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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, 1997
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, California 92121
(Address of principal executive offices) (zip code)
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 6, 1997 was approximately $75,695,000. 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 6, 1997 was 23,554,333.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on July 29, 1997 (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, 1997 ("fiscal 1997"),
are incorporated herein as provided in Part III, and portions of the
Registrant's Annual Report to Stockholders for fiscal 1997 (the "1997 Annual
Report"), are incorporated herein as provided in Parts I, II and IV.
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 for use 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 over 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
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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.
- 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
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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 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-
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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, which currently account for approximately 25% of
the Company's total annual sales, 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.
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 from approximately 30% of total net sales in fiscal
1994 to less than 1% of total net sales in fiscal 1997. 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.
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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, 1997, 1996 and 1995 accounted for approximately 13%, 18% and 19%,
respectively, of total net sales.
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.
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- 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, 1997, 1996 and 1995 accounted for approximately 41%, 49% and 44%,
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 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.
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- 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 review by the U.S. Food and Drug Administration ("FDA") 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 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.
In October 1996, this test received CDC "CLIA Waived"
classification status which potentially expands the market
available for this product.
- 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 ensure
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, and is fast and easy to use in the doctor's office or
clinical laboratory.
Total sales of the Company's infectious disease products for the years
ended March 31, 1997, 1996 and 1995 accounted for approximately 37%, 17%, and
18%, 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
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specialized equipment, is easy to use and can be readily performed in the
primary care physician's office.
Total sales of the Company's allergy products for the years ended
March 31, 1997, 1996 and 1995 accounted for approximately 4%, 8%, and 8%,
respectively, of total net sales.
CLINICAL LAB/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 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 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 anticipated future products include: an influenza A and B diagnostic
test, 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, 1997, 1996 and 1995, the Company
incurred $6,700,000, $4,130,000, and $3,728,000, respectively, for research and
development, including costs incurred under research contracts.
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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.
During fiscal 1996, the Company entered into an agreement with Glaxo
Group Ltd., a wholly-owned subsidiary of Glaxo Wellcome, to develop an
influenza A and B diagnostic test to be sold under the Quidel brand name and
used in conjunction with their new drug to treat influenza, presently in phase
II clinical trials. This multi-year program represents the largest
independently funded research and development program in Quidel's history.
In February 1996, the Company entered into a development agreement
with Heska Corporation to develop and supply certain rapid in-clinic veterinary
diagnostic tests. This agreement allows the Company to broaden the markets
addressed with its rapid diagnostic technology.
In November 1996, the Company entered into a multi-year development
and supply agreement with Bayer Corporation's Business Group Diagnostics to
develop immunodiagnostic tests for use with Bayer's CLINITEK(R) analyzers. The
CLINITEK family of analyzers has made Bayer the world leader in urine chemistry
systems. The products developed under this agreement will expand the menu of
tests available for use on this installed base of equipment.
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.
- 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
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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.
- Hospitals and Clinical Laboratories. Quidel serves a select group
of hospitals and clinical laboratories through its national
distributors, supported by sales specialists.
- 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.
Effective January 1996, the Company 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, 1997, 1996 and 1995, export sales,
which are denominated in United States dollars and represent export sales from
the United States to third parties, were $8,060,000, $9,059,000 and $6,562,000,
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 30%, 38%, and 33% of total net sales
for the fiscal years ended March 31, 1997, 1996 and 1995, respectively. For
additional information concerning export sales by geographic region, see Note 5
of Notes to Consolidated Financial Statements included on page 16 of the
Company's 1997 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 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.
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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 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.
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<PAGE> 13
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, 1997, the Company had 290 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.
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<PAGE> 14
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. There is, as in the case
of most environmental litigation, the theoretical possibility of joint and
several liability being imposed upon the Company for damages that may be
awarded.
In April 1997, Becton Dickinson and Co. (the "plaintiff") filed a
lawsuit against the Company alleging that the Company's strep and chlamydia
products and certain of its pregnancy and ovulation products (collectively, the
"Products") infringe two patents of the plaintiff. The Products in issue
represent a substantial majority of the Company's current revenues. In June
1997, the Company entered into a settlement agreement with the plaintiff. As a
part of that agreement, the Company received a license from the plaintiff under
both patents in exchange for a cash license fee, a royalty on net sales of the
Products after April 1, 1997, and a license of the Company's Q-Label technology
back to plaintiff (with a royalty on future net sales). The Company currently
estimates that the annual amortization of the license fee and royalty payments
(based on current sales levels of the Products) will result in an annual
expense of approximately $1,900,000 per year. While the Company denied the
allegations in the complaint and admitted no liability as part of the suit's
resolution, the Company believed the settlement was warranted when balanced
against the anticipated defense costs, the uncertainties of litigation in
general, and the expected diversion of management's time and attention over an
extended period.
In May 1997, Quidel's wholly owned subsidiary Pacific Biotech, Inc.
("PBI") was named as a co-defendant in a suit filed in Bowie County, Texas.
The suit states in part that in July 1993, as a result of a false negative
pregnancy test result from a PBI product, the plaintiff (who was 12 to 14 weeks
pregnant) was informed in error that she was not pregnant and was prescribed
oral contraceptives. The suit further states that the PBI product's advertised
accuracy was false and
14
<PAGE> 15
misleading and was the producing cause of the complained of damages. The
plaintiff states that she was not aware of being pregnant until the time of
delivery when, due to complications which could have been avoided by Cesarean
section had she known she was pregnant, the baby sustained injuries. It is
uncertain as to the outcome of this suit; however, the Company believes it has
adequate product liability insurance coverage.
The Company is involved in litigation matters from time to time in the
ordinary course of business. Management believes that any and all such
actions, in the aggregate, will not have a material adverse effect on the
Company. The Company maintains insurance, including coverage for product
liability claims, in amounts which management believes appropriate given the
nature of the Company's business.
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 6, 1997 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, 54, 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 30 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.
Steven C. Burke, 52, 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, 46, Vice President - Human Resources, joined
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.
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<PAGE> 16
Lauren G. Otsuki, 44, Vice President - Operations, joined 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., 45, Vice President - Research and
Development, joined 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.
John D. Tamerius, Ph.D., 51, Vice President - Clinical Laboratory
Business, joined 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, 41, Vice President - Clinical Development and
Regulatory Affairs, joined 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.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this item is included on page 20 of
the Registrant's 1997 Annual Report and is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
The information required by this item is included on the inside
front cover of the Registrant's 1997 Annual Report and is incorporated herein
by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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The information required by this item is included on pages 8 - 10
of the Registrant's 1997 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 11 - 19
of the Registrant's 1997 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 1997 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.
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 1997 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 1997 year and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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<PAGE> 18
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 1997 Annual Report:
<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT
-------------
<S> <C> <C>
1. Report of Ernst & Young LLP, Independent Auditors 20
2. Consolidated Balance Sheets --
March 31, 1997 and 1996 12
3. Consolidated Statements of Operations --
Years ended March 31, 1997, 1996 and 1995 11
4. Consolidated Statements of Stockholders' Equity --
Years Ended March 31, 1997, 1996 and 1995 14
5. Consolidated Statements of Cash Flows --
Years Ended March 31, 1997, 1996 and 1995 13
6. Notes to Consolidated Financial Statements 15-19
</TABLE>
II. Financial Schedules. None.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal
1997:
None.
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
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
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C>
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.
(Incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-K dated March 31, 1995.)
10.2.1 Form of Indemnification Agreement - Corporate Director.
(Incorporated by reference to Exhibit 10.2.1 to the
Registrant's Form 10-K dated March 31, 1995.)
10.3 Form of Warrant Agreement between Registrant and American
Stock Transfer & Trust Company. (Incorporated by reference
to Exhibit 10.3 to the Registrant's Form 10-K dated March
31, 1995.)
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.)
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.
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
(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 1998.
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. (Incorporated by reference to
Exhibit 10.15 to the Registrant's Form 10-K dated March 31,
1995.)
10.16 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. (Incorporated by reference to Exhibit
10.17 to the Registrant's Form 10-K dated March 31, 1995.)
10.17 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.)
10.18* Settlement Agreement effective April 1, 1997 between the
Registrant and Becton Dickinson and Company.
10.19* Campbell License Agreement effective April 1, 1997 between
the Registrant and Becton Dickinson and Company
10.20* Rosenstein License Agreement effective April 1, 1997
between the Registrant and Becton Dickinson and Company.
10.21* Employment Agreement dated June 23, 1997 between the
Registrant and Andre de Bruin.
10.22* Stock Option Agreement dated June 23, 1997 between the
Registrant and Andre de Bruin to purchase 300,000 shares
issued under the Registrant's General
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
Nonstatutory Stock Option Plan.
13.1* Certain portions of the 1997 Annual Report to Stockholders
for the fiscal year ended March 31, 1997 which have been
incorporated herein by reference.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
27* Financial Data Schedule.
</TABLE>
* Filed herewith
21
<PAGE> 1
Exhibit 10.12
SUMMARY OF MANAGEMENT INCENTIVE COMPENSATION PLAN
AS IN EFFECT IN FISCAL 1998
The Company maintains a management incentive compensation plan which
is designed to reward the Company's officers for their contributions to
corporate 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. 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 1998 at 40%
and 30%, respectively.
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<PAGE> 1
Exhibit 10.18
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Agreement"), is entered into by and
between Becton Dickinson and Company, a New Jersey corporation, whose principal
place of business is at 1 Becton Drive, Franklin Lakes, New Jersey 07417
(hereinafter referred to as "BECTON") and Quidel Corporation, a Delaware
corporation, whose principal place of business is at 10165 McKeller Court, San
Diego, California 92121 (hereinafter referred to as "QUIDEL"), effective as of
April 1, 1997 ("Effective Date").
RECITALS
WHEREAS, BECTON and QUIDEL are parties to the action Becton Dickinson
and Company v. Quidel Corporation, D.Del. Case No. 97-167 (the "Litigation");
and
WHEREAS, in the Litigation, BECTON has charged QUIDEL with
infringement of U.S. Patent No. 4,703,017 and U.S. Patent No. 5,591,645; and
WHEREAS, QUIDEL denies that it has infringed the patents set forth above; and
WHEREAS, BECTON and QUIDEL desire to settle and terminate the
Litigation and to cause the Litigation to be dismissed as between the parties
on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, the parties agree as follows:
A. LICENSE AGREEMENT AND DISMISSAL
1. Contemporaneously with the execution of this Agreement, each
party shall execute and deliver to counsel for the other party the License
Agreements attached hereto as Exhibit A.
2. Upon receipt by BECTON of the payment specified in Article 4
of the Campbell License Agreement - Human Market included in Exhibit B, BECTON
shall thereafter promptly file a dismissal with prejudice of the Litigation.
B. MUTUAL RELEASES
1. For purposes of this Agreement, the term "claim" shall mean a
claim, right, asserted right or cause of action, whether in law or equity, for
money damages or other relief, including costs and attorneys' fees, and whether
asserted or unasserted or known or unknown, which arose on or before the
Effective Date and which is based on acts or omissions occurring on or before
the Effective Date.
2. Immediately upon the final execution of this Agreement by the
parties and the receipt by BECTON of the sum set forth in Article 4 of the
Campbell License Agreement - Human Market, BECTON, on its behalf and on behalf
of anyone claiming by or through it, shall and does fully and forever remise,
release, relinquish, acquit and discharge any claim against QUIDEL that arises
out of the transactions or occurrences that are the subject matter of the
complaint in the Litigation and could have been brought in the Litigation.
3. Immediately upon the final execution of this Agreement by the
parties, QUIDEL, on its own behalf and on behalf of anyone claiming by or
through it, shall and does fully and forever remise, release, relinquish,
acquit and discharge any claim against BECTON that arises out of the
transactions or occurrences that are the subject matter of the Litigation and
could have been brought in the Litigation.
