever it is provided by the terms of this
Lease that Tenant is required to make any payment to Landlord other than a
payment of Minimum Annual Rent, such payment shall be deemed to be a payment of
additional rent ("Additional Rent"). Unless otherwise expressly specified
herein, Additional Rent shall be paid by Tenant with the next installment of
Basic
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Monthly Rent thereafter falling due. Additional Rent shall include, but not be
limited to.
(ii) REAL ESTATE TAXES. Commencing upon the first day of
the first month of the Lease, and thereafter on the first day of each calendar
month throughout the Lease Term, Tenant shall pay to Landlord, without notice or
demand therefor (other than the annual notice of Landlord's estimate of Tenant's
R.E. proportionate Share of the Real Estate Taxes and a copy of the tax bills as
described in the following paragraph of this section), and without any deduction
whatsoever, one-twelfth (1/12) of its R.E. Proportionate Share of Landlord's
good faith estimate of the Real Estate Taxes to be incurred by Landlord on the
Property during that tax year (prorated, if necessary, if the remainder of the
Lease Term constitutes less than the full tax year). Tenant's obligation to pay
its R.E. Proportionate Share of the Real Estate Taxes incurred during the Lease
Term shall survive the expiration or other termination of the Lease.
The term "Real Estate Taxes" shall mean all taxes and assessments,
general and special, ordinary and extraordinary, foreseen and unforeseen, now or
hereafter assessed, levied or imposed upon the Property, including both the land
and the improvements which are built thereon, including, without limitation,
front foot benefit charges and adequate public facility costs and assessments,
together with (i) any tax, assessment, or other imposition in the nature of a
real estate tax, (ii) any ad valorem tax on rent or any tax on income if imposed
in lieu of or in addition to real estate taxes and assessments, and (iii) any
taxes and assessments Which may hereafter be substituted for real estate taxes,
including by way of illustration only, any tax, assessment or other imposition
(whether a business rental or other tax) now or hereafter levied upon Landlord
for a tenant's use or occupancy of or conduct of business on the Property, or a
tenant's improvements to or furniture, fixtures or equipment on the Property.
Real Estate Taxes shall also included all reasonable costs incurred by Landlord
in contesting the validity or amount of any such taxes. Real Estate Taxes shall
not include transfer, inheritance, capital stock or income taxes or other
similar personal tax of Landlord, nor any late charges, penalties or interest,
incurred due to untimely payments by Landlord in connection with said tax.
Within fifteen (15) days after Landlord's receipt from the taxing
authority of the Real Estate Tax bills for the fiscal 1997 tax year and for each
tax year thereafter during the Lease Term, Landlord shall deliver to Tenant a
copy of such tax bills, together with a statement showing Tenant's R.E.
Proportionate Share of the actual Real Estate Taxes due for said tax year and
the amount of payments made by Tenant based upon the estimate thereof. Tenant
shall pay Landlord, within thirty (30) days of Tenant's receipt of such
statement, Tenant's R.E. Proportionate Share of the excess, if any, of the Real
Estate Taxes for such tax Year over the estimated costs thereof. If the amount
paid by
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Tenant as Tenant's R.E. Proportionate Share of the estimated Real Estate Taxes
for such tax year exceeded Tenant's R.E. proportionate Share of actual Real
Estate Taxes for such tax year, the excess shall be credited toward payment of
the next installment of Basic Monthly Rent to be paid by Tenant after Tenant
receives said statement from Landlord. If the amount paid by Tenant for the last
tax year of the Lease Term exceeds Tenant's R.E. Proportionate Share of actual
Real Estate Taxes for such tax year, Landlord shall pay Tenant the excess amount
within thirty (30) days after Landlord's submission to Tenant of the aforesaid
statement for such tax year.
Upon Tenant's written request, Landlord will contest, at Tenant's
expense, the validity or amount of any such Real Estate Tax. Tenant shall be
entitled to its R.E. Proportionate Share of any refund or reduction.
Tenant shall receive a credit for the amount of any expenses it paid
which resulted in a refund or reduction applicable to the rest of the Property.
Landlord shall deposit and thereafter hold in escrow, until
disbursement, the funds received from Tenant pursuant to this section in an
interest bearing, federally insured account. All interest earned on said account
shall be credited to Tenant and shall be used in the adjustments to Tenant's
payments made hereunder from time to time during the lease Term so that Landlord
collects only such monies as are necessary to pay Tenant's R.E. Proportionate
Share of said Real Estate Taxes.
In addition to Tenant's obligation for the payment of its R.E.
Proportionate Share of the Real Estate Taxes, Tenant shall be liable for, and
shall pay before delinquency, all taxes levied against any personal property or
trade fixtures placed by Tenant in or about the Leased Premises.
(iii) INSURANCE. Commencing upon the Rent Commencement
Date and thereafter throughout the Lease Term, Tenant shall pay to Landlord
without notice or demand therefor and without any deduction whatsoever, its
Insurance Proportionate Share of the premium cost of the casualty insurance,
liability insurance, rent loss insurance, and other reasonable and necessary
form of insurance carried by Landlord with respect to the Property ("Insurance
Cost") during any policy year; provided, however, that if the adjacent building
on Parcel 1 is demolished during the Lease Term, then commencing upon such
demolition and for so long as the Leased Premises constitutes one hundred
percent (100%) of the leasable improvements on the Property, Tenant shall be
obligated to pay one hundred percent (100%) of the Insurance Cost.
Not less than ten (10) days before the Rent Commencement Date, Landlord
shall deliver to Tenant a written statement, with supportive documentation of
Landlord's estimate of the amount of the Insurance Cost for the then current
policy year, and Tenant's
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Insurance Proportionate Share of such Insurance Cost. On the Rent commencement
Date, and on the first day of each month thereafter throughout the Lease Term,
Tenant shall pay one-twelfth (1/12) of Tenant's Insurance Proportionate Share of
Landlord's estimate, with supportive documentation of the Insurance Cost for the
then-current policy year, as shown on Landlord's estimate. Landlord shall submit
its estimate of the Insurance Cost for the forthcoming policy year and Tenant's
Insurance Proportionate Share thereof at the Commencement of each such policy
year, and Tenant's monthly payments made after its receipt of such estimate
shall be in the amount of one-twelfth (1/12) of the amount of Tenant's Insurance
Proportionate Share of Insurance Cost as shown on such estimate. Landlord may
revise its estimate of the Insurance Cost at any time during a policy year by
notice to Tenant, setting forth such revised estimate, with supportive
documentation and Tenant's Insurance Proportionate Share thereof. In such event,
all monthly payments made by Tenant after such notice shall be in an amount
calculated on the basis of such revised estimate. Tenant shall, in all cases,
continue to make monthly payments of Insurance Cost based on the last estimate
received from Landlord until it receives a revised or updated estimate.
After the end of each policy year, Landlord will as soon as practicable
submit to Tenant a statement of the actual Insurance Cost for such policy year
and Tenant's Insurance Proportionate Share thereof. Landlord shall cause its
insurance carrier, whenever practical, to issue policies of insurance covering
the Leased Premises which are separate and apart from all other properties owned
by Landlord, in which event Tenant's Proportionate Share of Insurance Cost shall
be the full cost payable pursuant to said separate policy, where such separate
policies cannot be issued practically, Landlord shall cause its insurance
carrier to provide a written statement identifying the manner in which all
premiums paid by Landlord are allocated to reflect the portion thereof
attributable to the insurance carried on the Leased Premises and the portion
thereof attributable to the insurance carried on other properties owned by
Landlord. Tenant shall pay Landlord, within thirty (30 days of Tenant's receipt
of such statement, Tenant's Insurance Proportionate Share of the excess, if any,
of Insurance Cost for such policy year over the projected Insurance Cost. If the
amount paid by Tenant as Tenant's Insurance Proportionate Share of the estimated
Insurance Cost for such policy year exceeded Tenant's Insurance Proportionate
Share of actual Insurance Cost for such policy year, the excess shall be
credited toward payment of the next installment of Basic Monthly Rent to be paid
by Tenant after Tenant receives said statement from Landlord. If the amount paid
by Tenant for the last policy year of the Lease Term exceeds Tenant's Insurance
Proportionate Share of actual Insurance Cost for such year, Landlord shall pay
Tenant the excess amount within thirty (30) days after Landlord's submission to
Tenant of the aforesaid Insurance Cost statement for such policy year.
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Landlord Shall deposit and thereafter hold in escrow, until
disbursement, the funds received from Tenant pursuant to this section in an
interest bearing, federally insured account. All interest earned on said account
shall be credited to Tenant and shall be used in the adjustments to Tenant's
payments made hereunder from time to time during the Lease Term so that Landlord
collects only such monies an are necessary to pay Tenant's Insurance
Proportionate Share of said Insurance Cost.
Landlord agrees that, at all times during the Lease Term, it shall
carry casualty insurance and liability insurance in such form and in such
amounts which are consistent with good business practice and generally
comparable to the coverage of casualty insurance policies and liability
insurance policies carried by landlord's owning commercial buildings located in
Montgomery County, Maryland that are similar to the Leased Premises.
(iv) UTILITY EXPENSES NOT SEPARATELY METERED.
(aa) Throughout Lease Term, Tenant agrees to pay to
Landlord, as Additional Rent, Tenant's Proportionate Share of all water usage
charges, exterior electric lighting charges, and any other utility charges
("Shared charges") not separately metered (and only for so long as each is not
separately metered) for each of the Leased Premises and the common areas of the
Property.
(bb) Upon receipt of each billing for Shared charges,
Landlord will as soon as practicable submit to Tenant a statement of Shared
Charges incurred for the preceding billing period. Tenant shall pay Landlord,
within thirty (30) days of Tenant's receipt of such statement, Tenant's
Proportionate Share of Shared Charges.
(v) LANDLORD'S ENFORCEMENT COSTS. Additional Rent shall
include any and all expenses incurred by Landlord, including reasonable
attorneys' fees, for the collection of monies due from Tenant and the
enforcement of Tenant's obligations under the provisions of this Lease. In the
event Minimum Annual Rent or Additional Rent is not paid within fifteen (15)
business days of its due date, Landlord, at its sole option, may assess a late
charge equal to two percent (2%) of the amount of the delinquent Basic Monthly
Rent and Additional Rent as compensation for the additional administrative costs
incurred by Landlord as a result of such late payment.
(c) PAYMENT OF RENT. Any Minimum Annual Rent or Additional
Rent which is not paid within ten (10) business days after the same is due shall
bear interest ("Penalty Rate") at one percentage (1%) point above the prime rate
of interest published in the Wall Street Journal or a successor or similar
financial publication existing from time to time and adjusted each day the prime
rate is redetermined to reflect the change in said prime rate of interest, from
the due data until the date received by
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Landlord. Any payments of Minimum Annual Rent or Additional Rent by Tenant or
acceptance by Landlord of a lesser amount than shall be due from Tenant to
Landlord shall be treated as a payment on account. The acceptance by Landlord of
a check for a lesser amount with an endorsement or statement thereon, or upon
any letter accompanying such check, that such lesser amount is payment in full,
shall be given no affect, and Landlord may accept such check without prejudice
to any other rights or remedies which Landlord may have against Tenant. If
Landlord receives from Tenant two (2) returned or "bounced" checks in any one
Lease Year, Landlord may require all future Rent by cashier's or certified
check.
5. USE.
(a) USE. Tenant shall use the Leased Premises for the purposes
specified in Section 1(a) 9), and for no other purpose.
(b) COMPLIANCE WITH LAWS, FIRE INSURANCE, CONDITION OF
LEASED PREMISES. Tenant shall not do, or permit anything to be done in the
Leased Premises or on the Property, or bring or keep anything therein, which
will in any way invalidate or conflict with fire insurance policies on the
Property, including, but not limited to all improvements, the Property
fixtures and personal property kept therein, or obstruct or interfere with
the rights of the Landlord or of other tenants of the Property, or in any
other way injure or annoy Landlord or such other tenants, or subject Landlord
to any liability for injury to persons or damage to property, or interfere
with the good order of the Property as determined by Landlord in its
reasonable discretion. Tenant shall refrain or discontinue said use
immediately upon receipt of written notice from Landlord requiring such
action. Tenant, at its expense, shall comply with all present and future
laws, rules or regulations of any federal, state or municipal authority, or
the Maryland Fire Underwriters Rating Bureau, or with any notice from any
public officer pursuant to law pertaining to Tenant's occupancy or use of the
Leased Premises, whether such notice shall be served on Landlord or Tenant
provided Tenant shall have no obligation to make any structural changes to
the Leased Premises. Tenant agrees to indemnify, defend, and hold Landlord
harmless from any injury to persons or damage, to property occurring in or
around the Leased Premises, occasioned by any act or omission of invitees or
licensees. Tenant agrees that any increases of fire insurance premiums on the
Leased Premises or contents caused by the occupancy of Tenant and any
expenses or costs incurred in consequence of negligence or carelessness or
the willful action of Tenant, Tenant's employees, agents, contractors,
servants, invitees, or licensees shall be deemed Additional Rent and paid by
Tenant to Landlord as they accrue.
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6. COMMON AREAS.
(a) COMMON AREAS DEFINED. In this Lease, "common areas" means
all areas, facilities and improvements provided, from time to time, on the
Property for the mutual convenience and use of all tenants or other occupants of
the Leased Premises and the adjacent building, their respective agents,
employees, and invitees, and Shall include, if provided, but are not limited to,
parking areas and facilities, access roads, driveways, retaining walls,
sidewalks, walkways, landscaped areas, and exterior lighting facilities.
(b) LANDLORD'S CONTROL. Landlord shall, as between Landlord
and Tenant, at all times during the Lease Term have the sole and exclusive
control, management and direction of the common areas, and may, at any time and
from time to time during the Lease Term, exclude and restrain any person from
use or occupancy thereof, excepting, however, Tenant and other tenants of
Landlord and bona fide invitees of either who make use of said areas in
accordance with the rules and regulations established by Landlord from time to
time with respect thereto. The rights of Tenant in and to the common areas shall
at all times be subject to the rights of others to use the same in common with
Tenant, and it shall be the duty of Tenant to keep all of said areas free and
clear of any obstructions created or permitted by Tenant or resulting from
Tenant's operation. Landlord may at any time and from time to time (i) close all
or any portion of the common areas to make repairs or changes, (ii) close all or
any portion of the common areas to such extent as may, in the opinion of
Landlord, be necessary to prevent a dedication thereof or the accrual of any
rights to any person or to the public therein, and (iii) do and perform such
other acts in and to said areas as, in the exercise of good business judgment,
Landlord shall determine to be advisable with a view to the improvement of the
convenience and use thereof by tenants, their employees, agents, and invitees,
provided Landlord shall do so with a minimum of interference with Tenant's use
and enjoyment thereof. Landlord shall at all times have the right and privilege
of determining the nature and extent of the common areas, and of making such
changes, rearrangements additions or reductions therein and thereto from time to
time which in its opinion are deemed to be desirable and for the best interest
of all persons using the common areas or which are as a result of, any federal,
state or local environmental protection or other law, rule, regulation,
guideline or order, provided Landlord shall do so with a minimum of interference
with Tenant's use and enjoyment thereof. The purpose of the site plans attached
hereto as Exhibit A is to show the approximate locational relationship of the
Leased Premises to the adjacent building and to the common areas as of the Rent
Commencement Date. Nothing described in Exhibit A shall limit or prevent
Landlord from affecting any change or alteration to the Property as described in
this paragraph, provided Landlord shall do so with a minimum of interference
with Tenant's use and enjoyment thereof. Nothing contained in this Section shall
give Landlord the right to impose
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restrictions on the use and enjoyment of the common areas by Tenant, or to make
modifications to the common areas, in a way to cause Tenant to be unable no use
the Leased Premises and the common areas in a reasonable manner for the purposes
originally contemplated by this Lease.
(c) PARKING SPACES. During the Lease Term, Tenant shall have
the exclusive right to the use of [parking spaces] at no additional cost.
7. RULES AND REGULATIONS. Tenant agrees to comply with and observe any
reasonable rules and regulations promulgated by Landlord, which may be
supplemented or amended from time to time by Landlord. Tenant's failure to keep
and observe said rules and regulations shall constitute a breach of the terms of
this Lease in the same manner as if the same were contained herein as covenants.
8. UTILITIES. Tenant shall be solely responsible for and shall promptly
pay any and all utility charges including but not limited to electricity, water,
fuel, gas, and telephone (including equipment and installation charges) used in,
consumed at, or supplied to the Leased Premises. Tenant shall immediately
transfer all separately metered utility accounts for the Leased Premises into
its own name on the Rent Commencement Date. Tenant shall pay to Landlord, as
Additional Rent, its Proportionate Share of any and all bills for utility
charges which are not separately metered in the or described in Section 4
(b)(iv) hereof.
9. LANDLORD'S RIGHT OF ENTRY. Landlord, and its agents, shall have the
right, upon prior notice to Tenant and during reasonable business hours during
the Lease Term (except in the case of an emergency involving damage to person or
property), to enter upon the Leased Premises to examine the same, or to make
such repairs, alterations or improvements, as Landlord may deem necessary or
proper, or to remove any alteration or improvement which is in violation of the
provisions of this Lease, provided, however, Landlord shall not adversely
interfere with Tenant's business operations in a material manner. Landlord
reserves the right to show the Leased Premises to prospective tenants or brokers
during the last ninety (90) days of the Lease Term, and to show the Leased
Premises to prospective purchasers and lenders at all reasonable times, provided
that reasonable prior verbal notice is given to Tenant in each case and that
Tenant's use and occupancy of the Leased Premises shall not be materially
inconvenienced by any such action of Landlord.
10. MAINTENANCE AND REPAIR.
(a) TENANT'S RESPONSIBILITY. Tenant shall maintain the Leased
Premises in substantially the same good order and condition as it is on the
commencement of the Lease Term and shall return the Leased Premises to Landlord
in such condition at the Expiration Date or at the earlier termination of this
Lease,
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ordinary wear and tear excepted. Except as obligations to repair are expressly
delegated to Landlord as described in Section 10(b) below, Tenant shall be
responsible for the full cost of all maintenance and repairs of (i) the Leased
Premises, including but not limited to the doors, door jambs, windows, window
casings and sills, screens, floor coverings, walls (excluding load bearing
structures), and ceilings located in the Leased Premises and all pipes, gutters,
downspouts, wires, conduits and other equipment and fixtures located in the
Leased Premises. Tenant, at its expense, shall perform routine maintenance and
repair and replacement of the plumbing, electrical, heating, ventilating and
air-conditioning systems, and all other systems and equipment, serving the
Leased Premises. Tenant will throughout the Lease Term obtain and keep in force
a maintenance contract with a qualified service company to regularly inspect and
perform maintenance services to the heating, ventilating and air-conditioning
system serving the Leased Premises. Tenant, at its expense, shall furnish
Landlord with a copy of said maintenance contract, and of renewals or
replacements thereof, promptly after the effective date thereof. All repairs and
maintenance required to be performed by Tenant at the Leased Premises shall be
made or performed within a reasonable period of time upon the occurrence of the
necessity therefor, and shall be made or performed in a workmanlike or, using
first class materials, by a contractor duly licensed in the State of Maryland,
and shall be made or performed in accordance with (i) all applicable federal,
state and county governmental codes and regulations, and (ii) insurance
requirements. Tenant shall also be responsible for keeping all sidewalks and
parking areas on that portion of the Property situated at 1500 E. Gude Drive
free and clear of dirt, trash, debris, ice, snow, and any other obstructions;
provided, however, that Landlord shall upon request promptly reimburse Tenant
for the cost of any such services less Tenant's Proportionate Share of such
services. Tenant shall be responsible for Tenant's Proportionate Share of such
services as pertain to 3 1/2 Taft Court which shall be performed by the tenant
at 3 Taft Court. Tenant shall keep its trash and garbage in enclosed containers
in a trash holding area within the Leased Premises, and shall perform regular
trash removal from such trash holding area. Tenant shall also be responsible for
the performance of regular, periodic pest control services at the Leased
Premises. All glass, both exterior and interior, shall be maintained in the
Leased Premises at the sole risk of Tenant, and Tenant agrees to replace any
glass promptly at its sole expense in the event of breakage.
(b) LANDLORD'S RESPONSIBILITY. Except for any structural
alterations or improvements made by Tenant, Landlord shall maintain in good
order and repair the ROOF and the structural portions of the foundation, floors,
stairwells, exterior walls, columns and other load bearing elements of the
Leased Premises.
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11. ALTERATIONS OR IMPROVEMENTS BY TENANT. Except for incidental
painting and decoration of the interior of the Leased Premises and other minor
alterations and improvements which do not affect the structure or utility
systems of the Leased Premises, Tenant shall not make any alterations,
additions, or improvements, structural or otherwise costing in excess of $50,000
(except Tenant may make non-structural alterations in Lease Year one costing up
to $150,000 without Landlord's consent) (collectively, "Alterations") in, on or
to the Leased Premises, without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. In connection with
Landlord's review of such proposed alterations or improvements prior to giving
its consent thereto, Landlord shall have the right to require that Tenant supply
plans, specifications, working drawings and similar documents in reasonable
detail which show the scope of work to be performed within the Leased Premises.
