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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES AND EXCHANGE ACT OF 1934
For fiscal year ended March 31, 1996
OR
---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-10961
QUIDEL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2573850
(State or other jurisdiction (I.R.S. Employer
or incorporation or organization) Identification No.)
10165 McKellar Court, San Diego, 92121
California (zip code)
(Address of principal executive
offices)
Registrant's telephone number, including area code (619) 552-1100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.001 par value
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. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of June 7, 1996 was approximately $81,540,000. For the
purposes of this calculation, shares owned by officers, directors and 5%
stockholders known to the Registrant have been deemed to be owned by affiliates.
The number of shares outstanding of the Registrant's Common Stock as of
June 7, 1996 was 21,579,347.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on July 30, 1996 (the "Proxy Statement"), which will be
filed with the Securities and Exchange Commission no later than 120 days after
the close of the Registrant's fiscal year ended March 31, 1996 ("fiscal 1996"),
are incorporated herein as provided in Part III, and portions of the
Registrant's Annual Report to Stockholders for fiscal 1996 (the "1996 Annual
Report"), are incorporated herein as provided in Parts I, II and IV.
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PART I
ITEM 1. BUSINESS
Quidel Corporation discovers, develops, manufactures and
markets rapid immunodiagnostic products for point-of-care detection of human
medical conditions and illnesses. These products provide simple, accurate and
cost-effective diagnoses for acute and chronic conditions in the areas of
reproductive and women's health, infectious diseases, allergies and autoimmune
disorders. Quidel's products are sold to professionals in the physician's
office, and clinical laboratory, and to consumers through retail drug stores.
When used in this Report, "Quidel," the "Company" and the "Registrant" refer to
Quidel Corporation.
Quidel commenced its operations in 1979 and launched its first
products, dipstick-based pregnancy tests, in 1984. The Company has expanded its
product base through internal development and acquisition in the areas of
pregnancy and ovulation, infectious disease, allergy and autoimmune products for
professional and home use. Quidel markets its products in the United States and
in nearly 60 other countries worldwide through a broad network of national and
regional distributors, supported by the Company's direct sales force.
In January 1995, the Company purchased Pacific Biotech, Inc.,
a California corporation ("PBI"), from Eli Lilly and Company. PBI provides a
complementary line of rapid diagnostic tests for pregnancy, strep throat and
mononucleosis. The products are sold under the CARDS(R) O.S.(R), CARDS(R) QS(R),
Concise(R) Plus(TM) and Concise(R) Performance Plus(TM) brand names on a
worldwide basis.
The Company's executive offices are located at 10165 McKellar
Court, San Diego, California 92121 and its telephone number is (619) 552-1100.
INDUSTRY OVERVIEW
Diagnostic tests provide medically important information for
the assessment and management of human health. Immunoassays are diagnostic tests
which utilize biological compounds called antibodies to aid in the detection and
measurement of substances such as antibodies, hormones, bacteria and other
infectious agents from samples derived from blood, urine and other body fluids.
Unlike some other major segments of the diagnostic testing market, immunoassays
lend themselves readily to rapid testing formats, which generally provide test
results in minutes without the need for laboratory instrumentation to perform
and "read or interpret" the test result. The speed and convenience of
immunoassays, in combination with their specificity and sensitivity to
substances which may be present only in minute concentrations, have made them a
tool for the early detection, screening and monitoring of a wide range of
medical conditions.
The rapid testing market has grown recently, with the
following as contributing factors:
- Technological Advances. Historically, the use of
immunoassays was limited primarily to physicians and
laboratory professionals who possessed specialized
training or equipment. Recent advances in
immunochemistry and delivery-system technology have
expanded the range of available tests and made
immunoassays faster, more accurate and easier to use
and interpret. These advances have led to increased
use of immunoassays by physicians and laboratory
professionals and to the introduction of immunoassays
into the over- the-counter market for consumer use in
pregnancy and ovulation testing.
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- Emphasis on Health Care Cost Control. Health care
professionals, government and commercial third-party
payors are placing increasing emphasis on diagnostic
testing as a cost-effective means of early disease
detection. Prompt and accurate testing through
immunoassays may allow therapeutic intervention to be
initiated earlier in the disease process and may
eliminate unnecessary therapy, thus generating
significant cost savings. For example, the use of
immunoassays to distinguish between an allergy and an
upper respiratory infection can lead to immediate
commencement of appropriate therapy rather than more
prolonged and costly approaches that might otherwise
be followed until an accurate diagnosis is made.
- Introduction of New Therapies. Advanced forms of
therapy often require highly specific, real-time
diagnostic information. For example, many infertility
procedures require precise information about the
timing of ovulation. Immunoassays, both as early and
precise indicators of medical conditions and as
monitors of disease progression, aid in improved
patient management and prognosis through more
appropriate and timely use of available and emerging
therapeutic procedures and products.
BUSINESS STRATEGY
The Company's goal is to continue to expand its position as a
worldwide provider of rapid diagnostics for the physician's office, hospital,
clinical laboratory, and home testing markets. Key elements of the Company's
business strategy include:
- Focus on Rapid Diagnostics. The Company has dedicated
its research, manufacturing and marketing resources
to rapid diagnostics and has a well-established
record of developing and bringing to market
innovative products. The Company believes that it is
well positioned to capitalize on the anticipated
growth in the market for low cost, reliable and rapid
diagnostic products. As the move to managed care
increases, the utilization of rapid testing at the
point of care is expected to increase.
- Build on Core Technology. The Company's technology is
based on an innovative blend of biotechnology,
immunochemistry and engineering which has produced a
number of rapid and reliable assays in easy-to- use
test formats. The Company has successfully applied
this technology to the three important phases of
immunoassay product development - generation and
purification of biological reagents, design of
innovative delivery systems and implementation of
manufacturing and engineering systems necessary for
high quality, cost-effective production. The Company
continues to target its new product opportunities in
areas where its core technology and expertise offer
significant competitive advantages.
- Continue to Broaden Product Line. The Company's
strategy is to produce a broad product line of
diagnostic tests which address significant commercial
markets. The Company's growth to date has been
achieved through a combination of internal product
development, collaborative development arrangements
with strategic partners and acquisitions. The Company
believes that a broad product portfolio enhances both
Quidel's reputation in the diagnostic marketplace and
the efficiency of its manufacturing and sales and
marketing organizations. The Company's product
strategy involves increasing emphasis on internally
developed products.
- Utilize Multiple Distribution Channels. The Company
employs multiple distribution channels to address the
unique requirements of the physician's office,
hospital, clinical laboratory, and consumer over-
the-counter and international markets. In the
physician's office, hospital and clinical laboratory
markets, the Company utilizes a
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network of leading medical/surgical product
distributors supported by its direct sales force. In
the consumer over-the-counter market, the Company has
entered into an agreement with Ansell Consumer
Products to perform the sales and marketing of Quidel
branded products. In the international market, the
Company has established a broad network of
distributors who market the Company's products and,
through the use of four European subsidiaries, has
expanded its presence worldwide. The Company is
increasing its emphasis on marketing of its
diagnostic products under Quidel brand names to the
consumer, physicians and clinical laboratories.
TECHNOLOGY
Immunoassays utilize commercially produced protein molecules
called antibodies which react with or bind to specific antigens, such as other
antibodies, viruses, bacteria, hormones and drugs. The antibodies produced in
response to a particular antigen bind specifically to that antigen. This
characteristic allows antibodies to be used in a wide range of diagnostic
applications.
The ability to detect the binding of antibodies to target
antigens forms the basis for immunoassay testing. In immunoassays, antibodies
or, in the case of allergy testing, allergens (allergy-causing substances), are
typically deposited onto a solid substrate. A chemical label is then either
incorporated onto the solid substrate or added separately once the solid
substrate has been exposed to the test sample. If the target antigen is present
in the test sample, the chemical label produces a visually identifiable color
change in response to the resulting antibody or allergen reaction with the
antigen. This provides a clear color endpoint for easy visual verification of
the test results.
Quidel incorporates antibody technology and biochemistry into
uniquely designed and engineered products. Quidel has developed four primary
delivery system formats: dipsticks, flow-through cassettes, microwell tests and
a new delivery system technology based on a proprietary one-step lateral flow
technique. Although each is based on the same general antibody-antigen based
approach, the four formats differ in terms of speed, ease-of-use and
sensitivity, and, as a result, address the particular needs of different
end-user markets.
PRODUCT LIFE CYCLES
The Company's results can be significantly affected by the
phase-out of older products near the end of their product life cycles, as well
as the timing and success of new product introductions. A successful new product
launch can result in strong initial sales as inventories are built up during the
pipeline fill period, followed by a decline in sales before reaching normalized
levels. The ability of the Company to compete successfully in the rapid
diagnostics market depends on the continual development and introduction of new
products. There can be no assurance that the Company will be able to develop
sufficient new product entries to replace older products in a timely manner, or
that its new products will gain significant market acceptance.
VARIABILITY IN DEMAND
Sales levels for several of the Company's products are
affected by seasonal demand trends. Allergy tests, for example, are most heavily
used in the spring and thus have the greatest revenue impact in the fourth
fiscal quarter. Group A strep tests, by contrast, are used primarily in the
winter and tend to benefit the third and fourth fiscal quarters. As a result of
these demand trends, the Company generally may achieve lower results in the
first and second quarters and higher results in the third and fourth quarters of
the fiscal year.
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MARKETING THROUGH STRATEGIC PARTNERS
Prior to fiscal 1994, approximately half of the Company's net
sales had been to Becton Dickinson and Company ("Becton Dickinson") under
arrangements which gave Quidel manufacturing rights and Becton Dickinson
marketing rights to certain products developed by Quidel or jointly developed by
Quidel and Becton Dickinson. The Company's current strategy, however, is to
reduce its dependence on a single strategic partner. Accordingly, sales to
Becton Dickinson decreased to approximately 30% of total net sales in fiscal
1994, approximately 7% of total net sales in fiscal 1995, and approximately 1%
of total net sales in fiscal 1996. The Company's partnering strategy moving
forward is to pursue agreements to develop products under the Quidel brand names
in several areas, including human disease management, collaborations with
pharmaceutical development companies, and non-human areas such as veterinary
medicine.
WOMEN'S REPRODUCTIVE HEALTH
According to a United States Department of Health and Human
Services 1990 estimate, 5 million couples in the United States are affected by
infertility. In addition, the Company believes that a growing number of couples
desire to control the timing of their pregnancies. For conception to occur, it
is necessary for the sperm and the egg to unite during the 12-24 hour period
following ovulation. Tests that predict or confirm the occurrence of ovulation
are important tools, both for the fertility specialist and for the consumer, for
increasing the likelihood of or planning the timing of conception.
In 1984, Quidel introduced OvuKit(R), the first rapid
ovulation prediction product. This product enables women to accurately detect in
a urine sample the sharp increase in luteinizing hormone (LH), which triggers
ovulation. Since the introduction of OvuKit(R), Quidel has continued to expand
its presence in the ovulation market through a broadened line of products
incorporating faster, easier-to-use delivery systems.
- OvuKit(R) Self-Test and OvuQuick(R) Self-Test.
Quidel's ovulation prediction tests each detect
urinary LH and are differentiated according to the
delivery system they employ and the end-user markets
they address. OvuKit Self-Test uses the Company's
proprietary dipstick technology and is marketed by
Quidel to physicians who dispense it to their
patients for home use. OvuQuick Self-Test is a four
minute proprietary technology that is marketed by
Quidel to pharmacies and physicians who in turn
dispense it to their patients.
- Conceive(R) One-Step Ovulation Predictor,
Q-Test(R) Ovulation Test, and OvuQuick(R) One-Step.
The Company introduced Conceive(R) during the fourth
quarter of fiscal 1992. The product represents the
first of a line of new generation rapid one-step
tests and allows the user, in three minutes, to
predict ovulation. Conceive(R) is sold to the
consumer over-the-counter market and is designed for
the family who is planning for conception rather than
for couples with infertility problems. Pursuant to an
agreement in mid-1995, Quidel obtained marketing
rights to Q-Test(R) Ovulation Test and reintroduced
the product in its latest one-step technology. During
fiscal 1996, the Company introduced
OvuQuick(R) One-Step employing this same rapid, one-
step technology.
Sales of the Company's ovulation products for the years ended
March 31, 1996, 1995 and 1994 accounted for approximately 18%, 19% and 28%,
respectively, of total net sales.
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PREGNANCY PRODUCTS
The worldwide pregnancy test market is one of the largest
rapid testing market segments. The early detection of pregnancy allows the
physician and patient to institute proper prenatal care, helping to ensure the
health of the developing embryo and the mother. In 1984, Quidel introduced its
first products for the early detection of pregnancy. These dipstick-based
products detect minute amounts of human Chorionic Gonadotropin ("hCG"), a
hormone which is present in the urine of pregnant women very early in the
gestation period. Since 1984, Quidel has continued to improve its delivery
system technology, resulting in faster, easier-to-use pregnancy detection
products.
- Q-Test(R) Pregnancy Test. Quidel's pregnancy
prediction tests each detect urinary hCG and are
differentiated according to the delivery system they
employ and the end-user markets they address.
Q-Test(R) Pregnancy Test originally used the
Company's patented dipstick chemistry and was sold in
the consumer over-the-counter market by Becton
Dickinson pursuant to a distribution agreement with
Quidel. In the second half of fiscal 1995 marketing
rights were transferred to Quidel, and the Company
updated the product with its latest one- step
technology.
- Conceive(R) One-Step Pregnancy Test, QuickVue(R)
One-Step Pregnancy Test, QuickVue(R) One-Step
Urine-Serum Combo Test and RapidVue(R) One-Step
Pregnancy Test. As a complement to the Company's
Conceive(R) line of family planning products, the
Company introduced the Conceive(R) One- Step
Pregnancy Test in fiscal 1993 and the RapidVue(R)
One-Step Pregnancy Test in fiscal 1994. Both tests
utilize lateral flow technology, provide results in
as fast as one minute and address two different
segments of the over-the-counter market. QuickVue(R)
One-Step Pregnancy Test is the professional pregnancy
product and the QuickVue(R) One-Step Urine-Serum
Combo test provides doctors' offices and hospitals
with the convenience of using either a urine or serum
sample for their pregnancy determinations. During
fiscal 1994, the Company began distribution of its
Conceive(R) One-Step products in Europe under the
existing French tradenames of Blue Test(R) Confidence
Pregnancy Test (Europe) and BlueCard(R) pregnancy
Test (France). During fiscal 1996, the Company
launched a new brand in Spain under the SupraPlus(R)
trademark.
- CARDS(R) QS(R) HCG-Urine and Concise(R) Performance
Plus(TM) HCG-Urine. The PBI one-step pregnancy test
has strong trademark recognition globally in
professional markets and in selected over-the-counter
markets. The tests' plus and minus sign endpoints
provide easy results interpretation which have
universal appeal.
Sales of the Company's pregnancy products for the years ended
March 31, 1996, 1995 and 1994 accounted for approximately 49%, 44% and 24%,
respectively, of total net sales.
INFECTIOUS DISEASE PRODUCTS
Infectious diseases are the cause of a wide range of often
debilitating and potentially fatal health care problems. The Company
manufactures and markets a variety of products designed to detect several common
infectious diseases. These tests detect the specific infectious agent, generally
bacterial or viral in nature, or antibodies generated in response to the
infection. The Company's products are targeted to the professional market where
the early detection of infectious diseases through rapid diagnostics can provide
opportunities for more effective and efficient therapeutic intervention.
