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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-28194
DIGENE CORPORATION
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(Exact name of registrant as specified in its charter)
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DELAWARE 52-1536128
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9000 VIRGINIA MANOR ROAD
BELTSVILLE, MARYLAND 20705
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (301) 470-6500
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NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Shares outstanding as of
Class February 10, 1999
- -------------------------------------- ---------------------------
<S> <C>
Common Stock, par value $.01 per share 14,331,321
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DIGENE CORPORATION
INDEX TO FORM 10-Q
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Page
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PART I. CONSOLIDATED FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements -
Consolidated Balance Sheets -
December 31, 1998 and June 30, 1998 1
Consolidated Statements of Operations -
Three months ended December 31, 1998 and 1997;
Six months ended December 31, 1998 and 1997; 2
Consolidated Statements of Cash Flows -
Six months ended December 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 5
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
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PART I. CONSOLIDATED FINANCIAL INFORMATION
ITEM 1.
DIGENE CORPORATION
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
DECEMBER 31, JUNE 30,
1998 1998
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(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,238,847 $ 18,330,803
Short-term investments 11,917,774 7,181,572
Accounts receivable, less allowance of approximately $209,000 at
December 31, 1998 and June 30, 1998, respectively 2,856,027 3,072,224
Inventories 3,906,546 3,557,289
Prepaid expenses and other current assets 1,887,519 560,706
----------------- ------------------
Total current assets 27,806,713 32,702,594
Property and equipment, net 2,346,346 2,627,244
Intangible assets, net 1,438,601 12,784
Deposits 130,862 96,916
----------------- ------------------
Total assets $ 31,722,522 $ 35,439,538
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,549,134 $ 2,424,245
Accrued expenses 684,015 542,064
Accrued payroll 616,174 755,490
Current maturities of long-term debt - 552,717
----------------- ------------------
Total current liabilities 3,849,323 4,274,516
Accrued rent 30,358 54,340
Deferred rent - 11,980
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
14,331,321 and 14,117,308 shares issued and outstanding at
December 31, 1998 and June 30, 1998, respectively 143,313 141,173
Additional paid-in capital 71,943,599 70,373,310
Accumulated deficit (44,244,071) (39,415,781)
----------------- ------------------
Total stockholders' equity 27,842,841 31,098,702
----------------- ------------------
Total liabilities and stockholders' equity $ 31,722,522 $ 35,439,538
================= ==================
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DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
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THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
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1998 1997 1998 1997
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Revenues:
Product sales $ 3,852,769 $ 2,944,227 $ 7,456,976 $ 5,456,237
Research and development contracts 153,861 12,600 153,861 26,500
----------------- ----------------- ---------------- ----------------
Total revenues 4,006,630 2,956,827 7,610,837 5,482,737
Costs and expenses:
Cost of product sales 1,428,566 834,838 2,404,555 1,549,249
Research and development 1,185,133 1,287,843 2,216,546 2,278,982
Selling and marketing 2,653,593 1,888,014 5,606,220 3,598,930
General and administrative 1,281,895 1,221,605 2,647,196 2,252,666
Amortization of intangible assets 37,522 126,841 75,043 257,821
----------------- ----------------- ---------------- ----------------
Loss from operations (2,580,079) (2,402,314) (5,338,723) (4,454,911)
Other income (expense):
Other income (expense) (1,956) (34,073) 58,306 (85,340)
Interest income 271,763 422,722 607,177 611,796
Interest expense (7,141) (38,387) (21,087) (83,836)
----------------- ----------------- ---------------- ----------------
Loss from operations before income taxes (2,317,413) (2,052,052) (4,694,327) (4,012,291)
Provision for income taxes 69,604 - 133,963 -
----------------- ----------------- ---------------- ----------------
Net loss $ (2,387,017) $ (2,052,052) $ (4,828,290) $ (4,012,291)
================= ================= ================ ================
Basic and diluted net loss per share $ (0.17) $ (0.15) $ (0.34) $ (0.32)
================= ================= ================ ================
Weighted average shares outstanding 14,325,153 13,412,271 14,313,335 12,498,771
================= ================= ================ ================
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DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
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SIX MONTHS ENDED
DECEMBER 31,
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1998 1997
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(UNAUDITED)
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OPERATING ACTIVITIES
Net loss $ (4,828,290) $ (4,012,291)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and equipment 778,285 314,009
Amortization of intangible assets 75,042 257,821
Changes in operating assets and liabilities:
Accounts receivable 216,197 288,407
Due from related party - 997,916
Inventories (349,257) (1,157,387)
Prepaid expenses and other current assets (1,326,813) 166,522
Deposits (33,946) 44,677
Accounts payable 124,889 (329,176)
Accrued expenses 141,951 (222,683)
Accrued payroll (139,316) 256,092
Due to related party - (443,332)
Accrued rent (23,982) (22,288)
Deferred rent (11,980) (12,669)
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Net cash used in operating activities (5,377,220) (3,874,382)
INVESTING ACTIVITIES
Purchases of short-term investments (6,186,202) (5,479,683)
Maturities of short-term investments 1,450,000 10,193,818
Capital expenditures (497,387) (1,125,142)
Additions to intangible assets (862) (1,258)
--------------- ----------------
Net cash provided by (used in) investing activities (5,234,451) 3,587,735
FINANCING ACTIVITIES
Net proceeds from issuance of Common Stock - 20,654,415
Exercise of Common Stock options 72,432 141,414
Principal repayments on long-term debt (552,717) (791,012)
--------------- ----------------
Net cash used in financing activities (480,285) 20,004,817
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Net increase (decrease) in cash and cash equivalents (11,091,956) 19,718,170
Cash and cash equivalents at beginning of period 18,330,803 8,452,864
--------------- ----------------
Cash and cash equivalents at end of period $ 7,238,847 $ 28,171,034
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DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements for the six month periods ended December
31, 1998 and 1997 are unaudited and include all adjustments which, in the
opinion of management, are necessary to present fairly the results of
operations for the periods then ended. All such adjustments are of a normal
recurring nature. These consolidated financial statements should be read in
conjunction with the Annual Report on Form 10-K for the year ended June 30,
1998 of Digene Corporation (the "Company"), which includes financial statements
and notes thereto for the years ended June 30, 1998, 1997 and 1996.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for any other
interim period or for a full fiscal year.
2. NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No.
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants,
and convertible securities, except as required by Staff Accounting Bulletin No.
98 ("SAB 98"). The definition of diluted earnings per share is very similar to
the previous definition of fully diluted earnings per share. All net loss per
share amounts for all periods have been presented, and where appropriate
restated, to conform to the SFAS No. 128 requirements.
3. ACQUISITION
On July 1, 1998, the Company issued 181,884 shares of its Common Stock, par
value $0.01 per share, as consideration for its purchase of all of the
outstanding capital stock of Viropath B.V., a company with limited liability,
registered at Amsterdam, the Netherlands ("Viropath"). The 181,884 shares of
the Company's Common Stock were recorded at $8.247 per share, in accordance
with the Stock Purchase Agreement, and resulted in total consideration of
approximately $1,500,000. The Company is obligated to pay royalties on future
sales of Viropath's licensed products, not to exceed $1,000,000. The
acquisition has been accounted for using the purchase method of accounting.
The Company has allocated the excess of the purchase price over the fair market
value of the acquired net assets as goodwill, which is being amortized on a
straight-line basis over ten years. The operating results of Viropath are
included in the Company's financial statements since the effective date of the
acquisition. The operating results of Viropath are not considered material to
the consolidated financial statements of the Company, and accordingly, pro
forma financial information has not been presented for this acquisition.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS.
The following discussion of the financial condition and results of operations
of the Company should be read in conjunction with the Consolidated Financial
Statements and the related Notes thereto included elsewhere in this report and
in the Annual Report on Form 10-K for the year ended June 30, 1998 of Digene
Corporation (the "Company"). Statements that are not statements of historical
fact, and which reflect the intent, belief or expectations of the Company and
its management regarding the anticipated effect of events, circumstances and
trends, should be considered as forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Although the Company
believes that its expectations are based on reasonable assumptions within the
bounds of its knowledge of its business and operations, there can be no
assurance that actual results will not differ materially from its expectations.
Factors that might cause or contribute to such differences include, but are not
limited to: uncertainty of future profitability and cash generation from
operations; uncertainty of clinical trial results for the Company's products
under development; uncertainty of market acceptance of the Company's products
by the worldwide medical community; risks inherent in international
transactions, including those relating to the Company's expansion in Europe,
Brazil and elsewhere; limited sales and marketing experience with a direct
sales force; the extent of future expenditures for sales and marketing
programs; dependence on third-party reimbursement from government entities,
managed care organizations, and private insurance plans; dependence on Abbott
Laboratories as the sole European distributor for the Company's products;
delay in or failure to obtain regulatory approvals for the Company's products
in development; uncertainty regarding patents and proprietary rights in
connection with the Company's products; and the Company's ability to obtain
requisite additional financing to fund the Company's operations beyond fiscal
2000. Other factors include those set forth under the caption "Additional
Considerations" in the Company's Annual Report on Form 10-K and the documents
referred to therein.
RESULTS OF OPERATIONS
Product sales increased to $3,853,000 and $7,457,000 for the three and six
month periods ended December 31, 1998, respectively, from $2,944,000 and
$5,456,000 for the corresponding periods in 1997. The increase was due,
primarily, to increased sales of the Company's Hybrid Capture tests, primarily
its HPV test, and equipment, partially offset by lower sales of non-core
products.
Research and development contract revenues increased to $154,000 for the three
and six month periods ended December 31, 1998 from $13,000 and $27,000 for the
corresponding three and six month periods in 1997, respectively. The increase
was due to the performance of contract research activities, primarily pursuant
to the SBIR contract for HSV research and development, partially offset by
decreases in equipment rental revenues.
5
<PAGE> 8
Cost of product sales increased to $1,429,000 and $2,405,000 for the three and
six month periods ended December 31, 1998, respectively, from $835,000 and
$1,549,000 for the corresponding periods in 1997. Gross margin on product
sales decreased to 63% and 68% for the three and six month periods ended
December 31, 1998, respectively, from 72% for the corresponding three and six
month periods in 1997, respectively. The decrease was due, primarily, to
changes in product mix reflecting proportionately greater sales of lower margin
equipment in the 1998 periods than in the 1997 periods.
Research and development expenses were relatively unchanged at $1,185,000 and
$2,217,000 for the three and six month periods ended December 31, 1998,
respectively, compared to $1,288,000 and $2,279,000 for the corresponding
periods in 1997.
Selling and marketing expenses increased to $2,654,000 and $5,606,000 for the
three and six month periods ended December 31, 1998, respectively, from
$1,888,000 and $3,599,000 for the corresponding periods in 1997. The increase
was due, primarily, to substantial increases in sales and marketing programs
and to the hiring of additional selling and marketing personnel in conjunction
with the Company's efforts to increase product sales.