Landlord's approval of the plans, specifications and working drawings for
Tenant's alterations and improvements shall create no liability on the part of
Landlord for their completeness, design sufficiency, or compliance with all
laws, rules, regulations or governmental agencies or authorities. Any
contractors employed by Tenant to perform Tenant's work (i) shall be qualified
to perform such work and licensed in the State of Maryland and (ii) shall
maintain any insurance which may be reasonably required by Landlord, and (iii)
shall be bonded or otherwise reasonably satisfactory to Landlord. Subject to
paragraph 5 (b)hereof, Tenant will defend, indemnify and hold Landlord harmless
from and against any and all expenses, liens, claims or damages, including
attorneys' fees, for injury to person or property which may or might arise,
directly or indirectly, by reason of the making of any Alterations. If any
Alterations are effected without the prior written consent of Landlord, Landlord
may remove or correct the same and Tenant shall be liable for any and all
expenses of this work. All rights given to Landlord herein shall be in addition
to any other right or remedy of Landlord contained in this Lease. Tenant shall
be obligated to make any and all Alterations and other improvements to the
Leased Premises required by applicable federal, state and local law, in
connection with the use of the Leased Premises by Tenant during the Leased Term.
Tenant hereby agrees that all Alterations made in, to, or on the Leased Premises
shall, unless otherwise provided by written agreement or by the provisions of
Section 12 below, be the property of Landlord and shall remain upon and be
surrendered with the Leased Premises on the Expiration Date or other termination
of this Lease.
12. SURRENDER. Upon the Expiration Date or other termination of
the Lease Terms, Tenant shall quit and surrender the Leased Premises to the
Landlord in good order and condition, ordinary wear and tear excepted, and
Tenant shall remove all of its personal property from the Leased Premises on
or before the Expiration Date or other termination of this Lese[sic].
Tenant's obligation to observe or perform the covenants described in this
Section 12 shall survive the expiration or other termination of this Lease.
If Tenant does not remove Tenant's furniture, trade fixtures and all other
items of personal property of every kind
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and description from the Leased Premises as specified herein, then Landlord
shall be permitted to remove, dispose or otherwise discard such property without
further payment or credit by Landlord to Tenant. Notwithstanding anything to the
contrary contained in this Lease, Tenant shall have the right and the
obligation, at the end of the Lease Term, to remove all built-in desks,
cabinets, basins, emergency showers and other pieces of equipment which are
affixed to the Leased Premises by Tenant. In connection with the removal of said
equipment, Tenant shall be obligated to stub pipes; bundle and cap wires; close
ducts; repair and replace (as appropriate) flooring coverings, repair, replace,
finish and repaint (as appropriate) walls, and perform all other acts which are
necessary for the Leased Premises to be returned to Landlord in same good order
and Condition as exists of the Rent Commencement Date.
13. TENANT HOLDING OVER. If Tenant holds possession of the Leased
Premises after the Expiration Date or other termination of this Lease, Landlord
shall have the option, exercisable in writing within thirty (30) days after the
date if termination as aforesaid, to treat Tenant as a trespasser, or as a
tenant by the month. If the Landlord fails to made such election then the Tenant
shall be deemed a tenant by the month, commencing with the first day after the
termination of the Lease at one hundred fifty percent (150%) of the Basic
Monthly Rent paid during the last month of the Lease Term, and upon all the
other terms of this Lease, including the provisions of this Section. Said
holdover term shall terminate upon thirty (30) days notice from one party to the
other. Nothing contained herein shall be construed within said thirty (30) days
after the date of Lease termination as aforesaid as a consent by Landlord to the
occupancy or possession of the Leased Premises by Tenant after the termination
of the Lease, and Landlord, upon said termination, if Landlord elects to treat
Tenant as a trespasser, shall be entitled to the benefit of all general or
public laws relating to the speedy recovery of the possession of land and
tenements held over by Tenant, whether now or hereafter in force and effect. If
Tenant fails to surrender the Leased Premises upon the expiration or other
termination of this Lease despite demand to do so by Landlord, Tenant shall
indemnify, defend, and hold Landlord harmless from all injury, loss, claims,
expenses and liability including without limitation, any claim made by any
succeeding tenant and any attorneys' fees, founded on or resulting from such
failure to surrender.
14. ASSIGNMENT AND SUBLETTING.
(a) ASSIGNMENT BY TENANT. Tenant shall not assign, mortgage or
encumber this Lease, or any right hereunder, nor sublet the Leased Premises or
any part thereof, nor permit the Leased Premises to be used by others without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed; provided that any such consent may be conditional upon
Tenant's agreement that, any monthly rent or
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other payment accruing to Tenant as the result of any such assignment, transfer
or sublease, including any lump sum or periodic payment in any manner relating
to such assignment, transfer or sublease, which is in excess of the Minimum
Annual Rent and Additional Rent then payable by Tenant under the Lease shall be
paid by Tenant to Landlord monthly as Additional Rent, excluding any reasonable
expenses incurred by Tenant in connection with such assignment or subletting,
e.g. legal fees and brokers' commissions. Except as set forth herein, without
prior written consent of Landlord, this Lease and the interest of Tenant, or any
assignee of Tenant, shall not pass by operation of law, nor shall it be subject
to garnishment or sale under execution in any suit or proceeding which may be
brought against or by Tenant, or any assignee of Tenant. No assignment of this
Lease, sublease of all or any portion of the Leased Premises, or collection of
rent from an assignee or subtenant (whether or not permitted by Landlord) shall
relieve Tenant of its obligations hereunder. Any reasonable costs and expenses,
including reasonable attorneys' fees incurred by Landlord in connection with any
proposed or purported assignment, transfer or sublease shall be borne by Tenant
and shall be payable to Landlord as Additional Rent within five (5) days of
demand therefor.
Notwithstanding anything herein to the contrary, Tenant shall
have the right, without Landlord's prior written consent, to assign this Lease
or sublet the Leased Premises to any parent corporation of Tenant, or to any
subsidiary of any parent corporation of Tenant, subject to the following express
conditions:
(i) No such assignment or sublease shall be deemed to
release Tenant from continuing liability for all of
Tenant's covenants and obligations under this Lease;
and
(ii) Any assignee or subtenant must expressly assume in
writing all of the covenants and obligations of
Tenant under this Lease, joint and severally with
Tenant.
Further, the provisions of this Section shall not apply to an
assignment of this Lease (or to a sale or transfer of Tenant's stock) resulting
from a merger, consolidation, corporate reorganization (other than pursuant to
the bankruptcy laws), sale of the assets or other transfer of stock of Tenant:
Further, any issuance by Tenant of its capital stock in a
public offering which is effected in compliance with the registration
requirements of the Securities Act of 1933, as amended, and the rules and
regulations thereunder, shall not be deemed to be a change in control or an
assignment of this Lease requiring Landlord's consent.
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(b) ASSIGNMENT BY LANDLORD. It is expressly understood and
agreed that this Lease and all rights of Landlord hereunder shall be fully and
freely assignable by Landlord without notice to, or consent of, Tenant. In the
event of the transfer and assignment by Landlord of its interest in this Lease,
Landlord shall thereby be released from any responsibility for the performance
of obligations thereafter accruing hereunder, and Tenant agrees to look solely
to such successor in interest of the Landlord for performance of such
obligations. Nothing contained herein shall prevent Tenant from looking to
Landlord for the performance of obligations of which Landlord has actual
knowledge and which predate the effective date of the transfer and assignment by
Landlord of its interest in this Lease. The term "Landlord" as used in this
Lease shall mean the owner of the Leased Premises, at the time in question. In
the event of a transfer (whether voluntary or involuntary) by such owner of its
interest in the Leased Premises, such owner shall thereupon be released and
discharged from all covenants and obligations of the Lease thereafter accruing,
but such covenants and obligations shall be binding during the Lease Term upon
each new owner for the duration of such Owner's ownership.
15. BANKRUPTCY.
(a) The following shall be Events of Bankruptcy under this
Lease: (1) Tenant becoming insolvent, as that term is defined in Title 11 of the
United States Code :(the "Bankruptcy Code"), or under the insolvency laws of any
state, district, commonwealth or territory of the United States (the "Insolvency
Laws"); (2) the appointment of a receiver or custodian for any or all of
Tenant's property or assets, or the institution of a foreclosure action upon any
of Tenant's real or personal property; (3) the filing of a voluntary petition
under the provisions of the Bankruptcy Code or Insolvency Laws by Tenant; (4)
the filing of an involuntary petition against Tenant as the subject debtor under
the Bankruptcy Code or Insolvency Laws, which either (A) is not dismissed within
one hundred twenty (120) days of the date of filing, or (B) results in the
issuance of an order for relief against the debtor; or (5) Tenant's making or
consenting to an assignment for the benefit of creditors or a common law
composition of creditors.
(b) Upon occurrence of an Event of Bankruptcy, Landlord shall
have all rights and remedies available to Landlord pursuant to Section 17;
provided, however, that while a case in which Tenant is the subject debtor under
the Bankruptcy Code is pending, Landlord shall not exercise its rights and
remedies pursuant to Section 19 so long as (1) the Bankruptcy Code prohibits the
exercise of such rights and remedies, and (2) Tenant or its Trustee in
Bankruptcy (hereinafter referred to as "Trustee") (I) cures all defaults under
this Lease, (ii) compensates Landlord for monetary damages incurred as a result
of such defaults, (iii) provides adequate assurance of future performance on the
part of Tenant as debtor in possession or on the part of the assignee
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tenant, and (iv) complies with all other requirements of the Bankruptcy Code and
this Lease.
16. DEFAULT. Each of the following shall be deemed a default by
Tenant and a material breach of this Lease:
(a) An Event of Bankruptcy as defined in Section 15;
(b) An assignment or encumbrance of Tenant's interest in
this Lease or the Leased Premises or a subletting of
any part of the Leased Premises in violation of
Section 14;
(c) A failure by Tenant to make any payment of Minimum
Annual Rent or Additional Rent within five (5) days
of receipt of written notice that such payment was
not received on its due date (provided that Landlord
shall not be obligated to provide Tenant with such
written notice more than twice during any twelve
month period during the lease Term, and after receipt
of such second notice, Tenant shall be deemed in
default, without further notice, if any such payment
is not received by Landlord on its due date);
(d) Abandonment of the Leased Premises for more than
thirty (30) days; and
(e) A failure by Tenant in the performance of any other
term, covenant, agreement or condition of this Lease
on the part of Tenant to be performed after thirty
(30) days notice, or if such default cannot
reasonably be cured within said thirty (30) days
period and Tenant does not commence to diligently
pursue the same within said thirty (30) day period ad
to continue to diligently pursue the same until
remedied.
Landlord agrees that it shall not exercise any rights or remedies, which are
available to it pursuant to the terms of Section 17, as a result of an event of
default described in Section 16(b) or (d) above, unless and until Landlord has
provided Tenant with a period of thirty (30) days after receipt of written
notice thereof within which to cure such default.
17. LANDLORD'S RIGHTS UPON TENANT'S DEFAULT. Upon default by
Tenant of any of the terms or covenants of this Lease, Landlord shall be
entitled to remedy such default as follows:
(a) Landlord shall have the right, immediately or at any time
after said default, without further notice to Tenant (unless otherwise provided
herein), to enter the Leased Premises, without terminating this Lease or being
guilty of trespass, and do any and all acts as Landlord may deem necessary,
proper or
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convenient to cure such default, for the account and at the expense of Tenant,
and Tenant agrees to pay to Landlord as Additional Rent all damage and/or
expense incurred by Landlord in so doing, including interest at the Penalty Rate
from the due date until the date payment is received by Landlord. The making of
such payment or the taking of such action by Landlord shall not be deemed to
cure the default or to stop Landlord from the pursuit of any remedy to which
Landlord would otherwise be entitled.
(b) Landlord shall, following said default, have the right to
terminate this Lease and/or Tenant's right to possession of the Leased Premises
and remove Tenant, any occupant and any property therefrom, without being guilty
of trespass and without relinquishing any rights of Landlord against Tenant.
Landlord shall be entitled to recover damages from Tenant in an amount equal to
the amount herein covenanted to be paid as Minimum Annual Rent during the
remainder of the Lease Term, said Minimum Annual Rent for the full term then
remaining having been fully accelerated at the option of Landlord, together with
(i) all reasonable expenses of any proceedings (including, but not limited to,
legal expenses and attorney's fees) which may be necessary in order for Landlord
to recover possession of the Leased Premises, (ii) the reasonable expenses of
the re-renting of the Leased Premises (including, but not limited to, any
commissions paid to any real estate agent, advertising expense and the costs of
such alterations, repairs, replacements and decoration or re-decoration as
Landlord, in its sole judgment reasonably exercised, considers advisable and
necessary for the purpose of re-renting the Leased Premises), and (iii) interest
computed at the Penalty Rate from the due date until paid; provided, however,
that said damages shall be discounted to present value using a discount factor
of 5%, and further that there shall be credited against the amount of such
damages all amounts received by Landlord from such re-renting of the Leased
Premises and such amounts shall be refunded to Tenant. No act or thing done by
Landlord shall be deemed to be an acceptance of a surrender of the Leased
Premises, unless Landlord shall execute a written agreement of surrender with
Tenant. Tenant's liability hereunder shall not be terminated by the execution of
a new lease of the Leased Premises by Landlord. In the event Landlord does not
exercise its option to accelerate the payment of Minimum Annual Rent as provided
hereinabove, then Tenant agrees to pay to Landlord, upon demand, the amount of
damages herein provided after the amount of such damages for any month shall
have been ascertained; provided, however, that any expenses incurred by Landlord
shall be deemed to be a part of the damages for the month in which they were
incurred. Separate actions may be maintained each month or at other times by
Landlord against Tenant to recover the damages then due, without waiting until
the end of the term of this Lease to determine the aggregate amount of such
damages.
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(c) Upon any default by Tenant to pay Minimum Annual Rent or
Additional Rent, Landlord shall have a lien upon the property of Tenant in the
Leased Premises for the amount of any unpaid Minimum Annual Rent or Additional
Rent.
(d) All rights and remedies provided to either Landlord or
Tenant herein as a result of a default by the other party shall be cumulative,
and none shall exclude any other right or remedy allowed by law. For the
purposes of any suit brought or based hereon, this Lease shall be construed to
be a divisible contract, to the end that successive actions may be maintained on
this Lease as successive periodic sums mature hereunder.
18. LENDER REQUIREMENTS.
(a) SUBORDINATION. Tenant agrees that this Lease (including
without limitation the option to purchase contained herein) is subject and
subordinate to the lien of any existing mortgage or deed of trust which is a
lien upon the Property or any part thereof on the Rent Commencement Date, and to
all renewals, modifications, consolidations, replacements and extensions
thereof, and to all advances made or hereafter to be made upon the security
thereof. Landlord agrees that it shall acquire from any such existing mortgagee
or holder of an existing deed of trust a non-disturbance agreement in such
lender's usual form for the benefit of Tenant. Tenant agrees that this Lease
(including without limitation the option to purchase contained herein) is and
shall be subject and subordinate to the lien of any future mortgages or deeds of
trust which at any time during the Lease Term may be made a lien upon the
Property or any part thereof, and to all advances made or hereafter to be made
upon the security thereof; provided that such subordination shall be effective
only upon the delivery to Tenant of a non-disturbance agreement in such lender's
usual form and reasonably satisfactory to Tenant for the benefit of Tenant by
such future mortgagee or holder of a deed of trust. These subordination
provisions shall be self-operative and no further instrument of subordination
shall be required. Tenant agrees to execute and deliver, upon request, such
further instrument or nstruments confirming this subordination as shall be
reasonably desired by Landlord or by any mortgagee or proposed mortgagee. Tenant
further agrees that, at the option of the holder of any mortgage or of the
trustee under any deed of trust, this Lease may be made superior to said
mortgage or deed of trust by the insertion therein of a declaration that this
Lease is superior thereto, and to all renewals, modifications, consolidations,
replacements and extensions thereof.
(b) ATTORNMENT. In the event any proceedings are brought for
the foreclosure of, or in the event of exercise of the power of sale under, any
deed to secure a debt given by Landlord and covering the Leased Premises, Tenant
shall execute such attornment agreement as shall be reasonably required by said
purchaser, pursuant to the terms of which Tenant recognizes such
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purchaser as the owner and landlord under this Lease, and the purchaser
recognizes Tenant as the tenant under this Lease.
(c) NOTICE TO MORTGAGEE UPON LANDLORD DEFAULT. Tenant agrees
to give any mortgagee by certified mail, return receipt requested, a copy of any
notice of default served upon Landlord, provided that before such notice Tenant
has been notified in writing of the address of such mortgagee. Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then mortgagee shall have an additional fifteen (15)
days within which to cure such default; provided, however, that if such default
cannot be reasonably cured within that time, then such mortgagee shall have such
additional time as may be necessary to cure such default so long as mortgagee
has commenced and is diligently pursuing the remedies necessary to cure such
default (including, without limitation, the commencement of foreclosure
proceedings, if necessary), in which event this Lease shall not be terminated
while such remedies are being so diligently pursued. In the event of the sale of
the Property or the Leased Premises, by foreclosure or deed in lieu thereof, the
mortgagee or purchaser at such sale shall be responsible for the return of any
security deposit only to the extent that such mortgagee or purchaser actually
received the security deposit. In addition, Tenant shall not pay any rental
hereunder for more than one (1) month in advance.
19. ESTOPPEL CERTIFICATES. Landlord and Tenant agree, at any time
and from time to time, upon not less than five (5) business days prior notice by
the other, to execute, acknowledge and deliver to the other a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or if there have been modifications the nature of same), (ii) stating
the dates to which the Minimum Annual Rent and Additional Rent have been paid by
Tenant, (iii) stating whether or not to the best knowledge of either Landlord or
Tenant, the other is in default in the performance of any covenant, agreement or
condition contained in this Lease, and, if so, specifying each such default of
which either Landlord or Tenant may have knowledge, (iv) stating he address to
which notices to either Landlord or Tenant should be sent, and (v) certifying
such other materials as may be requested by Tenant or Landlord. Any such
statement delivered pursuant hereto may be relied upon by an owner of the
Property, any prospective purchaser of the Property or the Leasehold Interest,
any mortgagee or prospective mortgagee of the Property or the Leasehold
Interest, or of Landlord's or Tenant's interest therein, or any prospective
assignee of any such mortgage or the Leasehold Interest.
20. DAMAGE BY FIRE OR OTHER CASUALTY.
(a) RESTORATION. If the Leased Premises shall be damaged by
fire or other casualty but such damage does not render the Leased Premises
wholly unfit for Tenant's business operations as shall be determined by Landlord
and Tenant in their reasonable
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business judgment, Landlord, at Landlord's expense, shall promptly restore the
Leased Premises, and Tenant, at Tenant's sole expense, shall promptly restore
all leasehold improvements installed in the Leased Premises by Tenant or at
Tenant's request and its own furniture, furnishings, trade fixtures and
equipment. No penalty shall accrue for reasonable delay which may arise by
reason of adjustment of insurance on the part of Landlord, or on account of
labor problems, or any other cause beyond Landlord's reasonable control. Minimum
Annual Rent and Additional Rent shall abate proportionately (based on the
proportion of the number of square feet rendered untenantable to the total
number of square feet of the Leased Premises), from the date of the damage or
destruction until the date the Landlord has substantially completed such
restoration. Notwithstanding anything stated to the contrary herein, in the
event that such damage shall occur during the last year of the Lease term,
Landlord shall not be required to restore the Leased Premises nor shall Tenant
be required to restore the Leasehold Improvements, furnishings, furniture,
fixtures or equipment.
(b) TERMINATION. If the Leased Premises are substantially
damaged or are rendered substantially untenantable by fire or other casualty
during the Lease Term to such an extent that it is rendered substantially
unusable by Tenant for the purposes originally contemplated by this Lease or
access is denied, Landlord shall restore or repair the same unless expressly not
required to do so under Section 20(c). If such damage occurs, however, at any
time during the Lease Term, and (i) Landlord's architect certifies that the
Leased Premises cannot be repaired within one hundred twenty (120) working days
of normal working hours, said period commencing on the casualty date, or (ii)
Landlord shall decide to demolish the Leased Premises or not to rebuild it, then
Landlord or Tenant may, within ninety (90) days after such fire or other
casualty, terminate this Lease by giving Tenant notice of such decision, and
thereupon the Lease Term shall expire by lapse of time upon the third day after
such notice is given, and Tenant shall thereupon vacate the Leased Premises and
surrender the same to Landlord. In the event that damage to the Leased Premises
is not repaired sufficiently within one hundred eighty (180) days after such
fire or other casualty so that Tenant can commence to refixture the Leased
Premises for the use thereof as originally contemplated by this Lease, then
Tenant shall have the right to terminate this Lease by giving Landlord written
notice thereof within thirty days of the end of such period, and thereupon the
Lease Term shall expire by lapse of time upon the thirty days after such notice
is given, and Tenant shall thereupon vacate the Leased Premises and surrender
the same to Landlord. Upon the termination of this Lease under the conditions
hereinbefore provided, Tenant's liability for Minimum Annual Rent 3 - and
Additional Rent shall cease as of the day following the casualty.
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(c) LENDER'S APPROVAL. Notwithstanding anything to the
contrary in this Section or in any other provision of this Lease, any obligation
(under this Lease or otherwise) of Landlord to restore all or any portion of the
Leased Premises shall be subject to Landlord's receipt of approval of the same
by the mortgagee(s) of Landlord (and any other approvals required by applicable
laws), as well as receipt from any such mortgagee(s) of such fire and other
hazard insurance policy proceeds as may have been assigned to any such
mortgagee; it being agreed that if Landlord has not received such approval(s)
and proceeds within one hundred and eighty (180) days after any such casualty,
then Landlord shall have the option to terminate this Lease, at any time
thereafter, by notice to Tenant. Landlord shall diligently pursue the receipt of
all approvals and insurance policy proceeds which are described in this Section
20(c).