- Quidel QuickVue(R) In-Line One-Step Strep A Test.
Each year millions of people in the United States are
tested for Group A streptococcal infections, commonly
referred to as strep throat. Group A streptococci are
organisms that typically cause illnesses such as
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tonsillitis, pharyngitis and scarlet fever which, if
left untreated, can progress to complications such as
rheumatic fever. During fiscal 1995, the Company
introduced a unique one-step test which utilizes an
in-line extraction procedure from a throat swab
specimen. This test differentiates itself from all
other strep tests which require as many as five or
six separate and sometimes time-dependent steps. In
March 1996, this test received CDC-CLIA Waived
classification status which potentially expands the
market available for this product.
- Q-Test(R) Strep. This product was developed under a
research and development agreement with Becton
Dickinson and is sold to the physician's office
market worldwide exclusively by Becton Dickinson. The
manufacturing rights to the Q-Test(R) Strep product
were transferred to Becton Dickinson during fiscal
1995; as such there were no sales of the product in
fiscal 1996. As a percent of the Company's total
sales, the product declined to 3% in fiscal 1995,
from 24% and 35% in fiscal 1994 and 1993,
respectively.
- CARDS(R) QS(R) Strep A and Concise(R) Performance
Plus(TM) Strep A. The PBI brands of Strep A tests are
notable for their easy to read plus and minus sign
endpoints. The simple procedure is ideally suited for
large volume testing sites such as reference
laboratories and HMOs. These products were under
development during fiscal 1996 as the Company
converted PBI's technology to its own for improved
operational efficiencies. Both products were under
FDA review for market clearance during fiscal 1996.
- Quidel QuickVue(R H. Pylori Test. In February 1994, a
meeting convened by the National Institutes of Health
confirmed Helicobacter pylori (H. pylori) as a major
cause of ulcers and chronic gastritis. The Quidel
QuickVue(R) H. Pylori Test kit was the first rapid
test developed and then cleared by the U.S. Food and
Drug Administration ("FDA") for the physician's
office market. The test uses a few drops of serum or
plasma and provides results in as few as four
minutes. During fiscal 1996, the Company's
QuickVue(R) One Step H. Pylori Test was cleared for
sale by the FDA. This product employs the Company's
Generation III, one-step technology and can also use
finger stick whole blood samples which are very
convenient for the physician.
- Quidel QuickVue(R) Group B Strep. Group B
streptococcal infection is a vaginal infection that,
when transferred to a newborn during birth,
frequently results in significant physical handicaps,
mental retardation or death for the infected baby.
The Quidel Group B Strep product is one of the first
rapid screening tests using a vaginal swab that
allows detection of Group B strep. This test is
suitable for use both in routine screening and in the
labor and delivery setting.
- CARDS(R) O.S.(R) Mono and Concise(R) Plus(TM) Mono.
Infectious mononucleosis ("IM") is a self-limiting
disease in adolescence which often has symptomology
mimicking other potentially serious disease states.
Screening for IM is an important step to insure
proper patient follow-up. The PBI mononucleosis test
was the first to utilize a simple whole blood patient
sample. The plus and minus sign endpoints are easy to
interpret and make this test easy to use in the
physician's office.
- QuickVue(R) Chlamydia Test. The Chlamydia trachomatis
organism is responsible for the most widespread
sexually transmitted disease in the United States.
Over one-half of infected women do not have symptoms
and if left untreated, Chlamydia can cause pelvic
inflammatory disease and is a leading cause of
involuntary sterility. The test utilizes the
Company's lateral flow technology, it is fast and
easy to use in the doctor's office or clinical
laboratory.
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Total sales of the Company's infectious disease products for
the years ended March 31, 1996, 1995 and 1994 accounted for approximately 17%,
18%, and 29%, respectively, of total net sales.
ALLERGY PRODUCTS
It is currently estimated that over 40 million people in the
United States suffer from one or more significant allergies. Differentiating the
allergic rhinitis patient from one with viral or bacterial upper respiratory
distress is an important step in prescribing the appropriate patient treatment.
The recent introduction of non-sedating antihistamine drugs for the treatment of
various allergic conditions has increased the importance of accurate allergy
diagnosis. Historically, the basic tool for allergy testing has been skin
testing, a procedure which requires the injection or scratching of the skin with
a tiny amount of allergen followed by an evaluation of the inflamed zone.
Technological advances at Quidel have made in vitro tests available in a format
which requires no specialized equipment, is easy to use and can be readily
performed in the primary care physician's office.
- Quidel Allergen Screen. This test, which uses the
Company's multi- analyte dipstick technology, detects
certain allergen-specific antibodies, called IgE
antibodies, in serum or whole blood. The Company
currently markets five panels for allergens common to
specific regions of the United States, seven panels
for Europe and five panels for Japan and Asia. The
product is sold by Quidel to physicians for in-office
use.
- Quidel Total IgE. This test, which uses the Company's
proprietary dipstick technology, detects total IgE
antibodies in serum or whole blood. The test is
designed as a preliminary screen of potentially
allergic patients and is used in conjunction with the
Quidel Allergen Screen products. The product is sold
by Quidel to physicians for in- office use.
- Quidel Food Allergen Screen. This product, which uses
the Company's multi-analyte dipstick technology,
detects IgE antibodies in serum or whole blood. The
Company currently markets a United States and a
European food panel. The product is sold by Quidel to
physicians for in-office use.
- Quidel Reflectance Analyzer ("QRA"). The QRA,
developed in conjunction with an outside vendor, is
an instrument designed to provide quantitative
results for the Quidel allergy line. The product is
primarily sold in foreign markets through
distributors.
- QuickVue(R) One-Step Allergen Screen. This one-step
test screens for five common indoor allergens. It is
designed for use by primary care physicians to
differentiate allergy symptoms such as rhinitis and
wheezing from viral or bacterial upper respiratory
infections such as cold and flu. The test utilizes a
small blood sample obtained from a finger stick and
provides results in 15 minutes or less.
Total sales of the Company's allergy products for the years
ended March 31, 1996, 1995 and 1994 accounted for approximately 8%, 8%, and 12%,
respectively, of total net sales.
AUTOIMMUNE PRODUCTS
Autoimmune disorders, such as rheumatoid arthritis and
systemic lupus erythematosus, are among the most complex major medical problems
not yet conquered by medical science. Diagnostic testing in this area is an
emerging field. Much of the current knowledge about
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diagnosis and monitoring of these diseases has been discovered within the last
decade and is based on the fact that circulating immune complexes ("CICs")
appear to act as accurate markers for autoimmune disorders. The current market
for autoimmune diagnostic products is in the clinical laboratory. Quidel
believes that, as this testing market develops and moves toward more rapid,
non-instrumented testing procedures, the market for diagnostic testing for
autoimmune disorders will increase, particularly in the physician's office
segment.
Quidel's Immune Complex Products include tests for the
measurement of CICs and antibodies directed against the body's own healthy
cells, and other tests which measure the activation of other components of the
immune response system. These tests may enhance the ability to diagnose disease
onset, to monitor disease progression, to evaluate organ damage and to assess
the effects of therapy. In addition, Quidel offers a line of monoclonal and
polyclonal antibodies, purified complement proteins and other specialized
reagents sold primarily to research scientists.
RESEARCH AND PRODUCTS UNDER DEVELOPMENT
In the development of new products, the Company seeks to
maximize product reliability, speed, shelf-life and ease-of-use, while ensuring
cost-effective manufacturing through automation and engineering design. Quidel
is currently developing several new products in a delivery system format based
on a proprietary one-step lateral flow technology, which the Company believes
will provide faster results and be more convenient to use than previous test
formats. Quidel's future products include: a male Chlamydia test, additional
one-step allergy screens (an outdoor panel and a food panel), and a QuickVue(R)
Fecal Hemoglobin Test, which measures non-obvious blood in the feces for the
identification of patients at risk for colorectal cancer. Quidel believes that
it has made significant progress in the development of its new products;
however, all such products are still subject to substantial uncertainty
regarding completion of development, clinical trials and regulatory clearance.
There can be no assurance of the successful development or marketing of new
products.
For the fiscal years ended March 31, 1996, 1995 and 1994, the
Company incurred $4,130,000, $3,728,000, and $3,830,000, respectively, for
research and development, including costs incurred under research contracts.
RESEARCH AND DEVELOPMENT COLLABORATIONS
Since its inception, the Company has entered into research and
development collaborations with other companies in order to increase the pace of
its new product introductions. The Company's research and development agreements
have, in the past, generally provided that the research and development partner
fund a portion of the research and development cost of a new product in exchange
for exclusive marketing rights to such product in a specific geographic region
once the product is introduced. Such partner also agrees to enter into a supply
agreement with Quidel when the new product is introduced, pursuant to which
Quidel agrees to manufacture and such partner agrees to purchase from Quidel
certain minimum quantities of the product to be sold by such partner.
The Company's new research and development collaboration
strategy emphasizes human disease management. This strategy pairs the Company's
development efforts with the drug development efforts of pharmaceutical
companies. The goal of such collaborations is to have available a differential
diagnostic rapid test at the time of market introduction of the therapeutic
product. By diagnostically identifying the patients most likely to benefit from
new therapies, it is believed that costs related to inappropriate therapy
delivered to "negative" patients can be avoided, while increasing the efficacy
of therapy among those patients most in need.
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During fiscal 1996, the Company signed a Heads of Terms
agreement with Glaxo Group Ltd., a wholly-owned subsidiary of Glaxo Wellcome, to
develop an influenza A and B diagnostic test to be used in conjunction with
their new drug to treat influenza, presently in phase II clinical trials
worldwide.
MARKETING AND DISTRIBUTION
The Company markets its products through a network of domestic
and international distributors, European subsidiaries and to a lesser extent
strategic partners, all of which are directed at three primary market segments:
physician's office, hospitals and clinical laboratories, and consumer
over-the-counter.
- U.S. Physician's Office. Quidel utilizes various
national and regional distributors to service the
physician's office market, supporting these
distributors' efforts with the Company's own sales
force. The Company believes that this approach
affords it greater control over product marketing
with a greater ability to introduce product
innovations in response to market demands. The
Company supports and promotes its products to this
market segment through direct mailings of product
information, trade journal advertising, sales calls,
press releases and presentations at professional
conferences.
- U.S. Hospitals and Clinical Laboratories. Quidel
serves a select group of hospitals and clinical
laboratories through its national distributors,
supported by sales specialists.
- U.S. Consumer Over-the-Counter. During the past three
years, with the introduction of its
Conceive(R) Ovulation Predictor and Conceive(R)
Pregnancy Test, the Company has increased its
presence in the consumer market with Quidel branded
products. These products were sold to chain and
independent drug stores through a network of brokers,
wholesalers and directly by the Company. The Company
recently entered into an agreement with Ansell
Consumer Products, under which Ansell will assume the
sales and marketing of the Quidel brands.
- International. Quidel markets its products to these
same three market segments in over 60 countries. The
Company's primary international territories include
Korea, Japan, Germany and other Western European
countries. In some cases, Quidel ships its products
unpackaged to its international distributors, who
perform final packaging of the products to meet local
market requirements. This provides the Company with
quick access to multiple international markets
without the costs, regulatory issues and inventory
investment associated with international packaging.
In order to increase sales and marketing focus within
the European markets, the Company has acquired or
established sales subsidiaries in France, Germany,
The Netherlands and Spain.
In the fiscal years ended March 31, 1996, 1995 and 1994,
export sales, which are denominated in United States dollars and represent
export sales from the United States to third parties, were $9,051,000,
$6,562,000, and $4,919,000, respectively. Total international sales, including
both export sales from the United States to third parties and third party sales
by Quidel's European subsidiaries, represented approximately 39%, 34%, and 25%
of total net sales for the fiscal years ended March 31, 1996, 1995 and 1994,
respectively. For additional information concerning export sales by geographic
region, see Note 4 of Notes to Consolidated Financial Statements included on
page 19 of the Company's 1996 Annual Report incorporated herein by reference.
The Company generally ships products to its customers within
15 days of receipt of purchase orders. Shipments to international distributors
are made under purchase orders received from 30 to 90 days in advance of
shipment. Because the amounts ordered and the lead
10
<PAGE> 11
times specified vary widely from order to order and period to period, the
Company does not consider backlog to be a meaningful indicator of future
revenues.
MANUFACTURING
Quidel's manufacturing facilities, located in San Diego,
California, consist of laboratories devoted to tissue culture and
immunochemistry, and production areas dedicated to packaging and filling. In the
manufacturing process, the Company uses biological, chemical and packaging
supplies and equipment which are generally available from several competing
suppliers.
The Company believes that its manufacturing is conducted in
compliance with the "Good Manufacturing Practices" ("GMP") regulations of the
FDA governing the manufacture of medical devices. Quidel has registered its
facility with the FDA and with the Department of Health Services of the State of
California and has passed routine federal and state inspections confirming the
Company's compliance with the GMP regulatory requirements for in vitro
diagnostic products.
The manufacture of medical diagnostic products is difficult,
particularly with respect to the stability and consistency of complex biological
components. Because of these complexities, manufacturing difficulties
occasionally occur that delay the introduction of products, result in excess
manufacturing costs or require the replacement of products already introduced
into the distribution channel.
GOVERNMENT REGULATION
The manufacture and marketing of medical devices, including in
vitro diagnostic test kits, are regulated under the 1976 Medical Device
Amendments to the Federal Food, Drug and Cosmetic Act and its amended and/or new
provisions under the Safe Medical Act of 1990. These regulations are
administered by the FDA. While these regulations are demanding, they are
considerably less burdensome than those applicable to the manufacture and
marketing of drugs or monoclonal antibodies for in vivo applications. In
addition to the foregoing, the Company's present and future operations or
products may be subject to regulation under the Occupational Safety and Health
Act, Environmental Protection Act, Resource Conversion and Recovery Act, Toxic
Substances Control Act, Clinical Laboratory Improvement Act and other present or
possible future legislation and regulations, as well as by governmental agencies
with regulatory authority relating to the Company's business.
PATENTS AND TRADE SECRETS
Because of the length of time and the expense associated with
bringing healthcare products through development and government approval to the
marketplace, the healthcare industry has traditionally placed considerable
importance on obtaining and maintaining patent and trade secret protection for
significant new technologies, products and processes. Quidel and other companies
engaged in research and development of new diagnostic products using advanced
biomedical technologies are actively pursuing patents for their technologies
which they consider novel and patentable. However, important legal issues remain
to be resolved as to the extent and scope of available patent protection in the
United States and in other important markets worldwide. The resolution of these
issues and their effect upon the long-term success of Quidel and other
biotechnology firms cannot be determined.
It has been Quidel's policy to file for patent protection in
the United States and other countries with significant markets, such as Western
European countries and Japan, if the economics are deemed to justify such filing
and Quidel's patent counsel determines that a strong
11
<PAGE> 12
patent position can be obtained. Quidel currently has been issued and/or
licensed twenty-three United States patents with potential applications for
diagnostic products and has additional United States patent applications on file
covering technology with potential diagnostic uses. No assurance can be given
that patents will be issued to Quidel pursuant to its patent applications in the
United States and abroad or that Quidel's patent portfolio will provide Quidel
with a meaningful level of commercial protection.