General and administrative expenses increased to $1,282,000 and $2,647,000 for
the three and six month periods ended December 31, 1998, respectively, from
$1,222,000 and $2,253,000 for the corresponding periods in 1997. The increase
was due, primarily, to costs associated with the Company's expansion into
markets in Europe.
Interest income decreased to $272,000 and $607,000 for the three and six month
periods ended December 31, 1998, respectively, from $423,000 and $612,000 for
the corresponding periods in 1997. The decrease was due to a decrease in the
Company's cash, cash equivalents and short-term investments as a result of the
Company's continuing negative cash flows, partially offset by the receipt of
the net proceeds from the public offering of 2,250,000 shares of the Company's
common stock in October 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in accumulated deficit of approximately $44,244,000 at
December 31, 1998. The Company has funded its operations primarily through the
sale of equity securities. The Company experienced negative cash flows from
operations of $5,377,000 and $3,874,000 for the six months ended December 31,
1998, and 1997, respectively.
Capital expenditures decreased to $497,000 for the six months ended December
31, 1998 from $1,125,000 for the corresponding period in 1997, due, primarily,
to less expenditure related to equipment placements.
The Company does not have any bank financing arrangements.
6
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On October 20, 1997, the Company completed a public offering of 2,250,000
shares of its common stock, the net proceeds of which, after underwriters'
commissions and expenses, were $20,654,000.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, expand
its sales and marketing activities and expand its manufacturing capabilities.
The Company expects that its existing capital resources will be adequate to
fund the Company's operations through fiscal 2000. No assurances can be given
that there will be no changes in the Company that would consume a significant
amount of its available resources before that time. The Company's future
capital requirements and the adequacy of available funds will depend on
numerous factors, including the successful commercialization of its products,
progress in its product development efforts and the magnitude and scope of such
efforts, progress with preclinical studies and clinical trials, progress in its
regulatory affairs activities, the cost and timing of expansion of
manufacturing capabilities, the expansion of the Company's direct European
sales operations, the development and maintenance of effective sales and
marketing activities, the cost of filing, prosecuting, defending and enforcing
patent claims and other intellectual property rights, competing technological
and market developments, and the development of strategic alliances for the
marketing of its products. To the extent that the Company's existing capital
resources and funds generated from the Company's operations, if any, are
insufficient to meet current or planned operating requirements, the Company
will be required to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. The Company does not have any committed sources of additional
financing, and there can be no assurance that additional funding, if necessary,
will be available on acceptable terms, if at all. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate
certain aspects of its operations or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates,
products or potential markets. If adequate funds are not available, the
Company's business, financial condition and results of operations will be
materially and adversely effected.
7
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YEAR 2000 COMPLIANCE
The Company is working to resolve the potential impact of the year 2000 on the
ability of the Company's computerized information programs and systems and
certain manufacturing and other equipment to accurately process information
that may be date-sensitive. Any of the Company's technology that recognizes a
date using "00" as the year 1900 rather than the year 2000 could result in
errors or system failures.
The Company has substantially completed an assessment of its computer programs
and telephone systems and has identified those programs and systems that are
presently not year 2000 compliant. The Company is in the process of assessing
its manufacturing and other equipment, as well as communicating with
significant vendors or customers to determine their respective states of
readiness. The Company expects to complete this assessment in the first
quarter of calendar 1999.
In connection with the planned relocation of the Company's business to a new
facility in Gaithersburg, Maryland in December 1999, the Company expects to
replace most of its programs, systems and manufacturing and other equipment
with new programs, systems and equipment which the suppliers will certify to be
year 2000 compliant. By the summer of 1999 the Company plans to upgrade, to
the extent necessary, any of its existing mission critical programs, systems
and equipment that will be transferred to the new facility. If the relocation
is significantly delayed, which the Company does not presently anticipate, the
Company expects to expand the upgrade and replacement phase to include the
necessary upgrade and replacement of programs, systems and equipment which are
located at its existing facilities but which the Company does not plan to use
at the new facility. The cost of these contingent upgrades and replacements is
presently unknown.
The Company is in the process of testing upgraded or replaced programs, systems
and equipment and will continue the testing phase throughout calendar 1999.
Based on information developed to date as a result of its assessment efforts,
the Company does not anticipate that the cost of upgrading or replacing its
programs, systems and equipment for the purpose of making them year 2000
compliant will be material to the Company. If the Company and third parties
upon which it relies are unable to address the year 2000 issue in a timely and
successful manner, the Company's business could be materially adversely
affected.
8
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
S-1 (File No. 333-2968))
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1 (File No. 333-2968))
4.1 Form of Common Stock Certificate (Incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-1 (File No.
333-2968))
10.1 Employment Agreement for Jeanmarie P. Curley dated December 22, 1998
10.2 Employment Agreement for Joseph P. Slattery dated December 22, 1998
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1998.
9
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGENE CORPORATION
Date: February 10, 1999 By: /s/ Charles M. Fleischman
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Charles M. Fleischman
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
(Principal Financial Officer)
Date: February 10, 1999 By: /s/ Joseph P. Slattery
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Joseph P. Slattery
Vice President, Finance and Controller
(Principal Accounting Officer)
10
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EXHIBIT INDEX
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Exhibit No. Description Page
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3.1 Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (File
No. 333-2968))
3.2 Amended and Restated Bylaws (Incorporated by
reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No.