24
<PAGE> 2
Exhibit 10.18
4. The releases set forth above cover and extend to present and
former officers, employees, representatives and agents, the insurers of, and
the successors and assigns of the parties released, and to any other person or
entity that may be claimed to be responsible for the acts or liabilities of the
parties released.
C. AGREEMENT NOT TO CHALLENGE INFRINGEMENT
1. QUIDEL agrees that it (a) will not assert non-infringement of
U.S. Patent No. 4,703,017 or U.S. Patent No. 5,591,645 as a defense in any
dispute or litigation between the parties concerning QUIDEL products listed in
Exhibit B or QUIDEL products that are Not Materially Different, as hereinafter
defined, from such listed products, and (b) will not commence any action for a
declaratory judgment that QUIDEL products listed in Exhibit B or QUIDEL
products that are Not Materially Different, as hereinafter defined, from such
listed products, do not infringe U.S. Patent No. 4,703,017 or U.S. Patent No.
5,591,645.
2. For purposes of this Settlement Agreement, a QUIDEL product is
Not Materially Different if, when considered in regard to the elements of the
claims of U.S. Patent No. 4,703,017 or U.S. Patent No. 5,591,645, that product
incorporates only an insubstantial change from a QUIDEL product listed in
Exhibit B.
3. In any dispute or litigation over whether a QUIDEL product is
Not Materially Different, the burden of proof shall rest with BECTON to prove
by a preponderance of the evidence that a QUIDEL product not listed in Exhibit
B is Not Materially Different.
D. ACKNOWLEDGMENT AND AGREEMENT NOT TO CHALLENGE VALIDITY AND
ENFORCEABILITY
1. QUIDEL acknowledges the validity and enforceability of U.S.
Patent No. 4,703,017 and U.S. Patent No. 5,591,645 and agrees that it will not
challenge the validity or enforceability of either or both of these patents in
any future litigation between the parties involving any product. QUIDEL
specifically acknowledges that its agreement not to challenge the validity or
enforceability of either or both of these patents is absolute and in all
respects precludes litigation of the validity or enforceability issue in any
litigation between the parties.
E. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Delaware.
AGREED:
Dated: June 13, 1997 QUIDEL CORPORATION
------------------------------
BY: /S/ STEVEN T. FRANKEL
-----------------------------
Dated: June 13, 1997 BECTON DICKINSON AND COMPANY
------------------------------
BY: /S/ LARRY E. WARFEL
-----------------------------
25
<PAGE> 3
Exhibit 10.18
EXHIBIT A
[ To Be Added ]
26
<PAGE> 4
Exhibit 10.18
EXHIBIT B
PRODUCTS
Conceive 1-Step Pregnancy
QuickVue One Step hCG-Urine
QuickVue One Step hCG-Combo
Q Test Pregnancy
Conceive 1-Step Ovulation Predictor
QuickVue Chlamydia
QuickVue In-Line One-Step Strep A
QuickVue Flex Strep A
QuickVue H. Pylori
27
<PAGE> 1
Exhibit 10.19
CAMPBELL LICENSE AGREEMENT - HUMAN MARKET
This License Agreement (the "Agreement") is entered into and made
effective this 1st day of April, 1997, (the "EFFECTIVE DATE") between Becton,
Dickinson and Company, a New Jersey corporation, whose principal place of
business is at 1 Becton Drive, Franklin Lakes, New Jersey, 07417 (hereinafter
referred to as "BECTON") and Quidel Corporation, a Delaware corporation, whose
principal place of business is at 10165 McKeller Court, San Diego, California
92121 (hereinafter referred to as "QUIDEL").
WHEREAS, BECTON and QUIDEL are presently engaged in litigation
involving BECTON patents in Becton Dickinson and Co. v. Quidel Corporation, No.
97-167 (U.S. Dist. Ct., D. Del.,); and
WHEREAS, the parties wish amicably to settle their differences and
terminate such litigation under the terms hereinafter set forth.
For and in consideration of the mutual promises and covenants set
forth below, BECTON and QUIDEL agree as follows:
1.0 DEFINITIONS.
1.1 "AFFILIATE" shall mean any corporation or other business
entity controlled by, controlling or under common control with the recited
entity. For this purpose "control" shall mean direct or indirect beneficial
ownership of at least fifty-one percent (51%) of the voting stock of, or at
least a fifty-one percent (51%) interest in the income of such corporation or
other business entity.
1.2 "LICENSED PATENT(S)" shall mean United States Letters Patent
No. 4,703,017 and any continuation, division, re-examination, or reissue
thereof, and the foreign counterpart patents and patent applications claiming
priority thereto and any patents issuing therefrom, as set forth in Appendix A.
1.3 "PRODUCT(S)" shall mean the QUIDEL PRODUCT(S) listed in
Appendix B or any product, device, instrument, kit or component thereof, the
making, using, importing, offering for sale or selling of which would, in the
absence of the license granted hereunder, infringe, contribute to the
infringement of, or induce the infringement of any claim of a LICENSED PATENT,
except for any products, devices, instruments, kits or components thereof which
were previously covered by the license agreement between QUIDEL and BECTON
executed on October 10, 1991, on which royalties are payable to BECTON
thereunder. For purposes of this Agreement, the term "PRODUCT(S)" includes,
without limitation, products listed in Appendix B.
1.4 (a) "NET SALES" shall mean the sum of all amounts
invoiced on account of sale of PRODUCTS by QUIDEL to non-affiliated third party
purchasers of PRODUCTS, less (i) returns, allowances, rebates, and cash
discounts to purchasers allowed and taken, (ii) amounts for transportation or
shipping charges to purchasers shown on the invoice, and (iii) taxes and duties
levied on the sale of PRODUCTS actually paid.
(b) In the instance where a PRODUCT is sold by QUIDEL to
a purchaser with which the seller does not deal at arms length, the NET SALES
for the purposes of determining the royalties shall be the highest current NET
SALES for the same or similar items sold at arms length under similar market
conditions.
(c) In the instance where a PRODUCT is not sold, but is
OTHERWISE DISPOSED OF (as defined in Paragraph 1.5 below), the NET SALES for
the purposes of determining the royalties shall be the highest current NET
SALES at which PRODUCTS of the same or similar kind and quality, and in
substantially similar quantities, are sold or offered for sale.
1.5 "OTHERWISE DISPOSED OF" shall mean and include:
(i) the delivery of any amount of PRODUCT, other than
nominal quantities of free samples or free replacements, by QUIDEL to others in
any transaction other than a sale, regardless of the basis of consideration, if
any; or
(ii) the placing into use of any PRODUCT by QUIDEL for any
purpose, other than its internal routine testing, provided that the scrapping
or destruction (except if consideration is received therefor) of any PRODUCT
shall not fall
28
<PAGE> 2
Exhibit 10.19
within the definition of "OTHERWISE DISPOSED OF" and no value in respect
thereof shall be included in calculating NET SALES. A PRODUCT shall be
considered OTHERWISE DISPOSED OF when used or shipped by, or on behalf of,
QUIDEL.
1.6 "QUARTER" shall mean any period of three consecutive calendar
months beginning January 1, April 1, July 1, and October 1, occurring during
the term of this Agreement.
2.0 LICENSE GRANT.
2.1 Subject to the terms and conditions herein, BECTON hereby
grants to QUIDEL, who accepts the same, a non-exclusive, non- transferable
(except to an AFFILIATE) right and license under the LICENSED PATENTS, without
the right to sublicense, to make, have made for its own use and sale, use,
offer for sale, and import PRODUCT and to practice the methods claimed in the
LICENSED PATENTS in connection with such PRODUCT, and to extend to its
customers purchasing PRODUCT the right to use and sell the PRODUCT purchased
and to practice the methods claimed in the LICENSED PATENTS in connection with
such PRODUCT, all of the foregoing limited expressly to the field of all human
in vitro manually formatted immunodiagnostic assays.
2.2 In the event that QUIDEL sells PRODUCT(S) to a third party
that has a non-exclusive, non-transferable right and license under the LICENSED
PATENT(S), the license granted to QUIDEL herein shall not extend to such sales,
provided however, QUIDEL shall be permitted to make PRODUCTS for any third
party licensee having the right and license under the LICENSED PATENT(S) to
have such PRODUCTS made for it, and to sell those PRODUCTS to such licensee
without any obligation to pay royalties to BECTON thereon since the third party
(without waiving any right of BECTON to collect royalties from QUIDEL in the
event the third party licensee fails to account for and pay royalties to BECTON
on its sales of such PRODUCTS) licensee has the obligation, under its license
with BECTON, to pay royalties on the sales of PRODUCTS made for it. BECTON
agrees to provide QUIDEL with the names of such third party licensees which
have the right and license to have PRODUCTS made for it.
2.3 BECTON further hereby releases QUIDEL from any liability for
infringement of the LICENSED PATENTS arising from the sale of PRODUCTS by
QUIDEL which occurred prior to the EFFECTIVE DATE.
3.0 TERM.
3.1 This Agreement shall become effective as of the EFFECTIVE DATE
hereof and shall continue in effect until the last to expire of the LICENSED
PATENTS.
4.0 PAYMENT.
4.1 In consideration for the license granted hereunder, QUIDEL
shall pay to BECTON the following:
(a) Within ten (10) days after the signing of this
Agreement, a non-refundable license fee of two million dollars ($2,000,000),
which fee shall not be a credit against any royalty obligations under paragraph
4.1(b); and
(b) On or subsequent to the EFFECTIVE DATE, a royalty at
the rate of five and one-quarter percent (5 -1/4%) of the NET SALES of all
PRODUCTS sold or OTHERWISE DISPOSED OF.
4.2 QUIDEL's obligation to pay royalties under paragraph 4.1 on
PRODUCT shall terminate, on a country by country basis, upon expiration of the
last of the LICENSED PATENTS in the country of sale or manufacture, as
applicable. Further, this obligation shall cease in the event that a court of
competent jurisdiction in the country in question renders a final decision from
which no appeal is or can be taken, that the LICENSED PATENTS are invalid
and/or unenforceable. If in such decision one or more claims of the LICENSED
PATENTS are not declared invalid or unenforceable, the obligation of QUIDEL to
pay with respect to PRODUCTS covered by the remaining claims shall not be
affected.
4.3 For all sales and royalty-bearing transfers and uses occurring
on or subsequent to the EFFECTIVE DATE, QUIDEL shall provide written reports to
BECTON within sixty (60) days after the end of each QUARTER, stating in each
report the analyte name and the NET SALES of each PRODUCT sold or OTHERWISE
DISPOSED OF during such QUARTER and upon which royalties are payable as
provided in this Paragraph.
29
<PAGE> 3
Exhibit 10.19
4.4 For all sales and other dispositions of PRODUCTS occurring on
or subsequent to the EFFECTIVE DATE that QUIDEL makes to a third party licensee
of BECTON, QUIDEL shall provide separate written reports to BECTON within sixty
(60) days after the end of each QUARTER, stating in each report the analyte
name, the identity of the third party licensee(s) and the NET SALES of each
PRODUCT sold or OTHERWISE DISPOSED OF during such QUARTER and upon which
royalties are not payable as provided in this Paragraph, consistent with the
provisions of Paragraph 2.2, above.
4.5 (a) Concurrently with the making of each report QUIDEL
shall pay to BECTON all royalties due in the amount specified in Paragraph 4.1
on the NET SALES of all PRODUCTS included in the report.
(b) Any late payment shall bear interest at the rate of
one percent (1%) per month.
4.6 All payments shall be made hereunder in United States Dollars;
provided, however, that if the proceeds of the sales upon which such royalty
payments are based are received by QUIDEL in a foreign currency or other form
that is not convertible or exportable in Dollars, and QUIDEL does not have
ongoing business operations or bank accounts in the country in which the
currency is not convertible or exportable, QUIDEL shall pay such royalties in
the currency of the country in which such sales were made by depositing such
royalties in BECTON's name in a bank designated by BECTON in such country.