A large number of individuals and commercial enterprises seek
patent protection for technologies, products and processes in fields related to
Quidel's areas of product development. To the extent such efforts are
successful, Quidel may be required to obtain licenses in order to exploit
certain of its product strategies. There can be no assurance that such licenses
will be available to Quidel at all, or if so, on acceptable terms.
Quidel is aware of certain issued and filed patents, issued to
various developers of diagnostic products with potential applicability to
Quidel's diagnostic technology. The Company has licensed certain rights from
companies such as Syntex and Becton Dickinson. There can be no assurance that
Quidel would prevail if a patent infringement claim were to be asserted against
Quidel.
Quidel seeks to protect its trade secrets and nonproprietary
technology by entering into confidentiality agreements with employees and third
parties (such as potential licensees, customers, joint ventures and
consultants). In addition, Quidel has taken certain security measures in its
laboratories and offices. Despite such efforts, no assurance can be given that
the confidentiality of Quidel's proprietary information can be maintained. Also,
to the extent that consultants or contracting parties apply technical or
scientific information independently developed by them to Quidel projects,
disputes may arise as to the proprietary rights to such data.
Under certain of its distribution agreements, Quidel has
agreed to indemnify the distributor against costs and liabilities arising out of
any patent infringement claim by a third party relating to products sold under
those agreements. In some cases, the distributor has agreed to share the costs
of defending such a claim and will be reimbursed for the amount of its
contribution if the infringement claim is found to be valid.
COMPETITION
The Company believes that the competitive factors in the rapid
diagnostic market include convenience, price and product performance as well as
the distribution, advertising, promotion and brand name recognition of the
marketer. Competition in the development and marketing of diagnostic products is
intense and diagnostic technologies have been subject to rapid change.
Management believes that Quidel's success will depend on its ability to remain
abreast of technological advances, to introduce technologically advanced
products, and to attract and retain experienced technical personnel, who are in
great demand. Many of the Company's current and prospective competitors,
including several large pharmaceutical and diversified health care companies,
have substantially greater financial, marketing and other resources than Quidel.
There can be no assurance that technological advances by competitors will not
render the Company's products obsolete, or that it will be able to compete
successfully in the marketing of products.
HUMAN RESOURCES
As of March 31, 1996, the Company had 263 employees, none of
whom is represented by a labor union. The Company has experienced no work
stoppages and believes that its employee relations are good.
12
<PAGE> 13
Item 2. PROPERTIES
The Company's executive, administrative, manufacturing and
research and development facilities are located in San Diego, California. On
February 8, 1994, the Company purchased the land underlying such facilities and
the 65,000 square-foot building located thereon for approximately $7,700,000.
The Company believes that its current facilities are adequate for its present
needs.
PBI, which was acquired during the fourth quarter of fiscal
1995, initially had three leased facilities. The leases related to two of PBI's
production facilities were terminated on March 31, 1995 and April 30, 1995. The
remaining facility lease terminated on October 15, 1995. All of the PBI business
activities have been consolidated into the Quidel facilities.
Item 3. LEGAL PROCEEDINGS
The Company received a letter dated April 24, 1992 from the
United States Environmental Protection Agency (the "EPA") notifying the Company
that it is a potentially responsible party for cleanup costs at a federal
Superfund site, the Marco of Iota Drum Site (the "Marco Site"), near Iota,
Louisiana. Documents gathered in response to such letter indicate that the
Company sent a small amount of hazardous waste to facilities in Illinois. It is
possible that subsequently, such waste could have been transshipped to the Marco
Site. The EPA letter indicates that a similar notice regarding the Marco Site
was sent by the EPA to over 500 other parties. At this time, the Company does
not know how much of its waste may have reached the Marco Site, the total volume
of waste at the Marco Site or the likely site remediation costs. Based upon the
small amount of waste involved, however, the Company does not believe at this
time that the resolution of this matter will have a material adverse effect on
the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all executive officers of the
Company as of June 7, 1996 are listed below, followed by a brief account of
their business experience during the past five years. Officers are normally
appointed annually by the Board of Directors at a meeting of the directors
immediately following the Annual Meeting of Stockholders. There are no family
relationships among these officers nor any arrangements or understandings
between any officer and any other person pursuant to which an officer was
selected. None of these officers has been involved in any court or
administrative proceeding within the past five years adversely reflecting on the
officer's ability or integrity.
Steven T. Frankel, 53, Chief Executive Officer, President and
Chief Operating Officer, joined Quidel in June 1992 as President and Chief
Operating Officer. In May 1994, Mr. Frankel was elected Chief Executive Officer
of the Company. Mr. Frankel has over 25 years of experience in the areas of
sales and marketing to the medical professional and consumer markets. Most
recently as the head of the Asia Pacific Division of Becton Dickinson, he was
responsible for sales and marketing, manufacturing and country operations. Prior
to establishing the Asia Pacific Division in 1985, Mr. Frankel was President of
Becton Dickinson's U.S. Consumer Products Division and also had similar
responsibility for Becton Dickinson's European Consumer Products Division.
13
<PAGE> 14
Steven C. Burke, 51, Vice President - Finance and
Administration and Chief Financial Officer, joined Old Quidel in 1986. From May
1984 until August 1986, he was Vice President, Controller of American Bentley, a
subsidiary of American Hospital Supply. Mr. Burke is a Certified Public
Accountant.
Darryll J. Getzlaff, 45, Vice President - Human Resources,
joined Old Quidel in April 1987 with nine years of personnel management
experience, with special expertise in recruiting, management development and
equal opportunity. Mr. Getzlaff was Personnel Director, Corporate Marketing, for
the Ernest & Julio Gallo Winery from December 1984 until March 1987.
David C. McCaslin, 46, Senior Vice President - Strategic
Partnering, joined Old Quidel in 1987 as Vice President for Manufacturing and
Operations. In 1992, he assumed responsibility for corporate development,
licensing and international sales, was named Senior Vice President of Sales and
Marketing in April 1994, and became the Senior Vice President of Strategic
Partnering in February 1996.
Lauren G. Otsuki, 43, Vice President - Operations, joined Old
Quidel in May 1983 and held numerous positions in Operations from 1983 to 1989,
including Manager of Quality Control, Manager of Process Development and
Director of Manufacturing. From November 1989 to January 1992 she was the
Director of Business Development and in January 1992 became the Vice President
of Operations.
Allan D. Pronovost, Ph.D., 44, Vice President - Research and
Development, joined Old Quidel in April 1987. Dr. Pronovost has over 12 years
of experience in the diagnostic industry and held various key research and
development positions at Eastman Kodak from 1986 to March 1987, Ortho
Diagnostic Systems, Inc. from 1983 to 1986, and E.I. duPont Corporation from
1980 to 1983. Dr. Pronovost received his post-doctoral clinical training at
Yale University School of Medicine and received his Ph.D. degree in virology
from the University of Rhode Island. He has a number of patents and has
published numerous papers in immunology and diagnostic assay methods.
Jeanne Kettlewell Russell, 41, Vice President - Business
Development, joined Quidel through the acquisition of PBI. She had been the Vice
President of Sales and Marketing at PBI since affiliating with the small
start-up company in 1987. Prior to PBI, Mrs. Russell spent eight years in
various sales and marketing management positions with Baxter Healthcare/American
Hospital Supply.
John D. Tamerius, Ph.D., 50, Vice President - Clinical
Laboratory Business, joined Old Quidel in August 1989 and assumed responsibility
for quality assurance and clinical and regulatory affairs. In April 1994, Dr.
Tamerius became responsible for the research and development, manufacture and
sales and marketing activities for the Company's clinical laboratory business.
From 1983 to 1989, Dr. Tamerius served as Vice President of Research and
Development for Cytotech, Inc. where he was in charge of Corporate Research
Programs and Clinical and Regulatory Affairs. Before co-founding Cytotech, Inc.,
Dr. Tamerius was a postdoctoral fellow at the Fred Hutchinson Research Center in
Seattle, Washington from 1976 to 1978 and a research associate at the Research
Institute of Scripps Clinic in San Diego, California from 1978 to 1983. Dr.
Tamerius received his M.S. and Ph.D. degrees in Microbiology and Immunology from
the University of Washington in 1976.
Robin G. Weiner, 40, Vice President - Clinical Development and
Regulatory Affairs, joined Old Quidel in March 1982. She has over twelve years
experience in regulatory affairs and has held numerous management positions at
Quidel in Operations and Clinical/Regulatory. From December 1992 to July 1995
she was Senior Director of Clinical, Regulatory and Quality Systems and in July
1995 was promoted to Vice President.
14
<PAGE> 15
Elliot Werber, 50, Vice President - Sales and Marketing,
joined Quidel in May 1996. He was most recently Vice President of Sales and
Marketing for the Primary Care Market area of General Medical, the nation's
largest distributor of medical products to physicians' offices, clinics, surgery
centers and nursing homes. Mr. Werber joined General Medical in 1994, after the
merger with F.D. Titus and Son, where he was Director of Sales since 1992. From
1980 to 1991, he held a series of increasingly responsible sales and marketing
management positions in the medical and surgical supply industry. Mr. Werber
began his career in healthcare in 1972 with the Kendall Company and held sales
management positions until 1978. He then joined the Clay Adams Division of
Becton Dickinson in 1978 as Western Region Manager.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is included on page 22
of the Registrant's 1996 Annual Report and is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
The information required by this item is included on page 1 of
the Registrant's 1996 Annual Report and is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this item is included on pages 10
- - 12 of the Registrant's 1996 Annual Report and is incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included on pages 13
- - 21 of the Registrant's 1996 Annual Report and is incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is included in the
sections entitled "Election of Directors" and "Executive Compensation and Other
Information - Compliance with Section 16(a) of the Exchange Act" of the Proxy
Statement which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal 1996 year and is incorporated
herein by reference and is included in the section entitled "Executive Officers
of the Registrant" in Part I of this Report.
15
<PAGE> 16
Item 11. EXECUTIVE COMPENSATION
The Company maintains certain employee benefit plans and
programs in which its executive officers are participants. Copies of these plans
and programs are set forth or incorporated by reference as Exhibits 10.1, 10.4,
10.5, 10.6, 10.8, and 10.12 to this report. The additional information required
by this item is included in the section entitled "Executive Compensation and
Other Information" of the Proxy Statement which will be filed with the
Securities and Exchange Commission no later than 120 days after the close of the
fiscal 1996 year and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is included in the
sections entitled "Security Ownership of Certain Beneficial Owners" and
"Security Ownership of Management" of the Proxy Statement which will be filed
with the Securities and Exchange Commission no later than 120 days after the
close of the fiscal 1996 year and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements, Financial Statement Schedules
and Exhibits
I. Financial Statements. The following Financial
Statements of the Registrant listed below are
incorporated herein by reference from the
following pages of the 1996 Annual Report:
<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT
-------------
<S> <C>
1. Report of Ernst & Young LLP, Independent Auditors 23
2. Consolidated Balance Sheets --
March 31, 1996 and 1995 14
3. Consolidated Statements of Operations --
Years ended March 31, 1996, 1995 and 1994 13
4. Consolidated Statements of Stockholders' Equity --
Years Ended March 31, 1996, 1995 and 1994 16
5. Consolidated Statements of Cash Flows --
Years Ended March 31, 1996, 1995 and 1994 15
6. Notes to Consolidated Financial Statements 17-21
</TABLE>
16
<PAGE> 17
II. Financial Schedules. None.
(b) Reports on Form 8-K filed in the fourth quarter of
fiscal 1996:
None.
(c) Exhibits:
Exhibit
Number
------
3.1 Certificate of Incorporation, as amended.
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Current Report on Form 8-K dated February
26, 1991.)
3.2 Amended and Restated Bylaws. (Incorporated by
reference to Exhibit 3.2 to the Registrant's Current
Report on Form 8-K dated June 16, 1995.)
3.3 Certificate of Designations of the Series B Preferred
Stock. (Incorporated by reference to Exhibit 4.1 to
the Registrant's Current Report on Form 8-K dated
January 5, 1995.)
10.1* Registrant's 1983 Employee Stock Purchase Plan, as
amended. (Incorporated by reference to Exhibit 10.1 to
the Registrant's Current Report on Form 8-K dated
February 26, 1991.)
10.2 Form of Indemnification Agreement - Corporate Officer.
10.2.1 Form of Indemnification Agreement - Corporate
Director.
10.3 Form of Warrant Agreement between Registrant and
American Stock Transfer & Trust Company.
10.4* Registrant's 1990 Employee Stock Option Plan.
(Incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990.)
10.5 Registrant's 1990 Director Option Plan. (Incorporated
by reference to Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.)
10.6 Registrant's Amended 1981 Stock Option Plan, as
revised. (Incorporated by reference to Exhibit 10.5 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990.)
10.7 Common Stock and Warrant Purchase Agreement dated
November 2, 1990 between Morgan Investment Corporation
and Old Quidel, including form of Common Stock
Warrant. (Incorporated by reference to Exhibit 10.6 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990.)
10.8 Registrant's Amended and Restated 1982 Incentive and
Nonstatutory Stock Option Plans, including Form of
Option Agreement. (Incorporated by reference to
Exhibit 10.28 to the Registrant's Registration
Statement No. 33-38324 on Form S-4 filed on December
20, 1990.)
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<PAGE> 18
10.9 Form of Registration Rights Agreement of the
Registrant. (Incorporated by reference to Appendix C
to the final Joint Proxy Statement/Prospectus dated
January 4, 1991 included within Amendment No. 2 to the
Registrant's Registration Statement No. 33-38324 on
Form S-4 filed on January 4, 1991.)
10.10 Common Stock and Warrant Purchase Agreement dated
January 31, 1991, by and among Old Quidel, John
Hancock Capital Growth Fund IIB L.P., John Hancock
Capital Growth Fund III L.P., H&Q Healthcare
Investors, S.R. One, Limited and Golodetz Finance
Company, S.A., including form of Common Stock Warrant.
(Incorporated by reference to Exhibit 10.52 to the
Registrant's Current Report on Form 8-K dated February
26, 1991.)
10.11 Assumption Agreement dated January 31, 1991.
(Incorporated by reference to Exhibit 10.52.1 to the
Registrant's Current Report on Form 8-K dated February
26, 1991.)
10.12* Summary of Management Incentive Compensation Plan as
in effect in fiscal 1997.
10.13 Warrant to Purchase Common Stock issued to Imperial
Bank. Issued February 8, 1994, 117,871 shares with an
initial exercise price of $5.94 per share. Warrant
expires February 8, 1999. (Incorporated by reference
to Exhibit 10.43 to the Registrant's Form 10-Q dated
December 31, 1993.)
10.14 Consulting Agreement, dated May 12, 1994, between the
Registrant and Scott L. Glenn and SR Associates.
(Incorporated by reference to Exhibit 10.45 to the
Registrant's Form 10-K dated March 31, 1994.)
10.15 Trademark License Agreement dated October 1, 1994
between the Registrant and Becton Dickinson and
Company regarding the Q- Test trademark.
10.16 Security and Loan Agreement with Imperial Bank to loan
70% of eligible accounts receivable up to $3,000,000.
Dated March 29, 1995.
10.17 Warrant to Purchase 275,000 Shares of Common Stock
issued to Genesis Merchant Group Securities on May 16,
1995 at an initial exercise price of $4.50 per share.
Warrant expires January 15, 2000.
10.18 Stock Purchase Agreement dated January 5, 1995 between
Registrant and Eli Lilly & Company for the sale of all
the outstanding capital stock of Pacific Biotech, Inc.