333-2968))
4.1 Form of Common Stock Certificate (Incorporated by
reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (File No.
333-2968))
10.1 Employment Agreement for Jeanmarie P. Curley dated
December 22, 1998
10.2 Employment Agreement for Joseph P. Slattery dated
December 22, 1998
27 Financial Data Schedule
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EMPLOYMENT AGREEMENT
AGREEMENT dated as of December 22, 1998 between Digene Corporation, a Delaware
corporation, 9000 Virginia Manor Road, Suite 206, Beltsville, Maryland, 20705
(the "Company"), and Jeanmarie P. Curley, 13005 Martha's Choice Circle, Bowie,
MD 20720 (the "Executive").
WITNESSETH
WHEREAS, the Company desires to employ Executive on the terms and conditions
herein contained; and
WHEREAS, Executive is willing to enter into this Agreement for employment with
the duties outlined herein on a full-time basis;
NOW, THEREFORE, in consideration of the premises, representations and mutual
covenants and agreements herein contained, the parties agree as follows:
1. Employment. The Company hereby employs the Executive and Executive
hereby accepts employment with the Company for the period beginning July 31,
1998 and ending December 31, 2001, (the "Term"), subject to the terms and
conditions hereinafter contained. Such employment may be renewed upon the
mutual agreement of, and in consideration of such compensation as shall be
established by, the Company and the Executive.
2. Duties. Executive shall perform such duties and functions as the
Board of Directors of the Company (the "Board") may from time to time determine
which are consistent with the position of Vice President, Manufacturing, shall
comply with the policies and reasonable directions of the Board, and shall
discharge her responsibilities in a competent and faithful manner, consistent
with sound business practices.
During the Term of this Agreement, the Executive shall devote her entire
business time, attention and energies to the performance of her duties for the
business of the Company except to the extent that the Board may specifically
approve any outside interests. The Executive shall not, directly or
indirectly, without the consent of a majority of the Board, as owner, partner,
joint venturer, shareholder, employee, corporate officer or director, engage or
become financially interested in, be employed by, or render consulting services
to any business in competition with any business engaged in during the Term by
the Company or its subsidiaries; provided however, that (i) the Executive may
own securities of any corporation which is engaged in any such business and
which is publicly owned and traded, but in an amount not to exceed at any one
time two percent (2.0%) of any class of stock or securities of such company and
(ii) the foregoing shall not be deemed to prohibit the Executive from
conducting and continuing to conduct any business with respect to which the
Executive is engaged as of the date hereof (which businesses are listed in
Exhibit I attached hereto), whether said business is conducted individually or
through an entity in which the Executive has a legal or beneficial interest.
3. Compensation.
a. Salary. During the Term, Executive shall receive a base salary for
services rendered hereunder of $85,000 per year, subject to such increases as
may be approved by the Board, payable not less frequently than monthly
consistent with the regular practices of the Company. As of October, 1998 in
conjunction with the annual salary increases in the company, the Executive
shall receive a base salary for services rendered hereunder of $100,000 per
year, again subject to such increases as may be approved by the Board.
b. Bonus. The Executive shall be entitled to receive, as additional
compensation, on September 1 of each year, an annual cash bonus as set forth in
the Company's Executive Bonus Plan and approved by the Board of Directors of
the Company in its sole discretion. In conjunction with services rendered for
the fiscal year ended June 30, 1998, the Executive shall receive a bonus in the
amount of $15,000, such bonus to be paid on the normal bonus cycle of the
Company during calendar 1998.
<PAGE> 2
c. Facility related compensation. (i) If the Executive is still an
employee in good standing of the Company at the time of the completed move and
successful validation for FDA/GMP related manufacturing of the new Gaithersburg
manufacturing facility, the Executive shall receive a $10,000 cash bonus
unrelated to other compensation described in this Section 3. (ii) If the
Executive is still an employee in good standing of the Company one year after
the payment described in 3.c(i), the Executive shall receive an additional
$10,000 cash bonus unrelated to other compensation described in this Section 3.
d. Relocation reimbursement. It is contemplated that Executive, in
conjunction with the new manufactuing facility, will relocate to the
Gaithersburg, Maryland, metropolitan area. For any such relocation, the
Company agrees to reimburse Executive for up to an aggregate of $60,000 of bona
fide moving expenses, closing costs associated with the sale of Executive's
current home and/or purchase of a new home, and lost equity associated with the
sale of Executive's current residence. In addition, the Company will 'gross
up' the amounts paid to Executive in order that Executive is not subject to
out-of-pocket income tax obligations related to these reimbursements; Executive
agrees to work with the Company to minimize negative tax consequences. Amounts
reimbursed by the Company are subject to immediate repayment by the Executive
as follows: if Executive resigns or is terminated for justifiable cause (as
hereinafter defined) within six months of moving, 75% will be repaid to the
Company; between six and twelve months, 50% will be repaid to the Company; and
between twelve and eighteen months, 25% will be repaid to the Company. If
Executive is terminated without justifiable cause, Executive will not be
required to repay the Company any of the above amounts.
e. Reimbursement for expenses. The Company agrees to reimburse
Executive in a manner consistent with the regular practices of the Company, for
any and all reasonable business expenses incurred by Executive in connection
with the performance of her duties, upon presentation of proper vouchers by
Executive to support said expenses. This shall include, but not be limited to,
all items of travel, entertainment, business expenses, and other items of
expense while away on business from the principal office of the Company or
engaged in other business activity.
f. Vacation. Executive shall be entitled to four (4) weeks' paid
vacation in each calendar year in addition to the regularly scheduled Company
holidays. No more than four (4) weeks' vacation can be accumulated and carried
forward from year to year.
g. Other benefits. The Executive shall, in addition, be entitled to
participate in and receive any other fringe benefits customarily provided by
the Company to its employees of comparable standing with the Executive
(including, but not limited to, any profit-sharing, pension, hospital, major
medical insurance and group life insurance plans in accordance with the terms
of such plans), all as determined from time to time by the Board.