Royalties in Dollars shall be computed by converting the royalty in the
currency of the country in which the sales were made at the exchange rate for
Dollars prevailing at the close of the last business day of the QUARTER for
which royalties are being calculated as published the following day in the Wall
Street Journal (or a comparable publication agreed upon from time to time by
the parties), and with respect to those countries for which rates are not
published, the exchange rate fixed for such date by the appropriate United
States governmental agency.
4.7 In the event that any taxes, withholding or otherwise, are
levied by any taxing authority in connection with accrual or payment of any
royalties payable to BECTON under this agreement, QUIDEL shall have the right
to pay such taxes to the local tax authorities on behalf of BECTON and the
payment to BECTON of the net amount due, after reduction by the amount of such
taxes, shall fully satisfy QUIDEL's royalty obligations under this Agreement,
so long as appropriate documentation of such tax payment is provided to BECTON.
4.8 All payments made hereunder shall be made to BECTON at the
address set forth in Article 7 of this Agreement or at such changed address as
BECTON shall specify by written notice.
4.9 QUIDEL shall keep detailed records of all PRODUCT sold or
OTHERWISE DISPOSED OF to permit verification of the reports and payments made
to BECTON. At BECTON's expense and request and upon reasonable notice, QUIDEL
shall permit such records to be examined by independent public accountants
designated by BECTON and reasonably acceptable to QUIDEL. Such examination
shall take place not more than once each year.
4.10 In the event that an examination by BECTON of QUIDEL's records
and books of account reveals an underpayment to BECTON, QUIDEL shall
immediately pay BECTON the deficiency, plus interest at a rate of one percent
(1%) per month from the date the underpayment occurred. In the event that such
underpayment amounts to ten percent (10%) or more of the total amount payable
for the period examined, QUIDEL shall also reimburse BECTON for all
out-of-pocket expense of the examination.
4.11 Within ninety (90) days after the release by QUIDEL of any
human in vitro manually formatted immunodiagnostic products for sale, QUIDEL
will notify BECTON in writing of the same. Such product shall be included in
Appendix B unless QUIDEL specifically provides information indicating that such
product is not a PRODUCT hereunder.
5.0 TRANSFERABILITY OF RIGHTS AND OBLIGATIONS.
5.1 This Agreement and the license granted under it may not be
assigned or sold by QUIDEL without the express written consent of BECTON,
except to an AFFILIATE or to an entity acquiring substantially all of QUIDEL's
business relating to in vitro immunodiagnostic assay technology. If QUIDEL is
permitted to assign this Agreement, the assignee shall first agree, in writing,
to assume all obligations of QUIDEL created by this Agreement.
5.2 BECTON may freely assign this Agreement in whole or in part
and any or all of the LICENSED PATENTS.
30
<PAGE> 4
Exhibit 10.19
5.3 This Agreement, and each and every one of the terms and
conditions thereof, shall inure to the benefit of and be binding upon the
permitted successors and assignees of both parties.
6.0 ACKNOWLEDGMENT OF VALIDITY AND ENFORCEABILITY.
6.1 QUIDEL acknowledges the validity and enforceability of United
States Patent No. 4,703,017 and agrees that it will not challenge directly or
indirectly, or assist others in any way in challenging, the validity or
enforceability of this patent, in any court or in the U.S. Patent and Trademark
Office or any other Patent Office. If QUIDEL breaches this Article, BECTON
will be entitled, to the extent permitted by law, to specific performance of
QUIDEL's obligations as set forth in this paragraph and BECTON shall be
entitled to terminate this Agreement forthwith notwithstanding any provisions
to the contrary set forth in Paragraph 8.1.
7.0 NOTICE.
7.1 Any notice, payment, report, or other correspondence
(hereinafter collectively referred to as "correspondence") required or
permitted to be given hereunder shall be mailed by certified mail or delivery
by hand or overnight courier to the party to whom such correspondence is
required or permitted to be given hereunder If mailed, any such notice shall
be deemed to have been given when received by the party to whom such
correspondence is given, as evidenced by written and dated receipt of the
receiving party.
7.2 Alternatively, correspondence provided for in this Agreement
shall be deemed sufficiently given by the party sending the correspondence when
sent by facsimile to the party to whom the correspondence is addressed. A
confirmation copy of the correspondence will be sent by Certified or Registered
Mail. The date of the facsimile transmission will constitute the date of
receipt of the correspondence.
All correspondence to QUIDEL shall be addressed as follows:
Quidel Corporation
10165 McKeller Court
San Diego, California 92121
Attention: Steven Frankel, President and CEO
All correspondence to BECTON, except for royalty payments,
shall be addressed as follows:
Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, New Jersey 07417
Attention: Chief Patent and Licensing Counsel
All royalty payments to BECTON shall be addressed as follows:
Becton Dickinson Microbiology Systems
7 Loveton Circle
Sparks, Maryland 21152-0999
Attention: Manager, Financial Reporting
Either party may change the address to which correspondence to it is to be
addressed by notification as provided for herein.
8.0 TERMINATION.
8.1 BECTON shall have the right to terminate this Agreement if
QUIDEL commits a material breach of an obligation under this Agreement,
including the failure to make timely royalty payments hereunder, and continues
in default for more than thirty (30) days after receiving written notice from
BECTON of such default, such termination to be effective immediately upon
further written notice to QUIDEL after such thirty (30) day period.
31
<PAGE> 5
Exhibit 10.19
8.2 In the event that QUIDEL shall be adjudicated bankrupt, go
into liquidation, receivership or trusteeship, make a composition with its
creditors or enter into any similar proceeding of the same nature, then BECTON
shall have the right without liability therefor to terminate this Agreement
forthwith by notice in writing to QUIDEL.
9.0 GOVERNING LAW.
9.1 This Agreement shall be governed by, interpreted in accordance
with and enforced under the laws of the State of Delaware, U.S.A. (regardless
of its or any other jurisdiction's choice of law principles), or, as necessary,
the laws of the United States of America. The Federal District Court of the
District of Delaware shall have exclusive jurisdiction in all matters arising
under this Agreement, and the parties hereto expressly consent and submit to
such jurisdiction.
10.0 REPRESENTATIONS, WARRANTIES AND LIMITATIONS.
10.1 Nothing in this Agreement shall be construed as:
(a) A warranty or representation by BECTON as to the
validity or enforceability of any LICENSED PATENTS; or
(b) A warranty or representation by BECTON that anything
made, used, sold or OTHERWISE DISPOSED OF under the license granted in this
Agreement, is or will be free from infringement of patents or other rights of
third parties; or
(c) A requirement that BECTON shall file any patent
application or secure any patent; or
(d) An obligation of either party to bring or prosecute
actions or suits against third parties for infringement of any patents; or
(e) Conferring a right to use in advertising, publicity,
or the like any name, tradename, or trademark of QUIDEL or BECTON; or
(f) Granting by implication, estoppel or otherwise any
licenses or rights under any letters patents and applications for letters
patents other than under the LICENSED PATENTS; or
(g) An obligation by BECTON to furnish know-how or any
other technical information not disclosed in the LICENSED PATENTS.
10.2 BECTON represents to QUIDEL that BECTON is the owner of the
LICENSED PATENTS and has the right to grant the license hereunder.
10.3 Each party represents and warrants that it has full authority
to enter into and become bound by the terms and conditions of this Agreement
and that its execution of this Agreement will not violate, contravene or be in
conflict with any law, rule, by-law, article of incorporation, order,
regulation or other agreement.
11.0 DISCLAIMER AND HOLD HARMLESS PROVISION.
11.1 It is understood and agreed by and between the parties hereto
that nothing contained in this Agreement shall constitute or be construed to
constitute any undertaking, representation, suggestion, inducement, warranty,
assurance or guarantee whatsoever by either party in connection with PRODUCTS
or any component, product, material, service, process or apparatus with respect
to safety, quality, yield, production, cost, profit, saleability,
licensability, demand, utility, performance, availability of raw materials,
accident or injury to person or property.
11.2 QUIDEL expressly indemnifies and holds BECTON, its affiliates,
its successors, and assigns and its officers, directors and employees harmless
from and against any and all claims, liabilities, damages, costs, expenses,
and/or actions of any kind whatsoever which arise from or are connected with
the manufacture, use, lease, sale, or other disposition of PRODUCTS under the
LICENSED PATENTS.
32
<PAGE> 6
Exhibit 10.19
11.3 Neither of the parties hereto shall be liable in damages or
have the right to cancel for any delay or default in performing hereunder
(other than delay or default in the payment of money) if such delay or default
is caused by conditions beyond its control, including but not limited to Acts
of God, governmental restrictions, continuing domestic or international
problems such as war or insurrections, strikes, fires, flood, work stoppages,
embargoes and/or other casualty or cause; provided, however, that any party
hereto shall have the right to terminate this Agreement upon thirty (30) days
prior written notice if either party is unable to fulfill its obligations under
this Agreement due to any of the above-mentioned causes and such inability
continues for a period of six (6) months.
12.0 CAPTIONS.
12.1 The captions and paragraph headings of this Agreement are
solely for the convenience of reference and shall not affect its
interpretation.
13.0 SEVERABILITY.
13.1 Should any part or provision of this Agreement be held
unenforceable or in conflict with the applicable laws or regulations of any
jurisdiction, the invalid or unenforceable part or provision shall be replaced
with a provision which accomplishes, to the extent possible, the original
business purpose of such part or provision in a valid and enforceable manner,
and the remainder of this Agreement shall remain binding upon the parties
hereto.
14.0 WAIVER.
14.1 No failure or delay on the part of a party in exercising any
right hereunder shall operate as a waiver of, or impair, any such right. No
single or partial exercise of any such right shall preclude any other or
further exercise thereof or the exercise of any other right. No waiver of any
such right shall be deemed a waiver of any other right hereunder.
15.0 MOST FAVORED LICENSEE.
15.1 In the event that after the EFFECTIVE DATE of this Agreement
BECTON enters into a license agreement with a third party, in which such third
party is licensed to make, use and sell any PRODUCTS at a royalty rate which is
different from the royalty rate set forth in this Agreement, BECTON shall
within thirty (30) days after the signing of such license agreement, disclose
to QUIDEL the royalty rate in the third party agreement. BECTON will provide
such information to QUIDEL's attorneys who will maintain the information in
confidence and may disclose it to others within QUIDEL only on a confidential,
need-to-know basis.
15.2 Concurrent with the above report, BECTON will extend to QUIDEL
the option of substituting the royalty rate in the third party agreement for
the royalty rate in this Agreement, subject to the following provision:
(a) The different royalty rate shall become effective as of the
date of its written acceptance by QUIDEL and shall apply only to sales
occurring thereafter. In no event shall QUIDEL be entitled to a refund or
credit of any monies paid or payable to BECTON prior to the acceptance of the
different royalty rate.
15.3 In the event that QUIDEL does not accept the different royalty
rate relative to Paragraph 15.2 within thirty (30) days after QUIDEL receives
notice from BECTON, QUIDEL's option to substitute the different royalty rate
shall be deemed forever waived.
16.0 SURVIVAL.
16.1 The provisions of Paragraphs 9, 10 and 11 shall survive the
termination or expiration of this Agreement and shall remain in full force and
effect. Furthermore, termination or expiration shall not affect, inter alia;
(a) QUIDEL's obligation to supply reports as specified in
Paragraph 4.0 of this Agreement;
(b) BECTON's right to receive or recover and QUIDEL's
obligation to pay royalties accrued or accruable for payment at the time of any
termination;
33
<PAGE> 7
Exhibit 10.19
(c) QUIDEL's obligation to maintain records and BECTON's
right to conduct a final examination of QUIDEL's books and records in
accordance with Paragraph 4.8 of this Agreement; and
(d) Licenses and releases running in favor of customers
or transferees of either party in respect to PRODUCT sold or OTHERWISE DISPOSED
OF prior to termination of this Agreement.