21. CONDEMNATION. In the event the whole or a "substantial part"
(as hereinafter defined) of the Leased Premises shall be taken for any public or
quasi-public purpose by any lawful power or authority by exercise of the right
of appropriation, condemnation or eminent domain, or sold to said authority to
prevent such taking (collectively referred to herein as a "taking"), this Lease
shall terminate effective as of the date possession is required to be
surrendered to said authority, and the Minimum Annual Rent and Additional Rent
shall be apportioned as of the date. For purposes of this Section, a
"substantial part" of the Leased Premises shall be considered to have been taken
if access to or fifty percent (50%) or more of the Leased Premises or any
material part which is necessary to continue manufacturing in accordance with
F.D.A. licensing requirements is taken or condemned. Tenant shall not assert any
claim against Landlord or the taking authority for any compensation arising out
of or related to such taking and Landlord shall be entitled to receive the
entire amount of any award without deduction for any estate or interest of
Tenant; provided, however, that nothing contained in this section shall be
deemed to give Landlord any interest in any award made to Tenant for the taking
of personal property and fixtures belonging to Tenant or for Tenant's moving
expenses, as long as such award is made in addition to and separately stated
from any award made to Landlord for the Leased Premises and the Property. If
less than fifty percent (50%) of the Leased Premises is so taken, the Lease
shall continue to be in full force and effect, and the Minimum Annual Rent and
Additional Rent shall be adjusted (based on the ratio that the number of square
feet of rentable area taken from the Leased Premises bears to the number of
rentable square feet in the Leased Premises immediately prior to such taking) as
of the date possession is required to be surrendered to said authority;
provided, however, Landlord shall have the right to determine that the Leased
Premises should be demolished and not rebuilt, in which event Landlord may,
within ninety (90) days after such decision, and thereupon the Lease Term shall
expire by lapse of time upon the third day after such notice is given, and
Tenant shall thereupon vacate the Leased Premises and surrender the same to
Landlord. In
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the event that the Lease remains in full force and effect in accordance with the
terms described above, Landlord shall be obligated to repair and restore the
Leased Premises to usable condition by Tenant, and such repair shall be a
condition precedent to the continued effectiveness of this Lease. Landlord shall
have no obligation to contest any taking.
22. LANDLORD'S LIABILITY. Landlord, or its agents, shall not be
liable for any injury or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water, rain, or leaks from
any part of the Leased Premises, or from the pipes, conduits, appliances or
plumbing works, or by dampness or by any other cause of whatsoever nature,
unless caused by or due to the gross negligence of Landlord, its agents,
servants, or employees. All personal property and equipment located in the
Leased Premises shall be at the risk of Tenant.
23. TENANT'S AND LANDLORD'S LIABILITY. Tenant shall reimburse
Landlord for all expense, damage or fines, incurred or suffered by Landlord by
reason of any breach, violation or nonperformance by Tenant, or its agents,
servants, or employees, of any covenant or provision of this Lease or the Rules
and Regulations promulgated by Landlord hereunder from time to time, or by
reason of damage to persons or property caused by moving property of or for
Tenant in or out of the Property, or by the installation or removal of furniture
or other property of or for Tenant, or by reason of or arising out of the
carelessness, negligence or improper conduct of Tenant, or its agents, servants,
employees, invitees or licensees in the use or occupancy of the Leased Premises
or the common areas of the Property. Landlord shall reimburse Tenant for all
expenses, damages or fines, incurred or suffered by Tenant by reason of any
breach, violation or nonperformance by Landlord, or its agents, servants, or
employees, of any covenant or provision of this Lease, or by reason of or
arising out of the carelessness, negligence or improper conduct of Landlord, or
its agents, servants, employees, invitees or licensees.
24. INDEMNITY.
(a) BY TENANT. Tenant shall indemnify and defend Landlord and
its agents and employees and save them harmless from and against any and all
claims, actions, damages, liabilities and expense in connection with loss of
life, personal injury and/or damage to property arising from or out of, the
occupancy or use by Tenant of the Leased Premises or any part thereof, or
occasioned wholly or in part by any act or omission of the Tenant, its agents,
contractors, employees, servants, invitees or licensees, whether inside the
Leased Premises or elsewhere in the Property.
(b) BY LANDLORD. Landlord shall indemnify and defend Tenant
and its agents and employees to save them harmless from and against any and all
claims, actions, damages, liabilities and expense in connection with loss of
life, personal injury and/or
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damage to property occasioned wholly or in part by any act or omission of the
Landlord, its agents, contractors, employees, servants, invitees or licensees,
whether inside the Leased Premises or elsewhere in the Property.
25. TENANT'S INSURANCE.
(a) COVERAGES. Tenant shall have issued, pay the premiums
therefor, and maintain in full force and effect during the Lease Term and any
option period:
(i) COMPREHENSIVE LIABILITY. A commercial general
liability insurance policy or policies in which
the Landlord and Landlord's Mortgagee(s) (and
such additional persons and/or entities as
Landlord may request) and Tenant shall be the
insured, protecting the Landlord and Landlord's
mortgagee(s) (and such additional persons
and/or entities as Landlord may request) and
Tenant in the amount of at least Three Million
and No/100 Dollars ($3,000,000.00) combined,
single limit coverage for bodily injury,
including death, or property damage, which
amount may be increased from time to time by
Landlord in its reasonable determination;
(ii) ALL-RISK CASUALTY. All-risk casualty
insurance, naming Landlord (and such additional
persons and/or entities as Landlord may
request) and Tenant as insureds (as their
interests may appear); written at replacement
cost value and with replacement cost
endorsement, covering all leasehold
improvements installed in the Leased Premises
by Tenant or at Tenant's request and all of
Tenant's personal property in the Leased
Premises (including, without limitation,
inventory, trade fixtures, floor coverings,
furniture and other property removable by
Tenant under the provisions of this Lease).
(iii) WORKERS' COMPENSATION. If and to the extent
required by law, workers' compensation and
employer's liability or similar insurance in
form and amounts required by law.
(b) POLICY REQUIREMENTS. Tenant's failure to provide such
insurance or failure to pay the premiums when due, shall be deemed a default
hereunder. Any monies expended by Landlord to cure said default shall be deemed
Additional Rent and shall be due and owing with Tenant's next payment of Basic
Monthly Rent. All such policies shall contain only such reasonable deductible
amounts as may be provided in advance by Landlord and shall
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contain a provision that Landlord shall receive not less than thirty (30) days
advance notice in writing from the insurance company of any intention of the
insurance company to cancel such policy or policies. Tenant shall provide
written evidence to Landlord of its acquisition of such policies prior to the
commencement of this Lease and prior to any renewal date of such policies. All
policies shall be carried with a reputable insurance company qualified to do
business in the State of Maryland and rated not lower than A-XII in the A.M.
Best Rating Guide.
(c) NO LIMITATION OF LIABILITY. Neither the issuance of any
insurance policy required under this Lease nor the minimum limits specified
herein shall be deemed to limit or restrict in any way Tenant's liability
arising under or out of this Lease.
26. WAIVER OF SUBROGATION. Landlord and Tenant mutually covenant
and agree that each party, in connection with insurance policies required to be
furnished in accordance with the terms and conditions of this Lease, or in
connection with insurance policies which they obtain insuring such insurable
interest as Landlord or Tenant may have in its own properties, whether personal
or real, shall expressly waive any right of subrogation on the part of the
insurer against the Landlord (and any mortgagee requested by Landlord) or Tenant
as the same may be applicable, which right to the extent not prohibited or
violative of any policy is hereby expressly waived, and Landlord and Tenant each
mutually waive all right of recovery against each other, their agents, or
employees for any loss, damage or injury of any nature whatsoever to property or
person for which either party carries insurance or is required by this Lease to
carry insurance.
27. NO LIENS PERMITTED; DISCHARGED. Tenant will not permit to be
created or to remain undischarged any lien, encumbrance or charge (arising out
of any work done or materials or supplies furnished, or claimed to have been
done or furnished, by any contractor, mechanic, laborer or materialman or any
mortgage, conditional sale, security agreement or chattel mortgage, or otherwise
by or for Tenant) which might be or become a lien or encumbrance or charge upon
the Property or any part thereof or the income therefrom. If any lien, or notice
of Lien on account of an alleged debt of Tenant or any notice of contract by a
party engaged by Tenant or Tenant's contractor to work on the Leased Premises
shall be filed against the Property or any part thereof, Tenant, within thirty
(30) days after notice of the filing thereof, will cause the same to be
discharged of record by payment, deposit, bond, order of a court of competent
jurisdiction or otherwise. If Tenant shall fail to cause such lien or notice of
lien to be discharged within the period aforesaid, then, in addition to any
other right or remedy, Landlord may, but shall not be obligated to, discharge
the same either by paying the amounts claimed to be due or by procuring the
discharge of such lien by deposit or by bonding proceedings and in any such
event Landlord shall be entitled, if Landlord so elects, to compel the
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<PAGE>
prosecution of an action for the foreclosure of such lien by the lienor and to
pay the amount of the judgment in favor of the lienor with interest, costs and
allowances. Any amount so paid by Landlord and all reasonable costs and
expenses, including attorneys' fees, incurred by Landlord in connection
therewith, shall constitute Additional Rent payable by Tenant under this Lease
and shall be paid by Tenant to Landlord on demand. Nothing herein contained
shall obligate Tenant to pay or discharge any lien created by Landlord.
28. SIGNS, AWNINGS AND CANOPIES. Tenant may place or suffer to be
placed or maintained on the exterior of the Leased Premises any sign, awning or
canopy, or other written matter of any kind, provided that any such sign,
awning, canopy or written matter is in compliance with the applicable federal,
state and/or country regulations. Tenant further agrees to maintain in good
condition and repair at all times such sign, awning, canopy, decoration,
lettering, or written mater as may be approved.
29. ENVIRONMENTAL PROTECTION. Tenant and Tenant's employees and
agents shall not dispose of any oil, petroleum or chemical liquids or solids,
liquid or gaseous products or any hazardous waste or hazardous substance
including, without limitation, asbestos (hereinafter collectively referred to as
"hazardous waste"), as those terms are used in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, or in any other federal,
state or local law governing hazardous substances, as such laws may be amended
from time to time (hereinafter collectively referred to as the "Act"), at, upon,
under or within the Leased Premises or the Property, or into the plumbing or
sewer or water system servicing the Leased Premises and/or the Property, nor
shall Tenant, its agents or employees cause or permit the discharge, spillage,
uncontrolled loss, seepage or filtration of any hazardous waste at, upon, under
or within the Leased Premises of the Property or into the plumbing or sewer or
water system servicing the same. Notwithstanding the foregoing, Landlord
acknowledges that the use which Tenant contemplates for the Leased Premises
involves the use, storage, and disposal of materials which are defined herein as
hazardous waste, and Tenant shall have the right to maintain such materials on
the Leased Premises so long as they are used, stored and disposed of in
accordance with the Act. Tenant shall comply in all respects with the
requirements of the Act and related regulations, and shall notify Landlord
immediately in the event of its discovery of any hazardous waste at, upon, under
or within the Leased Premises or the Property which has not been used, stored or
disposed of in accordance with the Act. Tenant shall advise Landlord, in
writing, of the identities of hazardous wastes being used and stored in the
Leased Premises promptly upon written request from Landlord, but in no event
less frequently than once every twelve (12) months. Tenant shall indemnify
Landlord against all costs, expenses, liabilities, losses, damages, injunctions,
suits, fines, penalties, claims, and demands, including reasonable attorneys'
fees, arising out of any violation of or default by
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<PAGE>
Tenant, and its employees and agents, in the covenants of this Section. The
provisions of this Section shall survive the expiration of the Lease Term.
30. NOTICES. All notices to be given under this Lease shall be in
writing and either (i) hand-delivered, (ii) sent by Federal Express (or other
nationally recognized, overnight mail courier service), (iii) or mailed by
United States Certified or Registered Mail, return receipt requested, postage
prepaid. Notices should be delivered as follows:
(a) To Landlord to the attention of President at the
business and mailing address stated on page 1 of this
Lease.
(b) To Tenant to the attention of President, at the
business and mailing address stated on page 1 of this
Lease.
With a copy to: Donovan, Leisure, Newton & Irvine
30 Rockefeller Plaza
New York, NY 10112
Attn: William J.T. Brown, Esq.
Any such notice shall be deemed to be received on the date it is hand-delivered
or delivered by Federal Express (or other nationally recognized, overnight mail
courier service), or on the third day after the date on which it is deposited in
the U.S. mails. Landlord and Tenant shall each have the right to change the
person and/or address to which notices shall be delivered upon notice thereof to
the other parties sent pursuant to the provisions of this paragraph.
31. TIME. Except as expressly set forth herein to the contrary,
Landlord and Tenant acknowledge that time is of the essence in the performance
of any and all obligations, terms, and provisions of this Lease.
32. POSTPONEMENT OF PERFORMANCE. In the event that either party
hereto shall be delayed or hindered in or prevented from the performance of any
act required hereunder by reason of strikes, labor troubles, inability to
procure labor or materials, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war, acts of God, fire or other casualty or
other reason of a similar or dissimilar nature beyond the reasonable control of
the party delayed in performing work or doing acts required under the terms of
this Lease, then performance of such act shall be excused for the period of the
delay and the period for the performance of any such act shall be extended for a
period equivalent to the period of such delay; provided, however that nothing in
this section shall excuse any delay in the payment of Minimum Annual Rent or
Additional Rent; and provided, further, that delays or failures to perform
resulting from lack of funds
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<PAGE>
shall not be deemed delays beyond the reasonable control of a party. Nothing
contained herein shall be construed to limit the provisions concerning the
abatement of Minimum Annual Rent and Additional Rent resulting from fire and
casualty damage or from condemnation damage to the Leased Premises as more fully
described in Sections 20 and 21 hereof.
33. BROKERS. Landlord and Tenant represent and warrant each to the
other that neither has authorized any broker, agent or finder purporting to act
on either's behalf in respect to this Lease transaction, and each hereby agree
to indemnify and hold harmless one from the other from and against any cost,
expense, claims, liability or damage resulting from a breach of the
representation and warranty herein contained.
34. NO WAIVER. No waiver by Landlord or Tenant of any breach of
any of the terms, convenants, agreements, or conditions of this Lease shall be
deemed to constitute a waiver of any succeeding breach thereof, or a waiver of
any breach of any of the other terms, convenants, agreements, and conditions
herein contained. No provision of this Lease shall be deemed to have been waived
by Landlord or Tenant, unless such waiver be in writing signed by such party. No
employee of Landlord or of Landlord's agents shall have any authority to accept
the keys of the Leased Premises prior to termination of the Lease, and the
delivery of keys to any employee of Landlord or Landlord's agents shall not
operate as a termination of the Lease or a surrender of the Leased Premises. The
receipt by Landlord of any payment of the Minimum Annual Rent or Additional Rent
with knowledge of the breach of any covenant of the Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations, hereafter adopted, against Tenant or any other tenant in the
Property shall not be deemed a waiver of any such Rules and Regulations.
35. AMENDMENTS. This Lease and the Exhibits attached hereto,
together with the terms and conditions of that certain Stock Purchase Agreement
between Landlord, Tenant and Cambridge Biotech Corporation, debtor, contain the
entire agreement between the parties pertaining to the subject matter hereof,
and any agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment in whole or in part unless such agreement is
in writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
36. APPLICABLE LAW. The laws of the State of Maryland shall govern
the validity, performance and enforcement of this Lease.
37. TRANSFER OF THE PROPERTY. In the event of the sale or other
transfer of landlord's right, title and interest in the Leased Premises or the
Property, Landlord shall transfer and assign to such purchaser or transferee all
amounts of pre-paid Minimum Annual Rent and Additional Rent, and provided that
the
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<PAGE>
purchaser or transferee shall assume all of the surviving liabilities and
obligations of Landlord hereunder accruing after the consummation of such sale
or transfer, Landlord thereupon shall be released from all liability and
obligations hereunder derived from this Lease arising out of any act, occurrence
or omission relating to the Leased Premises or this Lease occurring after the
consummation of such sale or transfer. Tenant shall have no right to terminate
this Lease, to abate Minimum Annual Rent or Additional Rent, nor to deduct from,
nor set-off, nor counterclaim against Minimum Annual Rent or Additional Rent
because of any sale or transfer (including, without limitation, any
sale-leaseback) by Landlord or its successors or assigns.
38. OPTION TO PURCHASE. At any time during the term hereof,
provided that Tenant is not then in default hereof and provided further that
Tenant, or a permitted assignee (which is a related party to Tenant pursuant to
the provisions of Section 14 hereof) shall then occupy the Leased Premises,
Tenant shall have the option to purchase the Property (subject only to the
rights of the tenant under the BTRL Lease as to Parcel 1) at the then Fair
Market Value (the "FMV") as of the date of the exercise of the option (subject
to the provisions of the next succeeding paragraph). Tenant shall exercise this
option by giving written notice to Landlord, setting forth its determination of
the FMV. In the event Landlord does not agree with this determination, then the
FMV shall be determined by independent appraisal in the same manner as is set
forth in Section 3(b) hereof for determining Fair Rental Value, provided that
such appraisal shall take into account the remaining terms of any leases then
encumbering the Property, including this Lease, without regard to the effect, if
any, of any merger or termination thereof which may result from the exercise of
this Option.
Landlord shall satisfy and discharge of record any mortgage on the
Property and deliver a warranty deed in the customary form, subject only to such
encumbrances as the Property is subject to on the date hereof as set forth on
Exhibit A, liens for taxes not yet due and payable and such additional
encumbrances (not including mortgage or liens) as do not materially interfere
with the use of the Property as contemplated by this Lease, and Tenant shall pay
the consideration no later than sixty (60) days from the receipt of the notice
of option, or, in the event the appraisal process is required, and within ten
(10) days of such determination Tenant confirms its intention to buy at the FMV
as so determined, within thirty (30) days from the date of determination of the
FMV. In the event the Property shall be encumbered by a mortgage(s) (the
"Mortgage") held by an institutional lender(s) which shall have a balance in
excess of the FMV (the "Excess Balance"), in order to exercise the option Tenant
shall pay in addition to the FMV an amount equal to the lesser of (i) Excess
Balance or (ii) the amount by which 80% of FMV determined as of the date the
Mortgage was granted exceeds FMV at the time the option is exercised; provided,
however, that if any mortgage encumbering the Property at the date hereof
continues to encumber the Property at the date
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<PAGE>
of exercise of this option the sum of FMV and any amount paid pursuant to
subsection (i) or (ii) above shall in no event be less then the amount necessary
to discharge such mortgage (without regard to any mortgage subsequently
attaching). There shall not be taken into account for the purposes of this
calculation a Mortgage which encumbers property in addition to the Property
unless Tenant shall have consented in writing to an allocation to the Property
of a portion of the Mortgage encumbering such additional property.
39. OPTION ON ADDITIONAL SPACE. Tenant shall have the option to
lease the additional space currently leased to BTRL contracts and Services, Inc.
pursuant to a lease dated June 30, 1992 (the "BTRL Lease") upon the expiration
or sooner termination of the BTRL Lease, provided that Tenant shall give written
notice to Landlord of its election to exercise such option no later than 180
days prior to the expiration date of the BTRL Lease or within sixty (60) days
after written notice of the sooner termination of the BTRL Lease, at a rental
rate equal to the then-prevailing square-foot rental rate under this Lease and
otherwise on the terms and conditions set forth herein. This Lease shall be
amended to add the space demised under the BTRL Lease upon the exercise of the
option.
40. PROCEDURE TO REQUIRE PURCHASE OR TERMINATION OF OPTION. If at
any time during the term of this Lease, Landlord shall receive a bona fide offer
to purchase the Property from a third party, which offer Landlord desires to
accept, Landlord shall promptly deliver to Tenant a copy of such offer. Tenant
may, within thirty (30) days after receipt of such offer, elect to purchase the
Property on the same terms and conditions as set forth in such offer by delivery
to Landlord of written notice of said exercise. In the event Tenant does not so
elect to purchase, Landlord shall be free to sell the Property to the third
party offeror on terms and conditions which are substantially the same as set
forth in the offer, in no material respect less favorable to the Landlord, and
subject to the terms of this Lease except that Tenant's Option to Purchase shall
be extinguished. In the event the third party sale is not consummated, the
Option to Purchase shall remain in effect.
41. WAIVER OF COUNTERCLAIM AND TRIAL BY JURY/ATTORNEYS FEES.
Landlord and Tenant waive their right to trial by jury in any action, proceeding
or counterclaim brought by either of the parties hereto against the other
(except for personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with this Lease, the relationship of
Landlord and Tenant, Tenant's use of or occupancy of the Lease Premises, and any
emergency statutory or any other statutory remedy. Tenant shall not interpose
any counterclaim(s) or claim(s) for set-off, recoupment or deduction of Minimum
Annual Rent or Additional Rent in a summary proceeding for nonpayment of
Minimum Annual Rent or Additional Rent, unless such counterclaim is mandatory in
nature and must be interposed in such summary proceeding against the
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<PAGE>
other to enforce the terms and conditions of this Lease, the prevailing party
shall be entitled to recover all reasonable attorneys fees and costs incurred as
a result thereof.