4. Termination. Executive's employment by the Company hereunder shall
terminate on the occurrence of:
a. Disability or Death. In the event of Executive's disability or
death during the Term of the Executive's employment, Executive, or her estate,
shall receive one (1) year's base salary. For the purpose hereof, the term
"disability" shall mean Executive's physical or mental inability to perform her
essential duties and responsibilities hereunder, with reasonable accommodation,
for a period of six (6) consecutive months during the term of this Agreement,
it being understood that notwithstanding any such inability to perform her
duties, Executive shall be entitled to receive her compensation as provided
herein until the termination of her employment hereunder. If the Executive is
entitled to long-term disability, the Company will supplement such long-term
disability payments such that payments, in the aggregate, to the Executive
shall not exceed one year's base salary.
b. Justifiable cause. The obligations and liabilities of the Company
to the Executive shall cease as of the date of termination for "justifiable
cause," and Executive shall not be entitled to any further compensation except
for compensation accrued through the date of the termination and except as
<PAGE> 3
otherwise provided herein. Executive will be entitled to all stock, incentive
stock options or equivalents vested as of the date of the Board's termination
action. For the purposes hereof, the term "justifiable cause" shall mean and
be limited to any termination by action of a majority of the Board because of:
Executive's conviction of a felony (which, through lapse of time or otherwise,
is not subject to appeal) or willful refusal without proper cause to perform
her obligations under this Agreement; except in the normal course of business
in the performance of her duties, any material disclosure by Executive to any
person, firm or corporation other than the Company, its subsidiaries and its
and their directors, officers and employees, of any confidential information or
trade secret of the Company or any of its subsidiaries; personal or
professional conduct or action by Executive that in the sole judgement of
Digene is inconsistent with it's best interests; or the engaging by Executive
in any business other than the business of the Company and its subsidiaries
which interferes with the performance of her duties hereunder.
c. Without justifiable cause. In the event the Company terminates
this Agreement without justifiable cause (as defined in Section 4.b. hereof),
the parties hereto agree that damages to the Executive shall be difficult to
ascertain in any such event, but in order to limit the liability of the Company
the Executive shall be entitled to receive as liquidated damages and not as
penalty in any such event the following: (i) the amount of the base salary
(excluding bonus) of the Executive remaining due and payable from any such date
of termination for a period of twelve (12) months, which amount shall be
payable in 24 equal installments over the twelve months from such termination
unless the termination without justifiable cause occurs as a result of a change
in control of the Company in which case the the amount due to Employee shall
become payable immediately; (ii) subject to limitations imposed under the
applicable option and incentive plans and grants thereunder, any outstanding
stock, incentive stock options or equivalents that would have vested in the
ordinary course of events until termination plus an additional three months
after the date of termination shall be accelerated and vest immediately upon
such termination; (iii) any bonus accrued to date pro rata over the course of
the year; (iv) all other benefits accruing to the Executive on or prior to the
expiration date of this Agreement as provided hereunder.
d. Resignation. In the event the Executive resigns during the term of
this Agreement, he shall be entitled to: (i) the pro rata amount of the annual
bonus accrued to the date of resignation: (ii) all stock, incentive stock
options or equivalents vested as of the date of the resignation, subject to the
terms of the appropriate stock purchase agreement (s); (iii) all other benefits
accruing to the Executive on or prior to the expiration date of this Agreement
as provided hereunder.
5. Non-Competition. Executive agrees that for a period of twelve (12)
months after termination of her employment (the "Non-Competitive Period"),
Executive shall not, directly or indirectly, as owner, partner, joint venturer,
stockholder, employee, broker, agent, principal, trustee, corporate officer,
director, licensor, or in any capacity whatsoever engage in, become financially
interested in, be employed by, render any consultation or business advice with
respect to, or have any connection with, any business engaged in the research,
development, testing, design, manufacture, sale, lease, marketing, utilization
or exploitation of any products or services which are designed for the same
purpose as, are generically the same as, or are otherwise competitive with,
products or services of the Company, in existence or under development, in any
geographic area where, at the time of termination of her employment hereunder,
the business of the Company was being conducted in any manner whatsoever;
provided, however, that Executive may own any securities of any corporation
which is engaged in such business and is publicly owned and traded but in an
amount not to exceed at any one time two percent (2.0%) of any class of stock
or securities of such corporation. In addition, Executive shall not, during
the Non-Competitive Period, request or cause any customers of the Company to
cancel or terminate any business relationship with the Company. The Executive
further agrees that, during the Non-Competitive Period, the Executive and any
individual or entity controlled by or under common control with Executive,
shall not, without the Company's prior written consent, solicit, directly or
indirectly, for himself, themselves, or for any other person or entity, any
employee or consultant of the Company or any of its affiliates, or request or
cause any employee or consultant of the Company or any of its affiliates to
terminate her employment or services with the Company or any of its affiliates.