16.2 The provisions of this Agreement which do not survive
termination or expiration hereof (as the case may be) shall, nonetheless, be
controlling on, and shall be used in construing and interpreting, the rights
and obligations of the parties hereto with regard to any dispute, controversy
or claim which may arise under, out of, in connection with, or relating to this
Agreement.
17.0 ENTIRE AGREEMENT.
17.1 This Agreement constitutes the entire agreement between the
parties hereto respecting the subject matter hereof and the license granted
hereunder, and supersedes and terminates all prior agreements respecting the
same subject matter hereof, whether written or oral, and may be amended only by
an instrument in writing executed by both parties hereto, provided however, the
previous agreement between the parties, dated October 10, 1991, and directed to
related subject matter, shall remain in full force and effect and shall be
unaffected by this Agreement.
18.0 DISPUTE RESOLUTION.
18.1 The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiations between
executives who have authority to settle such dispute. Any party may give the
other party(ies)written notice of any dispute hereunder not resolved in the
normal course of business. Within twenty (20) days following delivery of such
notice, executives of both parties shall discuss by telephone or meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to exchange relevant information and to attempt to resolve such
dispute. If the matter has not been resolved within sixty (60) days following
the disputing party's notice, or if the parties fail to discuss or meet within
twenty (20) days, either party may initiate mediation of the controversy or
claim under the then-current Center for Public Resources Procedure for
Mediation of Business Disputes in New York. No party shall institute any court
proceedings until the expiration of one hundred and twenty (120) days from the
initiation of negotiations. At the conclusion of this period, absent any
resolution of the dispute or further agreement between the parties to extend
this period, either party may file suit for the subject matter of the dispute
only.
18.2 If a negotiator intends to be accompanied at a telephone
conference or a meeting by an attorney, the other negotiator shall be given at
least three (3) business days' notice of such intention and may also be
accompanied by an attorney. All negotiations pursuant to this clause are
confidential and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and any state rules of evidence.
19.0 CONFIDENTIALITY.
19.1 This Agreement, its terms, and any information provided by a
party hereto pursuant to this Agreement, shall be kept in strictest confidence
by all parties hereto, except that the parties may disclose the terms of the
Agreement as required by law, as required by Most Favored Nations notification
provisions for other licensees of the LICENSED PATENTS, and as required by the
parties' respective accountants, auditors, attorneys, officers, and employees
with a need to know, as well as to prospective purchasers of the business
relating to PRODUCTS provided that any such parties to whom disclosure is
permitted have agreed to keep such terms confidential. Except as provided
above, no party hereto shall provide this Agreement or any of its terms to any
person or entity not a party hereto. Notwithstanding any of the above, the
parties hereto may disclose publicly that BECTON has granted and QUIDEL has
accepted a non-exclusive right and license under the LICENSED PATENTS, in
accordance with Article 21.0 below.
19.2 Notwithstanding Paragraph 19.1, if either of the parties
hereto is requested or required (by deposition questions, interrogatories,
requests for information or documents as required by or in any legal
proceedings, subpoenas, civil investigative demands, or any other similar
compulsory processes) to disclose any of the terms of this Agreement, each
party so required shall provide the other party with prompt written notice of
any such request or requirement so that such other party may seek a protective
order or other appropriate remedy or waive compliance with the provisions of
Article 19.0 of this Agreement.
19.3 Notwithstanding the foregoing, neither of the parties shall be
prohibited from disclosing the terms of this Agreement in a Quarterly Report on
Form 10-Q or Annual Report on Form 10-K, if, upon the advise of legal counsel,
such
34
<PAGE> 8
Exhibit 10.19
disclosure is required by the rules and regulations of the Securities and
Exchange Commissions, including but not limited to Regulations S-K and S-X.
20.0 DISMISSAL OF THE LITIGATION.
20.1 Simultaneous with the execution of this License Agreement, the
parties hereto shall execute the Settlement Agreement attached hereto as
Appendix C. The parties hereto also agree to direct their respective counsel
to effectuate the dismissal of the litigation pursuant to the Settlement
Agreement.
21.0 PRESS RELEASE AND PUBLIC ANNOUNCEMENTS.
21.1 Any press release or other public announcement of this
agreement or the settlement of the litigation shall be sent to the other party
for review at least two (2) business days prior to the proposed release or
announcement date by the party desiring to make the same. No press release or
other announcement unacceptable to either party shall be made. Apart from any
such agreed upon release or announcement, both parties shall keep confidential
the existence of their agreement and its terms except to the extent that is
required by law or regulation, in which event the parties shall consult on the
same basis as for a press release or public announcement, to permit the non-
disclosing party to obtain a protective order or other process to limit such
required disclosure. QUIDEL may inform its customers, agents, distributors or
AFFILIATES of this Agreement, subject to such customers, agents, distributors,
or AFFILIATES keeping such information confidential on the same terms as apply
to QUIDEL hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized to be
effective as of the EFFECTIVE DATE.
BECTON, DICKINSON AND COMPANY QUIDEL CORPORATION
By: /S/ LARRY E. WARFEL By /S/ STEVEN T. FRANKEL
-------------------------------- ---------------------------------
Date: June 13, 1997 Date: June 13, 1997
------------------------------ ------------------------------
35
<PAGE> 9
Exhibit 10.19
APPENDIX A
U.S. Pat. No. 4,703,017 - issued October 27, 1987
Foreign counterparts:
<TABLE>
<CAPTION>
Country Pat./Appln. No. Issue/Filing Date
------- --------------- -----------------
<S> <C> <C>
South Africa 84/9397 July 31, 1985
</TABLE>
36
<PAGE> 10
Exhibit 10.19
APPENDIX B
PRODUCTS
Conceive 1-Step Pregnancy
QuickVue One Step hCG-Urine
QuickVue One Step hCG-Combo
Q Test Pregnancy
QuickVue Chlamydia
QuickVue In-Line One-Step Strep A
QuickVue Flex Strep A
37
<PAGE> 11
Exhibit 10.19
APPENDIX C
[To Be Added]
38
<PAGE> 1
Exhibit 10.20
ROSENSTEIN LICENSE AGREEMENT - HUMAN MARKET
This License Agreement (the "Agreement") is entered into and made
effective this 1st day of April, 1997, (the "EFFECTIVE DATE") between Becton,
Dickinson and Company, a New Jersey corporation, whose principal place of
business is at 1 Becton Drive, Franklin Lakes, New Jersey, 07417 (hereinafter
referred to as "BECTON") and Quidel Corporation, a Delaware corporation, whose
principal place of business is at 10165 McKeller Court, San Diego, CA 92121
(hereinafter referred to as "QUIDEL").
WHEREAS, BECTON and QUIDEL are presently engaged in litigation
involving BECTON patents in Becton Dickinson and Co. v. Quidel Corporation, No.
97-167 (U.S. Dist. Ct., D. Del.,); and
WHEREAS, the parties wish amicably to settle their differences and
terminate such litigation under the terms hereinafter set forth.
For and in consideration of the mutual promises and covenants set
forth below, BECTON and QUIDEL agree as follows:
1.0 DEFINITIONS.
1.1 "AFFILIATE" shall mean any corporation or other business
entity controlled by, controlling or under common control with the recited
entity. For this purpose "control" shall mean direct or indirect beneficial
ownership of at least fifty-one percent (51%) of the voting stock of, or at
least a fifty-one percent (51%) interest in the income of such corporation or
other business entity.
1.2 "LICENSED PATENT(S)" shall mean United States Letters Patent
No. 5,591,645, and any continuation, division, re-examination, or reissue
thereof, and the foreign counterpart patents granted on applications claiming
priority thereto; a list of such applications and patents as of the EFFECTIVE
DATE is set forth in Appendix A.
1.3 "PRODUCT" shall mean the QUIDEL PRODUCT(S) listed in Appendix
B or any product, device, instrument, kit or component thereof, the making,
using, importing, offering for sale or selling of which would, in the absence
of the license granted hereunder, infringe, contribute to the infringement of,
or induce the infringements of any claim of a LICENSED PATENT. For the
purposes of this Agreement, those products listed in Appendix B shall, without
limitation, be PRODUCTS hereunder.
1.4 (a) "NET SALES" shall mean the sum of all amounts
invoiced on account of sale of PRODUCTS by QUIDEL to non-affiliated third party
purchasers of PRODUCTS, less (i) returns, allowances, rebates, and cash
discounts to purchasers allowed and taken, (ii) amounts for transportation or
shipping charges to purchasers shown on the invoice, and (iii) taxes and duties
levied on the sale of PRODUCTS actually paid.
(b) In the instance where a PRODUCT is sold by QUIDEL to
a purchaser with which the seller does not deal at arms length, the NET SALES
for the purposes of determining the royalties shall be the highest current NET
SALES for the same or similar items sold at arms length under similar market
conditions.
(c) In the instance where a PRODUCT is not sold, but is
OTHERWISE DISPOSED OF (as defined in Paragraph 1.5 below), the NET SALES for
the purposes of determining the royalties shall be the highest current NET
SALES at which PRODUCTS of the same or similar kind and quality, and in
substantially similar quantities, are sold or offered for sale.
1.5 "OTHERWISE DISPOSED OF" shall mean and include:
(i) the delivery of any amount of PRODUCT, other than
nominal quantities of free samples or free replacements, by QUIDEL to others in
any transaction other than a sale, regardless of the basis of consideration, if
any; or
(ii) the placing into use of any PRODUCT by QUIDEL for any
purpose, other than its internal routine testing, provided that the scrapping
or destruction (except if consideration is received therefor) of any PRODUCT
shall not fall within the definition of "OTHERWISE DISPOSED OF" and no value in
respect thereof shall be included in calculating NET SALES. A PRODUCT shall be
considered OTHERWISE DISPOSED OF when used or shipped by, or on behalf of,
QUIDEL.
39
<PAGE> 2
Exhibit 10.20
1.6 "QUARTER" shall mean any period of three consecutive calendar
months beginning January 1, April 1, July 1, and October 1, occurring during
the term of this Agreement.
1.7 "CAMPBELL LICENSE AGREEMENTS" shall mean the two (2) license
agreements entered into between BECTON and QUIDEL on October 10, 1991; and on
the same date as this Agreement, respectively, with respect to United States
Letters Patent No. 4,703,017, and its foreign counterparts, issued to Campbell
et al.
2.0 LICENSE GRANT.
2.1 Subject to the terms and conditions herein, BECTON hereby
grants to QUIDEL, who accepts the same, a non-exclusive, non- transferable
(except to an AFFILIATE) right and license under the LICENSED PATENTS, without
the right to sublicense, to make, have made for its own use and sale, use,
offer for sale and import PRODUCT and to practice the methods claimed in the
LICENSED PATENTS in connection with such PRODUCT, and to extend to its
customers purchasing PRODUCT the right to use and sell the PRODUCT purchased
and to practice the methods claimed in the LICENSED PATENTS in connection with
such PRODUCT, all of the foregoing limited expressly to the field of all human
in vitro manually formatted immunodiagnostic assays.
2.2 In the event that QUIDEL sells PRODUCT(S) to a third party
that has a non-exclusive, non-transferable right and license under the LICENSED
PATENT(S), the license granted to QUIDEL herein shall not extend to such sales,
provided however, QUIDEL shall be permitted to make PRODUCTS for any third
party licensee having the right and license under the LICENSED PATENT(S) to
have such PRODUCTS made for it, and to sell those PRODUCTS to such licensee
without any obligation to pay royalties to BECTON thereon since the third party
(without waiving any right of BECTON to collect royalties from QUIDEL in the
event the third party licensee fails to account for and pay royalties to BECTON
on its sales of such PRODUCTS) licensee has the obligation, under its license
with BECTON, to pay royalties on the sales of PRODUCTS made for it. BECTON
agrees to provide QUIDEL with the names of such third party licensees which
have the right and license to have PRODUCTS made for it.