42. SEPARABILITY. If any term or provision of this Lease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby and each other term
and provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
43. CORPORATE AUTHORITY. Concurrently with the execution of this
Lease, Tenant has delivered to Landlord a certified copy of a resolution of
Tenant's Board of Directors (or other evidence reasonably satisfactory to
Landlord) approving the leasing of the Leased Premises by Tenant pursuant to the
terms and conditions contained herein, stating that this Lease if fully binding
upon Tenant, and authorizing the execution of this Lease by each person signing
this Lease on behalf of Tenant.
44. INTERPRETATION.
(a) CAPTIONS. The captions; marginal references, General
Information sheet, and table of contents appearing in this Lease are inserted
only as a matter of convenience and in no way amplify, define, limit, construe,
or describe the scope or intent of this Lease nor in any way affect this Lease.
(b) GENDER. The Neuter, feminine or masculine pronoun when
used herein shall each include each of the other genders and the use of the
singular shall include the plural.
(c) COVENANTS. The parties hereto agree that all the
provisions of this Lease are to be construed as covenants and agreements as
though the words importing such covenants and agreements were used in each
separate provision hereof.
(d) INTERPRETATION. The provisions of this Lease although
initially drawn by Landlord were negotiated between the parties, and this Lease
shall not be construed for or against Landlord or Tenant, but this Lease shall
be interpreted in accordance with the general tenor of the language in an effort
to reach the intended result.
45. LANDLORD'S AGREEMENT RE: CONTRACT OF SALE OF THE PROPERTY.
Landlord agrees that, during the Lease Term and prior to its execution of any
contract for the sale of the Property to a prospective purchaser, it shall give
written notice of the existence of this Lease and Tenant's occupancy rights in
and to the Lease Premises (together with a copy of this Lease), to any such
prospective purchaser of the Property.
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<PAGE>
46. REASONABLENESS OF EXPENSES. Wherever it is required by the
terms of this Lease that one party reimburse the other party for costs and
expenses incurred in connection with the performance of an obligation or the
exercise of a right described herein, unless expressly stated otherwise, all
costs and expenses for which such reimbursement is sought shall be reasonable in
amount and nature, as determined in accordance with local standards of
commercial reasonableness in the District of Columbia metropolitan area.
47. LIMITS OF LANDLORD'S LIABILITY. In the event that any
mortgagee or holder of a deed of trust or other security interest in the
Property shall foreclose on the Property or accept a deed in lieu of foreclosure
as a result of the failure of Landlord to pay any debt secured by the Property,
then, thereafter, neither the owner of the Property, as Landlord, nor its
agents, employees or officers, whether disclosed or undisclosed, shall have any
personal liability under any provision of this Lease, and if such a subsequent
owner of the Property, as Landlord, defaults in the performance of any of its
obligations hereunder or otherwise, Tenant shall look solely to Landlord's
equity, interest and rights in the Property for satisfaction of Tenant's
remedies on account thereof.
48. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, and the heirs, personal
representatives, successors and assigns of said parties.
49. RECORDING. Landlord and Tenant agree that, at the request of
either, each will execute a short form of this Lease in form satisfactory for
recording in the office of the Montgomery County Clerk.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed, and
delivered this lease, or have caused same to be executed, sealed and delivered
by their duly authorized attorney-in-fact, as of the day and year above written.
WITNESS/ATTEST: AQUILA BIOPHARMACEUTICALS, INC.
/s/ WITNESS By: /s/ AQUILA BIOPHARMACUETICALS, INC.
- -------------------------------- -------------------------------------
President
Date of Execution: October 22, 1996
----------------------
BIOMERIEUX VITEK, INC.
By: /s/ BIOMERIEUX VITEK, INC.
-------------------------------------
WITNESS/ATTEST: President
/s/ WITNESS Date of Execution: October 22, 1996
- -------------------------------- ----------------------
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<PAGE>
EXHIBIT A
DESCRIPTION OF PREMISES
1. Property as described in a Confirmatory Deed from Biotech Research
Laboratories, Inc. to CBC recorded September 7, 1990 in Liber 9470 at folio 762
among the Land Records of Montgomery County, Maryland commonly known as 3 and 3
1/2 Taft Court.
Subject to:
a. Ten (10) foot wide utility easement across the front of the lot as
shown on Plat recorded in Plat Book 102 at Plat 11503 among the Land Records of
Montgomery County, Maryland.
b. Portion of a Twenty (20) foot utility easement along the southwest
line of the property as shown on Plat recorded in Plat Book 102 at Plat 11503
among the Land Records of Montgomery County, Maryland.
c. Portion of a Ten (10) foot utility easement on the southeast line
of the property as shown on Plat recorded in Plat Book 102 at Plat 11503 among
the Land Records of Montgomery County, Maryland.
d. Portion of the "Fairway Easement", as shown along the
southeasterly line of the property as shown on Plat recorded in Plat Book 102 at
Plat 11503 among the Land Records of Montgomery County, Maryland.
e. Twenty (20) foot slope grading easement along the front of the
property to terminate on completion and acceptance of all public improvements by
the proper Governmental Authority, as dedicated by owner on Plat recorded in
Plat Book 102 at Plat 11503 among the Land Records of Montgomery County,
Maryland.
f. Right of Way to the Mayor and Council of Rockville, recorded in
Liber 6137 at Folio 845 among the Land Records of Montgomery County, Maryland.
g. Lease Agreement between Cambridge Biotech Corporation, a Delaware
corporation, Landlord, and BTRL Contracts and Services, Inc., a Massachusetts
corporation, Tenant, dated June 30, 1992, relating to building commonly known as
3 Taft Court.
2. Property as described in a Confirmatory Deed from Biotech Research
Laboratories, Inc. to CBC recorded September 7, 1990 in Liber 9740 at Folio 758
among the Land Records of Montgomery County, Maryland commonly known as 1500
East Gude Drive.
- A-1 -
<PAGE>
Subject to:
a. Twenty-Five (25) foot access easement across Lot (9) to benefit
Lot (4) as shown on Plat recorded at Plat Book 114 at Plat No. 13548 among the
Land Records of Montgomery County, Maryland.
b. Thirty (30) foot Utility Easement as shown on Plat recorded at
Plat Book 114 at Plat No. 13548 among the Land Records of Montgomery County,
Maryland.
c. Right of Way to Chesapeake and Potomac Telephone Company recorded
in Liber 192 Folio 032.
d. Minimum Building Restriction Line per owner's dedication on
recorded plat.
e. Note on Plat, "The Access Easement for Lot 4 as recorded in Liber
5489 at folio 570 and the Public Service Drive and Utility Easement as recorded
in Plat Book 100 at Plat 11185 are abandoned by this plat, and the Easements
shown hereon are created by this Plat."
f. Effect of Note on Plat: "Upon dualization of Gude Drive, left
turns into this entrance will not be permitted."
g. Right of Way to Chesapeake and Potomac Telephone Company recorded
in Liber 248 Folio 054.
- A-2 -
<PAGE>
EXHIBIT A-1
Under Separate Cover
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment") is made as of this, 2nd day
of OCTOBER, 1997, by and between AQUILA BIOPHARMACEUTICALS, INC., a Delaware
corporation ("Landlord") and BIOMERIEUX VITEK, INC., a Missouri corporation
("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into a certain Lease ("Lease"),
dated October 22, 1996, pursuant to the terms of which Tenant is leasing from
Landlord certain space in an office building located at 1500 East Gude Drive and
in an office building located at 3-1/2 Taft Court, both of which buildings are
situated in Rockville, Montgomery County, Maryland;
WHEREAS, Landlord and Tenant have agreed to modify certain of the
existing terms and conditions of the Lease, and to reconfirm certain other of
the existing terms and conditions of the Lease, all in the manner set forth
below.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements contained herein, and of other good and valuable consideration, the
receipt of sufficiency of which are hereby acknowledged, Landlord and Tenant
agree as follows:
1. DEFINITION OF TERMS. All capitalized terms not otherwise defined herein
shall have the meanings given them in the Lease.
2. DESCRIPTION OF LEASED PREMISES.
B. GROSS LEASABLE AREA. Section 1(a)(2)of the Lease is hereby
amended and modified by deleting the Section in its entirety, and inserting in
lieu thereof the following:
(2) GROSS LEASEABLE AREA
3,780 square feet in the office building located at 3-1/2 Taft Court;
and 38,318 square feet in a portion of the office building located at
1500 East Gude Drive.
3. TENANT'S PROPORTIONATE SHARE OF CERTAIN COSTS AND EXPANSES.
A. TENANT'S PROPORTIONATE SHARE OF CERTAIN EXPANSES. Section 1(a)
(3) of the Lease is hereby amended and modified by deleting the section in its
entirety, and inserting in lieu thereof the following:
<TABLE>
<CAPTION>
(3) 1500 E. Gude 3-1/2 Taft
Drive Court
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
A. Proportionate Share - 85% 15%
B. R.E. Proportionate Share - 85% 34%
C. Insurance Proportionate Share - 85% 34%
</TABLE>
<PAGE>
4. MINIMUM ANNUAL RENT AND BASIC MONTHLY RENT.
A. MINIMUM ANNUAL RENT. Section 1(a)(6) of the Lease is hereby
amended and modified by deleting the section in its entirety, and inserting in
lieu thereof the following:
<TABLE>
<CAPTION>
(6) 1500 E. Gude 3-1/2 Taft Total for the
Drive Court Leased Premises
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lease Year 1 - $440,657.00 $33,350.00 $474,007.00
Lease Year 2 - $440,657.00 $33,350.00 $474,007.00
Lease Year 3 - $440,657.00 $33,350.00 $474,007.00
Lease Year 4 - $478,975.00 $36,250.00 $515,225.00
Lease Year 5 - $478,975.00 $36,250.00 $515,225.00
Lease Year 6 - $478,975.00 $36,250.00 $515,225.00
Lease Year 7 - $478,975.00 $36,250.00 $515,225.00
Lease Year 8 - $517,293.00 $39,150.00 $556,443.00
Lease Year 9 - $517,293.00 $39,150.00 $556,443.00
Lease Year 10 - $517,293.00 $39,150.00 $556,443.00
</TABLE>
B. BASIC MONTHLY RENT. Section 1(a)(7) of the Lease is hereby
amended and modified by deleting the section in its entirety, and inserting in
lieu thereof the following:
<TABLE>
<CAPTION>
(6) 1500 E. Gude 3-1/2 Taft Total for the
Drive Court Leased Premises
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lease Year 1 - $36,721.42 $2,779.16 $39,500.58
Lease Year 2 - $36,721.42 $2,779.16 $39,500.58
Lease Year 3 - $36,721.42 $2,779.16 $39,500.58
Lease Year 4 - $39,914.58 $3,070.83 $42,935.92
Lease Year 5 - $39,914.58 $3,070.83 $42,935.92
Lease Year 6 - $39,914.58 $3,070.83 $42,935.92
Lease Year 7 - $39,914.58 $3,070.83 $42,935.92
Lease Year 8 - $43,107.75 $3,262.50 $46,370.25
Lease Year 9 - $43,107.75 $3,262.50 $46,370.25
Lease Year 10 - $43,107.75 $3,262.50 $46,370.25
</TABLE>
If and to the extent that any provision of this Lease reasonably
pertains to payment of Minimum Annual Rent and Basic Monthly Rent for one of
said portions of the Leased Premises (but not to both portions thereof), then
the amounts set forth in Sections 1(a)(6) and (7) of this Lease shall be
applied, as appropriate. Section 4(a) of the Lease shall be amended and modified
accordingly.
5. DEMISING PLAN AND RELATED EXPENSES:
Landlord and Tenant agree that Tenant shall have the right to
reconfigure the demising walls of the Gude Drive Premises on the first (1st)
floor of the office building in which the Gude Drive Premises is located, and
that the floor plan of said first (lst) floor of the Gude Drive
<PAGE>
Drive Premises is located, and that the floor plan of said first (1st) floor
of the Gude Drive Premises shall be as outlined and hatched on the attached
Exhibit B attached hereto and made a part hereof. All computations of Minimum
Annual Rent, Basic Monthly Rent, and the various proportionate share figures
set forth in Section 1 hereof have been made on the basis of said new
configuration of the first (lst) floor portion of the Gude Drive Premises.
6. COUNTERPART COPIES. This Amendment may be executed in two or more
counterpart copies, all of which counterparts shall have the same course and
effect as if all parties hereto had executed a single copy thereof.
7. CONTROLLING LANGUAGE. Insofar as the specific terms and provisions of
this Amendment purport to amended or modify or are in conflict with the specific
terms and provisions of the Lease, the terms and provisions of this Amendment
shall govern and control; in all other respects, the terms and provisions of the
Lease shall remain unmodified and in full force and effect.
8. EFFECTIVE DATE. This Amendment shall be effective upon the execution of
this document by both parties hereto, as evidenced by each party's signature
below the signature line as set forth below.
IN WITNESS WHEREOF, Landlord and Tenant have each caused this Amendment
to be duly executed, sealed and delivered, by its duly authorized attorney in
fact, as of the day and year first above written.
WITNESS/ATTEST: Landlord: Aquila Biopharmaceuticals, Inc.
/s/ WITNESS By: /s/ Stephen J. DiPalma
- -------------------- ----------------------------------------
Name: Stephen J. DiPalma
----------------------------------------
Title: Chief Financial Officer
----------------------------------------
Date: October 2, 1997 , 1997
----------------------------------
WITNESS/ATTEST: Tenant: bioMerieux Vitek, Inc.
By:
- -------------------- ----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
Date: , 1997
----------------------------------
<PAGE>
6. COUNTERPART COPIES. This Amendment may be executed in two or more
counterpart copies, all of which counterparts shall have the same course and
effect as if all parties hereto had executed a single copy thereof.
7. CONTROLLING LANGUAGE. Insofar as the specific terms and provisions of
this Amendment purport to amended or modify or are in conflict with the specific
terms and provisions of the Lease, the terms and provisions of this Amendment
shall govern and control; in all other respects, the terms and provisions of the
Lease shall remain unmodified and in full force and effect.
8. The provisions of paragraph 1 (Lease Modification) of the Closing
Agreement dated as of October 21, 1996 among Cambridge Biotech Corporation,
Aquila Biopharmaceuticals, Inc. and bioMeriux Vitek, Inc., regarding a
modification to the Lease, shall be deemed satisfied by the amendments set
forth herein, and of no further force and effect.
9. EFFECTIVE DATE. This amendment shall be effective upon the execution of
this document by both parties hereto, as evidenced by each party's signature
below the signature line as set forth below.
IN WITNESS WHEREOF, Landlord and Tenant have each caused this Amendment
to be duly executed, sealed and delivered, by its duly authorized attorney in
fact, as of the day and year first above written.
WITNESS/ATTEST: Landlord: Aquila Biopharmaceuticals, Inc.
/s/ WITNESS By: /s/ Stephen DiPalma
- -------------------- ---------------------------------------
Name: Stephen DiPalma
---------------------------------------
Title: CFO
---------------------------------------
Date: October 29 , 1997
---------------------------------
WITNESS/ATTEST: Tenant: bioMerieux Vitek, Inc.
/s/ WITNESS By: /s/ PJ Walsh
- -------------------- ---------------------------------------
Name: Patrick J. Walsh
---------------------------------------
Title: Vice President, Finance & CFO
---------------------------------------
Date: October 29 , 1997
---------------------------------
<PAGE>
Exhibit A, Demising Plan
(First Floor, for demising purposes only)
[FLOOR PLAN]
<PAGE>
ASSIGNMENT OF LEASE AND ASSUMPTION AGREEMENT
FOR VALUE RECEIVED, BIOMERIEUX VITEK, INC., a Missouri corporation
having an office at 595 Anglum Drive, Hazelwood, Missouri 63242-2395
("Assignor"), hereby assigns to CAMBRIDGE BIOTECH CORPORATION, a Delaware
corporation, having an office at 1500 East Gude Drive, Rockville, Maryland
("Assignee"), all of Assignor's right, title and interest as tenant under the
lease described in Exhibit A attached hereto and made a part hereof (the
"Lease"), to have and to hold the same unto Assignee, its successors and
assigns, from and after October 22, 1996 for the remainder of the term of the
lease (including any renewal, extension and other options therein contained),
subject to the rents, covenants, conditions and provisions therein contained.
Assignee hereby accepts the assignment of the Lease and assumes the performance
of all of the covenants and obligations of tenant under the Lease from and after
October 22, 1996 and hereby agrees to comply with all of the terms and
provisions thereof to be performed by tenant thereunder and all of the
obligations of Assignor thereunder from October 22, 1996. Assignor hereby
acknowledges pursuant to Section 14(a) of the Lease that Assignor shall remain
liable jointly and severally with Assignee for the due performance of all of the
terms, covenants, conditions and agreements contained in the Lease on Assignee's
part to be performed.
IN WITNESS WHEREOF, Assignor and Assignee have executed and
sealed this instrument as of October 22, 1996.
ATTEST: BIOMERIEUX VITEK, INC.
/s/ Patrick J. Walsh By: /s/ Philippe Archinard
- ------------------------------------- --------------------------
Patrick J. Walsh Philippe Archinard
Vice-President and Treasurer President
ATTEST: CAMBRIDGE BIOTECH CORPORATION
/s/ William J.T. Brown By: /s/ Philippe Archinard
- ------------------------------------- -------------------------
William J.T. Brown Philippe Archinard
Counsel President
Accepted and Agreed to
This 22nd day of October, 1996
AQUILA BIOPHARMACEUTICALS, INC.
By: /s/ Aquila Biopharmaceuticals, Inc. (Signed in counterpart)
----------------------------------
<PAGE>
STATE OF MISSOURI )
) ss.:
COUNTY OF ST. LOUIS )
Before me, a Notary Public in and for said County and State, personally
appeared BIOMERIEUX VITEK, INC by PHILIPPE ARCHINARD, its PRESIDENT , who
acknowledged that [s]he did sign the foregoing instrument for and on behalf of
said corporation and by authority of its Board of Directors and that the same is
the free and corporate act of said corporation and the free act and deed of
him[her]self as such officer.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal
at___________, _____________ this 22 day of October, 1996.
/s/ NOTARY PUBLIC
-------------------------
Notary Public
[Image of Notary Seal]
STATE OF New York )
) ss.:
COUNTY OF New York )
Before me, a Notary Public in and for said County and State, personally
appeared CAMBRIDGE BIOTECH CORPORATION by PHILIPPE ARCHINARD, its PRESIDENT,
who acknowledged that [s]he did sign the foregoing instrument for and on behalf
of said corporation and by authority of its Board of Directors and that the same
is the free and corporate act of said corporation and the free act and deed of
him[her]self as such officer.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
__________, ____________ this 25 day of October, 1996.
/s/ NOTARY PUBLIC
-------------------------
Notary Public
[Image of Notary Seal]
<PAGE>
EXHIBIT A
Lease dated October 22, 1996 by and between AQUILA BIOPHARMACEUTICALS, INC. as
Landlord and BIOMERIEUX VITEK, INC., as Tenant of premises located at 3 1/2 Taft
Court and 1500 East Gude Drive, Rockville, Maryland
<PAGE>
SUBLEASE ("SUBLEASE") dated as of December 17, 1998,
by and between CAMBRIDGE BIOTECH CORPORATION, the address of
which is c/o bioMerieux, Inc., 595 Anglum Drive, St. Louis,
Missouri 63042-2395 ("SUBLESSOR"), and CALYPTE BIOMEDICAL
CORPORATION, the address of which is 1440 Fourth Street,
Berkeley, California 94710 ("SUBLESSEE").
WITNESSETH:
WHEREAS, Sublessor is the assignee of bioMerieux, Inc. ("BMX"), lessee
under the Lease dated October 22, 1996, between ARE-1500 East Gude LLC, as
successor to Aquila Biopharmaceuticals, Inc., as Landlord, and BMX, as Tenant,
as amended through the date hereof (the "Master Lease"; capitalized terms used
and not otherwise defined herein have the respective meanings given them in the
Master Lease);
WHEREAS, Sublessor has sold to Sublessee, pursuant to the Asset
Acquisition Agreement between the Sublessor and the Sublessee dated November 18,
1998 (the "Acquisition Agreement"), the Acquired Assets (as defined in the
Acquisition Agreement) located on the Leased Premises; and
WHEREAS, Sublessor now wishes to sublease to Sublessee, and Sublessee
wishes to sublease from Sublessor, the Leased Premises on the following terms
and conditions;
NOW, THEREFORE, Sublessor and Sublessee hereby agree as follows:
I. ARTICLE
1. SUBLEASE. Upon and subject to the terms and conditions
hereinafter set forth, and subject to the terms and conditions of the Master
Lease, Sublessor subleases to Sublessee the Leased Premises.
1. TERM. The term of this Sublease shall commence on December
11, 1998 and end on December 10, 2000, or prior to such date upon one hundred
eighty (180) days prior written notice delivered by Sublessee. Sublessee may,
upon the expiration of the term of this Sublease on December 10, 2000 (but not
any earlier expiration), extend the original term of this Sublease for
successive periods of one year each by giving to Sublessor notice of each such
election at least one hundred eighty (180) days prior to the expiration of the
original term or then renewal term hereof, (but not to any date after the
Expiration Date); PROVIDED, HOWEVER, that Sublessee shall not have such right to
extend if it shall then be in default under the terms of the Sublease (at the
time of election) or if this Sublease has been earlier expired or terminated.