(Incorporated by reference to Exhibit 2.1 to the
Registrant's Form 8-K dated January 5, 1995.)
13.1* Certain portions of the 1996 Annual Report to
Stockholders for the fiscal year ended March 31, 1996
which have been incorporated herein by reference.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
27* Financial Data Schedule.
* Filed herewith.
18
<PAGE> 19
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.
QUIDEL CORPORATION
Date: June 27, 1996 By: /S/ STEVEN C. BURKE
-----------------------------------
Steven C. Burke
Vice Pres. - Finance and Administration
(Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Date: June 27, 1996
<TABLE>
<S> <C>
/S/ RICHARD C.E. MORGAN /S/ ROCKELL N. HANKIN
- -------------------------------------- ---------------------------------------
Richard C.E. Morgan Rockell N. Hankin
Chairman of the Board Director
/S/ STEVEN T. FRANKEL /S/ MARY LAKE POLAN
- -------------------------------------- ---------------------------------------
Steven T. Frankel Mary Lake Polan
President and Chief Executive Officer Director
(Principal Executive Officer)
Director
/S/ JOHN D. DIEKMAN /S/ FAYE WATTLETON
- -------------------------------------- ---------------------------------------
John D. Diekman Faye Wattleton
Director Director
/S/ THOMAS A. GLAZE /S/ STEVEN C. BURKE
- -------------------------------------- ---------------------------------------
Thomas A. Glaze Steven C. Burke
Director Vice Pres. - Finance and Administration
(Principal Financial Officer and
Principal Accounting Officer)
/S/ ROGER F. GREAVES
- --------------------------------------
Roger F. Greaves
Director
</TABLE>
19
<PAGE> 1
Exhibit 10.1
REGISTRANT'S 1983 EMPLOYEE STOCK PURCHASE PLAN
QUIDEL CORPORATION
(FORMERLY MONOCLONAL ANTIBODIES, INC.)
1983 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED THROUGH MARCH 31, 1996)
The following constitute the provisions of the 1983 Employee
Stock Purchase Plan (herein called the "Plan") of Quidel Corporation, a Delaware
corporation (herein called the "Company").
1. PURPOSE. The purpose of the Plan is to provide employees of
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(c) "Common Stock" shall mean the Common Stock, no par
value, of the Company.
(d) "Company" shall mean Quidel Corporation, a Delaware
corporation.
(e) "Compensation" shall mean all regular straight time
earnings, payments or overtime, shift premium, incentive compensation, incentive
payments, bonuses and commissions (except to the extent that the exclusion of
any such items for all participants is specifically directed by the Board or its
committee).
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "Employee" shall mean any person, including an
officer, who is customarily employed for at least twenty (20) hours per week and
more than five (5) months in a calendar year by the Company or one of its
Designated Subsidiaries.
(h) "Exercise Date" shall mean the last day of each
offering period of the Plan.
(i) "Offering Date" shall mean the first day of each
offering period of the Plan.
(j) "Plan" shall mean this Employee Stock Purchase Plan.
(k) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation flow exists or is hereafter
organized or acquired by the Company or a Subsidiary.
3. ELIGIBILITY.
(a) Any Employee as defined in paragraph 2 who shall be
employed by the Company on the date his participation in the Plan is effective
shall be eligible to participate in the Plan, subject to limitations imposed by
Section 423(b) of the Code.
20
<PAGE> 2
Exhibit 10.1
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 425(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or of any subsidiary of the Company, or (ii)
which permits his rights to purchase stock under all employee stock purchase
plans of the Company and its subsidiaries to accrue at a rate which exceeds
Twenty Five Thousand Dollars ($25,000) of fair market value of such stock
(determined at the time such option is granted) for each calendar year in which
such option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by one
offering during each six month period of the Plan, commencing on or about, and
continuing thereafter until terminated in accordance with paragraph l9 hereof.
The Board of Directors of the Company shall have the power to change the
duration of offering periods with respect to future offerings without
shareholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning at the first offering period to be affected.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the
Plan by completing a subscription agreement authorizing payroll deduction on the
form provided by the Company and filing it with the Company's payroll office
prior to the applicable Offering Date, unless a later time for filing the
subscription agreement is set by the Board for all eligible employees with
respect to a given offering.
(b) Payroll deductions for a participant shall commence on
the first payroll following the Offering Date and shall end on the Exercise Date
of the offering to which such authorization is applicable, unless sooner
terminated by the participant as provided in paragraph 10.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his subscription
agreement, he shall elect to have payroll deductions made on each payday during
the offering period in an amount not exceeding ten percent (10%) of the
Compensation which he received on the payday immediately preceding the Offering
Date, and the aggregate of such payroll deductions during the offering period
shall not exceed ten percent (10%) of his aggregate Compensation during said
offering period.
(b) All payroll deductions made by a participant shall be
credited to his account under the Plan. A participant :nay not make any
additional payments into such account.
(c) A participant may discontinue his participation in the
Plan as provided in paragraph 10, or may lower, but not increase, the rate of
his payroll deductions during the offering period by completing or filing with
the Company a new authorization for payroll deduction. The change in rate shall
be effective fifteen (15) days following the Company's receipt of the new
authorization.
7. GRANT OF OPTION.
(a) On the Offering Date of each six month offering period,
each eligible Employee participating in the Plan shall be granted an option to
purchase (at the per share option price) up to a number of shares of the
Company's Common Stock determined by dividing such Employee's payroll deductions
to be accumulated during such offering period (not to exceed an
21
<PAGE> 3
Exhibit 10.1
amount equal to ten percent (10%) of his Compensation as of the date of the
commencement of the applicable offering period) by eighty-five percent (85%) of
the fair market value of a share of the Company's Common Stock on the Offering
Date, subject to the limitations set forth in Section 3(b) and 12 hereof. Fair
market value of a share of the Company's Common Stock shall be determined as
provided in Section 7(b) herein. Notwithstanding the foregoing, no employee
shall be granted an option to purchase more than 5,000 shares of the Company's
Common Stock during any six-month offering period.
(b) The option price per share of the shares offered in a
given offering period shall be the lower of: (i) 85% of the fair market value of
a share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be the mean of the reported bid and asked prices for that date except
that the fair market value on the Offering Date of the initial offering period
shall be the initial public offering price.
8. EXERCISE OF OPTION. Unless a participant withdraws from the
Plan as provided in paragraph 10, his option for the purchase of shares will be
exercised automatically on the Exercise Date of the offering period, and the
maximum number of full shares subject to option will be purchased for him at the
applicable option price with the accumulated payroll deductions in his account.
If the total amount of payroll deductions for a participant during the offering
period exceeds the purchase price of such shares as determined in Section 7(a),
such excess amount will be refunded to the participant.
9. DELIVERY. As promptly as practicable after the Exercise
Date of each offering, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his option. Any cash remaining to the credit of a participant's
account under the Plan after a purchase by him of shares at the termination of
each offering period, or which is insufficient to purchase a full share of
Common Stock of the Company, shall be returned to said participant.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all
the payroll deductions credited to his account under the Plan at any time prior
to the Exercise Date of the offering period by giving written notice to the
Company. All of the participant's payroll deductions credited to his account
will be paid to him promptly after receipt of his notice of withdrawal and his
option for the current period will be automatically terminated, and no further
payroll deductions for the purchase of shares will be made during the offering
period.
(b) Upon termination of the participant's employment prior
to the Exercise Date of the offering period for any reason, including retirement
or death, the payroll deductions credited to his account will be returned to him
or, in the case of his death, to the person or persons entitled thereto under
paragraph 14, and his option will be automatically terminated.
(c) in the event an Employee fails to remain in the
continuous employ of the Company for at least twenty (20) hours per week during
the offering period in which the employee is a participant, he will be deemed to
have elected to withdraw from the Plan and the payroll deductions credited to
his account will be returned to him and his option terminated.
(d) A participant's withdrawal from an offering will not
have any effect upon his eligibility to participate in a succeeding offering or
in any similar plan which may hereafter be adopted by the Company.
22
<PAGE> 4
Exhibit 10.1
11. INTEREST. No interest shall accrue on the payroll
deductions of a participant in the Plan.
12. STOCK.
(a) The maximum number of shares of the Company's Common
Stock that shall be made available for sale under the Plan shall be 400,000
shares, subject to adjustment upon changes in capitalization of the Company as
provided in paragraph 18. If the total number of shares which would otherwise be
subject to options granted pursuant to Section 7(a) hereof on the Offering Date
of an offering period exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of payroll deductions, if necessary.
(b) The participant will have no interest or voting right
in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his spouse.
13. ADMINISTRATION. The Plan shall be administered by the
Board of Directors of the Company or a committee appointed by the Board. The
administration, interpretation or application of the Plan by the Board or its
committee shall be final, conclusive and binding upon all participants. Members
of the Board who are eligible Employees are permitted to participate in the
Plan, provided that:
(a) Members of the Board who are eligible to participate
in the Plan may not vote on any matter affecting the administration of the Plan
or the grant of any option pursuant to the Plan.
(b) If a Committee is established to administer the Plan,
no member of the Board who is eligible to participate in the Plan may be a
member of the Committee.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of the offering period but prior to delivery to him of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to the Exercise Date of
the offering period.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
23
<PAGE> 5
Exhibit 10.1
15. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with paragraph 10.
16. USE OF FUNDS. All payroll deductions received or held by
the Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
l7. REPORTS. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees semi-annually promptly following the Exercise Date, which statements
will set forth the amounts of payroll deductions, the per share purchase price,
the number of shares purchased and the remaining cash balance, if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each option under the Plan which has not yet been
exercised and the number of shares of Common Stock which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per share of Common Stock
covered by each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease in the
number of 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 issue 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.
The Board may, if it so determines in the exercise of its
sole discretion, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option, in the event
that the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
19. AMENDMENT OR TERMINATION. The Board of Directors of the
Company may at any time terminate or amend the Plan. No such termination can
affect options previously granted, nor may an amendment make any change in any
option theretofore granted which adversely affects the rights of any
participant, nor may an amendment be made without prior approval of the
shareholders of the Company if such amendment would:
(a) increase the number of shares that may be issued under
the Plan;
(b) Permit payroll deductions at a rate in excess of ten
percent (10%) of the participant's Compensation;
(c) Modify the requirements concerning which employees (or
class of employees) are eligible for participation in the Plan; or
(d) Materially increase the benefits which may accrue to
participants under the Plan.
24
<PAGE> 6
Exhibit 10.1
20. NOTICES. All notices or other communications by a
participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the receipt
thereof.
21. SHAREHOLDER APPROVAL. Continuance of the Plan shall be
subject to approval by the shareholders of the Company within twelve months
before or after the date the Plan is adopted. If such share- holder approval is
obtained at a duly held shareholders' meeting, it may be obtained by the
affirmative vote of the holders of a majority of the outstanding shares of the
Company present or represented and entitled to vote thereon, which approval
shall be:
(a) (1) solicited substantially in accordance with Section
14(a) of the Securities Act of 1934, as amended (the "Act") and the rules and
regulations promulgated thereunder, or (2) solicited after the Company has
furnished in writing to the holders entitled to vote substantially the same
information concerning the Plan as that which would be required by the rules and
regulations in effect under Section 14(a) of the Act at the time such
information is furnished; and
(b) obtained at or prior to the first annual meeting of
shareholders held subsequent to the first registration of Common Stock under
Section 12 of the Act.
In the case of approval by written consent, it must be
obtained by the unanimous written consent of all shareholders of the Company.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations 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 war rant 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 applicable provisions of law.
25
<PAGE> 1
Exhibit 10.4
REGISTRANT'S 1990 EMPLOYEE STOCK PLAN
QUIDEL CORPORATION
(FORMERLY MONOCLONAL ANTIBODIES, INC.)
1990 EMPLOYEE STOCK OPTION PLAN
(AS AMENDED THROUGH MARCH 31, 1996)
l. PURPOSES OF THE PLAN. The purposes of this 1990 Employee
Stock Option Plan are to attract and retain qualified personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or non-statutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder. Stock appreciation rights ("SARs"),
incentive stock rights, and stock purchase rights may also be granted under the
Plan.
2. DEFINITIONS. As used herein, the following definitions
shall apply:
(a) "Administrator" means the Board or any of its
Committees as shall be administering the Plan, in accordance with Section 4 of
the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
(d) "Common Stock" means the Common Stock of the Company.
(e) "Company" means Quidel Corporation, a Delaware
corporation.
(f) "Committee" means any Committee, if any, appointed by
the Board in accordance with paragraph (a) of Section 4 of the Plan.
(g) "Consultant" means any person, including an advisor,
who is engaged by the Company or any Parent or Subsidiary to render services and
is compensated for such services, provided the term Consultant shall not include
directors who are not compensated for their services or are paid only a
director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means
the absence of any interruption or termination of the employment or consulting
relationship by the Company or any Subsidiary. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of: (i) sick
leave; (ii) military leave; (iii) any other leave of absence approved by the
Board, provided that such leave is for a period of not more than ninety (90)
days, unless reemployment upon the expiration of such leave guaranteed by
contract or statute, or unless provided otherwise pursuant to Company policy
adopted from time to time and distributed in writing to employees generally; or
(iv) in the case of transfers between locations of the Company or between the
Company its Subsidiaries or its successor.
(i) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
26
<PAGE> 2
Exhibit 10.4
(j) "Employee" means any person, including officers,
directors, employed by the Company or any Subsidiary. The payment of directors'
fees by the Company shall not be sufficient to constitute "employment" by the
Company.
(k) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(l) "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 last market
trading day prior to the day of determination, as reported in the Wall Street
Journal or such other source as the Administrator deems reliable;
(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
date of determination, as reported in the Wall Street Journal or such other
source as the Administrator 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 Administrator.
(m) "Incentive Stock Option" means an option that satisfies
the provisions of Section 422 of the Code.
(n) "Incentive Stock Right" means an award under Section 7
below that is payable in cash or in shares of Common Stock on such terms and
conditions as the Administrator may deem appropriate.
(o) "Nonstatutory Stock Option" means an option that is not
an Incentive Stock Option.
(p) "Option" means an Option granted pursuant to the Plan.
(q) "Optioned Stock" means the Common Stock subject to
Option or Right.
(r) "Optionee" means an Employee or Consultant who receives
an Option or Right.
(s) "Parent" corporation shall have the meaning defined in
Section 424(e) of the Code.
(t) "Plan" means this 1990 Employee Stock Plan.
(u) "Restricted Stock" means shares of Common Stock
acquired pursuant to a grant of Stock Purchase Rights under Section 9 below.
(v) "Right" means and includes Incentive Stock Rights, and
Stock Purchase Rights granted pursuant to the Plan.
(w) "SAR" means a stock appreciation right granted pursuant
to Section 8 below.
27
<PAGE> 3
Exhibit 10.4
(x) "Share" means the Common stock, as adjusted in
accordance with Section 12 of the Plan.
(y) "Stock Purchase Right" means the right to purchase
Common Stock pursuant to Section 9.
(z) "Subsidiary" corporation shall have the meaning in
Section 424(f) of the Code.
In addition, the terms "Rule 16b-3" and "Applicable Laws"; the
term "Incentive Period"; the terms "Insiders," "waiting period" and
Shareholder"; the term "Tax Date"; and the terms "Change of Control" and "Change
of Control Price" shall have the meanings set forth, respectively, in Sections
4, 7, 8, 10 and l2 below.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 12 of the Plan, the total number of Shares reserved and available for
distribution pursuant to awards made under the Plan shall be 1,750,000. The
Shares may be authorized, but unissued or reacquired Common Stock.