2.3 BECTON further hereby releases QUIDEL from any liability for
infringement of the LICENSED PATENTS arising from the sale of PRODUCTS by
QUIDEL which occurred prior to the EFFECTIVE DATE.
3.0 TERM.
3.1 This Agreement shall become effective as of the EFFECTIVE DATE
hereof and shall continue in effect until the last to expire of the LICENSED
PATENTS.
4.0 PAYMENT.
4.1 In consideration for the license granted hereunder, QUIDEL
shall pay to BECTON a royalty at the rate of five and one-quarter percent
(5-1/4%) of the NET SALES of all PRODUCTS sold, or OTHERWISE DISPOSED OF on or
subsequent to the EFFECTIVE DATE. Royalties may be payable under both this
Agreement and any of the CAMPBELL LICENSE AGREEMENTS for the same PRODUCT(S).
In that event, QUIDEL shall be entitled to a credit, on a country-by-country
basis, where sales of the same PRODUCTS occurred, for any royalties payable and
actually paid under any of the CAMPBELL LICENSE AGREEMENTS. The magnitude of
this credit shall be on a dollar-for-dollar basis up to, but not in excess of,
the royalty payable hereunder for the sale of the particular PRODUCT. It is
expressly recognized that, under certain of the CAMPBELL LICENSE AGREEMENTS,
QUIDEL may be required to pay more than the royalty payable hereunder for the
sale of a PRODUCT. However, in no event shall the credit exceed the royalty
which would be payable hereunder for the sale of that same PRODUCT. QUIDEL
shall note this credit in the reports filed in accordance with Paragraph 4.6.
4.2 QUIDEL's obligation to pay royalties under Paragraph 4.1 on
PRODUCT shall terminate, on a country by country basis, upon expiration of the
last of the LICENSED PATENTS in the country of sale or manufacture, as
applicable. Further, this obligation shall cease in the event that a court of
competent jurisdiction in the country in question renders a final decision from
which no appeal is or can be taken, that all of the LICENSED PATENTS in that
country are invalid and/or unenforceable. If in such decision one or more
claims of the LICENSED PATENTS are not declared invalid or unenforceable, the
obligation of QUIDEL to pay with respect to PRODUCTS covered by the remaining
claims shall not be affected.
40
<PAGE> 3
Exhibit 10.20
4.3 For all sales and royalty-bearing transfers and uses occurring
on or subsequent to the EFFECTIVE DATE, QUIDEL shall provide written reports to
BECTON within sixty (60) days after the end of each QUARTER, stating in each
report the analyte name and the NET SALES of each PRODUCT sold or OTHERWISE
DISPOSED OF during such QUARTER and upon which royalties are payable as
provided in this Paragraph.
4.4 For all sales and other dispositions of PRODUCTS occurring on
or subsequent to the EFFECTIVE DATE that QUIDEL makes to a third party licensee
of BECTON, QUIDEL shall provide separate written reports to BECTON within sixty
(60) days after the end of each QUARTER, stating in each report the analyte
name, the identity of the third party licensee(s) and the NET SALES of each
PRODUCT sold or OTHERWISE DISPOSED OF during such QUARTER and upon which
royalties are not payable as provided in this Paragraph, consistent with the
provisions of Paragraph 2.2, above.
4.5 (a) Concurrently with the making of each report QUIDEL
shall pay to BECTON all royalties due in the amount specified in Paragraph 4.1
on the NET SALES of all PRODUCTS included in the report.
(b) Any late payment shall bear interest at the rate of
one percent (1%) per month.
4.6 All payments shall be made hereunder in United States Dollars;
provided, however, that if the proceeds of the sales upon which such royalty
payments are based are received by QUIDEL in a foreign currency or other form
that is not convertible or exportable in Dollars, and QUIDEL does not have
ongoing business operations or bank accounts in the country in which the
currency is not convertible or exportable, QUIDEL shall pay such royalties in
the currency of the country in which such sales were made by depositing such
royalties in BECTON's name in a bank designated by BECTON in such country.
Royalties in Dollars shall be computed by converting the royalty in the
currency of the country in which the sales were made at the exchange rate for
Dollars prevailing at the close of the last business day of the QUARTER for
which royalties are being calculated as published the following day in the Wall
Street Journal (or a comparable publication agreed upon from time to time by
the parties), and with countries for which rates are not published, the
exchange rate fixed for such date by the appropriate United States governmental
agency.
4.7 In the event that any taxes, withholding or otherwise, are
levied by any taxing authority in connection with accrual or payment of any
royalties payable to BECTON under this agreement, QUIDEL shall have the right
to pay such taxes to the local tax authorities on behalf of BECTON and the
payment to BECTON of the net amount due, after reduction by the amount of such
taxes, shall fully satisfy QUIDEL's royalty obligations under this Agreement,
so long as appropriate documentation of such tax payment is provided to BECTON.
4.8 All payments made hereunder shall be made to BECTON at the
address set forth in Article 7 of this Agreement or at such changed address as
BECTON shall specify by written notice.
4.9 QUIDEL shall keep detailed records of all PRODUCT sold or
OTHERWISE DISPOSED OF to permit verification of the reports and payments made
to BECTON. At BECTON's expense and request and upon reasonable notice, QUIDEL
shall permit such records to be examined by independent public accountants
designated by BECTON and reasonably acceptable to QUIDEL. Such examination
shall take place not more than once each year.
4.10 In the event that an examination by BECTON of QUIDEL's records
and books of account reveals an underpayment to BECTON, QUIDEL shall
immediately pay BECTON the deficiency, plus interest at a rate of one percent
(1%) per month from the date the underpayment occurred. In the event that such
underpayment amounts to ten percent (10%) or more of the total amount payable
for the period examined, QUIDEL shall also reimburse BECTON for all
out-of-pocket expense of the examination.
4.11 Within ninety (90) days after the release by QUIDEL of any
human in vitro manually formatted immunodiagnostic products for sale, QUIDEL
will notify BECTON in writing of the same. Such product shall be included in
Appendix B unless QUIDEL specifically provides information indicating that such
product is not a PRODUCT hereunder.
5.0 TRANSFERABILITY OF RIGHTS AND OBLIGATIONS.
5.1 This Agreement and the license granted under it may not be
assigned or sold by QUIDEL without the express written consent of BECTON,
except to an AFFILIATE or to an entity acquiring substantially all of QUIDEL's
business relating to
41
<PAGE> 4
Exhibit 10.20
in vitro immunodiagnostic assay technology. If QUIDEL is permitted to assign
this Agreement, the assignee shall first agree, in writing, to assume all
obligations of QUIDEL created by this Agreement.
5.2 BECTON may freely assign this Agreement in whole or in part
and any or all of the LICENSED PATENTS.
5.3 This Agreement, and each and every one of the terms and
conditions thereof, shall inure to the benefit of and be binding upon the
permitted successors and assignees of both parties.
6.0 ACKNOWLEDGMENT OF VALIDITY AND ENFORCEABILITY.
6.1 QUIDEL acknowledges the validity and enforceability of United
States Patent No. 5,591,645 and agrees that it will not challenge directly or
indirectly, or assist others in any way in challenging, the validity or
enforceability of this patent, in any court or in the U.S. Patent and Trademark
Office or any other Patent Office.
6.2 Further, it is expressly agreed that QUIDEL will, upon the
EFFECTIVE DATE, cease any and all active participation in, and where permitted,
withdraw from, any oppositions, protests or similar proceedings against any
LICENSED PATENT including any patent or application listed now or later in
Appendix A.
6.3 If QUIDEL breaches this Article, BECTON will be entitled, to
the extent permitted by law, to specific performance of QUIDEL's obligations as
set forth in this paragraph and BECTON shall be entitled to terminate this
Agreement forthwith, notwithstanding any provisions to the contrary set forth
in Paragraph 8.1.
7.0 NOTICE.
7.1 Any notice, payment, report, or other correspondence
(hereinafter collectively referred to as "correspondence") required or
permitted to be given hereunder shall be mailed by certified mail or delivery
by hand or overnight courier to the party to whom such correspondence is
required or permitted to be given hereunder If mailed, any such notice shall
be deemed to have been given when received by the party to whom such
correspondence is given, as evidenced by written and dated receipt of the
receiving party.
7.2 Alternatively, correspondence provided for in this Agreement
shall be deemed sufficiently given by the party sending the correspondence when
sent by facsimile to the party to whom the correspondence is addressed. A
confirmation copy of the correspondence will be sent by Certified or Registered
Mail. The date of the facsimile transmission will constitute the date of
receipt of the correspondence.
All correspondence to QUIDEL shall be addressed as follows:
Quidel Corporation
10165 McKeller Court
San Diego, California 92121
Attention: Steven Frankel, President and CEO
All correspondence to BECTON, except for royalty payments,
shall be addressed as follows:
Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, New Jersey 07417
Attention: Chief Patent and Licensing Counsel
All royalty payments to BECTON shall be addressed as follows:
Becton Dickinson Microbiology Systems
7 Loveton Circle
Sparks, Maryland 21152-0999
Attention: Manager, Financial Reporting
42
<PAGE> 5
Exhibit 10.20
Either party may change the address to which correspondence to it is to be
addressed by notification as provided for herein.
8.0 TERMINATION.
8.1 BECTON shall have the right to terminate this Agreement if
QUIDEL commits a material breach of an obligation under this Agreement,
including the failure to make timely royalty payments hereunder, and continues
in default for more than thirty (30) days after receiving written notice from
BECTON of such default, such termination to be effective immediately upon
further written notice to QUIDEL after such thirty (30) day period.
8.2 In the event that QUIDEL shall be adjudicated bankrupt, go
into liquidation, receivership or trusteeship, make a composition with its
creditors or enter into any similar proceeding of the same nature, then BECTON
shall have the right without liability therefor to terminate this Agreement
forthwith by notice in writing to QUIDEL.
9.0 GOVERNING LAW.
9.1 This Agreement shall be governed by, interpreted in accordance
with and enforced under the laws of the State of Delaware, U.S.A. (regardless
of its or any other jurisdiction's choice of law principles), or, as necessary,
the laws of the United States of America. The Federal District Court of the
District of Delaware shall have exclusive jurisdiction in all matters arising
under this Agreement, and the parties hereto expressly consent and submit to
such jurisdiction.
10.0 REPRESENTATIONS, WARRANTIES AND LIMITATIONS.
10.1 Nothing in this Agreement shall be construed as:
(a) A warranty or representation by BECTON as to the
validity or enforceability of any LICENSED PATENTS; or
(b) A warranty or representation by BECTON that anything
made, used, sold or OTHERWISE DISPOSED OF under the license granted in this
Agreement, is or will be free from infringement of patents or other rights of
third parties; or
(c) A requirement that BECTON shall file any patent
application or secure any patent; or
(d) An obligation of either party to bring or prosecute
actions or suits against third parties for infringement of any patents; or
(e) Conferring a right to use in advertising, publicity,
or the like any name, tradename, or trademark of QUIDEL or BECTON; or
(f) Granting by implication, estoppel or otherwise any
licenses or rights under any letters patents and applications for letters
patents other than under the LICENSED PATENTS; or
(g) An obligation by BECTON to furnish know-how or any
other technical information not disclosed in the LICENSED PATENTS.
10.2 BECTON represents to QUIDEL that BECTON is the owner of the
LICENSED PATENTS and has the right to grant the license hereunder.
10.3 Each party represents and warrants that it has full authority
to enter into and become bound by the terms and conditions of this Agreement
and that its execution of this Agreement will not violate, contravene or be in
conflict with any law, rule, by-law, article of incorporation, order,
regulation or other agreement.