<PAGE>
3. RENT. The rent hereunder shall equal the Rent and the
Additional Rent.
ARTICLE II
1. SUBORDINATION TO MASTER LEASE. This Sublease is and shall at
all times be subject and subordinate to the Master Lease, and notwithstanding
anything elsewhere herein to the contrary, upon the expiration or earlier
termination of the Master Lease this Sublease shall automatically and
simultaneously terminate.
2. INCORPORATION OF TERMS OF MASTER LEASE. In addition to the
terms and conditions set forth herein, and except as expressly modified herein,
the terms, conditions and respective obligations of Sublessor and Sublessee to
each other under this Sublease shall be the terms, conditions and respective
obligations of Lessor and Lessee to each other under the Master Lease, which
terms, conditions and obligations are hereby incorporated herein. Therefore, for
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used, it shall be deemed to mean and refer to the Sublessor herein, wherever in
the Master Lease the word "Lessee" is used, it shall be deemed to mean and refer
to the Sublessee herein, and wherever in the Master Lease the words "Leased
Premises", are used, they shall be deemed to mean and refer to the subleased
property and the components thereof; PROVIDED, HOWEVER, that Sublessee shall
have no rights with respect to the option to purchase described in Section 38 of
the Master Lease.
3. ASSUMPTION BY SUBLESSEE. During the term of this Sublease,
and thereafter with respect to obligations which have arisen prior to the
termination or expiration of the term of this Sublease, Sublessee expressly
assumes and agrees to pay, perform and comply with for the benefit of Sublessor
and the Lessor under the Master Lease each and every payment and performance
obligation under the Master Lease with respect to Sublessee and the Subleased
Property.
4. ENVIRONMENTAL LIABILITIES.
a. Notwithstanding any other provision of this Sublease,
Sublessor shall indemnify and hold harmless the Sublessee and Sublessee's
officers, directors, employees, agents, affiliates, successors and assigns from
and against, any and all losses, liabilities, damages, costs and expenses
(including reasonable fees and disbursements of counsel and expenses of
investigation and defense), claims, or other obligations of any nature to the
extent attributable to (a) environmental conditions existing at the Leased
Premises prior to the execution of this Sublease which are attributable to the
actions of Sublessor while Sublessor occupied the Leased Premises (or are
actually known to the officers of Sublessor), (b) any violation of environmental
laws based on actions, failures to act, or conditions associated with the Leased
Premises during the time that Sublessor occupied the Leased Premises, or (c)
environmental conditions existing at the Leased Premises prior to the execution
of this Sublease which are not attributable to the actions of Sublessor while
Sublessor occupied the Leased Premises, to the extent that indemnification
therefor is paid to the Sublessor pursuant to existing agreements with
-2-
<PAGE>
Aquila Biopharmaceutical Corporation (which indemnification shall be sought if
applicable in good faith by the Sublessor), or (d) any violation of
environmental laws based on actions, failures to act, or conditions not
associated with the Leased Premises during the time that Sublessor occupied the
Leased Premises, to the extent that indemnification therefor is paid to the
Sublessor pursuant to existing agreements with Aquila Biopharmaceutical
Corporation (which indemnification shall be so sought).
b. Notwithstanding any other provision of this Sublease,
Sublessee shall indemnify and hold harmless Sublessor and Sublessor's officers,
directors, employees, agents, affiliates, successors and assigns from and
against, any and all losses, liabilities, damages, costs and expenses (including
reasonable fees and disbursements of counsel and expenses of investigation and
defense), claims, or other obligations to the extent attributable to (a)
environmental conditions which are the result of actions of the Sublessee
subsequent to the execution of this Sublease, or (b) any violation of
environmental laws based on actions, failures to act, or conditions associated
with the Leased Premises during the Sublessee's occupation of the Leased
Premises.
5. EVENT OF DEFAULT. Any Event of Default under the Master
Lease shall constitute an Event of Default under this Sublease, and upon the
occurrence of any Event of Default under the Master Lease, Sublessor shall have
with respect to Sublessee and the Subleased Property all of the remedies
afforded the Lessor with respect to the Lessee and the Leased Property under the
Master Lease.
6. NOTICES. Except as required by law for the posting of
notices, all notices, requests, demands and other communications hereunder must
be in writing and shall be personally served or mailed (by registered or
certified mail, return receipt requested and postage prepaid), or delivered by a
national overnight delivery service such as Federal Express or D.H.L., or by
facsimile transmission addressed to the respective parties, as follows:
(a) if to Sublessor:
Cambridge Biotech Corporation
595 Anglum Drive
St. Louis, Missouri 63042-2395
Attention: President
Telecopier: (314) 731-7319
if to Sublessee:
Calypte Biomedical Corporation
1140 [sic] Fourth Street
Berkeley, California 94710
Attention: President
Telecopier: (510) 526-5381
-3-
<PAGE>
Any such mailing, delivery or other permitted service shall be deemed
to be complete on the day of the confirmed receipt or refusal thereof.
7. MISCELLANEOUS.
a. SURVIVAL, CHOICE OF LAW. Anything contained in this Sublease
to the contrary notwithstanding, all claims against, and liabilities of,
Sublessee or Sublessor arising prior to any date of termination of this Sublease
shall survive such termination. If any late charges provided for in any
provision of this Sublease are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate. All the terms and provisions of this Sublease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. The headings in this Sublease are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Sublease shall be governed by and construed in accordance
with the laws of Maryland, except as to matters which under the laws of a State,
or under applicable procedural conflicts of laws rules, require the application
of laws of the State.
b. COUNTERPARTS. This Sublease may be executed in separate
counterparts, each of which shall be considered as original when each party has
executed and delivered to the other one or more copies of this Sublease.
c. ENTIRE AGREEMENT. There are no oral or written agreements or
representations between the parties hereto affecting this Sublease. This
Sublease supersedes and cancels any and all previous negotiations, arrangements,
representations, brochures, agreements and understandings, if any, between
Sublessor and Sublessee.
d. AMENDMENTS IN WRITING. Neither this Sublease nor any
provision hereof may be changed, waived, discharged or terminated except by an
instrument in writing signed by Sublessor and Sublessee
e. SEVERABILITY. If any provision of this Sublease or the
application of such provision to any person, entity or circumstance is found
invalid or unenforceable by a court of competent jurisdiction, such
determination shall not affect the other provisions of this Sublease and all
other provisions of this Sublease shall be deemed valid and enforceable.
f. SUCCESSORS. All rights and obligations of Sublessor and
Sublessee under this Sublease shall extend to and bind the respective heirs,
executors administrators and the permitted concessionaires, successors,
subtenants and assignees of the parties.
-4-
<PAGE>
a. SUCCESSORS. All rights and obligations of Sublessor and
Sublessee under this Sublease shall extend to and bind the respective heirs,
executors administrators and the permitted concessionaires, successors,
subtenants and assignees of the parties.
IN WITNESS WHEREOF, the parties have executed this Sublease by their
duly authorized signing officers.
CAMBRIDGE BIOTECH CORPORATION
By: /s/ Philippe Sans
-------------------------------------
Name: Philippe Sans
Title: President
CALYPTE BIOMEDICAL CORPORATION
By: /s/ William A. Boeger III
----------------------------------
Name:
Title:
-5-
<PAGE>
SUBLEASE
SUBLEASE ("SUBLEASE") dated as of December 17, 1998, by and
between CAMBRIDGE BIOTECH CORPORATION, the address of which is c/o bioMerieux,
Inc., 595 Anglum Drive, St. Louis, Missouri 63042-2395 ("SUBLESSOR"), and
CALYPTE BIOMEDICAL CORPORATION, the address of which is 1440 Fourth Street,
Berkeley, California 94710 ("SUBLESSEE").
WITNESSETH:
WHEREAS, Sublessor is the sublessee of DynCorp (lessee under a
certain Lease between W.M. Rickman Construction Company, as Landlord, and
Sublessor, as subtenant, relating to the leased premises), pursuant to a
Sublease Agreement dated April 6, 1995 (as amended through the date hereof the
"Master Lease"; capitalized terms used and not otherwise defined herein have the
respective meanings given them in the Master Lease);
WHEREAS, Sublessor has sold to Sublessee, pursuant to the
Asset Acquisition Agreement between the Sublessor and the Sublessee dated
November 18, 1998 (the "Acquisition Agreement"), the Acquired Assets (as defined
in the Acquisition Agreement) located in part on the leased premises; and
WHEREAS, Sublessor now wishes to sublease to Sublessee, and
Sublessee wishes to sublease from Sublessor, the leased premises on the
following terms and conditions;
NOW, THEREFORE, Sublessor and Sublessee hereby agree as
follows:
ARTICLE I
1. SUBLEASE. Upon and subject to the terms and conditions hereinafter set
forth, and subject to the terms and conditions of the Master Lease, Sublessor
subleases to Sublessee the leased premises.
2. TERM. The term of this Sublease shall commence on December 11, 1998 and
end on March 30, 2000, or prior to such date upon one hundred eighty (180) days
prior written notice delivered by Sublessee.
3. RENT. The rent hereunder shall equal the rent and the additional rent
as provided in the Master Lease.
<PAGE>
ARTICLE II
1. SUBORDINATION TO MASTER LEASE. This Sublease is and shall at all times
be subject and subordinate to the Master Lease, and notwithstanding anything
elsewhere herein to the contrary, upon the expiration or earlier termination of
the Master Lease this Sublease shall automatically and simultaneously terminate.
2. INCORPORATION OF TERMS OF MASTER LEASE. In addition to the terms and
conditions set forth herein, and except as expressly modified herein, the terms,
conditions and respective obligations of Sublessor and Sublessee to each other
under this Sublease shall be the terms, conditions and respective obligations of
"Lessee" and "Sublessee" to each other under the Master Lease, which terms,
conditions and obligations are hereby incorporated herein. Therefore, for
purposes of this Sublease, wherever in the Master Lease the word "Lessee" is
used, it shall be deemed to mean and refer to the Sublessor herein, wherever in
the Master Lease the word "Sublessee" is used, it shall be deemed to mean and
refer to the Sublessee herein.
3. ASSUMPTION BY SUBLESSEE. During the term of this Sublease, and
thereafter with respect to obligations which have arisen prior to the
termination or expiration of the term of this Sublease, Sublessee expressly
assumes and agrees to pay, perform and comply with for the benefit of Sublessor
and the Lessor under the Master Lease each and every payment and performance
obligation under the Master Lease with respect to Sublessee and the subleased
property.
4. ENVIRONMENTAL LIABILITIES.
a. Notwithstanding any other provision of this Sublease, Sublessor shall
indemnify and hold harmless the Sublessee and Sublessee's officers, directors,
employees, agents, affiliates, successors and assigns from and against, any and
all losses, liabilities, damages, costs and expenses (including reasonable fees
and disbursements of counsel and expenses of investigation and defense), claims,
or other obligations of any nature to the extent attributable to (a)
environmental conditions existing at the leased premises prior to the execution
of this Sublease which are attributable to the actions of Sublessor while
Sublessor occupied the leased premises (or are actually known to the officers of
Sublessor), (b) any violation of environmental laws based on actions, failures
to act, or conditions associated with the leased premises during the time that
Sublessor occupied the leased premises, or (c) environmental conditions existing
at the leased premises prior to the execution of this Sublease which are not
attributable to the actions of Sublessor while Sublessor occupied the leased
premises, to the extent that indemnification therefor is paid to the Sublessor
pursuant to existing agreements with Aquila Biopharmaceutical Corporation (which
indemnification shall be sought if applicable in good faith by the Sublessor),
or (d) any violation of environmental laws based on actions, failures to act, or
conditions not associated with the leased premises during the time that
Sublessor occupied the leased premises, to the extent that indemnification
therefor is paid to the Sublessor pursuant to existing agreements with Aquila
Biopharmaceutical Corporation (which indemnification shall be so sought).
-2-
<PAGE>
b. Notwithstanding any other provision of this Sublease, Sublessee shall
indemnify and hold harmless Sublessor and Sublessor's officers, directors,
employees, agents, affiliates, successors and assigns from and against, any and
all losses, liabilities, damages, costs and expenses (including reasonable fees
and disbursements of counsel and expenses of investigation and defense), claims,
or other obligations to the extent attributable to (a) environmental conditions
which are the result of actions of the Sublessee subsequent to the execution of
this Sublease, or (b) any violation of environmental laws based on actions,
failures to act, or conditions associated with the leased premises during the
Sublessee's occupation of the leased premises.
5. DEFAULT. Any default under the Master Lease shall constitute a default
under this Sublease, and upon the occurrence of any default under the Master
Lease, Sublessor shall have with respect to Sublessee and the subleased property
all of the remedies afforded the Lessor with respect to the Lessee and the
leased property under the Master Lease.
6. NOTICES. Except as required by law for the posting of notices, all
notices, requests, demands and other communications hereunder must be in writing
and shall be personally served or mailed (by registered or certified mail,
return receipt requested and postage prepaid), or delivered by a national
overnight delivery service such as Federal Express or D.H.L., or by facsimile
transmission addressed to the respective parties, as follows:
(a) if to Sublessor:
Cambridge Biotech Corporation
595 Anglum Drive
St. Louis, Missouri 63042-2395
Attention: President
Telecopier: (314) 731-7319
if to Sublessee:
Calypte Biomedical Corporation
1140 [sic] Fourth Street
Berkeley, California 94710
Attention: President
Telecopier: (510) 526-538l
Any such mailing, delivery or other permitted service shall be deemed
to be complete on the day of the confirmed receipt or refusal thereof.
-3-
<PAGE>
7. MISCELLANEOUS.
a. SURVIVAL, CHOICE OF LAW. Anything contained in this Sublease to the
contrary notwithstanding, all claims against, and liabilities of, Sublessee or
Sublessor arising prior to any date of termination of this Sublease shall
survive such termination. If any late charges provided for in any provision of
this Sublease are based upon a rate in excess of the maximum rate permitted by
applicable law, the parties agree that such charges shall be fixed at the
maximum permissible rate. All the terms and provisions of this Sublease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. The headings in this Sublease are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. This
Sublease shall be governed by and construed in accordance with the laws of
Maryland, except as to matters which under the laws of a State, or under
applicable procedural conflicts of laws rules, require the application of laws
of the State.
b. COUNTERPARTS. This Sublease may be executed in separate counterparts,
each of which shall be considered as original when each party has executed and
delivered to the other one or more copies of this Sublease.
c. ENTIRE AGREEMENT. There are no oral or written agreements or
representations between the parties hereto affecting this Sublease. This
Sublease supersedes and cancels any and all previous negotiations, arrangements,
representations, brochures, agreements and understandings, if any, between
Sublessor and Sublessee.
d. AMENDMENTS IN WRITING. Neither this Sublease nor any provision hereof
may be changed, waived, discharged or terminated except by an instrument in
writing signed by Sublessor and Sublessee
e. SEVERABILITY. If any provision of this Sublease or the application of
such provision to any person, entity or circumstance is found invalid or
unenforceable by a court of competent jurisdiction, such determination shall
not affect the other provisions of this Sublease and all other provisions of
this Sublease shall be deemed valid and enforceable.
f. SUCCESSORS. All rights and obligations of Sublessor and Sublessee under
this Sublease shall extend to and bind the respective heirs, executors
administrators and the permitted concessionaires, successors, subtenants and
assignees of the parties.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sublease by
their duly authorized signing officers.
CAMBRIDGE BIOTECH CORPORATION
By: /s/ Philippe Sans
-------------------------------------
Name: Philippe Sans
Title: President
CALYPTE BIOMEDICAL CORPORATION
By: /s/ William A. Boeger III
-------------------------------------
Name: William A. Boeger III
Title: Chief Executive Officer
-5-
<PAGE>
LEASE EXTENSION AGREEMENT
This agreement is dated October 12, 1999 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) LEASE EXTENDED THROUGH AUGUST 2000. The Lease is hereby extended five months
through August 31, 2000. The lease rate for this extension period will remain
$27,000 per month.
2) HOLDING OVER. If LESSEE remains in possession of the premises per Paragraph
26 (Holding Over), then the agreed monthly rent is $29,000.
SIGNED: /s/ Charles A. Grant G.P. 10/12/99
-------------------------------------------------------------------------
FOR LESSOR TITLE DATE
SIGNED: /s/ Nancy E. Katz President 10/28/99
-------------------------------------------------------------------------
FOR LESSOR TITLE DATE
<PAGE>
EXHIBIT 10.60
CALYPTE BIOMEDICAL CORPORATION
1265 Harbor Bay Parkway
Alameda, CA 94502
October 18, 1999
William Boeger
Box 2706
Sun Valley, ID 83353
Re: CONSULTING AGREEMENT WITH CALYPTE
Dear Bill:
Upon your signature at the end of this letter where indicated, this
letter will be the binding agreement (the "AGREEMENT"), effective as of October
18, 1999 (the "EFFECTIVE DATE"), between Calypte Biomedical Corporation
("CALYPTE") and you with respect to your provision of service as a consultant to
Calypte as provided in this letter; the Basic Retained Services described in
Section 1(a) hereof and any Additional Services defined in Section 1(b) hereof
are referred to herein collectively as the "SERVICES".
1. SERVICES.
(a) BASIC RETAINED SERVICES. Subject to the terms and
conditions of this Agreement, you hereby are retained by Calypte as a consultant
to Calypte from the Effective Date until terminated as provided herein, to
provide the following Services (the "BASIC RETAINED SERVICES") as follows (with
a "day of Services" being considered for such purposes as eight (8) hours, and
with travel time while on business for Calypte, and while travelling from your
home outside of California to Calypte's principal offices for purposes of
rendering such Basic Retained Services, in each case being counted as one-half
time):
(i) FULL-TIME CONSULTING SERVICES THROUGH
NOVEMBER 30, 1999. During the period commencing with the Effective Date through
and including November 30, 1999 (the "FULL-TIME PERIOD"), you will provide, on a
full-time basis, Basic Retained Services, as may be requested from time to time
during the term hereof orally or in writing by the President or Chief Executive
Officer of Calypte, or by any member of the Board: (A) to assist in any matters
pertaining to the transition to Calypte's newly-hired Chief Executive Officer of
the responsibilities you held immediately prior to the Effective Date in such
role, and (B) with respect to the following (the "STRATEGIC MATTERS"): (1) the
execution of a distribution agreement by Calypte with the government of China,
(2) the formation of a joint venture for the production of certain Calypte
products in China, (3) the renegotiation of the technology licensing agreement
between Calypte and New York University, (4) so long a Calypte holds an equity
interest in Pepgen Corporation ("PEPGEN"), and so long as you are so elected,
serving as a member of the Board of Directors of Pepgen and helping Pepgen to
develop a strategy intended to maximize the value of such equity interest asset
to Calypte, and (5) assisting Calypte with respect to potential merger and
acquisition opportunities, raising of additional capital, and other corporate
finance activities.
<PAGE>
William Boeger
October 18, 1999
Page 2
(ii) PART-TIME CONSULTING SERVICES FROM DECEMBER 1,
1999 THROUGH OCTOBER 18, 2000. During the period commencing with December 1,
1999 through and including October 18, 2000 (the "PART-TIME PERIOD"), you will
provide, on a part-time basis for an aggregate of five (5) days of Services per
calendar month during such, Basic Retained Services relating to Strategic
Matters, as may be requested from time to time during the term hereof orally or
in writing by the President or Chief Executive Officer of Calypte, or by any
member of the Board.
(b) ADDITIONAL SERVICES. During the period December 1, 1999
through and including October 18, 1999, you will render such days of Services
beyond such five-day minimum set forth in Section 2(b)(ii) hereof (the
"ADDITIONAL SERVICES"), as you may agree with Calypte upon Calypte's reasonable
and good faith request to you, in each case with respect to Calypte's business,
as may be requested from time to time during the term hereof orally or in
writing by the Board or by the President or Chief Executive Officer of Calypte.
(c) CERTAIN CONDITIONS CONCERNING SERVICE AS A DIRECTOR OF
CALYPTE. You hereby agree that you will serve as a member of the Board if so
asked and for so long as you are duly elected thereto. The number of days you
spend rendering Services to Calypte hereunder will be in addition to time you
spend to discharge your customary duties as a Director of Calypte, including
time to prepare for and attend meetings of the Board and of Board Committees
upon which you serve, during such time as you are serving as a Director of
Calypte. Any compensation you may receive for your services as a Director of
Calypte, such as indemnification, stock, and/or stock options and other benefits
from the Company as are made available from time to time by the Company to other
Directors, will be separate from this Agreement.
(d) SCHEDULING; LOCATION. The days upon which Calypte will
require your Services will be based upon dates and times mutually agreeable
between you and Calypte. Calypte will provide as much advance notice as possible
to you of the dates and times required, and you will make every reasonable
effort to make yourself available during such dates. Calypte will not require
you to render such services at dates, times or places that would reasonably
interfere with other work commitments you may have. You may render the Services
by telephone and/or e-mail, and/or on-site at Calypte's headquarters in the San
Francisco Bay Area, and/or at other locations, as determined in good faith by
Calypte after consultation with you as to mutual convenience and the particular
Services required.
(e) REPORTING. You will report to, and Calypte may give you
direction through any of, the President and Chief Executive Officer, and the
Board.