<PAGE> 4
If any portion of the restrictions set forth in this Section 5 should, for
any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
Executive declares that the territorial, time limitations and scope of
activities restricted as set forth in this Section 5 are reasonable and
properly required for the adequate protection of the business of the Company.
In the event that any such territorial, time limitation and scope of activities
restricted is deemed to be unreasonable by a court of competent jurisdiction,
Executive agrees to the reduction of the territorial, time limitation or scope
to the area or period which such court shall have deemed reasonable.
The existence of any claim or cause of action by Executive against the
Company shall not constitute a defense to the enforcement by the Company of the
foregoing restrictive covenants, but such claim or cause of action shall be
litigated separately.
6. Confidentiality. Except in the normal course of business in the
performance of her duties, Executive shall not, during the Term of this
Agreement, or at any time following the end of the Term of this Agreement,
directly or indirectly, disclose or permit to be known, to any person, firm or
corporation, any confidential information acquired by him during the course of,
or as an incident to, her employment hereunder, relating to the Company, the
directors of the Company, or any client of the Company, including, but not
limited to, the business affairs of each of the foregoing. Such confidential
information shall include, but shall not be limited to, proprietary technology,
trade secrets, patented processes, research and development data, know-how,
formulae, pricing policies, the substance of agreements with customers and
others, and arrangements, customers lists and any other documents embodying
such confidential information.
All information and documents relating to the Company shall be the
exclusive property of the Company, and Executive shall use her best efforts to
prevent any publication or disclosure thereof. Upon termination of Executive's
employment with the Company, all documents, records, reports, writings and
other similar documents containing confidential information then in Executive's
possession or control shall be returned and left with the Company.
7. Representations and Agreements of Executive. Executive represents and
warrants that he is free to enter into this Agreement and to perform the duties
required hereunder, and that there are no employment contracts or
understandings, restrictive covenants or other restrictions, whether written or
oral, preventing the performance of her duties hereunder. Executive agrees to
submit to a medical examination (if job related and consistent with business
necessity) and to cooperate and supply such other information and documents as
may be required by any insurance company in connection with the Company's
obtaining life insurance on the life of the Executive, and any other type of
insurance or fringe benefit as the Company shall determine from time to time to
obtain.
8. Notices. Any notices required or permitted to be given hereunder
shall be sufficient if in writing, and if delivered by hand, or sent by
registered or certified mail, return receipt requested, to the Company of the
address set forth above and to Executive at the address set forth in the
personnel records of the Company, or such other address as either party may
from time to time designate in writing to the other, and shall be deemed given
as of the date of the delivery or mailing.
9. Severability. If any of the covenants contained in this Agreement,
any part of any such covenant, are hereafter construed to be invalid or
unenforceable, the same shall not affect the remainder of the covenant or
covenants, or the remainder of the Agreement, which shall be given full effect,
without regard to the invalid portions.
10. Non-Waiver. The waiver or breach of any term or condition of this
Agreement shall not be deemed to constitute a waiver or breach of any other
term or condition.
<PAGE> 5
11. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to its subject matter, and no modification or waiver
of any provision hereof shall be valid unless it is in writing and signed by
all of the parties hereto.
12. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors by reorganization, merger or consolidation and any assignee of all
or substantially all of its business and properties, but, except as to any such
successor or assignee of the Company, neither this Agreement nor any rights or
benefits hereunder may be assigned or transferred by either party without the
prior written consent of the other party.
13. Binding Effect. This Agreement and all of the provisions hereof shall
be binding upon the legal representatives, heirs, distributees, successors and
assigns of the parties hereto.
14. Choice of Law . This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed therein.
15. Headings. The Section headings appearing in this Agreement are for
purposes of easy reference and shall not be considered a part of this Agreement
or in any way modify, amend, or affect its provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EXECUTIVE
By:
------------------------------------
Jeanmarie P. Curley.
DIGENE CORPORATION
By:
------------------------------------
Evan Jones
President & CEO
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT dated as of December 22, 1998 between Digene Corporation, a
Delaware corporation, 9000 Virginia Manor Road, Suite 206, Beltsville,
Maryland, 20705 (the "Company"), and Joseph P. Slattery, 43386 Livery Square,
Ashburn, VA 22011 (the "Executive").
WITNESSETH
WHEREAS, the Company desires to employ Executive on the terms and conditions
herein contained; and
WHEREAS, Executive is willing to enter into this Agreement for employment with
the duties outlined herein on a full-time basis;
NOW, THEREFORE, in consideration of the premises, representations and mutual
covenants and agreements herein contained, the parties agree as follows:
1. Employment. The Company hereby employs the Executive and Executive
hereby accepts employment with the Company for the period beginning January 1,
1999 and ending December 31, 2001, (the "Term"), subject to the terms and
conditions hereinafter contained. Such employment may be renewed upon the
mutual agreement of, and in consideration of such compensation as shall be
established by, the Company and the Executive.
2. Duties. Executive shall perform such duties and functions as the
Board of Directors of the Company (the "Board") may from time to time determine
which are consistent with the position of Vice President, Finance, shall comply
with the policies and reasonable directions of the Board, and shall discharge
his responsibilities in a competent and faithful manner, consistent with sound
business practices.