11.0 DISCLAIMER AND HOLD HARMLESS PROVISION.
11.1 It is understood and agreed by and between the parties hereto
that nothing contained in this Agreement shall constitute or be construed to
constitute any undertaking, representation, suggestion, inducement, warranty,
assurance or guarantee whatsoever by either party in connection with PRODUCTS
or any component, product, material, service, process or apparatus with
43
<PAGE> 6
Exhibit 10.20
respect to safety, quality, yield, production, cost, profit, saleability,
licensability, demand, utility, performance, availability of raw materials,
accident or injury to person or property.
11.2 QUIDEL expressly indemnifies and holds BECTON, its affiliates,
its successors, and assigns and its officers, directors and employees harmless
from and against any and all claims, liabilities, damages, costs, expenses,
and/or actions of any kind whatsoever which arise from or are connected with
the manufacture, use, lease, sale, or other disposition of PRODUCTS under the
LICENSED PATENTS.
11.3 Neither of the parties hereto shall be liable in damages or
have the right to cancel for any delay or default in performing hereunder
(other than delay or default in the payment of money) if such delay or default
is caused by conditions beyond its control, including but not limited to Acts
of God, governmental restrictions, continuing domestic or international
problems such as war or insurrections, strikes, fires, flood, work stoppages,
embargoes and/or other casualty or cause; provided, however, that any party
hereto shall have the right to terminate this Agreement upon thirty (30) days
prior written notice if either party is unable to fulfill its obligations under
this Agreement due to any of the above-mentioned causes and such inability
continues for a period of six (6) months.
12.0 CAPTIONS.
12.1 The captions and paragraph headings of this Agreement are
solely for the convenience of reference and shall not affect its
interpretation.
13.0 SEVERABILITY.
13.1 Should any part or provision of this Agreement be held
unenforceable or in conflict with the applicable laws or regulations of any
jurisdiction, the invalid or unenforceable part or provision shall be replaced
with a provision which accomplishes, to the extent possible, the original
business purpose of such part or provision in a valid and enforceable manner,
and the remainder of this Agreement shall remain binding upon the parties
hereto.
14.0 WAIVER.
14.1 No failure or delay on the part of a party in exercising any
right hereunder shall operate as a waiver of, or impair, any such right. No
single or partial exercise of any such right shall preclude any other or
further exercise thereof or the exercise of any other right. No waiver of any
such right shall be deemed a waiver of any other right hereunder.
15.0 MOST FAVORED LICENSEE.
15.1 In the event that after the EFFECTIVE DATE of this Agreement
BECTON enters into a license agreement with a third party, in which such third
party is licensed to make, use and sell any PRODUCTS at a royalty rate which is
different from the royalty rate set forth in this Agreement, BECTON shall
within thirty (30) days after the signing of such license agreement, disclose
to QUIDEL the royalty rate in the third party agreement. BECTON will provide
such information to QUIDEL's attorneys who will maintain the information in
confidence and may disclose it to others within QUIDEL only on a confidential,
need-to-know basis.
15.2 Concurrent with the above report, BECTON will extend to QUIDEL
the option of substituting the royalty rate in the third party agreement for
the royalty rate in this Agreement, subject to the following provision:
(a) The different royalty rate shall become effective as of the
date of its written acceptance by QUIDEL and shall apply only to sales
occurring thereafter. In no event shall QUIDEL be entitled to a refund or
credit of any monies paid or payable to BECTON prior to the acceptance of the
different royalty rate.
15.3 In the event that QUIDEL does not accept the different royalty
rate relative to Paragraph 15.2 within thirty (30) days after QUIDEL receives
notice from BECTON, QUIDEL's option to substitute the different royalty rate
shall be deemed forever waived.
16.0 SURVIVAL.
44
<PAGE> 7
Exhibit 10.20
16.1 The provisions of Paragraphs 9, 10, and 11 shall survive the
termination or expiration of this Agreement and shall remain in full force and
effect. Furthermore, termination or expiration shall not affect, inter alia;
(a) QUIDEL's obligation to supply reports as specified in
Paragraph 4 of this Agreement;
(b) BECTON's right to receive or recover and QUIDEL's
obligation to pay royalties accrued or accruable for payment at the time of any
termination;
(c) QUIDEL's obligation to maintain records and BECTON's
right to conduct a final examination of QUIDEL's books and records in
accordance with Paragraph 4.8 of this Agreement; and
(d) Licenses and releases running in favor of customers
or transferees of either party in respect to PRODUCT sold or OTHERWISE DISPOSED
OF prior to termination of this Agreement.
16.2 The provisions of this Agreement which do not survive
termination or expiration hereof (as the case may be) shall, nonetheless, be
controlling on, and shall be used in construing and interpreting, the rights
and obligations of the parties hereto with regard to any dispute, controversy
or claim which may arise under, out of, in connection with, or relating to this
Agreement.
17.0 ENTIRE AGREEMENT.
17.1 This Agreement constitutes the entire agreement between the
parties hereto respecting the subject matter hereof and the license granted
hereunder, and supersedes and terminates all prior agreements respecting the
same subject matter hereof, whether written or oral, and may be amended only by
an instrument in writing executed by both parties hereto, however the CAMPBELL
LICENSE AGREEMENTS shall remain in full force and effect and shall be
unaffected by this Agreement.
18.0 DISPUTE RELATIONS.
18.1 The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiations between
executives who have authority to settle such dispute. Any party may give the
other party(ies) written notice of any dispute hereunder not resolved in the
normal course of business. Within twenty (20) days following delivery of such
notice, executives of both parties shall discuss by telephone or meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to exchange relevant information and to attempt to resolve such
dispute. If the matter has not been resolved within sixty (60) days following
the disputing party's notice, or if the parties fail to discuss or meet within
twenty (20) days, either party may initiate mediation of the controversy or
claim under the then-current Center for Public Resource Procedure for
Mediation of Business Disputes in New York. No party shall institute any court
proceedings until the expiration of one hundred and twenty (120) days from the
initiation of negotiations. At the conclusion of this period, absent any
resolution of the dispute or further agreement between the parties to extend
this period, either party may file suit for the subject matter of the dispute
only.
18.2 If a negotiator intends to be accompanied at a telephone
conference or a meeting by an attorney, the other negotiator shall be given at
least three (3) business days' notice of such intention and may also be
accompanied by an attorney. All negotiations pursuant to this clause are
confidential and shall be treated as comprise and settlement negotiations for
purposes of the Federal Rules of Evidence any state rules of evidence.
19.0 CONFIDENTIALITY.
19.1 This Agreement, its terms, and any information provided by a
party hereto pursuant to this Agreement, shall be kept in strictest confidence
by all parties hereto, except that the parties may disclose the terms of the
Agreement as required by law, as required by Most Favored Nations notification
provisions for other licensees of the LICENSED PATENTS, and as required by the
parties' respective accountants, auditors, attorneys, officers, and employees
with a need to know, as well as to prospective purchasers of the business
relating to PRODUCTS provided that any such parties to whom disclosure is
permitted have agreed to keep such terms confidential. Except as provided
above, no party hereto shall provide this Agreement or any of its terms to any
person or entity not a party hereto. Notwithstanding any of the above, the
parties hereto may disclose publicly that BECTON has granted and QUIDEL has
accepted a non-exclusive right and license under the LICENSED PATENTS, in
accordance with Article 21.0 below.
45
<PAGE> 8
Exhibit 10.20
19.2 Notwithstanding Paragraph 19.1 if either of the parties hereto
is requested or required (by deposition questions, interrogatories, requests
for information or documents as required by or in any legal proceedings,
subpoenas, civil investigative demands, or any other similar compulsory
processes) to disclose any of the terms of this Agreement, each party so
required shall provide the other party with prompt written notice of any such
request or requirement so that such other party may seek a protective order or
other appropriate remedy or waive compliance with the provisions of Article
19.0 of this Agreement.
19.3 Notwithstanding the foregoing, neither of the parties shall be
prohibited from disclosing the terms of this Agreement in a Quarterly Report on
Form 10-Q or Annual Report on Form 10-K, if, upon the advise of legal counsel,
such disclosure is required by the rules and regulations of the Securities and
Exchange Commissions, including but not limited to Regulations S-K and S-X.
20.0 DISMISSAL OF THE LITIGATION.
20.1 Simultaneous with the execution of this License Agreement, the
parties hereto shall execute the Settlement Agreement attached hereto as
Appendix C. The parties hereto also agree to direct their respective counsel
to effectuate the dismissal of the litigation pursuant to the Settlement
Agreement.
21.0 PRESS RELEASE AND PUBLIC ANNOUNCEMENTS.
21.1 Any press release or other public announcement of this
agreement or the settlement of the litigation shall be sent to the other party
for review at least two (2) business days prior to the proposed release or
announcement date by the party desiring to make the same. No press release or
other announcement unacceptable to either party shall be made. Apart from any
such agreed upon release or announcement, both parties shall keep confidential
the existence of their agreement and its terms except to the extent that is
required by law or regulation, in which event the parties shall consult on the
same basis as for a press release or public announcement, to permit the non-
disclosing party to obtain a protective order or other process to limit such
required disclosure. QUIDEL may inform its customers, agents, distributors or
AFFILIATES of this Agreement, subject to such customers, agents, distributors,
or AFFILIATES keeping such information confidential on the same terms as apply
to QUIDEL hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized to be
effective as of the EFFECTIVE DATE.
BECTON, DICKINSON AND COMPANY QUIDEL CORPORATION
By: /S/ LARRY E. WARFEL By /S/ STEVEN T. FRANKEL
---------------------------- ---------------------------------
Date: June 13, 1997 Date: June 13, 1997
-------------------------- ----------------------------
46
<PAGE> 9
Exhibit 10.20
APPENDIX A
U.S. Patent No. 5,591,645 - issued January 7, 1997
Foreign counterparts:
<TABLE>
<CAPTION>
Country Patent No. Appln. No. Issue/Filing Date
------- ---------- ---------- -----------------
<S> <C> <C> <C>
EPO 0284232 0284232A1 June 7, 1995
Canada 1,303,983 557,276 June 23, 1992
Japan 68000/88 68000/88 March 22, 1988
Australia 605565 13595/88 May 9, 1991
Denmark 1681/88 1681/88 March 25, 1988
Finland 880764 880764 November 15, 1994
Taiwan NI55849 77101765 August 1, 1992
Malaysia MY-103176 PI 8800068 April 30, 1993
Korea 42295 3311/88 June 10, 1991
</TABLE>
47
<PAGE> 10
Exhibit 10.20
APPENDIX B
PRODUCTS
Conceive 1-Step Pregnancy
QuickVue One Step hCG-Urine
QuickVue One Step hCG-Combo
Q Test Pregnancy
Conceive 1-Step Ovulation Predictor
QuickVue Chlamydia
QuickVue In-Line One-Step Strep A
QuickVue Flex Strep A
QuickVue H. Pylori
48
<PAGE> 11
Exhibit 10.20
APPENDIX C
[To Be Added]
49
<PAGE> 1
Exhibit 10.21
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into
as of June 23, 1997 (the "EFFECTIVE DATE"), by and between QUIDEL CORPORATION,
a Delaware corporation (the "COMPANY"), and ANDRE de BRUIN, an individual ("DE
BRUIN").
1. EMPLOYMENT. The Company hereby engages de Bruin as a
part-time employee of the Company and Vice Chairman of the Board of Directors
(the "BOARD"). The Board may provide such additional designations of title to
de Bruin as the Board, in its discretion, may deem appropriate.
2. DUTIES AND RESPONSIBILITIES. de Bruin will report directly to
the Board, who will determine de Bruin's reasonable duties and
responsibilities; provided that de Bruin agrees to devote no less than fifty
(50) business days per calendar year of his time and attention to the Company,
to use his best efforts to advance the business and welfare of the Company, and
to render his services under this Agreement fully, diligently, competently and
to the best of his ability.
3. COMPENSATION.
(A) SALARY. de Bruin's salary during the term of this
employment by the Company will be $75,000 per year, less deductions required by
law, payable in accordance with the normal bi-weekly payroll practices of the
Company.