If an Option or Right 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 other Options or Rights under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure.
(i) Administration With Respect to Directors and Officers.
With respect to grants of Options or Rights to Employees who are also officers
or directors of the Company, the Plan shall be administered by (A) the Board if
the Board may administer the Plan in compliance with Rule 16b-3 promulgated
under the Exchange Act or any successor rule thereto ("Rule 16b-3") with respect
to a plan intended to qualify thereunder as a discretionary plan, or (B) a
Committee designated by the Board to administer the Plan, which Committee shall
be constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board 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, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder a
discretionary plan.
(ii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options or Rights to Employees or
Consultants who are neither directors nor officers of the Company, the Plan
shall be administered by (A) the Board or (B) a Committee designated by the
Board, which Committee shall be constituted in such a manner as to satisfy the
legal requirements relating to the administration of incentive stock option
plans, if any, of Delaware corporate law and of the Code (the "Applicable
Laws"). Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board 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, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(iii) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers, and Employees who are neither directors nor
officers and Consultants who are not directors.
28
<PAGE> 4
Exhibit 10.4
(b) Powers of the Administrator. Subject to the provisions
of the Plan and, in the case of a Committee, the specific duties delegated by
the Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the officers, Consultants and Employees to
whom options and Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent options and
Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to
be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan.
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture restrictions
regarding any option or other award and/or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator shall determine
in its sole discretion);
(vii) to determine whether and under what circumstances an
option may be settled in cash under subsection 8(a)(viii) instead of Common
Stock;
(viii) to determine whether, to what extent and under what
circumstances Common stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount (if any) of any
deemed earnings on any deferred amount during any deferral period);
(ix) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value to the Common Stock
covered by such option shall have declined since the date the option was
granted; and
(x) to determine the terms and restrictions applicable to
options and Rights and any Restricted Stock acquired pursuant to Rights.
Notwithstanding any other provision of this Plan, no
Employee shall be granted awards with respect to more than 200,000 shares of
Common Stock in any one calendar year. The limitation set forth in this
paragraph shall be subject to adjustment as provided in Section 12, but only to
the extent such adjustment would not affect the status of compensation
attributable to awards hereunder as Performance-Based Compensation.
(c) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding.
5. ELIGIBILITY. Nonstatutory Stock options and Rights may be
granted only to Employees and Consultants. Incentive Stock Options may be
granted only to Employees. An Employee who has been granted an option or Right
may, if he or she is otherwise eligible, be granted additional Options or
Rights. Each option shall be evidenced by a written option agreement, which
shall expressly identify the options as Incentive Stock Options or as
Nonstatutory Stock Options and which shall be in such form and contain such
provisions as the Administrator shall from time to time deem appropriate.
Without limiting the foregoing, the Administrator may, at any time or from time
to time, authorize the Company, with the consent of
29
<PAGE> 5
Exhibit 10.4
the respective recipients, to issue options in exchange for the surrender and
cancellation of any or all outstanding Options, other options, or Rights.
Neither the Plan nor any Option or Right agreement shall
confer upon any Optionee any right with respect to continuation of employment by
the Company, nor shall it interfere in any way with the Optionee's right or the
Company's right to terminate the Optionee's employment at any time.
6. TERM OF PLAN. Subject to Section 18 of the 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 18. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 14 of the Plan.
7. INCENTIVE STOCK RIGHTS.
(a) Procedure. The Administrator, in its discretion, may
grant to eligible participants Incentive Stock Rights composed of incentive
stock units. Incentive Stock Rights shall be and evidenced by Incentive Stock
Right agreements in such form and not inconsistent with the Plan as the
Administrator shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
(i) Incentive Stock Units. An Incentive Stock Right
agreement shall specify the number of incentive stock units to which it
pertains. Each incentive stock unit shall be equivalent to one Share, and shall
entitle the holder to receive, without payment of cash to the Company, one Share
or, in the discretion of the Administrator, the cash equivalent of one Share, in
consideration for services performed for the Company or for its benefit by the
person receiving the Right subject to the lapse of the Incentive Periods
(hereinafter defined). An incentive stock unit that becomes payable may be paid
currently or on a deferred basis with such interest or earnings equivalent as
may be determined by the Administrator.
(ii) Incentive Period. The holder of Incentive Stock
Rights shall be entitled to receive Shares only after the lapse of such periods
of time, and in such manner, as shall be fixed by the Administrator at the time
of grant of Incentive Stock Rights. (Such period or periods so fixed is or are
herein referred to as an "Incentive Period" or "Incentive Periods.") To the
extent the holder of Incentive Stock Rights receives Shares on the lapse of an
Incentive Period, an equivalent number of incentive stock units subject to such
Rights shall be deemed to have been discharged.
(iii) Termination of Status as Employee or Consultant
by Reason of Death or Disability. In the event that any person to whom Incentive
Stock Rights have been issued under the Plan terminates his or her employment or
consulting relationship (as the case may be) due to death or Disability, each
Incentive Period established pursuant to subsection 7(a)(ii) shall lapse on the
date of such termination as to the number of full incentive stock units
determined by multiplying the total number of incentive stock units applicable
to such Incentive Period by a fraction, the numerator of which shall be the
number of full calendar months between the date of grant of the Incentive Stock
Rights and the date of such termination and the denominator of which shall be
the number of full calendar months between the date of grant of the Incentive
Stock Rights and the date such Incentive Period for such units would, but for
such termination, have lapsed. Units for which the Incentive Period does not
lapse pursuant to the foregoing sentence shall terminate on the termination date
of employment.
(iv) Termination of Status as Employee or Consultant
for any Other Reason. In the event that any person to whom Incentive Stock
Rights have been issued under the Plan terminates his or her employment or
consulting relationship (as the case may be) for any reason (including dismissal
by the Company with or without cause), other than death or Disability,
30
<PAGE> 6
Exhibit 10.4
such Rights as to which the Incentive Period has not lapsed shall terminate on
termination of employment or consulting relationship (as the case may be).
(v) Issuance of Shares. With respect to Incentive Stock
Rights payable in Shares, upon the lapse of an Incentive Period, the Company
shall deliver to such person a certificate or certificates for a number of
Shares equal to the number of incentive stock units as to which an Incentive
Period has lapsed.
(b) Dividend Equivalents. The holder of an Incentive Stock
Right shall be entitled to receive from the Company cash payments at the same
time and in the same amounts that the holder of record of a number of Shares
equal to the number of incentive stock units covered by such Right would be
entitled to receive as dividends on such Shares. Such right to cash payment on
an incentive stock unit shall apply to all dividends the record date for which
occurs at any time during the period commencing on the date the Incentive Stock
Right is granted and ending on the date that the holder of such Right becomes a
shareholder of record with respect to such Right as a result of the lapse of an
Incentive Period or the date the Incentive Stock Right otherwise terminates,
whichever occurs first.
8. OPTIONS AND SARS.
(a) Options. The Administrator, in its discretion, may
grant Options to eligible participants and shall determine whether such Options
shall be Incentive Stock Options or Nonstatutory Stock Options. Each Option
shall be evidenced by a written Option agreement which shall expressly identify
the options as Incentive Stock Options or as Nonstatutory Stock Options, and be
in such form and contain such provisions as the Administrator shall from time to
time deem appropriate. Without limiting the foregoing, the Administrator may, at
any time, or from time to time, authorize the Company, with the consent of the
respective recipients, to issue Options or Options in exchange for the surrender
and cancellation of any or all outstanding Options or Rights.
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 or any Parent or Subsidiary) exceeds $100,000, such
excess Options shall be treated as Nonstatutory Stock Options.
Option agreements shall contain the following terms and
conditions:
(i) Option Price; Number of Shares. The per Share exercise
price for the Shares issuable pursuant to an Option shall be such price as is
determined by the Administrator, but shall in no event be less than 85% of the
Fair Market Value of Common Stock, determined as of the date of grant of the
Option. In the event that the Administrator shall reduce the exercise price, the
exercise price shall be no less than 85% of the Fair Market Value as of the date
of that reduction.
The Option agreement shall specify the number of to which
it pertains.
(ii) Waiting Period and Exercise Dates. At the time an
Option is granted, the Administrator will determine the terms and conditions to
be satisfied before Shares may be purchased, including the dates on which Shares
subject to the Option may first be purchased. The Administrator may specify that
an Option may not be exercised until the completion of the service period
specified at the time of grant. (Any such period is referred to herein as the
"waiting period.") At the time an Option is granted, the Administrator shall fix
the period within which the Option may be exercised, which shall not be less
than the waiting period, if any, nor, in the case of an Incentive Stock Option,
more than ten (10) years, from the date of grant.
31
<PAGE> 7
Exhibit 10.4
(iii) Form of Payment. The consideration to be paid
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares
which (x) in the case of Shares acquired upon exercise of an Option either have
been owned by the Optionee for more than six months on the date of surrender or
were not acquired, directly or indirectly, from the Company, 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, (5) authorization from
the Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (6) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(7) delivery of an irrevocable subscription agreement for the Shares which
irrevocably obligates the Optionee to take and pay for the Shares not more than
twelve months after the date of delivery of the subscription agreement, (8) any
combination of the foregoing methods of payment, or (9) such other consideration
and method of payment for the issuance of Shares to the extent permitted under
Applicable Laws.
(iv) Termination of Employment or Consulting
Relationship. If an Optionee's Continuous Status as an Employee or Consultant
shall terminate (other than termination by reason of the Optionee's death), the
Optionee may, but only within thirty (30) days (or such other period of time not
exceeding six (6) months (three (3) months in the case of an Incentive Stock
Option) as is determined by the Administrator at the time of grant) after the
date of such termination, exercise his or her Option to the extent that it was
exercisable at the date of such termination.
(v) Special Incentive Stock Option Provisions. In
addition to the foregoing, Options granted under the Plan which are intended to
be Incentive Stock Options under Section 422 of the Code shall be subject to the
following terms and conditions:
(1) Exercise Price. The per share exercise price of
an Incentive Stock Option shall be no less than 100% of the Fair Market Value
per Share on the date of grant.
(2) Dollar Limitation. To the extent that
the aggregate Fair Market Value of (i) the Shares with respect to which Options
designated as Incentive Stock Options plus (ii) the shares of stock of the
Company, Parent and any Subsidiary with respect to which other incentive stock
options are exercisable for the first time by an Optionee during any calendar
year under all plans of the Company and any Parent and Subsidiary exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of the preceding sentence, (i) Options shall be taken into account in
the order in which they were granted, and (ii) the Fair Market Value of the
Shares shall be determined as of the time the Option or other incentive stock
option is granted.
(3) 10% Shareholder. If any Optionee to whom
an Incentive Stock Option is to be granted pursuant to the provisions of the
Plan is, on the date of grant, the owner of Common Stock (as determined under
Section 424(d) of the Code) possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary (a "10%
Shareholder"), then the following special provisions shall be applicable to the
Option granted to such individual:
(A) The per Share Option price of
Shares subject to such Incentive Stock Option shall not be less than 110% of the
Fair Market Value of Common Stock on the date of grant; and
32
<PAGE> 8
Exhibit 10.4
(B) The Option shall not have a term
in excess of five (5) years from the date of grant.
Except as modified by the preceding
provisions of this subsection 8(a)(v) and except as otherwise limited by Section
422 of the Code, all of the provisions of the Plan shall be applicable to the
Incentive Stock Options granted hereunder.
(vi) Other Provisions. Each Option granted under the
Plan may contain such other terms, provisions, and conditions not inconsistent
with the Plan as may be determined by the Administrator.
(vii) Buyout Provisions. The Administrator may at any
time offer to buy out for a payment in cash or Shares, an Option previously
granted, based on such terms and conditions as the Administrator shall establish
and communicate to the Optionee at the time that such offer is made.
(b) SARs.
(i) In Connection with Options. At the sole
discretion of the Administrator, SARs may be granted in connection with all or
any part of an Option, either concurrently with the grant of the Option or at
any time thereafter during the term of the Option. The following provisions
apply to SARs that are granted in connection with Options:
(1) The SAR shall entitle the Optionee to
exercise the SAR by surrendering to the Company unexercised a portion of the
related Option. The Optionee shall receive in exchange from the Company an
amount equal to the excess of (x) the Fair Market Value on the date of exercise
of the SAR of the Common stock covered by the surrendered portion of the related
Option over (y) the exercise price of the Common stock covered by the
surrendered portion of the related Option. Notwithstanding the foregoing, the
Administrator may place limits on the aggregate amount that may be paid upon
exercise of an SAR or SARs; provided, however, that such limit shall not
restrict the exercisability of the related Option.
(2) When an SAR is exercised, the related
Option, to the extent surrendered, shall cease to be exercisable.
(3) An SAR shall be exercisable only when
and to the extent that the related Option is exercisable and shall expire no
later than the date on which the related Option expires.
(4) An SAR may only be exercised at a time
when the Fair Market Value of the Common Stock covered by the related Option
exceeds the exercise price of the Common Stock covered by the related Option.
(ii) Independent of Options. At the sole discretion
of the Administrator, SARs may be granted without related Options. The following
provisions apply to SARs that are not granted in connection with Options:
(1) The SAR shall entitle the Optionee, by
exercising the SAR, to receive from the Company an amount equal to the excess of
(x) the Fair Market Value of the Common Stock covered by exercised portion of
the SAR, as of the date of such exercise, over (y) the Fair Market Value of the
Common Stock covered by the exercised portion of the SAR, as of the last market
trading date prior to the date on which the SAR was granted; provided, however,
that the Administrator may place limits on the aggregate amount that may be paid
upon exercise of an SAR or SARs.
33
<PAGE> 9
Exhibit 10.4
(2) SARs shall be exercisable, in whole or
in part, at such times as the Administrator shall specify in the Optionee's SAR
agreement.
(iii) Form of Payment. The Company's obligation
arising upon the exercise of an SAR may be paid in Common Stock or in cash, or
in any combination of Common Stock and cash, as the Administrator in its sole
discretion may determine. Shares issued upon the exercise of an SAR shall be
valued at their Fair Market Value as of the date of exercise.
(iv) Section 16 Restrictions. SARs granted to persons
who are subject to Section 16 of the Exchange Act ("Insiders") shall be subject
to any additional restrictions applicable to SARs granted to such persons in
compliance with Rule 16b-3. An Insider may only exercise an SAR during such time
or times as are permitted by Rule 16b-3.
(c) Method of Exercise.
(i) Procedure for Exercise; Rights as a Shareholder.
Any Option or SAR granted hereunder shall be exercisable at such times and under
such conditions as determined by the Administrator 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 or SAR 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 or SAR by the person entitled to
exercise the Option or SAR 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 Administrator (and, in the case of an Incentive Stock Option,
determined at the time of grant) and permitted by the Option Agreement consist
of any consideration and method of payment allowable under subsection 8(a)(iii)
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. 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 12 of the
Plan.
Exercise of an Option in any manner shall
result in a decrease in the number of Shares which thereafter shall 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. Exercise of an SAR in any
manner shall, to the extent the SAR is exercised, result in a decrease in the
number of Shares which thereafter shall be available for purposes of the Plan,
and the SAR shall cease to be exercisable to the extent it has been exercised.
(ii) Rule 16b-3. Options and SARs granted to Insiders
must comply with the applicable provisions of Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section l6 of the Exchange Act with respect to
Plan transactions.