(f) OTHER ACTIVITIES. Calypte acknowledges and agrees that,
while you will devote such time and effort as is necessary to discharge your
duties hereunder, you will not be providing your full-time services to Calypte
beginning as of December 1, 1999, and that you may consult with or become an
employee of other entities as you wish (including but not limited to accepting
full time employment), subject to your obligations as to confidential and
proprietary information of Calypte as set forth in this Agreement.
<PAGE>
William Boeger
October 18, 1999
Page 3
(g) NONASSIGNABILITY OF YOUR SERVICES. You may not assign or
subcontract your duties or rights under this Agreement without the prior written
consent of Calypte signed by its President or Chief Executive Officer.
2. COMPENSATION; EXPENSE REIMBURSEMENT; CONTINUED VESTING OF
STOCK OPTION.
(a) RETAINER FOR BASIC RETAINED SERVICES. Calypte will pay you
a retainer, in cash, at the beginning of each calendar month commencing with the
month of October, 1999 (provided that such consulting fee will be paid no later
than October 19, 1999 for the balance of such month)
(i) DURING FULL-TIME PERIOD. In the amount of
$7,258.00 for the period October 18, 1999 through and including October 31,
1999, and $18,750.00 for the month of November, 1999; and
(ii) During Part-Time Period. In the amount of
five thousand dollars ($5,000.00), which is one thousand dollars ($1,000.00) per
day of such Basic Retained Services.
(b) PAYMENT FOR ADDITIONAL SERVICES. In addition, Calypte will
pay you a consulting fee in cash for any Additional Services you may render,
within thirty (30) days after the close of each calendar month during which you
render such Additional Services, at the rate of one thousand dollars ($1,000.00)
per day of such Additional Services.
(c) EXPENSE REIMBURSEMENT; LODGING AND AUTOMOBILE; HEALTH
INSURANCE. Calypte will reimburse you for all reasonable, ordinary and necessary
travel and entertainment expenses incurred by you in conjunction with your
services to Calypte hereunder. While you are rendering Services in the San
Francisco Bay Area during the Full-Time Period, Calypte will provide lodging for
you, or will reimburse you for lodging, in a business hotel or business traveler
long-term stay facility reasonably convenient to Calypte's offices. Any such
expense will be consistent with Calypte's then-standard reimbursement policy,
and, as applicable, travel policy, and will be made as to a given expense only
if you have submitted commercially customary support documentation to Calypte
therefor. Calypte will reimburse you for the amount of any premiums you pay
during the term hereof for healthcare insurance for you and your family to the
extent you are not covered for such healthcare insurance at Calypte's cost under
a Calypte healthcare insurance plan.
(d) CONTINUED VESTING OF OPTION. Pursuant to Section 8 of the
Employment Agreement dated as of October 28, 1998 between you and Calypte (the
"EMPLOYMENT AGREEMENT"), Section 7(d) of your Employment Agreement hereby is
amended to read as follows, effective as of the day before the Effective Date;
except as herein amended, neither your Employment Agreement nor such options
referred to in said section are amended:
"The Executive may voluntarily terminate his employment at any
time beginning July 1, 1999, in which event he shall receive severance
pay equal to six months of his then current salary. If in connection
with the Executive's voluntary termination of employment hereunder, the
Executive and the Company enter into a written agreement under which
the Executive is to render consulting services to the
<PAGE>
William Boeger
October 18, 1999
Page 4
Company, then from and after the date of such voluntary termination,
vesting (exerciseability) of Executive's currently outstanding
incentive stock option from the Company which was originally granted to
Executive on October 27, 1998, for a total of 600,000 shares of Common
Stock of the Company, originally vesting over a 24-month period
beginning October 27, 1998, at the rate of 25,000 shares per month,
will not cease and such option is hereby amended to provide that it
shall continue after such termination date to vest (become
exerciseable) at the rate of five thousand (5,000) shares at the end of
each monthly anniversary of the date of such termination, through the
earlier of the date of termination of such consulting agreement or the
twelfth (12th) monthly anniversary of the date of such termination. In
addition, if in connection with any other Calypte stock option plan or
grant, other than a plan or grant provided to directors of Calypte,
Executive has any obligation that requires Executive to exercise an
option to purchase Calypte stock within a specific period of time, such
period of time will not begin until the date of termination of the
Consulting Agreement with Calypte dated as of October 18, 1999."
3. OUR RELATIONSHIP.
(a) INDEPENDENT CONTRACTOR. In performance of your services
under this Agreement, you will be an independent contractor of, and are not an
agent or employee of, and have no authority to bind, Calypte by contract or
otherwise.
(b) EMPLOYMENT TAXES AND BENEFITS. You will report as
self-employment income all compensation you received pursuant to this Agreement,
including the fair market value of the Shares. You will indemnify Calypte and
hold it harmless from and against all claims, damages, losses and expenses,
relating to any obligation imposed by law on Calypte to pay any withholding
taxes, social security (except for employer's share of social security, if any),
unemployment or disability insurance, or similar items in connection with
compensation received by you pursuant to this Agreement. You will not be
entitled to receive any vacation or illness payments, or to participate in any
plans, arrangements, or distributions by Calypte pertaining to any bonus, stock
option, profit sharing, insurance or similar benefits for Calypte's employees,
except as provided herein or as otherwise specifically approved by the Board.
(c) NO REMUNERATION AS TO PRODUCTS. You will receive no
royalty or other remuneration on the production or distribution of any products
developed by the Company or by you in connection with or based upon the
Services.
4. INDEMNIFICATION.
(a) BY YOU. To the extent determined by a tribunal of
competent jurisdiction (arbitral or judicial), not subject to further appeal,
you will indemnify Calypte and hold it harmless from and against all claims,
damages, losses and expenses, including court costs and reasonable fees and
expenses of attorneys, expert witnesses, and other professionals, arising out of
or resulting from:
(i) Any action by a third party against Calypte
to the extent based on any claim that any Services performed under this
Agreement, or their results, to your actual
<PAGE>
William Boeger
October 18, 1999
Page 5
knowledge (A) infringe a patent, trademark, copyright or other proprietary
right, and/or (B) violate a trade secret of such third party; and
(ii) Any action by a third party to the extent
based on any conduct by you in performing Services under this Agreement which
results in any of the following and for which such tribunal determines you to be
liable to Calypte under applicable law: (A) any bodily injury, sickness, disease
or death; (B) any injury or destruction to tangible or intangible property
(including computer programs and data) or any loss of use resulting therefrom;
or (C) any violation of any statute, ordinance, or regulation.
(b) BY CALYPTE. To the extent legally permitted, and not in
derogation of your obligations under Section 4(a) hereof: (i) you will be
considered as subject to the indemnity provisions of Calypte's Certificate of
Incorporation and Bylaws, a copy of which will be furnished to you upon request,
and (ii) Calypte will indemnify you and hold you harmless from and against all
claims, damages, losses and expenses, including court costs and reasonable fees
and expenses of attorneys, expert witnesses, and other professionals, arising
out of or resulting from any action by a third party against Calypte or you, or
both, in connection with or based upon the performance by you of the Services,
or their result.
5. PROPERTY OF CALYPTE.
(a) DEFINITIONS. For the purposes of this Agreement:
(i) "INVENTIONS" means any and all inventions,
ideas, designs, circuits, schematics, formulas, algorithms, trade secrets, works
of authorship, mask works, developments, methods, processes, techniques,
improvements, and related know-how in the field of research, development and
commercialization in which Calypte is engaged, and which are made by you, alone
or in combination with others, which result from or relate to the services you
perform for Calypte hereunder, and whether made on behalf of Calypte under this
Agreement, or with the use of or as a result of access to Confidential
Information, including but not limited to any derivative work which constitutes
an improvement or modification to any tangible form of Confidential Information,
as hereinafter defined, such as any design, drawing, or product that embodies
Confidential Information.
(ii) "DESIGNS AND MATERIALS" means all designs,
discoveries, inventions, products, computer programs, procedures, improvements,
developments, drawings, notes, documents, information and materials made,
conceived or developed by you alone or with others which result from or relate
to the services you perform for Calypte hereunder.
(iii) "MORAL RIGHTS" means any right to claim
authorship of a work, any right to object to any distortion or other
modification of a work, and any similar right, existing under the law of any
country in the world, or under any treaty.
(b) ASSIGNMENT OF OWNERSHIP. You agree that all the
Inventions, Designs and Materials that (1) are developed using equipment,
supplies, facilities or trade secrets of Calypte, (2) result from work performed
by you for Calypte or (3) relate to Calypte's business or current or anticipated
research and development, will be the sole and exclusive property of Calypte.
You hereby irrevocably transfer and assign any and all of your right, title, and
interest in and to
<PAGE>
William Boeger
October 18, 1999
Page 6
Inventions, Designs and Materials, including but not limited to all patent
rights, copyrights, trademarks and trade secrets, to Calypte. All Inventions,
Designs and Materials will be the sole property of Calypte and Calypte will have
the sole right to determine the treatment of any Inventions, Designs and
Materials, including the right to keep them as trade secrets, to file and
execute patent applications on them, to use and disclose them without prior
patent application, to file registrations for copyright or trademark on them in
its own name, or to follow any other procedure that Calypte deems appropriate.
You acknowledge that copyrightable works prepared by you within the scope of
your service hereunder are "works for hire" under the federal Copyright Act and
that Calypte will be considered the author thereof. If Calypte files an original
United States patent application covering any invention of which you are a named
inventor, you will receive in each case from Calypte an inventor's fee of One
Hundred Dollars $100.00 in cash as full compensation therefor. You will:
(i) Disclose promptly in writing to Calypte all
Inventions, Designs and Materials; and
(ii) Cooperate with and assist Calypte to apply
for, and to execute any applications and/or assignments reasonably necessary to
obtain, any patent, copyright, trademark or other statutory protection for
Inventions, Designs and Materials in Calypte's name as Calypte deems
appropriate, provided that Calypte will reimburse you for any reasonable costs
incurred by you, and your normal billing rate for reasonable time incurred, in
connection therewith; and
(iii) Otherwise treat all Inventions, Designs and
Materials as "Confidential Information," as defined below. Your obligations to
so disclose, assist, and execute will survive until the earlier of your death or
disability or five years following any expiration or termination of this
Agreement.
(c) MORAL RIGHTS WAIVER. You hereby irrevocably transfer and
assign to Calypte any and all Moral Rights that you may have in any services you
render hereunder, or in any Inventions, Designs and Materials or products of
Calypte. You also hereby forever waive and agree never to assert against
Calypte, its successors or licensees any and all Moral Rights you may have in
any such services, Inventions, Designs and Materials or such products, even
after expiration or termination of this Agreement.
(d) COMPANY PROPERTY. All papers, records, data, notes,
drawings, files, documents, samples, devices, products, equipment, and other
materials, including copies and in whatever form, relating to the business of
Calypte that you possess or create as a result of your service to Calypte,
whether or not confidential, are the sole and exclusive property of Calypte.
6. CONFIDENTIAL INFORMATION. You acknowledge that you will
acquire information and materials from Calypte and knowledge about the business,
products, programming techniques, experimental work, customers, clients and
suppliers of Calypte and that all such knowledge, information and materials
acquired, the existence, terms and conditions of this Agreement, and the Designs
and Materials, are and will be the trade secrets and confidential and
proprietary information of Calypte (collectively "CONFIDENTIAL INFORMATION").
Confidential Information will not include, however, any information which is or
becomes part of the public domain through no fault of your own or that Calypte
regularly gives to third parties without restriction on use or disclosure. You
will hold all such Confidential Information in strict confidence, and will not
<PAGE>
William Boeger
October 18, 1999
Page 7
disclose it to others or use it in any way, commercially or otherwise, except in
performing your services hereunder, and will not allow any unauthorized person
access to it, either before or after expiration or termination of this
Agreement. You will take all action reasonably necessary and satisfactory to
protect the confidentiality of the Confidential Information in your possession,
including, without limitation, implementing and enforcing operating procedures
to minimize the possibility of unauthorized use or copying of the Confidential
Information.
7. TERM OF SERVICE; TERMINATION; EFFECT OF TERMINATION.
(a) TERM OF SERVICE. This Agreement is for a period of twelve
(12) months from and after the Effective Date, subject to earlier termination as
provided in Section 7(b) hereof.
(b) TERMINATION; EFFECT OF TERMINATION.
(i) TERMINATION. This Agreement will terminate
automatically upon the earliest of (A) your death, (B) such date as you
voluntary terminate service, by written notice to Calypte, or (C) the date upon
which Calypte terminates your service hereunder for cause by giving written
notice thereof to you, stating therein that such termination is for cause and
specifying in reasonable detail such cause. For purposes of this Agreement,
"cause" is defined as your willful failure to follow lawful and commercially
reasonable directives of the Board, and/or intentional damage to the tangible or
intangible property of Calypte, and/or conviction of a crime involving moral
turpitude, and/or the performance of any dishonest or fraudulent act which is or
would be, in each case as determined in good faith by the Board, materially
detrimental to the interest of Calypte and its other stockholders.
(ii) EFFECT OF TERMINATION. Upon termination of your
service with Calypte hereunder for any reason, Calypte will pay you all of your
accrued and unpaid expenses, if any, provided, as to a given expense, you have
submitted commercially customary support documentation to Calypte therefor. If
during the Full-Time Period this Agreement is terminated for any reason other
than your voluntary termination hereof or termination Calypte for cause, you
will not be obligated to return any portion of the retainer amount paid to you
under Section 2(a)(i) hereof for the relevant month in which such termination
occurs. If during the Part-Time Period you have rendered less than five (5) days
of service in a month during which this Agreement terminates, and the Agreement
is terminated for any reason other than your voluntary termination hereof or
termination Calypte for cause, you will not be obligated to return any portion
of the retainer amount paid to you under Section 2(a)(ii) hereof for such month.
If during the Full-Time Period this Agreement is terminated by you voluntarily,
or by Calypte for cause, you will, within thirty (30) days after the date of
such termination, repay to Calypte in cash an amount equal to $616.44 times the
number of days remaining in October, or November, as the case may be, after the
date of such termination. If during the Part-Time Period this Agreement is
terminated by you voluntarily, or by Calypte for cause, during a month for which
you already have been paid the monthly retainer by Calypte under Section
2(a)(ii) hereof, and if at the time of such termination you have rendered less
than five (5) days of Services in such month, you will, within thirty (30) days
after the date of such termination, repay to Calypte in cash an amount equal to
at $1,000.00 times the number of days of Services less than five that you did
render in
<PAGE>
William Boeger
October 18, 1999
Page 8
such month. Your obligations of confidentiality hereunder will survive any such
termination, and termination hereof will not have any effect on any other
binding agreement between Calypte and you except to the extent specifically so
stated in such other agreement or agreements. Your termination hereunder will
not be deemed to be a termination of all your services with Calypte, for
purposes of your Option, if you then are still serving Calypte as a consultant,
including service as a Director.
8. PRIOR CONTRACTS. You represent that except as disclosed in
writing to Calypte, (a) there are no other contracts to assign Inventions,
Designs or Materials that are, as of the Effective Date, in existence between
you and any other person or entity, and (b) as of the Effective Date, you have
no employment, consultancies or undertakings which would restrict or impair your
performance of this Agreement.
9. GENERAL. This Agreement may be executed in counterparts, each
of which will be deemed an original, but both of which together will constitute
one and the same instrument. This Agreement will be governed by the laws of the
State of California without regard to its body of law controlling conflict of
laws. This Agreement is the complete and exclusive agreement between you and
Calypte regarding the specific subject matter of this Agreement, which subject
matter relates solely to your rendering of services to Calypte as a consultant,
and not to any other binding agreement you may have with Calypte nor with
respect to your service as a Director of Calypte, and supersedes in their
entirety all prior agreements, understandings and communications, oral or
written, between us regarding such specific described subject matter. This
Agreement will be binding upon and inure to our respective successors and
assigns, and upon your heirs, executors and administrators, and may only be
amended by a writing signed by each of us or our respective successors, assigns
or authorized representatives.
We look forward to continuing to work with you, Bill, as part of our
team for the success of Calypte.
Sincerely,
/s/ DAVID COLLINS
------------------------------------
David Collins
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ WILLIAM BOEGER
- ----------------------------------
William Boeger
Date signed: October 18, 1999
<PAGE>
EXHIBIT 10.61
CALYPTE BIOMEDICAL CORPORATION
1265 Harbor Bay Parkway
Alameda, CA 94502
October 18, 1999
David Collins
PMB # 224
774 Mays Blvd., # 10
Incline Village, NV 89451
Re: CONSULTING AGREEMENT WITH CALYPTE
Dear Dave:
Upon your signature at the end of this letter where indicated, this
letter will be the binding agreement (the "AGREEMENT"), effective as of October
18, 1999 (the "EFFECTIVE DATE"), between Calypte Biomedical Corporation
("CALYPTE") and you with respect to your provision of service as a consultant to
Calypte as provided in this letter; the Basic Retained Services described in
Section 1(a) hereof and any Additional Services defined in Section 1(b) hereof
are referred to herein collectively as the "SERVICES".
1. SERVICES.
(a) BASIC RETAINED SERVICES. Subject to the terms and
conditions of this Agreement, you hereby are retained by Calypte as a consultant
to Calypte from the Effective Date until terminated as provided herein, to
provide (i) an aggregate of five (5) days of Services (the "BASIC RETAINED
SERVICES") per calendar month during the term hereof, commencing with the month
of October, 1999 (with a "day of Services" being considered for such purposes as
eight (8) hours, and with travel time while on business for Calypte, and while
travelling from your home outside of California to Calypte's principal offices
for purposes of rendering such Basic Retained Services, in each case being
counted as one-half time), and (ii) such additional days of Additional Services,
as provided in and defined in Section 1(b) hereof, as you may agree with Calypte
upon Calypte's reasonable and good faith request to you, in each case with
respect to Calypte's business, and such other matters commensurate with the
office of Chief Executive Officer, all as may be requested from time to time
during the term hereof orally or in writing by the Board of Directors (the
"BOARD") of Calypte or by the President of Calypte.
(b) ADDITIONAL SERVICES. In addition to the Basic Retained
Services rendered as described in Section 1(a) hereof, you will render such
number of days of Services (the "ADDITIONAL SERVICES") as are so requested in
good faith by Calypte, by its Board or President (with a "day of Services" being
considered for such purposes as eight (8) hours, and with travel time while on
business for Calypte, and while travelling from your home outside of California
to Calypte's principal offices for purposes of rendering such Basic Retained
Services, in each case being counted as one-half time).
<PAGE>
David Collins
October 18, 1999
Page 2
(c) CERTAIN CONDITIONS CONCERNING SERVICE AS A DIRECTOR OF
CALYPTE. You hereby agree that you will serve as a member of the Board if so
asked and for so long as you are duly elected thereto. The number of days you
spend rendering Services to Calypte hereunder will be in addition to time you
spend to discharge your customary duties as a Director of Calypte, including
time to prepare for and attend meetings of the Board and of Board Committees
upon which you serve, during such time as you are serving as a Director of
Calypte. Any compensation you may receive for your services as a Director of
Calypte, such as indemnification, stock, and/or stock options and other benefits
from the Company as are made available from time to time by the Company to other
Directors, will be separate from this Agreement.
(d) SCHEDULING; LOCATION. The days upon which Calypte will
require your Services will be based upon dates and times mutually agreeable
between you and Calypte. Calypte will provide as much advance notice as possible
to you of the dates and times required, and you will make every reasonable
effort to make yourself available during such dates. Calypte will not require
you to render such services at dates, times or places that would reasonably
interfere with other work commitments you may have. You may render the Services
by telephone and/or e-mail, and/or on-site at Calypte's headquarters in the San
Francisco Bay Area, and/or at other locations, as determined in good faith by
Calypte after consultation with you as to mutual convenience and the particular
Services required.
(e) REPORTING. You will report to the Board, but you will
render Services upon the request of the Board and/or of the President of
Calypte.
(f) OTHER ACTIVITIES. Calypte acknowledges and agrees that,
while you will devote such time and effort as is necessary to discharge your
duties hereunder, you will not be providing your full-time services to Calypte,
and that you may consult with or become an employee of other entities as you
wish (including but not limited to accepting full time employment), subject to
your obligations as to confidential and proprietary information of Calypte as
set forth in this Agreement.
(g) NONASSIGNABILITY OF YOUR SERVICES. You may not assign or
subcontract your duties or rights under this Agreement without the prior written
consent of Calypte signed by its President or Chairman of the Board.
2. COMPENSATION; EXPENSE REIMBURSEMENT; LODGING AND AUTOMOBILE;
STOCK OPTIONS.
(a) RETAINER FOR BASIC RETAINED SERVICES; PAYMENT FOR
ADDITIONAL SERVICES. Calypte will pay you a retainer, in cash, at the beginning
of each calendar month commencing with the month of October, 1999 (provided that
such consulting fee will be paid no later than October 19, 1999 for such month),
in the amount of five thousand dollars ($5,000.00) for your Basic Retained
Services, which is one thousand dollars ($1,000.00) per day of such Basic
Retained Services. In addition, Calypte will pay you a consulting fee in cash
for any Additional
<PAGE>
David Collins
October 18, 1999
Page 3
Services you may render, within thirty (30) days after the close of each
calendar month during which you render such Additional Services, at the rate of
one thousand dollars ($1,000.00) per day of such Additional Services.