(B) NONSTATUTORY STOCK OPTION. Pursuant to resolutions
of the Compensation Committee of the Board of even date herewith, the Company
has granted to de Bruin a nonstatutory stock option to purchase up to 300,000
shares of the Company's Common Stock, under the terms and conditions set forth
in that certain Stock Option Agreement executed by the Company and de Bruin
concurrently with this Agreement, a copy of which is attached hereto as Exhibit
A.
(C) NO OTHER BENEFITS. The Company and de Bruin
acknowledge and agree that because of de Bruin's status as a part-time employee
of the Company, de Bruin will not be eligible to participate in any pension,
medical, insurance (except directors and officers (D&O) insurance), or other
benefit plans maintained or offered by the Company, nor will de Bruin be
entitled to receive any vacation or severance benefits related to his
employment by the Company.
4. AT WILL EMPLOYMENT. The Company and de Bruin acknowledge and
agree that de Bruin's employment by the Company is expressly "at will" and not
for a specified term. This means that either party may terminate de Bruin's
employment at any time, with or without cause. Any termination of de Bruin's
employment is, however, subject to the terms and provisions of this Agreement.
5. INVENTIONS.
(A) DISCLOSURE. de Bruin will disclose promptly to the
Company each Invention (as defined below), whether or not reduced to practice,
that is conceived or learned by de Bruin (either alone or jointly with others)
during the term of his employment by the Company. Further, de Bruin will
disclose in confidence to the Company all patent applications filed by or on
behalf of de Bruin during the term of his employment and for a period of one
(1) year thereafter.
For purposes of this Agreement, the term "INVENTION" includes,
without limitation, any invention, discovery, know-how, idea, trade secret,
technique, formula, machine, method, process, use, apparatus, product, device,
composition, code, design, program, confidential information, proprietary
information, or configuration of any kind, that is discovered, conceived,
developed, made or produced by de Bruin (alone or in conjunction with others)
during the duration of de Bruin's employment and for a period of one (1) year
thereafter, and which:
(i) relates at the time of conception or reduction to
practice of the invention, in any manner, to the business of the
Company, including actual or demonstrably anticipated research or
development;
(ii) results from or is suggested by work performed by de
Bruin for or on behalf of the Company; or
50
<PAGE> 2
Exhibit 10.21
(iii) results from the use of equipment, supplies,
facilities, information, time or resources of the Company.
The term Invention will also include any improvements to an Invention, and will
not be limited to the definition of patentable or copyrightable invention as
contained in the United States patent or copyright laws.
(B) COMPANY PROPERTY; ASSIGNMENT. de Bruin acknowledges
and agrees that all Inventions will be the sole property of the Company,
including, without limitation, all domestic and foreign patent rights, rights
of registration or other protection under the copyright laws, or other rights,
pertaining to the Inventions. de Bruin hereby assigns all of his right, title
and interest in any such Inventions to the Company.
(C) EXCLUSION NOTICE. The assignment by de Bruin of
Inventions under this Agreement does not apply to any Inventions that are
expressly excluded from coverage pursuant to Section 2870 of the California
Labor Code. Accordingly, de Bruin is not required to assign an idea or
invention for which all of the following are applicable:
(i) No equipment, supplies, facility or trade secret
information of the Company was used and the invention or idea was
developed entirely on de Bruin's own time;
(ii) The invention or idea does not relate to the business
of the Company;
(iii) The invention or idea does not relate to the
Company's actual or demonstrably anticipated research or development;
and
(iv) The invention or idea does not result from any work
performed by de Bruin for the Company.
As used in this Section 6(c), "INVENTION" will have the same meaning as
"invention" as used in Section 2870 of the California Labor Code.
(D) PATENTS AND COPYRIGHTS; ATTORNEY-IN-FACT. de Bruin
agrees to assist the Company (at the Company's expense) in any way the Company
deems necessary or appropriate from time to time to apply for, obtain and
enforce patents on, and to apply for, obtain and enforce copyright protection
and registration of, Inventions in any and all countries. To that end, de
Bruin will (at the Company's expense), without limitation, testify in any suit
or other proceeding involving any Invention, execute all documents that the
Company reasonably determines to be necessary or convenient for use in applying
for and obtaining patents or copyright protection and registration thereon and
enforcing same, and execute all necessary assignments thereof to the Company or
parties designated by it. de Bruin's obligations to assist the Company in
obtaining and enforcing patents or copyright protection and registration for
Inventions will continue beyond termination of his employment, but the Company
will compensate de Bruin at a reasonable rate after such termination for the
time actually spent by de Bruin at the Company's request on such assistance.
de Bruin hereby irrevocably appoints the Company, and its duly authorized
officers and agents, as de Bruin's agent and attorney-in-fact to act for and on
behalf of de Bruin in filing all patent applications, applications for
copyright protection and registration amendments, renewals, and all other
appropriate documents in any way related to Inventions.
6. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Except in the
performance of his duties hereunder, de Bruin will not disclose to any person
or entity or use for his own direct or indirect benefit any Confidential
Information (as defined below) pertaining to the Company obtained by de Bruin
in the course of his employment with the Company. For purposes of this
Agreement, "CONFIDENTIAL INFORMATION" will include all of the Company's
confidential or proprietary information, including, without limitation, any
information encompassed in all Inventions, and any trade secrets, reports,
investigations, experiments, research or developmental work, work in progress,
drawings, designs, plans, proposals, codes, marketing and sales programs,
financial projections, cost summaries, pricing formula, and all concepts or
ideas, materials or information related to the business, products or sales of
the Company or the Company's customers, to the extent that such information has
not been publicly disseminated by the Company, other than through a breach
hereof.
7. RETURN OF MATERIALS AT TERMINATION. In the event of any
termination of de Bruin's employment for any reason whatsoever, de Bruin will
promptly deliver to the Company all documents, data, and other information
pertaining to Inventions and Confidential Information. de Bruin will not take
with him any documents or other information, or any reproduction or excerpt
thereof, containing or pertaining to any Inventions or Confidential
Information.
51
<PAGE> 3
Exhibit 10.21
8. NON-SOLICITATION. de Bruin agrees that so long as he is
employed by the Company and for a period of one (1) year after termination of
his employment for any reason, he will not (a) directly or indirectly solicit,
induce or attempt to solicit or induce any Company employee to discontinue his
or her employment with the Company; (b) usurp any opportunity of the Company of
which de Bruin became aware during his tenure at the Company or which is made
available to him on the basis of the belief that de Bruin is still employed by
the Company; or (c) directly or indirectly solicit or induce or attempt to
influence any person or business that is an account, customer or client of the
Company to restrict or cancel the business of any such account, customer or
client with the Company.
9. REMEDIES UPON BREACH. In the event of any breach by de Bruin
of Section 5, 6, 7 or 8 of this Agreement, the Company will be entitled, if it
so elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to enjoin de Bruin from violating
such terms of this Agreement, to enforce the specific performance by de Bruin
of such terms of this Agreement, and to obtain damages, or any of them, but
nothing contained herein will be construed to prevent such remedy or
combination of remedies as the Company may elect to invoke.
10. NO WAIVER. The waiver by either party of a breach of any
provision of this Agreement will not operate as or be construed as a waiver of
any subsequent breach thereof.
11. NOTICES. Any and all notices referred to herein will be
sufficiently furnished if in writing, and sent by registered or certified mail,
postage prepaid, to the respective parties at the following addresses or such
other address as either party may from time to time designate in writing:
To the Company: QUIDEL CORPORATION
10165 McKellar Court
San Diego, CA 92121
Attention: Chief Executive Officer
To de Bruin: ANDRE de BRUIN
50 Wildwood Lane
Boulder, CO 80304
12. ASSIGNMENT. This Agreement may not be assigned by de Bruin.
This Agreement will be binding upon the Company's successors and assigns.
13. ENTIRE AGREEMENT. This Agreement, together with the Stock
Option Agreement attached hereto as Exhibit A, supersedes any and all prior
written or oral agreements between de Bruin and the Company, and contains the
entire understanding of the parties hereto with respect to the terms and
conditions of de Bruin's employment with the Company.
14. GOVERNING LAW. This Agreement will be construed and enforced
in accordance with the internal laws and decisions of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the Effective Date.
<TABLE>
<S> <C>
QUIDEL CORPORATION, a Delaware corporation
By: /S/ STEVEN T. FRANKEL
--------------------------------------
Steven T. Frankel
President and Chief Executive Officer
/S/ ANDRE de BRUIN
-------------------------------------------
Andre de Bruin
</TABLE>
52
<PAGE> 4
Exhibit 10.21
EXHIBIT A
Stock Option Agreement
53
<PAGE> 1
Exhibit 10.22
QUIDEL CORPORATION
GENERAL NONSTATUTORY STOCK OPTION PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "AGREEMENT") is made effective as of
June 23, 1997 (the "GRANT DATE"), by and between QUIDEL CORPORATION, a Delaware
corporation (the "COMPANY"), and ANDRE de BRUIN ("OPTIONEE"), with reference to
the following facts:
A. The Board of Directors of the Company (the "BOARD") has
established, by written resolutions, the General Nonstatutory Stock Option Plan
(the "PLAN"), and has granted authority to the Compensation Committee of the
Board (the "COMMITTEE") to make grants under and to administer the Plan.
B. By action taken on the Grant Date, the Committee granted to
Optionee a nonstatutory stock option (the "OPTION") to purchase shares of the
common stock of the Company (the "COMMON STOCK") on the terms and conditions
set forth herein. This Agreement is intended to memorialize the terms and
conditions upon which the Committee granted the Option to Optionee.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
AGREEMENT
1. GRANT OF OPTION. Optionee may, at Optionee's election and
upon the terms and conditions set forth herein, purchase all or any part of an
aggregate of 300,000 shares of Common Stock (the "OPTIONED SHARES") at the
price per share equal to $3.71875 (the "OPTION PRICE"). The Option Price
equals the closing price of the Common Stock on the trading day immediately
preceding the Grant Date.
2. VESTING SCHEDULE.
(A) 100,000 SHARES. The Option shall vest and become
exercisable cumulatively as to 100,000 of the Optioned Shares at the rate of
6.25% (i.e., 6,250 shares) for each full calendar quarter following the Grant
Date. The first such vesting date shall be September 23, 1997.
(B) 200,000 SHARES. Unless accelerated as provided below
in this subsection (b), the Option shall vest and become exercisable as to the
remaining 200,000 Optioned Shares on June 23, 2002. In the event that the
simple average of the closing prices for the Common Stock, as quoted on any
established stock exchange or a national market system (including, without
limitation, the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System), equals or exceeds one or more prices per share
identified below (each a "PRICING MILESTONE") during a rolling 90-calendar day
period, separate (and not cumulative) increments of the remaining 200,000
Optioned Shares shall automatically vest and become exercisable, as follows:
<TABLE>
<CAPTION>
Increment of
Common Stock Optioned Shares
Pricing Milestone that Vest
----------------- ---------
<S> <C>
$ 7.50 20,000
10.00 40,000
12.50 60,000
15.00 80,000
</TABLE>
54
<PAGE> 2
Exhibit 10.22
3. EXERCISE OF OPTION.
(A) EXTENT OF EXERCISE. The Option may be exercised at
the time or after installments vest as specified in Section 2 with respect to
all or part of the Optioned Shares covered by such vested installments, subject
to the further restrictions contained in this Agreement. In the event that
Optionee exercises the Option for less than the full number of Optioned Shares
included within a vested installment, Optionee shall be entitled to exercise
the Option (in one or more subsequent increments) for the balance of the
Optioned Shares included in said vested installment; provided, however, that in
no event shall Optionee be entitled to exercise the Option for fractional
shares of Common Stock or for a number of shares exceeding the maximum number
of Optioned Shares.