(iii) Termination of Employment or Consulting
Relationship. Upon termination of an Optionee's Continuous Status as an Employee
or Consultant (other than upon the Optionee's death), the Optionee may, but only
within thirty (30) days (or such other period of time not exceeding six (6)
months (three (3) months in the case of an Incentive Stock Option) as is
determined by the Administrator at the time of grant) after the date of such
termination, exercise his or her Option or SAR to the extent that it was
exercisable at the date of such termination. Notwithstanding the foregoing, in
no event may an Incentive Stock Option be exercised more than
34
<PAGE> 10
Exhibit 10.4
ten years from the date of grant (five years in the case of an Incentive Stock
Option granted to a 10% Shareholder).
(iv) Disability of Optionee. Notwithstanding the
provisions of Section 8(c)(iii) above, in the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of the
Optionee's Disability, the Optionee may, but only within six (6) months from the
date of such termination (but in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent the Optionee was entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate. Notwithstanding the foregoing, in no event may an Incentive
Stock Option be exercised more than ten years from the date of grant (five years
in the case of an Incentive Stock Option granted to a 10% Shareholder).
(v) Death of Optionee. In the event of an Optionee's
death, the Option or SAR may be exercised at any time within six (6) months
following the date of death 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 death.
Notwithstanding the foregoing, in no event may an Incentive Stock Option be
exercised more than ten years from the date of grant (five years in the case of
an Incentive Stock Option granted to a 10% Shareholder).
9. STOCK PURCHASE RIGHTS.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine.
(c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder,
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the
35
<PAGE> 11
Exhibit 10.4
Company. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock Purchase Right is exercised, except
as provided in Section 12 of the Plan.
10. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this Section 10. When an Optionee incurs tax liability in
connection with the an Option or Right, which tax liability is subject to tax
withholding under applicable tax laws, and the Optionee is obligated to pay the
Company an amount required to be withheld under applicable tax laws, the
Optionee may satisfy the withholding tax obligation by electing to have the
Company withhold from the shares to be issued upon exercise of the Option, or
the Shares to be issued in connection with the Right, if any, that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this
purpose shall be made in writing in a form acceptable to the Administrator and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Right as to which the election is made;
(c) all elections shall be subject to the consent or
disapproval of the Administrator;
(d) if the Optionee is an Insider, the election must comply
with the applicable provisions of Rule 16b-3 and be subject to 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.
In the event the election to have Shares withheld is made by
an Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Right is exercised
but such Optionee shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
11. NON-TRANSFERABILITY OF OPTIONS. Options and Rights 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.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Subject to any required action by the shareholders of the
Company, the number of Shares covered by each outstanding Option and Right, and
the number of Shares which have been authorized for issuance under the Plan but
as to which no Options or Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option or Right, as
well as the price per Share covered by each such outstanding Option or Right,
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 aggregate number of issued Shares 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
36
<PAGE> 12
Exhibit 10.4
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 or Right.
In the event of the proposed dissolution or
liquidation of the Company, all outstanding Options and Rights will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board. The Board may, in the exercise of its sole discretion in
such instances, declare that any Option or Right shall terminate as of a date
fixed by the Board and give each Optionee the right to exercise his Option or
Right as to all or any part of the Optioned Stock or Right, including Shares as
to which the Option or Right, would not otherwise be exercisable.
Subject to the provisions of paragraph (b) hereof, in
the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
outstanding Option and Right shall be assumed or an equivalent option or Right
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, that the
Optionee shall have the right to exercise the Option or Right as to all of the
Optioned Stock, including Shares as to which the Option or right would not
otherwise be exercisable. If the Board makes an Option or Right fully
exercisable in lieu of assumption or substitution in the event of a merger or
dale of assets, the Company shall notify the Optionee that the Option or Right
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the Option or Right will terminate upon the expiration of such
period. For purposes of this paragraph, an Option granted under the Plan shall
be deemed to be assumed if, following the sale of assets or merger, the Option
confers the right to purchase, for each Share of Optioned stock subject to the
Option immediately prior to the sale of assets or merger, the consideration
(whether stock, cash or other securities or property) received in the sale of
assets or merger by holders of Common stock for each share held on the effective
date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders if a majority of
the outstanding Shares); provided, however, that if such consideration received
in the sale of assets or merger was not solely Common Stock of the successor
corporation or its parent, the Board may, with the consent of the successor
corporation and the participant, provide for the consideration to be received
upon exercise of the Option to be solely Common Stock of the successor
corporation or its parent equal in Fair Market Value to the per share
consideration received by holders of Common stock in the sale of assets or
merger.
(b) In the event of a "Change in Control" of the Company, as
defined in paragraph (c) below, unless otherwise determined by the Board prior
to the occurrence of such Change in Control, the following acceleration and
valuation provisions shall apply:
(i) Any Options and Rights outstanding as of the date
such Change in Control is determined to have occurred that are not yet
exercisable and vested on such date shall become fully exercisable and vested;
and
(ii) The value of all outstanding Options and Rights
shall, unless otherwise determined by the Board at or after grant, be cashed out
at the Change in Control Price. The cash out proceeds shall be paid to the
Optionee or, in the event of death of an Optionee prior to payment, to the
estate of the Optionee or to a person who acquired the right to exercise Option
or Right by bequest or inheritance.
(c) Definition of "Change in Control". For purposes of this
Section 12, a "Change in Control" means the happening of any of the following:
37
<PAGE> 13
EXHIBIT 10.4
(i) When any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act (other than the Company,
a Subsidiary or a Company employee benefit plan, including any trustee of such
plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the combined voting power of
the Company's then outstanding securities; or
(ii) The occurrence of a transaction requiring
shareholder approval, and involving the sale of all or substantially all of the
assets of the Company or the merger of the Company with or into another
corporation.
(d) Change in Control Price. For purposes of this Section 12,
"Change in Control Price" shall be, as determined by the Board, (i) the highest
closing sale price of a Share of the Common Stock as reported by the NASDAQ
System and, if applicable, as appearing in the Wall Street Journal (or, in the
event the Common Stock is listed on a stock exchange, the highest closing price
on such exchange as reported on the Composite Transaction Reporting System), at
any time within the 60 day period immediately preceding the date of
determination of the Change in Control Price by the Board (the "60-Day Period"),
or (ii) the highest price paid or offered, as determined by the Board, in any
bona fide transaction or bona fide offer related to the Change in Control of the
Company, at any time within the 60-Day Period.
13. TIME OF GRANTING OPTIONS AND RIGHTS. The date of grant of an Option
or Right shall, for all purposes, be the date on which the Administrator makes
the determination granting such Option or Right. Notice of the determination
shall be given to each Employee or Consultant to whom an Option or Right is so
granted within a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment and Termination. 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 under Section of the Code (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 or Rights already granted and
such Options and Rights shall remain in full force and effect as if this Plan
had not been amended or terminated.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an Option or Right unless the exercise of such Option or Right 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, 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 or the issuance of
Shares on exercise of an Option or Right, the Company may require the person
exercising such Option or Right 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.
38
<PAGE> 14
Exhibit 10.4
16. 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.
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 non-issuance or sale of
such Shares to which such requisite authority shall not have been obtained.
17. AGREEMENTS. Options and Rights shall be evidenced by written
agreements in such form as the Board shall approve from time to time.
18. SHAREHOLDER APPROVAL. 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 provided in Section 6. Such shareholder
approval shall be obtained in the degree and manner required under applicable
state and federal law.
19. INFORMATION TO OPTIONEES. The Company shall provide to each
Optionee, during the period for which such Optionee has one more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be required
to provide such information if the issuance of Options under the Plan is limited
to key employees whose duties in connection with the Company assure their access
equivalent information.
39
<PAGE> 1
EXHIBIT 10.12
SUMMARY OF MANAGEMENT INCENTIVE COMPENSATION PLAN
AS IN EFFECT FOR FISCAL 1997
The Company maintains a management incentive compensation plan which is
designed to reward the Company's officers for their contributions to corporate
and individual objectives. Under the plan, each participating officer is
entitled to receive a cash bonus if certain performance goals are met in a
particular fiscal year. The performance goals measure the extent to which the
Company has realized or exceeded separate targets for sales and net profit
during the fiscal year and the extent to which the relevant officer has realized
certain personal performance goals. The payment of any incentive compensation is
dependent on the achievement of the specified sales and net profit targets. If
these specified performance targets are achieved, the officer will receive a
defined bonus.
Each eligible employee's potential annual award under the plan is
expressed as a percentage of the total base compensation earned by the
individual during the fiscal year. The percentages for the Chief Executive
Officer and all participating Vice Presidents are set for fiscal 1997 at 40% and
30%, respectively.
40
<PAGE> 1
EXHIBIT 13.1
SELECTED FINANCIAL DATA
The following selected financial data are derived from the financial statements
of QUIDEL Corporation and should be read in conjunction with the consolidated
financial statements, related notes and other financial information included
herein.
<TABLE>
<CAPTION>
Years ended March 31,
(In thousands, except per share data) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues:
QUIDEL branded sales* $33,532 $28,782 $19,932 $14,612 $12,103
OEM sales (U.S. marketing partners) 949 2,285 8,450 13,099 14,398
- -------------------------------------------------------------------------------------------------------
Total net sales 34,481 31,067 28,382 27,711 26,501
Other revenues 572 470 1,090 1,046 636
- -------------------------------------------------------------------------------------------------------
Total revenues 35,053 31,537 29,472 28,757 27,137
Gross profit 18,448 14,925 13,045 13,252 12,244
Research and development 4,130 3,728 3,830 4,088 3,933
Purchased in-process research and development** -- 1,423 -- -- --
Sales and marketing 10,451 10,470 9,097 6,141 5,284
General and administrative 3,483 3,271 3,148 2,954 2,461
Income (loss) before extraordinary credit 579 (4,035) (1,931) 420 537
Income (loss) per common share
before extraordinary credit 0.03 (.21) (.11) .02 .03
Net income (loss) 579 (4,035) (1,931) 709 878
Net income (loss) applicable to common
stockholders per share 0.03 (.21) (.11) .04 .05
Balance Sheet Data
Working capital 10,060 9,757 8,390 13,350 12,251
Total assets 33,334 34,524 32,933 21,169 19,051
Long-term obligations and redeemable
preferred stock 3,490 4,145 4,725 8,315 8,213
Stockholders' equity 25,718 23,938 22,301 9,771 8,419
</TABLE>
* QUIDEL branded and international sales.
** Resulting from the acquisition of Pacific Biotech, Inc., discussed
elsewhere herein.
(Page 1 of the 1996 Annual Report)
41
<PAGE> 2
Exhibit 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion and analysis presents the factors that had a material
effect on QUIDEL Corporation's ("QUIDEL" or the "Company") results of operations
during the three years ended March 31, 1996, and the Company's financial
position at that date. Trends of a material nature are discussed to the extent
considered relevant.
Results of Operations Fiscal 1996 represents the first full year of
operations subsequent to the January 1995 acquisition of Pacific Biotech, Inc.
("PBI"). The inclusion of a full year's sales of the PBI products along with the
reduction of PBI overhead cost resulting from the consolidation of their three
facilities into QUIDEL's San Diego facility contributed significantly to
QUIDEL's return to profitable operations.
NET SALES TRENDS BY MAJOR PRODUCT BRANDS
<TABLE>
<CAPTION>
Percent increase
(decrease)
<S> <C> <C> <C> <C> <C> <C>
Years ended March 31 (in thousands) 1996 1995 1994 1996 1995
=======================================================================================================
OEM Sales
QUIDEL format $ 431 $ 2,285 $ 8,450 (81%) (73%)
PBI format 518 -- -- N/A N/A
- -------------------------------------------------------------------------------------------------------
Total OEM sales 949 2,285 8,450 (58%) (73%)
- -------------------------------------------------------------------------------------------------------
Quidel Domestic Sales
QUIDEL format 17,258 17,470 12,862 (1%) 36%
PBI format 2,920 797 -- 266% N/A
------------------------------------------------------
Subtotal 20,178 18,267 12,862 10% 42%
------------------------------------------------------
Quidel International Sales
QUIDEL and other distributed products 10,132 9,525 7,070 6% 35%
PBI format 3,222 990 -- 225% N/A
------------------------------------------------------
Subtotal 13,354 10,515 7,070 27% 49%
- -------------------------------------------------------------------------------------------------------
Total QUIDEL branded and distributed sales 33,532 28,782 19,932 17% 44%
- -------------------------------------------------------------------------------------------------------
Total net sales $34,481 $31,067 $28,382 11% 9%
=======================================================================================================
</TABLE>
During the past three years the Company's overall sales growth has been
reduced by the shift in business away from being dependent on a single OEM
customer and into sales of QUIDEL branded and distributed products. This
transition is now substantially completed and should not have a significant
impact on future sales growth.
Domestic sales in fiscal 1996 were enhanced by a full year's impact of
the PBI format CARDS(R) Q.S.(R) and Concise(R) Performance Plus(TM) brand
pregnancy and mononucleosis products and the introduction of the QuickVue(R)
Chlamydia Test. This growth was partially offset by the discontinued sales of
the Company's products through a major distributor which entered into an
exclusive relationship with a large pharmaceutical and diagnostic company.
Domestic sales growth in fiscal 1995 resulted from increased professional sales
of the QuickVue(R) brand pregnancy test and the introduction of the Company's
one-step test for the detection of strep throat (Group A strep).
(Beginning on Page 10 of the 1996 Annual Report)
42
<PAGE> 3
Exhibit 13.1
Fiscal 1996 international sales also benefitted from the addition of
the PBI products, increased sales of QUIDEL's allergy screening products and a
full year's sales into the German market through our German subsidiary
established in September 1994. Fiscal 1995 international sales growth was
attributable to increased sales of the Company's pregnancy and strep A products
and an increase of approximately $1.8 million in sales through the Company's
European subsidiaries in Holland, France, Germany and Spain.
Management believes that the Company is well positioned for continued
sales growth in fiscal 1997. The recently FDA-approved QuickVue(R) One-Step H.
Pylori Test, CARDS(R) Q.S.(R) and Concise(R) Performance Plus(TM) Strep A tests
and receipt of CDC CLIA waived classification status of the QuickVue(R) In-Line
Strep Throat Test provide new sales opportunities in fiscal 1997.
REVENUE FROM CONTRACTS, LICENSE FEES AND ROYALTIES
<TABLE>
<CAPTION>
Percent increase
(decrease)
Years ended March 31 (in thousands) 1996 1995 1994 1996 1995
====================================================================================
<S> <C> <C> <C> <C> <C>
License fee income $381 $415 $ 191 (8%) 117%
Royalty income 178 55 111 224% (50%)
Contract research and development 13 -- 788 N/A n/a
- ------------------------------------------------------------------------------------
Total $572 $470 $1,090 22% (57%)
====================================================================================
</TABLE>
The Company completed its last major contract research program in
fiscal 1994; however, with the start of contract research related to the Glaxo
Wellcome influenza project in fiscal 1997, contract revenue will increase
significantly, offsetting the expenditures made in support of this research
program.