During the Term of this Agreement, the Executive shall devote his entire
business time, attention and energies to the performance of his duties for the
business of the Company except to the extent that the Board may specifically
approve any outside interests. The Executive shall not, directly or
indirectly, without the consent of a majority of the Board, as owner, partner,
joint venturer, shareholder, employee, corporate officer or director, engage or
become financially interested in, be employed by, or render consulting services
to any business in competition with any business engaged in during the Term by
the Company or its subsidiaries; provided however, that (i) the Executive may
own securities of any corporation which is engaged in any such business and
which is publicly owned and traded, but in an amount not to exceed at any one
time two percent (2.0%) of any class of stock or securities of such company and
(ii) the foregoing shall not be deemed to prohibit the Executive from
conducting and continuing to conduct any business with respect to which the
Executive is engaged as of the date hereof (which businesses are listed in
Exhibit I attached hereto), whether said business is conducted individually or
through an entity in which the Executive has a legal or beneficial interest.
3. Compensation.
a. Salary. During the Term, Executive shall receive a base salary for
services rendered hereunder of $130,000 per year, subject to such increases as
may be approved by the Board, payable not less frequently than monthly
consistent with the regular practices of the Company.
b. Bonus. The Executive shall be entitled to receive, as additional
compensation, on September 1 of each year, an annual cash bonus as set forth in
the Company's Executive Bonus Plan and approved by the Board of Directors of
the Company in its sole discretion.
c. Reimbursement for expenses. The Company agrees to reimburse
Executive in a manner consistent with the regular practices of the Company, for
any and all reasonable business
<PAGE> 2
expenses incurred by Executive in connection with the performance of his
duties, upon presentation of proper vouchers by Executive to support said
expenses. This shall include, but not be limited to, all items of travel,
entertainment, business expenses, and other items of expense while away on
business from the principal office of the Company or engaged in other business
activity.
d. Vacation. Executive shall be entitled to four (4) weeks' paid
vacation in each calendar year in addition to the regularly scheduled Company
holidays. No more than four (4) weeks' vacation can be accumulated and carried
forward from year to year.
e. Other benefits. The Executive shall, in addition, be entitled to
participate in and receive any other fringe benefits customarily provided by
the Company to its employees of comparable standing with the Executive
(including, but not limited to, any profit-sharing, pension, hospital, major
medical insurance and group life insurance plans in accordance with the terms
of such plans), all as determined from time to time by the Board.
4. Termination. Executive's employment by the Company hereunder shall
terminate on the occurrence of:
a. Disability or Death. In the event of Executive's disability or
death during the Term of the Executive's employment, Executive, or his estate,
shall receive one (1) year's base salary. For the purpose hereof, the term
"disability" shall mean Executive's physical or mental inability to perform his
essential duties and responsibilities hereunder, with reasonable accommodation,
for a period of six (6) consecutive months during the term of this Agreement,
it being understood that notwithstanding any such inability to perform his
duties, Executive shall be entitled to receive his compensation as provided
herein until the termination of his employment hereunder. If the Executive is
entitled to long-term disability, the Company will supplement such long-term
disability payments such that payments, in the aggregate, to the Executive
shall not exceed one year's base salary.
b. Justifiable cause. The obligations and liabilities of the Company
to the Executive shall cease as of the date of termination for "justifiable
cause," and Executive shall not be entitled to any further compensation except
for compensation accrued through the date of the termination and except as
otherwise provided herein. Executive will be entitled to all stock, incentive
stock options or equivalents vested as of the date of the Board's termination
action. For the purposes hereof, the term "justifiable cause" shall mean and
be limited to any termination by action of a majority of the Board because of:
Executive's conviction of a felony (which, through lapse of time or otherwise,
is not subject to appeal) or willful refusal without proper cause to perform
his obligations under this Agreement; except in the normal course of business
in the performance of his duties, any material disclosure by Executive to any
person, firm or corporation other than the Company, its subsidiaries and its
and their directors, officers and employees, of any confidential information or
trade secret of the Company or any of its subsidiaries; personal or
professional conduct or action that in the sole judgement of Digene is
inconsistent with it's best interests; or the engaging by Executive in any
business other than the business of the Company and its subsidiaries which
interferes with the performance of his duties hereunder.
c. Without justifiable cause. In the event the Company terminates
this Agreement without justifiable cause (as defined in Section 4.b. hereof),
the parties hereto agree that damages to the Executive shall be difficult to
ascertain in any such event, but in order to limit the liability of the Company
the Executive shall be entitled to receive as liquidated damages and not as
penalty in any such event the following: (i) the amount of the base salary
(excluding bonus) of the Executive remaining due and payable from any such date
of termination for a period of twelve (12) months, which amount shall be
payable in 24 equal installments over the twelve months from such termination
unless the termination without justifiable cause occurs as a result of a change
in control of the Company in which case the the amount due to Employee shall
become payable immediately; (ii) subject to limitations imposed under the
applicable option and incentive plans and grants thereunder, any outstanding
stock, incentive stock options or equivalents that would have vested in the
ordinary course of events until termination plus an additional three months
after the date of termination shall be accelerated and vest immediately upon
such
<PAGE> 3
termination; (iii) any bonus accrued to date pro rata over the course of the
year; (iv) all other benefits accruing to the Executive on or prior to the
expiration date of this Agreement as provided hereunder.
d. Resignation. In the event the Executive resigns during the term of
this Agreement, he shall be entitled to: (i) the pro rata amount of the annual
bonus accrued to the date of resignation: (ii) all stock, incentive stock
options or equivalents vested as of the date of the resignation, subject to the
terms of the appropriate stock purchase agreement (s); (iii) all other benefits
accruing to the Executive on or prior to the expiration date of this Agreement
as provided hereunder.