(b) EXPENSE REIMBURSEMENT; LODGING AND AUTOMOBILE. Calypte
will reimburse you for all reasonable, ordinary and necessary travel and
entertainment expenses incurred by you in conjunction with your services to
Calypte hereunder. While you are rendering Services in the San Francisco Bay
Area, Calypte will provide lodging for you, or will reimburse you for lodging,
in a business hotel or business traveler long-term stay facility reasonably
convenient to Calypte's offices, and will reimburse you for that portion of your
automobile lease apportioned for your use of your automobile on business of
Calypte. Any such expense, including without limitation lodging or automobile
lease reimbursement will, to the extent not specifically provided in this
Section 2(b), be consistent with Calypte's then-standard reimbursement policy,
and, as applicable, travel policy, and will be made as to a given expense only
if you have submitted commercially customary support documentation to Calypte
therefor.
(c) STOCK OPTION. Within fifteen (15) days after the Effective
Date, Calypte will, by action of its Board, grant to you a nonqualified stock
option (the "OPTION"), under Calypte's then current Equity Incentive Plan (the
"PLAN"), for a total of one hundred fifty thousand (150,000) shares of Common
Stock of Calypte, subject to the following:
(i) EXERCISEABILITY; REPURCHASE RIGHT. Fifty
thousand (50,000) shares under the Option will be immediately vested and
exerciseable. The Option will become exerciseable (A) at the sixth-month
anniversary of the Effective Date (April 18, 2000), as to an additional fifty
thousand (50,000) shares, and (B) at the first anniversary of the Effective Date
(October 18, 2000), for the remaining fifty thousand (50,000) shares, provided
you are, at such sixth-month anniversary, and one-year anniversary,
respectively, then still employed by or serving as a consultant to Calypte,
including serving as a Director. The Option otherwise will be granted under such
customary documentation as to form of grant and exercise as is used for other
nonqualified stock options granted under the Plan, provided that such grant
documentation will contain a provision that if a Sale of Assets or Change of
Control, as hereinafter defined, occurs prior to October 18, 2000 (which is the
first anniversary of the Effective Date), and provided your employment with
Calypte has not been terminated for cause within the ninety (90) days preceding
the date of the relevant event, then the Option will automatically become
exerciseable as to all shares for which it is not then otherwise exerciseable,
as of the date of the Sale of Assets or Change of Control. For purposes of this
Agreement, a "SALE OF ASSETS OR CHANGE OF CONTROL" means (a) the closing of a
sale by Calypte of all or substantially all of its assets, in one or a series of
related transactions (a sale of assets), or (b) the date upon which those
persons who, immediately prior to such date, held fifty percent (50%) or more of
the outstanding voting securities of Calypte, immediately after such date hold
less than fifty percent (50%) of the outstanding voting securities of Calypte (a
change of control), provided that such event is the result of a sale or other
transfer, including a merger or other reorganization involving Calypte, of
equity securities from one or more parties to one or more other parties, and
provided that this provision will not apply in the event of the issuance by
Calypte of its equity securities in an
<PAGE>
David Collins
October 18, 1999
Page 4
equity financing, whether as a private placement or in any public offering by
Calypte of its securities.
(ii) EXERCISE PRICE; PAYMENT. The Option will have
an exercise price equal to the fair market value per share of the Common Stock
as determined in good faith by the Board as of the date of grant. The grant will
provide that you may pay for such shares upon such methods as are permitted
under the Plan for nonqualified stock options.
3. OUR RELATIONSHIP.
(a) INDEPENDENT CONTRACTOR. In performance of your services
under this Agreement, you will be an independent contractor of, and are not an
agent or employee of, and have no authority to bind, Calypte by contract or
otherwise.
(b) EMPLOYMENT TAXES AND BENEFITS. You will report as
self-employment income all compensation you received pursuant to this Agreement,
including the fair market value of the Shares. You will indemnify Calypte and
hold it harmless from and against all claims, damages, losses and expenses,
relating to any obligation imposed by law on Calypte to pay any withholding
taxes, social security (except for employer's share of social security, if any),
unemployment or disability insurance, or similar items in connection with
compensation received by you pursuant to this Agreement. You will not be
entitled to receive any vacation or illness payments, or to participate in any
plans, arrangements, or distributions by Calypte pertaining to any bonus, stock
option, profit sharing, insurance or similar benefits for Calypte's employees,
except as provided herein or as otherwise specifically approved by the Board.
(c) NO REMUNERATION AS TO PRODUCTS. You will receive no
royalty or other remuneration on the production or distribution of any products
developed by the Company or by you in connection with or based upon the
Services.
4. INDEMNIFICATION.
(a) BY YOU. To the extent determined by a tribunal of
competent jurisdiction (arbitral or judicial), not subject to further appeal,
you will indemnify Calypte and hold it harmless from and against all claims,
damages, losses and expenses, including court costs and reasonable fees and
expenses of attorneys, expert witnesses, and other professionals, arising out of
or resulting from:
(i) Any action by a third party against Calypte
to the extent based on any claim that any Services performed under this
Agreement, or their results, to your actual knowledge (A) infringe a patent,
trademark, copyright or other proprietary right, and/or (B) violate a trade
secret of such third party; and
(ii) Any action by a third party to the extent
based on any conduct by you in performing Services under this Agreement which
results in any of the following and for
<PAGE>
David Collins
October 18, 1999
Page 5
which such tribunal determines you to be liable to Calypte under applicable law:
(A) any bodily injury, sickness, disease or death; (B) any injury or destruction
to tangible or intangible property (including computer programs and data) or any
loss of use resulting therefrom; or (C) any violation of any statute, ordinance,
or regulation.
(b) BY CALYPTE. To the extent legally permitted, and not in
derogation of your obligations under Section 4(a) hereof: (i) you will be
considered as subject to the indemnity provisions of Calypte's Certificate of
Incorporation and Bylaws, a copy of which will be furnished to you upon request,
and (ii) Calypte will indemnify you and hold you harmless from and against all
claims, damages, losses and expenses, including court costs and reasonable fees
and expenses of attorneys, expert witnesses, and other professionals, arising
out of or resulting from any action by a third party against Calypte or you, or
both, in connection with or based upon the performance by you of the Services,
or their result.
5. PROPERTY OF CALYPTE.
(a) DEFINITIONS. For the purposes of this Agreement:
(i) "INVENTIONS" means any and all inventions,
ideas, designs, circuits, schematics, formulas, algorithms, trade secrets, works
of authorship, mask works, developments, methods, processes, techniques,
improvements, and related know-how in the field of research, development and
commercialization in which Calypte is engaged, and which are made by you, alone
or in combination with others, which result from or relate to the services you
perform for Calypte hereunder, and whether made on behalf of Calypte under this
Agreement, or with the use of or as a result of access to Confidential
Information, including but not limited to any derivative work which constitutes
an improvement or modification to any tangible form of Confidential Information,
as hereinafter defined, such as any design, drawing, or product that embodies
Confidential Information.
(ii) "DESIGNS AND MATERIALS" means all designs,
discoveries, inventions, products, computer programs, procedures, improvements,
developments, drawings, notes, documents, information and materials made,
conceived or developed by you alone or with others which result from or relate
to the services you perform for Calypte hereunder.
(iii) "MORAL RIGHTS" means any right to claim
authorship of a work, any right to object to any distortion or other
modification of a work, and any similar right, existing under the law of any
country in the world, or under any treaty.
(b) ASSIGNMENT OF OWNERSHIP. You agree that all the
Inventions, Designs and Materials that (1) are developed using equipment,
supplies, facilities or trade secrets of Calypte, (2) result from work performed
by you for Calypte or (3) relate to Calypte's business or current or anticipated
research and development, will be the sole and exclusive property of Calypte.
You hereby irrevocably transfer and assign any and all of your right, title, and
interest in and to Inventions, Designs and Materials, including but not limited
to all patent rights, copyrights,
<PAGE>
David Collins
October 18, 1999
Page 6
trademarks and trade secrets, to Calypte. All Inventions, Designs and Materials
will be the sole property of Calypte and Calypte will have the sole right to
determine the treatment of any Inventions, Designs and Materials, including the
right to keep them as trade secrets, to file and execute patent applications on
them, to use and disclose them without prior patent application, to file
registrations for copyright or trademark on them in its own name, or to follow
any other procedure that Calypte deems appropriate. You acknowledge that
copyrightable works prepared by you within the scope of your service hereunder
are "works for hire" under the federal Copyright Act and that Calypte will be
considered the author thereof. If Calypte files an original United States patent
application covering any invention of which you are a named inventor, you will
receive in each case from Calypte an inventor's fee of One Hundred Dollars
$100.00 in cash as full compensation therefor. You will:
(i) Disclose promptly in writing to Calypte all
Inventions, Designs and Materials; and
(ii) Cooperate with and assist Calypte to apply
for, and to execute any applications and/or assignments reasonably necessary to
obtain, any patent, copyright, trademark or other statutory protection for
Inventions, Designs and Materials in Calypte's name as Calypte deems
appropriate, provided that Calypte will reimburse you for any reasonable costs
incurred by you, and your normal billing rate for reasonable time incurred, in
connection therewith; and
(iii) Otherwise treat all Inventions, Designs and
Materials as "Confidential Information," as defined below. Your obligations to
so disclose, assist, and execute will survive until the earlier of your death or
disability or five years following any expiration or termination of this
Agreement.
(c) MORAL RIGHTS WAIVER. You hereby irrevocably transfer and
assign to Calypte any and all Moral Rights that you may have in any services you
render hereunder, or in any Inventions, Designs and Materials or products of
Calypte. You also hereby forever waive and agree never to assert against
Calypte, its successors or licensees any and all Moral Rights you may have in
any such services, Inventions, Designs and Materials or such products, even
after expiration or termination of this Agreement.
(d) COMPANY PROPERTY. All papers, records, data, notes,
drawings, files, documents, samples, devices, products, equipment, and other
materials, including copies and in whatever form, relating to the business of
Calypte that you possess or create as a result of your service to Calypte,
whether or not confidential, are the sole and exclusive property of Calypte.
6. CONFIDENTIAL INFORMATION. You acknowledge that you will acquire
information and materials from Calypte and knowledge about the business,
products, programming techniques, experimental work, customers, clients and
suppliers of Calypte and that all such knowledge, information and materials
acquired, the existence, terms and conditions of this Agreement, and the Designs
and Materials, are and will be the trade secrets and confidential and
proprietary information of Calypte (collectively "CONFIDENTIAL INFORMATION").
Confidential Information will
<PAGE>
David Collins
October 18, 1999
Page 7
not include, however, any information which is or becomes part of the public
domain through no fault of your own or that Calypte regularly gives to third
parties without restriction on use or disclosure. You will hold all such
Confidential Information in strict confidence, and will not disclose it to
others or use it in any way, commercially or otherwise, except in performing
your services hereunder, and will not allow any unauthorized person access to
it, either before or after expiration or termination of this Agreement. You will
take all action reasonably necessary and satisfactory to protect the
confidentiality of the Confidential Information in your possession, including,
without limitation, implementing and enforcing operating procedures to minimize
the possibility of unauthorized use or copying of the Confidential Information.
7. TERM OF SERVICE; TERMINATION; EFFECT OF TERMINATION.
(a) TERM OF SERVICE. This Agreement is for a period of twelve
(12) months from and after the Effective Date, subject to earlier termination as
provided in Section 7(b) hereof.
(b) TERMINATION; EFFECT OF TERMINATION.
(i) TERMINATION. This Agreement will terminate
automatically upon the earliest of (A) your death, (B) such date as you
voluntary terminate service, by written notice to Calypte, or (C) the date upon
which Calypte terminates your service hereunder for cause by giving written
notice thereof to you, stating therein that such termination is for cause and
specifying in reasonable detail such cause, or (D) the date upon which your
successor as Chief Executive Officer of Calypte has been appointed as such by
the Board. For purposes of this Agreement, "cause" is defined as your willful
failure to follow lawful and commercially reasonable directives of the Board,
and/or intentional damage to the tangible or intangible property of Calypte,
and/or conviction of a crime involving moral turpitude, and/or the performance
of any dishonest or fraudulent act which is or would be, in each case as
determined in good faith by the Board, materially detrimental to the interest of
Calypte and its other stockholders.
(ii) EFFECT OF TERMINATION. Upon termination of
your service with Calypte hereunder for any reason, Calypte will pay you all of
your accrued and unpaid expenses, if any, provided, as to a given expense, you
have submitted commercially customary support documentation to Calypte therefor.
If this Agreement is terminated for any reason other than your voluntary
termination hereof or termination Calypte for cause, and if you have rendered
less than five (5) days of service in the month during which this Agreement so
terminates, you will not be obligated to return any portion of the retainer
amount paid to you for such month. If this Agreement is terminated by you
voluntarily, or by Calypte for cause, during a month for which you already have
been paid the monthly retainer by Calypte, and at the time of such termination
you have rendered less than five (5) days of Services during such month, you
will, within thirty (30) days after the date of such termination, repay to
Calypte in cash an amount equal to at $1,000.00 times the number of days of
Services less than five that you did render in such month. Your obligations of
confidentiality hereunder will survive any such termination, and termination
<PAGE>
David Collins
October 18, 1999
Page 8
hereof will not have any effect on any other binding agreement between Calypte
and you except to the extent specifically so stated in such other agreement or
agreements. Your termination hereunder will not be deemed to be a termination of
all your services with Calypte, for purposes of your Option, if you then are
still serving Calypte as a consultant, including service as a Director.
8. PRIOR CONTRACTS. You represent that except as disclosed in writing
to Calypte, (a) there are no other contracts to assign Inventions, Designs or
Materials that are, as of the Effective Date, in existence between you and any
other person or entity, and (b) as of the Effective Date, you have no
employment, consultancies or undertakings which would restrict or impair your
performance of this Agreement.
9. GENERAL. This Agreement may be executed in counterparts, each of
which will be deemed an original, but both of which together will constitute one
and the same instrument. This Agreement will be governed by the laws of the
State of California without regard to its body of law controlling conflict of
laws. This Agreement is the complete and exclusive agreement between you and
Calypte regarding the specific subject matter of this Agreement, which subject
matter relates solely to your rendering of services to Calypte as a consultant
in the position of Chief Executive Officer of Calypte, and not to any other
binding agreement you may have with Calypte nor with respect to your service as
a Director of Calypte, and supersedes in their entirety all prior agreements,
understandings and communications, oral or written, between us regarding such
specific described subject matter. This Agreement will be binding upon and inure
to our respective successors and assigns, and upon your heirs, executors and
administrators, and may only be amended by a writing signed by each of us or our
respective successors, assigns or authorized representatives.
We look forward to continuing to work with you, Dave, as part of our
team for the success of Calypte.
Sincerely,
/s/ WILLIAM BOEGER
----------------------------------
William Boeger
Chairman of the Board
ACCEPTED AND AGREED:
/s/ DAVID COLLINS
- ----------------------------------
DAVID COLLINS
Date signed: October 18, 1999
<PAGE>
EXHIBIT 10.62
CALYPTE BIOMEDICAL CORPORATION
1265 Harbor Bay Parkway
Alameda, CA 94502
Effective as of October 18, 1999
VIA FEDEX
Nancy E. Katz
4307 Quail Run Place
Danville, CA 94506
Re: YOUR EMPLOYMENT WITH CALYPTE BIOMEDICAL CORPORATION
Dear Nancy,
As we have discussed, upon your signature at the end of this letter,
this letter will set forth the binding agreement (the "AGREEMENT"), effective as
of October 18, 1999, (the "EFFECTIVE DATE"), between you and Calypte Biomedical
Corporation, a Delaware corporation ("CALYPTE"), with respect to your employment
by Calypte. Calypte hereby employs you, and you hereby accept employment with
Calypte, on the following terms:
1. POSITION, COMPENSATION, BENEFITS; EQUITY.
(a) COMMENCEMENT; POSITION. Your employment with Calypte under
this Agreement, and your salary and benefits, will commence as of October 18,
1999 (the "START DATE"), subject to the provisions of Paragraph 2(b)(ii) hereof.
During the term hereof, and subject to the next sentence hereof, commencing as
of October 18, 1999, you will serve as President and Chief Operating Officer of
Calypte, and will serve as Chief Financial Officer of Calypte until your
replacement for the position of Chief Financial Officer has been elected. You
will report to the Board of Directors (the "BOARD") of Calypte, and while so
serving will report directly to Calypte's Chairman and/or Chief Executive
Officer so long as either of such positions is filled, and will perform such
additional duties and will exercise such responsibilities on behalf of Calypte
as from time to time will be assigned to you by the Board and that are customary
for such respective positions. You will be eligible to be elected as Chief
Executive Officer of the Company at such time as, in the good faith judgment of
the Board, such election would be appropriate. The Board will elect you as a
Director at its next scheduled meeting, currently set for October 19, 1999.
During your service hereunder, you will at all times provide your full working
time and best efforts to the performance of your obligations and duties
hereunder.
(b) BASE COMPENSATION; BONUS. During the term of your
employment hereunder, you will be paid an annual salary at the rate of Two
Hundred Twenty Thousand Dollars ($220,000.00) per year, payable in monthly
amounts of Eighteen Thousand Three Hundred Thirty-Three Dollars ($18,333.33),
prorated for partial months, payable in accordance with Calypte's normal pay
periods and practices. During the term hereof, you will be eligible for such
salary increases, bonus and other incentive payments as the Board may from time
to time determine.
(c) OTHER BENEFITS; PAYMENT OF EXPENSES. In addition to the
compensation and other benefits referred to herein, you will participate in such
other benefits as are generally made available from time to time by Calypte to
its executive officers, provided that (i) Calypte
<PAGE>
Nancy E. Katz
September 21, 1999
Page 2
may increase, decrease or otherwise change its employee benefits at it
discretion, at any time, with or without notice or cause, and (ii) nothing
herein will obligate Calypte to continue any of such benefits for you if
discontinued for other executive officers. You will also be entitled to
reimbursement from Calypte for all commercially reasonable out-of-pocket
expenses incurred by you in connection with Calypte's business for which you
submit invoices and other documentation as reasonably requested by Calypte under
its policies for reimbursement as in effect from time to time. You will be
entitled to vacation in accordance with Calypte's policies therefor as in effect
from time to time, provided that you will use your best efforts to schedule your
vacation to avoid conflict with your duties hereunder. You will be included
under Calypte's directors' and officers' insurance coverage at a level
substantially similar to that provided to other directors and senior executives
of Calypte. Calypte will reimburse reasonable attorneys' fees up to a maximum of
Thirty-Five Hundred Dollars ($3,500.00) which are incurred by you in connection
with the negotiation and execution of this Agreement.
(d) STOCK OPTION. Within fifteen (15) days after the Start
Date, Calypte will, by action of its Board, grant to you an incentive stock
option (the "OPTION"), under Calypte's then current Equity Incentive Plan (the
"PLAN"), for a total of four hundred fifty thousand (450,000) shares of Common
Stock of Calypte, subject to the following:
(i) EXERCISEABILITY; REPURCHASE RIGHT. The Option
will be immediately vested and exerciseable as to one hundred fifty thousand
(150,000) shares, and will become vested and exerciseable, at each of the first
and second anniversaries of the Start Date, for an additional one hundred fifty
thousand (150,000) shares, provided you are, at such anniversary, then still
employed by or serving as a consultant to Calypte. The Option otherwise will be
granted under such customary documentation as to form of grant and exercise as
is used for other incentive stock options granted under the Plan, provided that
such grant documentation will contain a provision that if a Sale of Assets or
Change of Control, as hereinafter defined, occurs prior to October 18, 2001
(which is the second anniversary of the Start Date), and provided your
employment with Calypte has not been terminated for cause within the ninety (90)
days preceding the date of the relevant event, then the Option will
automatically become vested and exerciseable as to all shares for which it is
not then otherwise vested and exerciseable, as of the date of the Sale of Assets
or Change of Control. For purposes of this Agreement, a "SALE OF ASSETS OR
CHANGE OF CONTROL" means (a) the closing of a sale by Calypte of all or
substantially all of its assets, in one or a series of related transactions (a
sale of assets), or (b) the date upon which those persons who, immediately prior
to such date, held fifty percent (50%) or more of the outstanding voting
securities of Calypte, immediately after such date hold less than fifty percent
(50%) of the outstanding voting securities of Calypte (a change of control),
provided that such event is the result of a sale or other transfer, including a
merger or other reorganization involving Calypte, of equity securities from one
or more parties to one or more other parties, and provided that this provision
will not apply in the event of the issuance by Calypte of its equity securities
in an equity financing, whether as a private placement or in any public offering
by Calypte of its securities.
(ii) EXERCISE PRICE; PAYMENT. The Option will have
an exercise price equal to the fair market value per share of the Common Stock
as determined in good faith by the Board as of the date of grant. The grant will
provide that you may pay for such shares upon
<PAGE>
Nancy E. Katz
September 21, 1999
Page 3
exercise by cash, cancellation of indebtedness of Calypte to you, and/or a full
recourse promissory note to Calypte secured by adequate collateral, which may
consist of the shares so purchased.
2. TERM OF EMPLOYMENT; TERMINATION.
(a) TERM. Notwithstanding that your employment hereunder will
start October 18, 1999, this Agreement will be effective as of the date set
forth above (the "EFFECTIVE DATE") and will continue until terminated in the
manner provided in Paragraph 2(b) hereof.