COST OF SALES AND GROSS PROFIT
<TABLE>
<CAPTION>
Percent increase
(decrease)
Years ended March 31 (in thousands) 1996 1995 1994 1996 1995
================================================================================================
<S> <C> <C> <C> <C> <C>
Direct cost - material, labor and other
variable costs $11,981 $11,567 $11,166 4% 4%
As a percentage of sales 35% 37% 39%
Manufacturing overhead cost 4,052 4,575 4,171 (11%) 10%
As a percentage of sales 12% 15% 15%
----------------------------------------------------
Total cost of sales 16,033 16,142 15,337 (1%) 5%
----------------------------------------------------
Gross profit $18,448 $14,925 $13,045 24% 14%
As a percentage of sales 54% 48% 46%
================================================================================================
</TABLE>
Gross profit has improved in each of the past three years, due to
reduced direct production cost and the effect of increased volume with a
relatively fixed level of manufacturing overhead cost.
The physical format of the Company's products has evolved from tests
with multiple steps requiring several components, to the current one-step
lateral flow format with self-contained test reagents. The use of this design
across the recently developed products has provided a reduction in
43
<PAGE> 4
Exhibit 13.1
material cost and the ability to automate the assembly process, thereby reducing
labor cost and increasing capacity. These cost reductions have allowed the
Company to increase its direct-cost margin as a percent of sales from 61% in
fiscal 1994 to 65% in fiscal 1996, despite the ongoing decline in average sales
prices.
Manufacturing overhead cost increased during fiscal 1995 due to the
addition of the PBI manufacturing overhead during the fourth quarter. This was
offset in part by reduced QUIDEL manufacturing facility cost due to the February
1994 purchase of the Company's leased facility. Fiscal 1996 manufacturing
overhead was reduced as a result of the consolidation of the PBI manufacturing
operations at the beginning of the fiscal year.
The Company expects to be able to meet its medium-term capacity needs
within its existing facility, and as such, management believes increased sales
volume will continue to reduce manufacturing overhead as a percent of sales
resulting in a corresponding increase in the Company's gross profit rates.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Percent increase
(decrease)
<S> <C> <C> <C> <C> <C>
Years ended March 31 (in thousands) 1996 1995 1994 1996 1995
========================================================================================================
Research and development $ 4,130 $ 3,728 $3,830 11% (3%)
As a percentage of sales 12% 12% 13%
Purchased in-process research and development -- 1,423 -- N/A N/A
As a percentage of sales -- 5% --
Sales and marketing
Domestic professional sales and marketing 4,941 4,644 4,926 6% (6%)
Domestic OTC sales and marketing 1,378 1,990 2,133 (31%) (7%)
International sales and marketing 4,132 3,836 2,038 8% 88%
-----------------------------------------------------
Total sales and marketing 10,451 10,470 9,097 0% 15%
As a percentage of sales 30% 34% 32%
-----------------------------------------------------
General and administrative 3,483 3,271 3,148 6% 4%
As a percentage of sales 10% 11% 11%
-----------------------------------------------------
Total operating expenses $18,064 $18,892 $16,075 (4%) 18%
As a percentage of sales 52% 61% 57%
========================================================================================================
</TABLE>
Research and development increased in fiscal 1996 related to the
expanded number of new product development projects and continues at 12% of
sales. The decline in fiscal 1995 from 1994 is related to savings associated
with the purchase of the Company's leased facility. Research and development is
expected to increase substantially in fiscal 1997 primarily related to the
development of the Glaxo influenza program; however, this expense will be offset
by a like amount of contract research revenue.
The acquisition of PBI in fiscal 1995 totaled $5,540,000 of which
$1,423,000 was expensed as in-process research and development. See Note 2 to
the financial statements.
Sales and marketing expense reflects an ongoing reduction in domestic
over-the-counter ("OTC") expense; the reduction in fiscal 1996 is in part
related to the transfer of the sales and marketing of these products to Ansell
Consumer Products ("Ansell"), effective January 1996. As a result
of this agreement, the fiscal 1997 level of OTC sales and marketing expense is
expected to
44
<PAGE> 5
Exhibit 13.1
decline by approximately $1.1 million, a portion of which will be offset by
lower margin from reduced product sales prices to Ansell. International sales
and marketing reflects increases associated with sales growth and the addition
of the Company's subsidiaries in Germany and Spain during fiscal 1995.
Other Income and Expense. Interest expense increased $503,000 to
$757,000 in fiscal 1995 over fiscal 1994. This increase was related to the
financing for the purchase of the Company's San Diego facility and borrowings
under the domestic bank line of credit. Interest expense was reduced to $541,000
in fiscal 1996 as borrowing was not required under the domestic credit line.
Net Income (Loss). The net income applicable to common stockholders for
the year ended March 31, 1996 was $579,000 compared to a net loss applicable to
common stockholders of $4,054,000 in the prior year. This improvement was
principally due to increased current year sales and gross profit associated with
the new QUIDEL and PBI products, reduced operating expenses related to the PBI
consolidation and the prior year's $1,423,000 expense of PBI in-process research
and development. These fiscal 1995 PBI related costs were principally
responsible for that year's increased loss over the $1,953,000 loss incurred in
fiscal 1994.
The Company's operating results may continue to fluctuate on a
quarter-to-quarter basis as a result of a number of factors, including the
competitive and economic factors affecting the Company's markets, actions of our
major distributors, adverse actions or delays in product reviews by the United
States Food and Drug Administration, the degree of acceptance that our new
products achieve during the year, and seasonality.
Liquidity and Capital Resources. At March 31, 1996, the Company had
cash and cash equivalents of $2,538,000, compared to $3,878,000 at March 31,
1995. During fiscal 1996 the Company generated $952,000 in cash from operating
activities. Cash flow provided by profitable operations and the reduction of
inventories more than offset the reductions in accounts payable, accrued
liabilities and accrued acquisition expenses primarily related to the PBI
business and the volume related increase in accounts receivable.
Cash used for investment activities of $2,808,000 related primarily to
capital expenditures which increase production capacity and reduce manufacturing
cost and included automated production assembly lines and packaging equipment
and the modification of production areas to accommodate PBI product
manufacturing.
Cash generated from financing activities totaled $516,000 and reflects
$1,201,000 principally related to the proceeds from employee stock options and
stock purchase plan exercises offset by the net reduction of debt and capital
lease obligations.
The Company has an accounts receivable-based bank line of credit in an
amount up to $3,000,000 which provides for interest at the bank's prime rate
plus two percent. The line of credit expires August 5, 1997. As of March 31,
1996, there were no outstanding borrowings under the line of credit.
QUIDEL's principal capital requirements are for working capital. These
requirements fluctuate as a result of numerous factors, such as the extent to
which the Company uses or generates cash in operations, progress in research and
development projects, competition and technological developments and the time
and expenditures required to obtain governmental approval of its products. Based
on its current cash position and its current assessment of future operating
results,
45
<PAGE> 6
Exhibit 13.1
management believes that its existing sources of liquidity should be adequate to
meet its operating needs during fiscal 1997.
Except for the historical information contained herein, the matters
discussed in this annual report are by their nature forward-looking. For the
reasons stated in this annual report or in the Company's Securities and Exchange
Commission filings, or for various unanticipated reasons, actual results may
differ materially.
46
<PAGE> 7
Exhibit 13.1
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended March 31 (in thousands) 1996 1995 1994
==============================================================================================================
<S> <C> <C> <C>
Revenues
Net sales, including $431, $2,285 and $8,450 from related
parties for the years ended March 31, 1996, 1995 and
1994, respectively $ 34,481 $ 31,067 $ 28,382
Contracts, license fees and distribution agreements 572 470 1,090
- --------------------------------------------------------------------------------------------------------------
Total revenues 35,053 31,537 29,472
Costs and Expenses
Cost of sales 16,033 16,142 15,337
Purchased in-process research and development -- 1,423 --
Research and development 4,130 3,728 3,830
Sales and marketing 10,451 10,470 9,097
General and administrative 3,483 3,271 3,148
- --------------------------------------------------------------------------------------------------------------
Total costs and expenses 34,097 35,034 31,412
Operating income (loss) 956 (3,497) (1,940)
Other Income and Expense
Interest income 164 219 263
Interest expense (541) (757) (254)
- --------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes 579 (4,035) (1,931)
Provision for income taxes -- -- --
- --------------------------------------------------------------------------------------------------------------
Net income (loss) 579 (4,035) (1,931)
Dividends and accretion on preferred stock -- 19 22
- --------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stockholders $ 579 $ (4,054) $ (1,953)
==============================================================================================================
Net income (loss) applicable to common stockholders per share $ .03 $ (.21) $ (.11)
==============================================================================================================
Shares used in per share calculation 22,684 18,987 17,482
==============================================================================================================
</TABLE>
See accompanying notes.
(Beginning on Page 13 of the 1996 Annual Report)
47
<PAGE> 8
Exhibit 13.1
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, (In thousands) 1996 1995
====================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,538 $ 3,878
Accounts receivable, net of allowances of $647 ($674 in 1995) 7,602 6,822
Inventories, at lower of cost (first-in, first-out) or market:
Raw materials 1,899 2,570
Work in process 1,014 1,158
Finished goods 578 1,137
- ----------------------------------------------------------------------------------------------------
3,491 4,865
Prepaid expenses and other current assets 555 633
- ----------------------------------------------------------------------------------------------------
Total current assets 14,186 16,198
Property and equipment, at cost:
Land 1,080 1,080
Building and improvements 8,704 7,922
Equipment, furniture and fixtures 10,114 10,839
- ----------------------------------------------------------------------------------------------------
19,898 19,841
Less accumulated depreciation and amortization (6,171) (7,320)
- ----------------------------------------------------------------------------------------------------
Net property and equipment 13,727 12,521
Intangible assets, net of accumulated amortization of $1,761 ($1,106 in 1995) 5,161 5,409
Other assets 260 396
- ----------------------------------------------------------------------------------------------------
$ 33,334 $ 34,524
====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,361 $ 2,176
Accrued payroll and related expenses 772 880
Note payable to bank under line of credit 441 674
Accrued acquisition costs -- 685
Current portion of long-term debt and obligations under capital leases 683 357
Deferred contract research revenue 337 --
Other current liabilities 532 1,669
- ----------------------------------------------------------------------------------------------------
Total current liabilities 4,126 6,441
Long-term debt and obligations under capital leases 3,490 4,145
Commitments -- --
Stockholders' equity:
Preferred stock, $.001 par value; 5,000 shares authorized,
none issued or outstanding -- --
Common stock, $.001 par value; 50,000 shares authorized,
21,550 shares issued and outstanding (20,983 in 1995) 22 21
Additional paid-in capital 110,054 108,854
Accumulated deficit (84,358) (84,937)
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity 25,718 23,938
- ----------------------------------------------------------------------------------------------------
$ 33,334 $ 34,524
====================================================================================================
</TABLE>
See accompanying notes.
48
<PAGE> 9
Exhibit 13.1
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31, (In thousands) 1996 1995 1994
==================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 579 $(4,035) $ (1,931)
Adjustments to reconcile net income (loss) to net cash
flows provided by (used for) operating activities:
Depreciation and amortization 2,059 1,860 1,502
Accrued interest on notes payable -- -- 53
Changes in assets and liabilities net of effects from the purchase of
Pacific Biotech and Inmuno Analitica:
Accounts receivable (780) 2,495 (656)
Inventories 1,374 378 443
Prepaid expenses and other current assets 78 317 (99)
Accounts payable (815) (708) 810
Accrued payroll and related expenses (108) 44 (320)
Accrued acquisition expenses (621) (515) --
Deferred contract research revenue 337 -- --
Other current liabilities (1,151) 243 (61)
Deferred rent -- -- (51)
- ------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used for)
operating activities 952 79 (310)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,489) (1,878) (8,857)
Payment for purchase of Pacific Biotech, net of cash acquired -- (2,968) --
Decrease (increase) in restricted certificate of deposit -- 2,000 (2,000)
Decrease (increase) in other assets and intangibles (319) 623 (713)
- ------------------------------------------------------------------------------------------------------------------
Net cash flows used for investing activities (2,808) (2,223) (11,570)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and warrants 1,201 5,487 3,591
Payments on obligations under capital leases (117) (7) (15)
Proceeds from issuance of debt -- 4,352 7,000
Repayments of debt (335) (5,631) (72)
Repayments of line of credit (233) (1,333) --
Repurchase of preferred stock -- -- (1,050)
Cash dividends paid to preferred stockholders -- (19) (22)
- ------------------------------------------------------------------------------------------------------------------
Net cash flows provided by financing activities 516 2,849 9,432
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,340) 705 (2,448)
Cash and cash equivalents at beginning of year 3,878 3,173 5,621
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,538 $ 3,878 $ 3,173
==================================================================================================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest $ 506 $ 694 $ 161
Purchase of equipment under capital lease 123 -- --
==================================================================================================================
The Company purchased all of the capital stock of Pacific Biotech, Inc. for $2,970.
In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired -- $ 5,540 --
Cash paid for capital stock -- (2,970) --
- ------------------------------------------------------------------------------------------------------------------
Liabilities assumed -- $ 2,570 --
==================================================================================================================
</TABLE>
See accompanying notes.
49
<PAGE> 10
Exhibit 13.1
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
--------------- paid-in Accumulated
(In thousands) Shares Amount capital deficit Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1993 15,122 $ 15 $ 88,686 $(78,930) $ 9,771
Issuance of common stock for cash under
stock options and stock purchase plans 210 380 380
Issuance of common stock upon exercise
of warrants 1,000 1 3,210 3,211
Issuance of common stock in debt
conversion 1,404 1 7,058 7,059
Issuance of common stock for intangibles 723 1 3,652 3,653
Issuance of warrant in connection with debt 180 180
Dividends on preferred stock (22) (22)
Net loss (1,931) (1,931)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1994 18,459 $ 18 $103,166 $(80,883) $22,301
Issuance of common stock for cash under
stock options and stock purchase plans 150 239 239
Issuance of common stock upon exercise
of warrants 500 1 1,124 1,125
Issuance of warrant in connection with debt 8 8
Issuance of common stock in purchase of
majority interest in Inmuno Analitica 74 204 204
Issuance of Series B Preferred Stock on January 5, 1995
which was converted to common stock on January 31,
1995 net of issuance costs of $385,000 1,800 2 4,113 4,115
Dividends on preferred stock (19) (19)
Net loss (4,035) (4,035)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 20,983 $ 21 $108,854 $(84,937) $23,938
Issuance of common stock for cash under
stock options and stock purchase plans 567 1 1,200 1,201
Net income 579 579
- --------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 21,550 $ 22 $110,054 $(84,358) $25,718
</TABLE>
See accompanying notes.
50
<PAGE> 11
Exhibit 13.1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
QUIDEL Corporation (the "Company") develops, manufactures and markets
diagnostic products for human health care. The following is a summary of the
Company's significant accounting policies.
Consolidation. The consolidated financial statements include the
acccounts of the Company and its subsidiaries after elimination of all
significant intercompany accounts and transactions.
Cash and Cash Equivalents. Cash equivalents consist of money market
fund investments which are stated at cost, which approximates market. The
Company has established practices relative to diversification and maturities for
safety and liquidity purposes. These practices are periodically reviewed and
modified to take advantage of trends in yields and interest rates. The Company
has not experienced any losses on its cash equivalents and short-term
investments.
The Company accounts for its investments in debt and equity
securities in accordance with the Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Statement No. 115 requires companies to record certain debt and equity security
investments at market value.
Concentration of Credit Risk. The Company sells its products to
medical product distributors and physicians worldwide. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. The Company has established provisions for potential credit losses
that are expected to be incurred.
