<PAGE>

     Certain confidential material contained in this document, marked by 
     brackets and denoted by an asterisk, has been omitted and filed 
     separately with the Securities and Exchange Commission pursuant to 
     Rule 24b-2 of the Securities Act of 1934.

                                    EXHIBIT 10.39

                         CONFIDENTIAL LETTER OF UNDERSTANDING

April 18, 1996

To: Pat McNallen

From: John Kaiser

cc: Don Hawthorne

The following summarizes the terms we discussed today for the manufacture of the
IOS System (Sunrise).  These terms have been agreed to today by the Biocircuits
Board of Directors and it is my understanding that they are agreeable with KMC
Systems (Kollsman) as well.  The effective date of the warrant agreement and the
amendment to the contract will be April 18. 1996.

1.  Kollsman will manufacture all of the Biocircuits US requirements for the
    years 1996 and 1997.

2.  The transfer price for all units produced during the period will be [  * ]
    per unit.

3.  Biocircuits will issue to Kollsman a warrant for 250,000 shares of common
    stock.  The exercise price of the warrant will be $7.00 per share.  The
    warrants will expire on   December 31, 1997 and will include a net exercise
    provision.

4.  If the average closing price of the common stock for the ten trading days
    of December 2, 1997 through December 13, 1997, as reported by the WALL
    STREET JOURNAL, is $14.00 per share or greater all obligations of
    Biocircuits with respect to the warrants will have been met.

5.  If the average closing price of the common stock for the ten trading days
    of December 2, 1997 through December 13, 1997, as reported by the WALL
    STREET JOURNAL, is less than $14.00 per share but greater than $10.00 per
    share, the expiration date of the warrant will be extended to December 31,
    1998.

6.  If the average closing price of the common stock for the ten trading days
    of December 2, 1997 through December 13, 1997, as reported by the WALL
    STREET JOURNAL, is less than $10.00 per share, the expiration date of the
    warrant will be extended to December 31, 1998.  In addition, Biocircuits
    will issue on January 1, 1998 a warrant for 50,000 shares of common stock
    with an exercise price equal to the then market price and an expiration
    date of December 31, 1998.  For the purpose of the additional 50,000 shares
    the market price is defined as the average closing price for the ten
    trading days prior to January 1, 1998.

7.  Kollsman will purchase all necessary raw materials and Biocircuits agrees
    to provide some form of security to be triggered by an as of yet to be
    determined cash balance.

<PAGE>


8.  Effective January 1, 1998, Biocircuits will have the right to manufacture
    or engage a third party to manufacture all or part of the Biocircuits
    requirements.

9.  Biocircuits agrees to use best efforts to reduce the total ATP time to less
    than the planned  [     *     ].  To the extent that the time can be
    reduced, all cost benefit will accrue to Biocircuits in the form of a
    reduced transfer price.

10. Biocircuits agrees to pay the following NRE invoices submitted by Kollsman
    for cost incurred through March 8, 1996 within 5 business days of the
    execution of this agreement.  Invoice numbers 6KA553, 6KA282, 6KA552,
    6KA576 comprising [     *     ].

I believe that this covers the substance of the verbal agreement reached during
our telephone conversations and signature will signify that both parties intend
to enter into a final agreement via a contract amendment.  We will start
immediately to draft the appropriate amendment, and as stated above the
effective date of both the warrant agreement and the contract amendment will be
April 18, 1996.

Please sign this document, retain a copy for your files and return a copy to me.
A signed original copy will be sent by mail immediately.  Please then sign and
return a copy of the original.

Signed:                 /s/ Patrick W. McNallen                 
                        ----------------------------------------
                        Patrick W. McNallen
                        Vice President/General Manager
                        KMC Systems


Signed:                 /s/ John Kaiser                         
                        ----------------------------------------
                        John Kaiser
                        President and CEO
                        Biocircuits Corporation