(b) TERMINATION; POST-TERMINATION MATTERS.
(i) CERTAIN DEFINITIONS. As used in this
Agreement:
(A) A "VOLUNTARY TERMINATION" means any
termination by you voluntarily of your employment hereunder.
(B) "CAUSE" means your willful failure to
follow lawful and commercially reasonable directives of the Board after written
notice to you describing such failure in reasonable detail and providing you
with a reasonable opportunity to cure such failure, and/or intentional damage to
the tangible or intangible property of Calypte, and/or conviction of a crime
involving moral turpitude, and/or the performance of any dishonest or fraudulent
act which is or would be, in each case as determined in good faith by the Board,
materially detrimental to the interest of Calypte and its other stockholders.
(C) "DISABILITY" means your inability, by
reason of physical or mental infirmity, or both, to perform the essential
functions of your position hereunder with or without accommodation, as
determined in each case in good faith by the Board after reasonable consultation
with your attending doctor(s) and, if possible, with you.
(D) A termination "WITHOUT CAUSE" means a
termination at the will of Calypte other than for "cause" as defined in
Paragraph 2(b)(i)(B) hereof.
(ii) TERMINATION IF YOU DO NOT TIMELY COMMENCE
EMPLOYMENT; The offer of employment by Calypte to you made by this Agreement,
and this Agreement, automatically will terminate as of 9:00 a.m. California time
on October 18, 1999, or such later date and/or time as you and Calypte may agree
in a mutually-signed writing, which will be an amendment hereto, if you have not
commenced full-time employment with Calypte hereunder by October 18, 1999 or
such later-agreed date.
(iii) "AT WILL" EMPLOYMENT AND TERMINATION AFTER
YOU COMMENCE EMPLOYMENT. Once you commence your employment with Calypte on the
Start Date, your employment by Calypte hereunder will be "at will" and either
you or Calypte may terminate your employment at any time, for any reason, or no
reason, and with or without cause, as defined herein. This Agreement will
terminate and, except as expressly provided otherwise herein or as otherwise
required by law, Calypte will be relieved of its obligations hereunder, upon the
termination your employment under this Agreement by reason of (A) your death, or
(B) your
<PAGE>
Nancy E. Katz
September 21, 1999
Page 4
disability, or (C) your voluntary termination of employment, or (D) your
termination by Calypte with cause, as defined herein, or (5) your termination by
Calypte without cause, as defined herein.
(iv) TERMINATION BY CALYPTE FOR YOUR DISABILITY.
Calypte may terminate your employment for disability by written notice to you,
specifying therein the date of such termination, if your disability continues
either continuously or periodically during a period of three (3) consecutive
months following the date of initial determination of your disability by the
Board acting in good faith.
(v) VOLUNTARY TERMINATION BY YOU. You may
terminate your employment with Calypte upon at least thirty (30) days prior
written notice to Calypte, to the attention of the Chairman of the Board. Any
failure by you to provide such timely notice will result in an automatic
forfeiture, for the year in which the termination occurs, of any bonus which you
otherwise had accrued as at the date of your voluntary termination.
(vi) TERMINATION BY CALYPTE FOR CAUSE. Calypte may
terminate your employment hereunder at any time for cause. Calypte will give you
written notice of any termination for cause, specifying therein in reasonable
detail the basis for such termination for cause and specifying the effective
date of such termination.
(vii) TERMINATION BY CALYPTE WITHOUT CAUSE. Calypte
may terminate your employment at any time without cause, with written notice to
you specifying therein that such termination is without cause and specifying the
effective date of such termination. The effective date of termination will be no
less than thirty (30) days from the date of such notice. Any such termination
without cause will be within the sole discretion of Calypte, which if exercised
by Calypte will be unlimited and will not be subject to any test of
reasonableness by any court of law or by you.
(viii) "CONSTRUCTIVE TERMINATION EVENT" will be
deemed to have occurred at Calypte's close of business on the fourteenth (14th)
day after, and including, the first day, that any of the following actions is
taken by Calypte and such action is not reversed in full by Calypte within such
fourteen-day period unless prior to the expiration of such fourteen-day period
you have otherwise agreed to the specific relevant event in writing: (1) your
aggregate benefits (excluding your salary compensation and any already-set bonus
plan amounts, which may only be increased, decreased or otherwise changed by
mutual written agreement of Calypte and you as an amendment hereto or to the
relevant bonus plan, if applicable) are materially reduced below those in effect
immediately prior to the effective date of such Constructive Termination Event,
and such reduction is not applied as part of an overall reduction in benefits in
which you are treated proportionally to other executive officers of Calypte
given your position, length of service, income and other relevant factors
customary within the medical diagnostics industry at the date of such reduction,
and/or (2) your duties and/or authority are materially decreased from those
normal for the positions of President and Chief Operating Officer of a
publicly-held company in the medical diagnostics business (you acknowledge and
agree that Calypte is currently seeking a full-time Chief Financial Officer, and
that you are serving in that position until your successor has been appointed),
and/or (3) your title is changed to a title other than
<PAGE>
Nancy E. Katz
September 21, 1999
Page 5
President and Chief Operating Officer that, under normal practice within the
medical diagnostics industry at the date of such reduction, would be considered
to be a lower-level title than your prior title.
(c) POST-TERMINATION MATTERS:
(i) AUTOMATIC RESIGNATION FROM OFFICE. By your
signature on this Agreement, this Agreement will serve automatically, without
the need for any further signatures, as your resignation, effective as of the
date of your actual termination of employment hereunder, for whatever reason,
and whether by you or by Calypte, from any and all officer positions you may
hold with Calypte at the date of such termination, including without limitation
those of a member of the Board.
(ii) RETURN OF MATERIALS. Upon any termination
hereof, you will promptly return to Calypte all copies and originals of
documents and other tangible impressions, in any medium, containing confidential
or proprietary information of Calypte, in your possession or under your control.
(iii) ACCRUED SALARY AND BONUS. After such
termination other than without cause, Calypte will only be obliged to pay to
you, and will pay when due, such amounts of salary, and any bonus accrued
through, and payable at, the date of such termination or, as to bonus amounts,
at such other times as you and Calypte may have otherwise agreed in writing.
(iv) EXPENSES. Calypte will pay all expenses
required to be reimbursed hereunder to you within thirty (30) days after its
receipt from you of all appropriate documentation therefor in accordance with
then-effective policies of Calypte.
(v) POST-TERMINATION PAYMENTS IF YOU ARE
TERMINATED WITHOUT CAUSE OR IF A CONSTRUCTIVE TERMINATION EVENT IS DEEMED TO
HAVE OCCURRED. If your employment hereunder is terminated by Calypte without
cause at any time, or if a Constructive Termination Event is deemed to have
occurred pursuant to Section 2(b)(viii) herein, then, in addition to any other
accrued amounts you may be due hereunder at the time of such termination,
Calypte will pay you, over the twelve (12) month period commencing with the date
of such termination, as severance, and with the first such payment being paid on
the first monthly anniversary of such termination date, an amount equal, as to
each such twelve payments, to your monthly base salary with Calypte as in effect
immediately prior to the date of such termination.
(vi) NONSOLICITATION. During the twelve (12) month
period following your termination other than for death, you will not directly or
indirectly, on behalf of yourself or on behalf of anyone else:
(A) CUSTOMER AND COLLABORATORS. Call upon
any of the customers or collaborators of Calypte (or potential customers or
collaborators or clients of Calypte whose business you solicited on behalf of
Calypte or about whose needs you gained information during your employment
relationship hereunder with Calypte) who are such at the time of your
termination of employment hereunder, for the purpose of (1) soliciting or
providing any product or service within the field of business in which Calypte
is operating at the time of such termination (the
<PAGE>
Nancy E. Katz
September 21, 1999
Page 6
"BUSINESS FIELD"), which Business Field will be deemed to be the diagnosis of
HIV and other sexually transmitted diseases (STD's), unless the Board in good
faith communicates to you otherwise as to the Business Field in writing, signed
by its then-Chairman, or by any Board member if you are the Chairman at the date
of such termination, given to you at the time of such termination or within two
(2) days after such termination, or (2) providing customers to any person or
entity conducting a business in the Business Field (a "COMPETITIVE BUSINESS");
the determination of whether another-business is a Competitive Business will be
made in good faith by the Board, and communicated to you in writing, signed by
its then-Chairman, or by any two outside Board members if you are the Chairman
at the date of such termination, given to you at the time of such termination or
within two (2) days after such termination;
(B) EMPLOYEES, CONSULTANTS, ETC. Call upon
any of the other employees, consultants or representatives of Calypte who are
such at the time of your termination of employment hereunder, for the purpose of
soliciting or inducing such employees, consultants or representatives to
discontinue their relationship with Calypte or to establish a relationship with
you or with any Competitive Business;
(C) NO SOLICITATION. Solicit, divert or take
away or attempt to solicit, divert or take away any of the customers,
collaborators, clients, or other business connections of Calypte or other
employees or representatives maintaining a relationship with Calypte who are
such or who are in the process of potentially becoming such at the time of your
termination of employment hereunder.
If you so request, Calypte will advise you upon your termination as to
the identity of any customers, collaborators, clients, or other business
connections of Calypte or other employees or representatives maintaining a
relationship with Calypte as existing at that time, which information will be
considered to be confidential and proprietary information of Calypte. You
covenant and agree with Calypte that, if you violate any of your covenants or
agreements under this Paragraph 2(c)(vi), Calypte will be entitled to an
accounting and repayment of all profits, compensation, commissions, remuneration
or benefits that you directly or indirectly has realized and/or may realize as a
result of, growing out of or in connection with any such violation; such remedy
will be in addition to and not in limitation of any injunctive relief or other
rights or remedies that Calypte is or may be entitled at law or in equity or
under this Agreement. You have carefully read and considered the provisions of
this Paragraph 2(c)(vi) and agree that the restrictions set forth in this
Paragraph 2(c)(vi) are fair and reasonable and are reasonably required for the
protection of the interests of Calypte, its officers, Directors and its other
employees. In the event that, notwithstanding the foregoing, any part of the
covenants set forth in this Paragraph 2(c)(vi) are held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining parts thereof will
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. In the event that any
provision of this Paragraph 2(c)(vi) is held by a court of competent
jurisdiction to exceed the restrictions which such court deems reasonable and
enforceable, such restrictions will be deemed to become and thereafter be the
maximum restrictions that such court deems reasonable and enforceable.
3. CONFIDENTIALITY AND INVENTION ASSIGNMENT AGREEMENTS; NO USE OF
CERTAIN RIGHTS OR PROPERTY. You will execute and deliver such customary
confidentiality and invention
<PAGE>
Nancy E. Katz
September 21, 1999
Page 7
assignment agreements during the term hereof as Calypte requests of its
employees. You represent and warrant to Calypte that you are not bringing with
you, and covenant with Calypte that you will not use in the course of your
employment with Calypte, any proprietary rights or intellectual property rights
to which you do not lawfully possess.
4. BOARD OF DIRECTORS. For so long as you are serving as an
employee of Calypte hereunder in the role of President or Chief Executive
Officer, or both, Calypte will place your name in nomination for election as a
Director of Calypte if you so notify the Chairman of the Board in writing of
your desire to serve as such, reasonably prior to the date of any election of
Directors of Calypte, of which date Calypte will give you reasonable advance
notice.
5. DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement will be settled by arbitration in San Francisco,
California, in accordance with the rules of the American Arbitration
Association.
6. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement will be subject to and
governed by the laws of the State of California, without regard to its conflict
of laws provisions.
(b) NO WAIVER; AMENDMENT. Failure to insist upon strict
compliance with any provision hereof will not be deemed a waiver of such
provision or any other provision hereof. This Agreement may not be modified
except by a written agreement executed by the parties hereto.
(c) SEVERABILITY; CONTEXT. The provision of this Agreement
will be deemed severable, and the invalidity or unenforceability of any one or
more of the provisions hereof will not affect the validity and enforceability of
the other provisions hereof. Whenever required by the context, the singular
number will include the plural and the masculine or neuter gender will include
all genders.
(d) SURVIVAL. Provisions herein which by their terms so
provide will survive any termination of this Agreement or termination of your
employment by Calypte.
(e) EQUITABLE RELIEF. In the event of a breach or threatened
breach by you or Calypte of the provisions of this Agreement, you and Calypte
will, in addition to any other rights and remedies available to you and Calypte,
at law or otherwise, be entitled to an injunction to be issued by any court of
competent jurisdiction enjoining and restraining the other party from committing
any present violation or future violation of this Agreement.
(f) NO ASSIGNMENT; BINDING NATURE. You may not assign your
rights or obligations hereunder and any attempted assignment will be null and
void. This Agreement will be binding upon and inure to the benefit of the
successors and assigns of Calypte and upon your heirs, administrators and
executors.
(g) NOTICES. Unless otherwise herein provided, notice required
or permitted to be given to a party pursuant to the provisions of this Agreement
will be in writing and will be
<PAGE>
Nancy E. Katz
September 21, 1999
Page 8
effective and deemed given under this Agreement on the earliest of: (i) the date
of personal delivery; (ii) the date of delivery with confirmed answerback by
facsimile; or (iii) the next business day after deposit with a
nationally-recognized courier or overnight service, including FedEx or Express
Mail, for United States deliveries or three (3) business days after such deposit
for deliveries outside of the United States. All notices not delivered
personally or by facsimile will be sent with postage and other charges prepaid
and properly addressed to the party to be notified at the address set forth at
the beginning of this Agreement, or at such other address as such party may
designate by ten (10) days' advance written notice to the other party hereto.
All notices for delivery outside the United States will be sent by facsimile, or
by nationally recognized courier or overnight service, including Express Mail.
Notices by you to Calypte will be marked to the attention of the Chairman of the
Board, if such position then is filled by someone other than you, and if you are
then the Chairman, then you will send such notices to all other Directors.
(h) COUNTERPARTS. This Agreement may be executed in
counterparts transmitted via electronic facsimile, each of which will be an
original and both of which together will constitute one instrument.
Nancy, we look forward with pleasure to working with you for
the success of Calypte.
Sincerely,
/s/ WILLIAM BOEGER
--------------------------------------
William Boeger, President and
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ NANCY E. KATZ
- ----------------------------------
NANCY E. KATZ
<PAGE>
EXHIBIT 10.63
[CALYPTE BIOMEDICAL LETTERHEAD]
December 10, 1998
Hideji Nonomura
Director, Department of Diagnosis
Otsuka Pharmaceutical Co., Ltd.
463-10 Kagasuno Kawauchi-cho
Tokushima, Japan 771-0130
Re: LETTER OF INTENT RE MODIFICATION OF DISTRIBUTION AGREEMENT
Dear Mr. Nonomura:
This Letter of Intent sets forth the understanding that Calypte and
Otsuka Pharmaceutical have reached with respect to modifying the Distribution
Agreement between our companies executed as of August 7, 1994. We at Calypte
value our long and friendly relationship with Otsuka, and we very much
respect and appreciate your response to our request that Otsuka agree to
relinquish (except in Japan) its role as distributor of Calypte's HIV test
kits in the Asian Territory. The following points, which have been approved
by Calypte's Board, describe the understanding we have reached regarding
modifications we will make to the Distribution Agreement:
1. Otsuka will retain the exclusive distribution rights in
Japan for Calypte's urine HIV-1 EIA Kit, the "Improved Kit" for which we are
now in the process of obtaining approval, and other improved or expanded HIV
test kits that Calypte may develop or to which it may obtain rights in the
future, including test kits for HIV-2 and HIV-1 Group O. Calypte will also
grant Otsuka the exclusive right to conduct and distribute Western blot tests
in Japan. Commencing upon Otsuka's receipt of approval from the Japanese
regulatory authority to begin commercial sales and marketing of Calypte's EIA
test kit (which we anticipate will be the Improved Kit, not the original
kit), the minimum annual tests of such approval kit to be purchased by Otsuka
from Calypte
<PAGE>
shall be fifty thousand (50,000); PROVIDED that, the first "year" to which
such purchase commitment shall apply shall be the balance of the calendar
year following the date on which Otsuka receives approval from the Japanese
regulatory authority PLUS the next calendar year (thereafter, such purchase
commitment shall apply in each subsequent calendar year). There shall be no
minimum purchase commitment for Western Blot tests.
2. Calypte will, in consideration of Otsuka relinquishing its
distribution rights outside of Japan, pay Otsuka one of the following amounts:
a) if the successor distributor pays Calypte an upfront
fee and/or milestone payments in addition to royalties or minimum purchases,
Calypte will pay Otsuka the greater of $500,000 or 25% of such
upfront/milestone payments paid to Calypte by the successor distributor (the
25% payments, if applicable, will be paid to Otsuka at the time the successor
distributor makes such payments to Calypte); or
b) if the successor distributor pays no such upfront
fees/milestone payments to Calypte, Calypte will pay Otsuka a total of
$350,000, payable in seven (7) monthly installments of $50,000 each, the
first such installment being due the first day of the calendar month
following execution of the agreement with the successor distributor.
The above payments contemplate that Calypte will select a successor
distributor for all substantial countries in the Asian Territory outside of
Japan. If the first successor distributor has a territory with fewer than all
of the substantial countries in the Asian Territory outside of Japan, Calypte
and Otsuka will discuss in good faith an adjustment to this fee arrangement.
3. Following Otsuka's relinquishment of its distribution
rights in the Asian Territory outside of Japan, Calypte will pay Otsuka five
percent (5%) of Calypte's revenues from the sale or use of Calypte HIV test
kits (urine and Western Blot) in or for the Asian Territory outside of Japan,
beginning on the date of the first commercial sale of such Calypte products
in the Asian Territory outside of Japan. Revenues that are the subject of the
percentage payments to be made under this paragraph will include Calypte's
gross revenues from the successor distributor(s) of Calypte's products in the
Asian Territory outside of Japan as well as gross revenues to Calypte from
its direct sales to such countries.
4. Otsuka is currently conducting or plans to conduct
clinical trials in Thailand and China and may continue such clinical trials
even through it will be relinquishing its distribution rights in the Asian
Territory outside of Japan. Otsuka agrees that it will work cooperatively
with Calypte on these clinical trials and, once this Letter of Intent has
been signed, Otsuka agrees to defer to Calypte on matters relating to any
clinical trials outside Japan. Otsuka will provide the results of such
clinical trials to Calypte and to the successor distributor designated by
Calypte. In addition, Otsuka will assign the regulatory approvals it has
obtained in Indonesia and Australia relating to Calypte products to the
successor distributor designated by Calypte. Otsuka will provide
2
<PAGE>
the above at no charge. Otsuka has recently commenced clinical trials of
Calypte products in China. Otsuka will provide a copy of the protocol for
such trials to Calypte and will provide any results obtained from such trials
to Calypte and to the successor distributor designated by Calypte. The
successor distributor will reimburse Otsuka for actual amounts paid by Otsuka
for the conduct of such clinical trials in China, excluding Otsuka's own
out-of-pocket expenses, which Otsuka shall bear. Given the difficulties
encountered with the original Calypte EIA test kit, described below, Calypte
does not expect Otsuka to engage in further development efforts relating to
the original product.
5. Certain problems encountered in Asia with the use of the
original HIV-1 EIA test kit (the current "Product" within the meaning of the
Distribution Agreement) delayed Otsuka's ability to introduce and
commercialize the Product in the Asian Territory. We appreciate the efforts
of Otsuka and hereby confirm that Otsuka is in good standing under the
Distribution Agreement. Calypte and Otsuka have worked cooperatively to find a
solution to such problems and to develop the "Improved Kit." In part, the
percentage payments to be made by Calypte to Otsuka, described above in
Paragraph 3, reflect Calypte's gratitude for the cooperative efforts of
Otsuka in the development of the Improved Kit. The Specifications referenced
in the Distribution Agreement will be modified to relate to the Improved Kit,
and the diligence commitments and references to the "Date of First Sale" in
the Distribution Agreement will all be deemed to apply to the Improved Kit,
upon its availability for development and commercialization.
We are pleased that we have reached an understanding on the basic
terms of modifications to be made to the Distribution Agreement. I believe
this Letter of Intent accurately reflects the understanding we have reached
in our meetings on this subject. If you agree, please sign below and return a
signed copy to me.
Again, I want to thank you for your consideration in this regard.
Very truly yours,
/s/ William Boeger
William Boeger, III President
3
<PAGE>
AGREED AND ACCEPTED:
OTSUKA PHARMACEUTICAL CO., LTD.
/s/ Hideji Nonomura
- ---------------------------------------
Signature
Hideji Nonomura
- ---------------------------------------
Name
Director, Diagnostic Department
OTSUKA PHARMACEUTICAL CO. LTD.
- ---------------------------------------
Title
January 10, 1999
- ---------------------------------------
Date
4
<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, the registration statement (No. 333-38417) on
Form S-3, the registration statement (No. 333-66765) on Form S-3, the
registration statement (No. 333-75239) on Form S-3, and in the registration
statement (No. 333-32246) on Form S-3 of Calypte Biomedical Corporation of our
reports dated March 9, 2000 relating to the consolidated balance sheets of
Calypte Biomedical Corporation and subsidiary as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1999 and the related schedule, which reports appear in the December 31, 1999
annual report on Form 10-K of Calypte Biomedical Corporation.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has suffered
recurring losses from operations and has an accumulated deficit that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG LLP
San Francisco, California
March 28, 2000
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