5. Non-Competition. Executive agrees that for a period of twelve (12)
months after termination of his employment (the "Non-Competitive Period"),
Executive shall not, directly or indirectly, as owner, partner, joint venturer,
stockholder, employee, broker, agent, principal, trustee, corporate officer,
director, licensor, or in any capacity whatsoever engage in, become financially
interested in, be employed by, render any consultation or business advice with
respect to, or have any connection with, any business engaged in the research,
development, testing, design, manufacture, sale, lease, marketing, utilization
or exploitation of any products or services which are designed for the same
purpose as, are generically the same as, or are otherwise competitive with,
products or services of the Company, in existence or under development, in any
geographic area where, at the time of termination of his employment hereunder,
the business of the Company was being conducted in any manner whatsoever;
provided, however, that Executive may own any securities of any corporation
which is engaged in such business and is publicly owned and traded but in an
amount not to exceed at any one time two percent (2.0%) of any class of stock
or securities of such corporation. In addition, Executive shall not, during
the Non-Competitive Period, request or cause any customers of the Company to
cancel or terminate any business relationship with the Company. The Executive
further agrees that, during the Non-Competitive Period, the Executive and any
individual or entity controlled by or under common control with Executive,
shall not, without the Company's prior written consent, solicit, directly or
indirectly, for himself, themselves, or for any other person or entity, any
employee or consultant of the Company or any of its affiliates, or request or
cause any employee or consultant of the Company or any of its affiliates to
terminate his employment or services with the Company or any of its affiliates.
If any portion of the restrictions set forth in this Section 5 should, for
any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
Executive declares that the territorial, time limitations and scope of
activities restricted as set forth in this Section 5 are reasonable and
properly required for the adequate protection of the business of the Company.
In the event that any such territorial, time limitation and scope of activities
restricted is deemed to be unreasonable by a court of competent jurisdiction,
Executive agrees to the reduction of the territorial, time limitation or scope
to the area or period which such court shall have deemed reasonable.
The existence of any claim or cause of action by Executive against the
Company shall not constitute a defense to the enforcement by the Company of the
foregoing restrictive covenants, but such claim or cause of action shall be
litigated separately.
6. Confidentiality. Except in the normal course of business in the
performance of his duties, Executive shall not, during the Term of this
Agreement, or at any time following the end of the Term of this Agreement,
directly or indirectly, disclose or permit to be known, to any person, firm or
corporation, any confidential information acquired by him during the course of,
or as an incident to, his employment hereunder, relating to the Company, the
directors of the Company, or any client of the Company, including, but not
limited to, the business affairs of each of the foregoing. Such confidential
information shall include, but shall not be limited to, proprietary technology,
trade secrets, patented processes, research and development data, know-how,
formulae, pricing policies, the substance of agreements with customers and
others, and arrangements, customers lists and any other documents embodying
such confidential information.
<PAGE> 4
All information and documents relating to the Company shall be the
exclusive property of the Company, and Executive shall use his best efforts to
prevent any publication or disclosure thereof. Upon termination of Executive's
employment with the Company, all documents, records, reports, writings and
other similar documents containing confidential information then in Executive's
possession or control shall be returned and left with the Company.
7. Representations and Agreements of Executive. Executive represents and
warrants that he is free to enter into this Agreement and to perform the duties
required hereunder, and that there are no employment contracts or
understandings, restrictive covenants or other restrictions, whether written or
oral, preventing the performance of his duties hereunder. Executive agrees to
submit to a medical examination (if job related and consistent with business
necessity) and to cooperate and supply such other information and documents as
may be required by any insurance company in connection with the Company's
obtaining life insurance on the life of the Executive, and any other type of
insurance or fringe benefit as the Company shall determine from time to time to
obtain.
8. Notices. Any notices required or permitted to be given hereunder
shall be sufficient if in writing, and if delivered by hand, or sent by
registered or certified mail, return receipt requested, to the Company of the
address set forth above and to Executive at the address set forth in the
personnel records of the Company, or such other address as either party may
from time to time designate in writing to the other, and shall be deemed given
as of the date of the delivery or mailing.
9. Severability. If any of the covenants contained in this Agreement,
any part of any such covenant, are hereafter construed to be invalid or
unenforceable, the same shall not affect the remainder of the covenant or
covenants, or the remainder of the Agreement, which shall be given full effect,
without regard to the invalid portions.
10. Non-Waiver. The waiver or breach of any term or condition of this
Agreement shall not be deemed to constitute a waiver or breach of any other
term or condition.
11. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to its subject matter, and no modification or waiver
of any provision hereof shall be valid unless it is in writing and signed by
all of the parties hereto.
12. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors by reorganization, merger or consolidation and any assignee of all
or substantially all of its business and properties, but, except as to any such
successor or assignee of the Company, neither this Agreement nor any rights or
benefits hereunder may be assigned or transferred by either party without the
prior written consent of the other party.
13. Binding Effect. This Agreement and all of the provisions hereof shall
be binding upon the legal representatives, heirs, distributees, successors and
assigns of the parties hereto.
14. Choice of Law . This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed therein.
15. Headings. The Section headings appearing in this Agreement are for
purposes of easy reference and shall not be considered a part of this Agreement
or in any way modify, amend, or affect its provisions.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EXECUTIVE
By:
------------------------------------
Joseph P. Slattery
DIGENE CORPORATION
By:
------------------------------------
Evan Jones
President & CEO
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