Depreciation and Amortization. Depreciation and amortization of
building and equipment are provided on the straight-line method over the
following estimated useful lives: building - 40 years; equipment - 3 to 10
years; building improvements - life of asset; furniture and fixtures - 3 to 10
years. Amortization of trademarks and distribution agreements is provided on the
straight-line method over 10 years. Amortization of capitalized patent costs is
provided on the straight-line method over the useful life of the patent.
Revenue Recognition. Revenue from product sales is recorded net of
estimated returns at the time the product is shipped. Revenues from contracts to
perform research and development and license fees are recorded as earned based
on the performance requirements of the agreements. Payments in excess of amounts
earned are deferred. Revenue from the sale of distribution rights is recorded at
the time of sale.
Income Taxes. The Company accounts for income taxes in accordance
with FASB Statement No. 109 "Accounting for Income Taxes."
Net Income (Loss) Per Share. Net income (loss) per share has been
computed using the weighted average number of common shares and dilutive common
stock equivalents outstanding during each period presented. Common stock
equivalents result from outstanding warrants and options to purchase common
stock. Common shares issuable upon exercise of certain warrants and stock
options or upon conversion of notes payable or preferred stock were not included
in the calculations of loss per share since the effect of their inclusion would
be antidilutive.
(Beginning on Page 17 of the 1996 Annual Report)
51
<PAGE> 12
Exhibit 13.1
Foreign Operations. Foreign currency transaction gains and losses
were not significant during any period presented.
Asset Impairments. In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," effective for fiscal years beginning after December 15, 1995.
SFAS No. 121 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company does not believe, based
on current circumstances, the effect of adoption of SFAS No. 121 will be
material.
Employee Stock Options. The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations in accounting for its employee stock options.
Under APB 25, when the exercise price of the Company's employee stock option is
not less than the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accountng principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates.
NOTE 2. ACQUISITION OF PACIFIC BIOTECH.
In January 1995, the Company acquired all of the outstanding capital
stock of Pacific Biotech, Inc., a California corporation ("PBI"), from Eli Lilly
and Company for a purchase price of approximately $5,540,000 ($2,970,000 in cash
plus the assumption of PBI liabilities and related expenses which totaled
$2,570,000). PBI is a developer and manufacturer of rapid diagnostic tests for
the detection of pregnancy and infectious diseases such as strep throat and
mononucleosis. The Company's consolidated financial statements include the
results of PBI from January 1, 1995. The acquisition has been accounted for as a
purchase and the Company has allocated $4,117,000 of the purchase price to the
fair value of the assets acquired, principally accounts receivable, inventories
and equipment. The remaining $1,423,000 has been expensed as in-process research
and development in the accompanying 1995 statement of operations.
The following unaudited pro forma data reflect the consolidated
results of operations of the Company and PBI as if the acquisition had occurred
on April 1, 1993.
PRO FORMA RESULTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Years ended March 31, 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Revenues $ 43,347 $ 49,772
Net loss (8,497) (7,631)
Net loss per share (0.42) (0.40)
- --------------------------------------------------------------
</TABLE>
52
<PAGE> 13
Exhibit 13.1
This pro forma information is not necessarily indicative of the
actual results that would have been achieved had PBI been acquired on the first
day of the Company's 1994 fiscal year, nor is it necessarily indicative of
future results.
The Company obtained the funds for the PBI stock purchase from the
sale of 45,000 shares of newly authorized Series B Preferred Stock at a purchase
price of $100 per share. Effective January 31, 1995, all outstanding shares of
Series B Preferred Stock were converted into an aggregate of 1.8 million shares
of common stock.
NOTE 3. INTANGIBLE ASSETS.
In fiscal 1994, the Company acquired certain trademarks and
distributor agreements related to consumer diagnostic products formerly marketed
by Clonatec S.A. ("Clonatec") in France. These trademarks and distributor
agreements will facilitate the sale, marketing and distribution of QUIDEL
products in France. In the transaction the Company exchanged 723,237 shares of
newly issued common stock valued at $3,653,000 for a 75% equity interest in a
newly formed French company, QUIDEL France, into which Clonatec contributed the
trademarks and distributor agreements. In December 1994, the Company purchased
the remaining 25% equity interest in QUIDEL France for $453,000, consisting of
$205,000 in cash and $248,000 in debt.
Certain patent filing costs are capitalized and amortized upon the
issuance of the related patent.
INTANGIBLE ASSETS CONSISTS OF:
(in thousands)
<TABLE>
<CAPTION>
March 31, 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Trademarks and distribution agreements $4,456 $4,456
Patent costs 1,882 1,493
Other 584 566
- ------------------------------------------------------------------------
6,922 6,515
Less accumulated amortization 1,761) (1,106)
- ------------------------------------------------------------------------
$5,161 $5,409
========================================================================
</TABLE>
NOTE 4. TRANSACTIONS WITH RELATED PARTY AND EXPORT SALES.
The Company has had distribution and research agreements with Becton
Dickinson and Company ("BD"), which held a minority ownership interest in the
Company through March 1995, and representation on the Company's Board of
Directors through July 1994. Revenues from BD totaled approximately $604,000 (2%
of total revenues) for the year ended March 31, 1996, $2,549,000 (8% of total
revenues) for 1995, and $8,537,000 (29% of total revenues) for 1994.
53
<PAGE> 14
Exhibit 13.1
The Company's export sales were as follows:
<TABLE>
<CAPTION>
(In thousands, except per share data)
(Unaudited)
Years ended March 31, 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Europe $4,572 $3,631 $3,138
Asia 3,805 2,340 1,645
Other international 674 591 136
- -------------------------------------------------------------------------
$9,051 $6,562 $4,919
=========================================================================
</TABLE>
Sales and operating income (loss) for the three years ended March 31,
1996 and identifiable assets at the end of each of those years, classified by
geographic area, were as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal years ended 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers from:
United States $ 30,178 $ 27,360 $ 26,230
Europe 4,303 3,707 2,152
- ----------------------------------------------------------------------------------
$ 34,481 $ 31,067 $ 28,382
=================================================================================
Operating income (loss):
United States $ 865 $(4,385) $(2,687)
Europe 91 888 747
- ----------------------------------------------------------------------------------
$ 956 $(3,497) $(1,940)
==================================================================================
Identifiable assets:
United States $ 27,117 $ 27,444 $ 27,786
Europe 6,217 7,080 5,147
- ----------------------------------------------------------------------------------
$ 33,334 $ 34,524 $ 32,933
==================================================================================
</TABLE>
Intersegment sales to affiliates totaled $1,613,000, $1,002,000 and
$839,000 in the three years ended March 31, 1996, 1995 and 1994, respectively.
NOTE 5. LEASE COMMITMENTS.
Rent expense under operating leases (net of sublease income) totaled $128,000,
$103,000, and $861,000 for the years ended March 31, 1996, 1995 and 1994,
respectively.
The Fiscal 1995 reduction in rent expense is principally due to the
Company's February 8, 1994 purchase of the land and building of its San Diego
facility. The purchase price of the facility totaled approximately $7,700,000
and was financed by $7,000,000 in bank financing ($3,600,000 secured by the real
estate, $3,400,000 secured by the balance of the Company's assets) and $700,000
in cash.
54
<PAGE> 15
Exhibit 13.1
The Company leases equipment under capital lease agreements. Cost and
accumulated amortization of equipment under capital leases in the accompanying
balance sheet at March 31, 1996 are $203,000 and $47,000, respectively.
NOTE 6. LONG-TERM DEBT, CAPITAL LEASES AND CREDIT FACILITY.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
9.4% note secured by deed of trust,
due November 2009, principal and
interest payable monthly at $37,462 $ 3,435,000 $ 3,554,000
10.5% unsecured note due September 30, 1997,
interest commencing July 1, 1995,
accrued interest and $50,000 in principal payable
quarterly beginning June 30, 1995 300,000 500,000
Non-interest bearing liability related to the
purchase of the remaining 25% of QUIDEL
France, due June 7, 1996 248,000 248,000
10% unsecured note payable to minority
stockholder of Inmuno Analitica, S.L,
interest payable quarterly 65,000 81,000
Obligations under capital leases 125,000 119,000
- -------------------------------------------------------------------------------------------
4,173,000 4,502,000
Less current portion of long-term debt 683,000 357,000
- -------------------------------------------------------------------------------------------
$ 3,490,000 $ 4,145,000
===========================================================================================
</TABLE>
The Company has an accounts receivable-based bank line of credit in
an amount up to $3,000,000, which provides for interest at prime plus two
percent (2%). The line of credit expires August 5, 1997. As of March 31, 1996,
there were no outstanding borrowings under the line of credit.
Future debt and lease payments for fiscal years ended after March 31,
1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 683,000
1998 285,000
1999 203,000
2000 173,000
2001 191,000
Thereafter 2,638,000
- ----------------------------------------------------------
$4,173,000
==========================================================
</TABLE>
55
<PAGE> 16
Exhibit 13.1
NOTE 7. STOCKHOLDERS' EQUITY.
Common Stock Warrants. The Company has outstanding warrants to
purchase shares of its common stock as follows:
<TABLE>
<CAPTION>
Exercise Number
Issue Date Term Price of Shares
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
January 1991 6 years $2.95 1,861,294
April 1992 10 years $7.50 950,000
February 1994 5 years $5.94 117,871
January 1995 5 years $3.00 12,500
January 1995 5 years $2.50 50,000
April 1995 4 yrs, 9 mos $4.50 275,000
May 1995 5 years $4.75-$8.50 50,000
- -----------------------------------------------------------------------------
3,316,665
=============================================================================
</TABLE>
The April 1995 warrant was issued in conjunction with obtaining the
January 5, 1995 equity financing and the May 1995 warrant provides for vesting
and a variable exercise price based on the average price of the Company's common
stock. This warrant was issued to a public relations consultant.
Director and Employee Stock Plans. The Company's 1990 Employee Stock
Plan authorizes the Board of Directors to issue up to 1,750,000 shares of common
stock under incentive stock rights, stock options, stock appreciation rights and
stock purchase rights. The 1990 Director Option Plan provides for the grant of
options to purchase up to 150,000 shares of common stock to non-employee members
of the Board of Directors. As of March 31, 1996, 140,000 shares have been
granted under the Plan.
Stock Options. The Company has stock options outstanding which were
issued under stock option plans to certain employees, paid consultants and
directors. The options have terms ranging up to ten years, and generally vest
over four to five years. The following table, which includes option activity
under the 1990 Employee Stock Plan, summarizes stock option activity, in
thousands, except per share information:
<TABLE>
<CAPTION>
For the years ended March 31, 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 1,905 1,730 1,576
Granted 440 335 360
Exercised (497) (74) (173)
Cancelled (100) (86) (33)
- --------------------------------------------------------------------------------
Outstanding at end of year 1,748 1,905 1,730
================================================================================
Average exercise price of outstanding
options $4.03 $3.58 $3.43
Average price of options exercised $2.05 $ .82 $1.38
================================================================================
</TABLE>
Options to purchase 836,629 common shares are exercisable at March
31, 1996.
Employee Stock Purchase Plan. The Employee Stock Purchase Plan allows
full-time employees to purchase up to 400,000 shares of common stock through
payroll deductions (which
56
<PAGE> 17
Exhibit 13.1
cannot exceed 10% of the employee's compensation) at the lower of 85% of fair
market value at the beginning or end of each six-month option period. As of
March 31, 1996, 327,460 shares had been issued under the Plan, leaving 72,540
shares available for future issuance.
NOTE 8. INCOME TAXES.
The Company's effective Federal and California tax rate differed from
the Federal statutory rate in fiscal 1996, 1995 and 1994 due to the utilization
of available net operating loss carryforwards. Significant components of the
Company's deferred tax assets as of March 31, 1996 are shown below. A valuation
allowance of $31,328,000 has been recognized to offset the deferred tax assets
as realization of such assets is uncertain.
<TABLE>
<CAPTION>
March 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 27,112,000 $ 28,010,000
Tax credit carryforwards 1,850,000 1,832,000
Other - net 2,366,000 2,287,000
- --------------------------------------------------------------------------------
Total deferred tax assets $ 31,328,000 $ 32,129,000
Valuation allowance for
deferred tax assets (31,328,000) (32,129,000)
- --------------------------------------------------------------------------------
Net deferred tax assets $ -- $ --
================================================================================
</TABLE>
At March 31, 1996, the Company had Federal and California income tax
net operating loss carryforwards of approximately $76,108,000 and $7,893,000
respectively, which will expire if not utilized to offset taxable income.
Federal and California income tax net operating loss carryforwards of
approximately $373,000 and $3,108,000, respectively, expired in the current
year. The difference between the Federal and California tax loss carryforwards
is primarily attributable to the capitalization of research and development
expenses for California tax purposes and the fifty percent limitation on
California loss carryforwards as well as the shorter five year carryforward
period allowed by California (the Federal carryforward period is 15 years). The
Company also has federal investment tax and research and development credit
carryforwards of $1,744,000 and California research and development credit
carryforwards of $163,000 which will expire if not utilized to offset taxable
income.
In accordance with Internal Revenue Code Section 382 and the
California counterpart, a change in ownership of greater than 50% of a
corporation within a three year period may limit the Company's ability to
utilize its existing tax carryforwards. As a result of the 1991 merger with
Monoclonal Antibodies, Inc., the Company succeeded to the tax carryforwards
which were generated by Monoclonal and QUIDEL prior to the merger. Such loss
carryforwards totaled approximately $76,000,000 and $8,000,000 for Federal and
California purposes, respectively. The Company believes that, as a result of the
merger, it is likely that such a change in ownership has occurred, with respect
to both Monoclonal and QUIDEL, thereby limiting the utilization of these
carryforwards.
57
<PAGE> 18
Exhibit 13.1
REPORT OF ERNST & YOUNG, LLP
INDEPENDENT AUDITORS
The Board of Directors and Stockholders
QUIDEL Corporation
We have audited the accompanying consolidated balance sheets of QUIDEL
Corporation as of March 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of QUIDEL Corporation
at March 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended March 31, 1996,
in conformity with generally accepted accounting principles.
/S/ Ernst & Young LLP
-------------------------------------------
San Diego, California
May 3, 1996
(Page 23 of the 1996 Annual Report)
58
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Quidel Corporation of our report dated May 3, 1996, included in the 1996
Annual Report to Shareholders of Quidel Corporation.
We also consent to the incorporation by reference in the Registration Statements
(Form S-3 and Form S-8) and in the related Prospectuses of our report dated May
3, 1996, with respect to the consolidated financial statements of Quidel
Corporation incorporated by reference in the Annual Report (form 10-K) for the
year ended March 31, 1996.
/S/ Ernst & Young LLP
------------------------------------------
San Diego, California
June 26, 1996
59
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 2,538
<SECURITIES> 0
<RECEIVABLES> 7,602
<ALLOWANCES> 647
<INVENTORY> 3,491
<CURRENT-ASSETS> 14,186
<PP&E> 19,898
<DEPRECIATION> 6,171
<TOTAL-ASSETS> 33,334
<CURRENT-LIABILITIES> 4,126
<BONDS> 3,490
0
0
<COMMON> 22
<OTHER-SE> 25,696
<TOTAL-LIABILITY-AND-EQUITY> 33,334
<SALES> 34,481
<TOTAL-REVENUES> 35,053
<CGS> 16,033
<TOTAL-COSTS> 34,097
<OTHER-EXPENSES> (164)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 541
<INCOME-PRETAX> 579
<INCOME-TAX> 0
<INCOME-CONTINUING> 579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 579
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