(B) PROCEDURE. The Option shall be deemed to be
exercised when the Secretary of the Company receives written notice of exercise
from or on behalf of Optionee, together with payment of the Option Price and
any amounts required under Section 3(c). The Option Price shall be payable
upon exercise in (i) legal tender of the United States; (ii) capital stock of
the Company delivered in transfer to the Company by or on behalf of Optionee,
duly endorsed in blank or accompanied by stock powers duly endorsed in blank,
with signatures guaranteed in accordance with the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), if required by the Company (valued at
fair market value as of the exercise date); (iii) Common Stock retained by the
Company from the Common Stock otherwise issuable upon exercise or surrender of
the Option being exercised (valued at fair market value as of the exercise
date); or (iv) such other consideration as the Company may deem acceptable in
any particular instance; provided, however, that the Company may, in its
discretion, (x) allow exercise of the Option in a broker-assisted or similar
transaction in which the Option Price is not received by the Company until
promptly after exercise, and/or (y) loan the Option Price to Optionee, if the
exercise will be followed by a prompt sale of some or all of the Optioned
Shares and a portion of the sales proceeds is dedicated to full payment of the
Option Price and amounts required pursuant to Section 3(c).
(C) WITHHOLDING TAXES. Whenever shares of Common Stock
are to be issued upon exercise of the Option, the Company shall have the right
to require Optionee to remit to the Company an amount sufficient to satisfy any
federal, state and local withholding tax requirements prior to such issuance.
The Company may, in its discretion, allow satisfaction of tax withholding
requirements by accepting delivery of Common Stock or by withholding a portion
of the Common Stock otherwise issuable upon exercise of an option.
4. TERM OF OPTION AND EFFECT OF TERMINATION. No portion of the
Option shall vest after termination of Optionee's employment, regardless of the
reason for such termination. In the event that Optionee shall cease to be an
employee of the Company, the Option shall be exercisable, to the extent already
exercisable at the date Optionee ceases to be an employee and regardless of the
reason Optionee ceases to be an employee, for a period of 365 days after that
date, and shall then expire and terminate. In the event of the death of
Optionee while he is an employee of the Company or within the period after
termination of such status during which he is permitted to exercise the Option,
the Option may be exercised by any person or persons designated by Optionee on
a beneficiary designation form adopted by the administrator for such purpose
or, if there is no effective beneficiary designation form on file with the
Company, by the executors or administrators of Optionee's estate or by any
person or persons who shall have acquired the Option directly from Optionee by
his will or the applicable laws of descent and distribution. Unless earlier
terminated as provided in this Section, the Option shall automatically expire
and terminate, and thereby become unexercisable, on the tenth (10th)
anniversary of the Grant Date.
5. ANTI-DILUTION ADJUSTMENTS. If the outstanding shares of
Common Stock of the Company are increased, decreased, changed into or exchanged
for a different number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse
stock split, upon authorization of the Board or the Committee an appropriate
and proportionate adjustment shall be made in the number or kind of Optioned
Shares, the Option Price, and the Pricing Milestones; provided, however, that
no such adjustment need be made if, upon the advice of counsel, the Board or
the Committee determines that such adjustment may result in the receipt of
federally taxable income to Optionee, to holders of other derivative securities
of the Company or holders of Common Stock or other classes of the Company's
securities.
6. CHANGE IN CONTROL. If a Change in Control (as defined below)
of the Company occurs, then notwithstanding the vesting provisions of Section 2
or anything else herein to the contrary, all Optioned Shares shall
automatically vest and become exercisable immediately prior to such Change in
Control, if Optionee is an employee of the Company at that time. For purposes
of this Agreement, a "CHANGE IN CONTROL" means the following and shall be
deemed to occur if any of the following events occurs:
(a) Any person, entity or group, within the meaning of
Section 13(d) or 14(d) of the Exchange Act, but excluding the Company and its
subsidiaries and any employee benefit or stock ownership plan of the Company or
its subsidiaries
55
<PAGE> 3
Exhibit 10.22
and also excluding an underwriter or underwriting syndicate that has acquired
the Company's securities solely in connection with a public offering thereof
(such person, entity or group being referred to herein as a "PERSON"), becomes
the beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of either the then outstanding shares of Common
Stock or the combined voting power of the Company's then outstanding securities
entitled to vote generally in the election of directors; or
(b) Individuals who, as of the Effective Date, constitute
the Board (the "INCUMBENT BOARD") cease for any reason to constitute at least a
majority of the Board, provided that any individual who becomes a director
after the Effective Date whose election, or nomination for election by the
Company's stockholders, is approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered to be a
member of the Incumbent Board unless that individual was nominated or elected
by any Person having the power to exercise, through beneficial ownership,
voting agreement and/or proxy, 20% or more of either the then outstanding
shares of Common Stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors, in which case that individual shall not be considered to be a member
of the Incumbent Board unless such individual's election or nomination for
election by the Company's stockholders is approved by a vote of at least
two-thirds of the directors then comprising the Incumbent Board; or
(c) Consummation by the Company of the sale or other
disposition by the Company of all or substantially all of the Company's assets
or a reorganization or merger or consolidation of the Company with any other
person, entity or corporation, other than
(i) a reorganization or merger or consolidation
that would result in the voting securities of the Company outstanding
immediately prior thereto (or, in the case of a reorganization or
merger or consolidation that is preceded or accomplished by an
acquisition or series of related acquisitions by any Person, by tender
or exchange offer or otherwise, of voting securities representing 5%
or more of the combined voting power of all securities of the Company,
immediately prior to such acquisition or the first acquisition in such
series of acquisitions) continuing to represent, either by remaining
outstanding or by being converted into voting securities of another
entity, more than 50% of the combined voting power of the voting
securities of the Company or such other entity outstanding immediately
after such reorganization or merger or consolidation (or series of
related transactions involving such a reorganization or merger or
consolidation), or
(ii) a reorganization or merger or consolidation
effected to implement a recapitalization or reincorporation of the
Company (or similar transaction) that does not result in a material
change in beneficial ownership of the voting securities of the Company
or its successor; or
(d) Approval by the stockholders of the Company or an
order by a court of competent jurisdiction of a plan of liquidation of the
Company.
7. DELIVERY OF CERTIFICATES. As soon as practicable after any
proper exercise of the Option in accordance with the provisions of this
Agreement, the Company shall deliver to Optionee at the main office of the
Company, or such other place as shall be mutually acceptable, a certificate or
certificates representing such shares of Common Stock to which Optionee is
entitled upon exercise of the Option.
8. NO RIGHTS IN SHARES BEFORE ISSUANCE AND DELIVERY. Neither
Optionee, his estate nor his transferees by will or the laws of descent and
distribution shall be, or have any rights or privileges of, a stockholder of
the Company with respect to any shares issuable upon exercise of the Option,
unless and until certificates representing such shares shall have been issued
and delivered. No adjustment will be made for a dividend or their rights where
the record date is prior to the date such stock certificates are issued.
9. NONASSIGNABILITY. The Option is not assignable or
transferable by Optionee except by will, by the laws of descent and
distribution, pursuant to a qualified domestic relations order, or, in the
discretion of the Company and under circumstances that would not adversely
affect the interests of the Company, pursuant to a nominal transfer that does
not result in a change in beneficial ownership, or as otherwise permitted by
rule or interpretation of the Securities and Exchange Commission or its staff
as an exception to the general proscription on transfer of derivative
securities set forth in Rule 16b-3 (or any successor rule) under the Exchange
Act or interpretation thereof. During the lifetime of Optionee, the Option
shall be exercisable only by Optionee (or Optionee's permitted transferee) or
his guardian or legal representative.
56
<PAGE> 4
Exhibit 10.22
10. CERTAIN REPRESENTATIONS AND WARRANTIES. Optionee expressly
acknowledges, represents and agrees as follows:
(a) Optionee shall accept as binding, conclusive and
final all decisions or interpretations of the Board or the Committee upon any
questions arising under the Plan or this Agreement;
(b) If Optionee uses Common Stock of the Company to pay
the Option Price, Optionee has been advised to consult with a competent tax
advisor regarding the applicable tax consequences prior to utilizing such
Common Stock to exercise the Option; and
(c) If Optionee is (as expected) a person subject to the
provisions of Section 16 of the Securities Exchange Act of 1934, Optionee has
been advised to consult with a competent federal securities law advisor as to
the reporting obligations and potential liability for profits under said
Section 16 with respect to the granting and exercise of the Option.
11. NO EMPLOYMENT RIGHTS OR OBLIGATIONS. Nothing in the Plan or
in this Agreement shall be construed to create or imply any contract of
employment between the Company and Optionee. Nothing in the Plan or in this
Agreement shall confer upon Optionee any right to continue in the employ of the
Company or confer upon the Company any right to require continued employment by
Optionee. Optionee acknowledges and agrees that the employment of Optionee by
the Company is expressly at the will of the Company, and the Company may
terminate Optionee's employment by the Company at any time for any reason or
for no reason. Similarly, Optionee may terminate his employment with the
Company at any time for any reason or for no reason. Any questions as to
whether and when there has been a termination of Optionee's employment, the
reason (if any) for such termination, and/or the consequences thereof under the
terms of the Plan, shall be determined by the Board in its sole discretion, and
the Board's determination thereof shall be final, binding and conclusive.
12. GOVERNING LAW. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with the internal
laws, and not the laws pertaining to conflicts or choice or laws, of the State
of California applicable to agreements made and to be performed wholly within
the State of California.
13. AGREEMENT BINDING ON SUCCESSORS. The terms of this Agreement
shall be binding upon the executors, administrators, heirs, successors,
transferees and assigns of Optionee.
14. NECESSARY ACTS. Optionee agrees to perform all acts and
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this Agreement, including but not limited to all acts and
documents related to compliance with federal and/or state securities and/or tax
laws.
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement effective as of the Grant Date.
QUIDEL CORPORATION, a Delaware corporation
By: /S/ STEVEN T. FRANKEL
------------------------------------
Steven T. Frankel
Chief Executive Officer
/S/ ANDRE de BRUIN
------------------------------------------
ANDRE de BRUIN
57
<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) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Quidel branded sales* $ 41,086 $ 33,532 $ 28,782 $19,932 $14,612
OEM sales (U.S. marketing partners) 833 949 2,285 8,450 13,099
-----------------------------------------------------------------
Total net sales 41,919 34,481 31,067 28,382 27,711
Other revenues 2,803 572 470 1,090 1,046
-----------------------------------------------------------------
Total revenues 44,722 35,053 31,537 29,472 28,757
Gross profit 22,250 18,448 14,925 13,045 13,252
Research and development 6,700 4,130 3,728 3,830 4,088
Purchased in-process research
and development** - - 1,423 - -
Sales and marketing 10,744 10,451 10,470 9,097 6,141
General and administrative 3,534 3,483 3,271 3,148 2,954
Income (loss) from continuing operations
before extraordinary credit 3,549 579 (4,035) (1,931) 420
Income (loss) per common share from
continuing operations before
extraordinary credit 0.16 0.03 (0.21) (0.11) 0.02
Net income (loss) 3,549 579 (4,035) (1,931) 709
Net income (loss) applicable to
common stockholders per share $ 0.16 $ 0.03 $ (0.21) $(0.11) $ 0.04
BALANCE SHEET DATA
Cash and cash equivalents $ 10,096 $ 2,538 $ 3,878 $ 3,173 $ 5,621
Working capital 19,444 10,060 9,757 8,390 13,350
Total assets 42,261 33,334 34,524 32,933 21,169
Long-term obligations and
redeemable preferred stock 3,203 3,490 4,145 4,725 8,315
Stockholders' equity 35,158 25,718 23,938 22,301 9,771
Stockholders' equity per share $ 1.49 $ 1.19 $ 1.14 $ 1.20 $ 0.64
Common shares outstanding 23,546 21,550 20,983 18,459 15,122
</TABLE>
* Quidel branded and international sales
** Resulting from the acquisition of Pacific Biotech, Inc., discussed elsewhere
herein
(Inside Front Cover of the 1997 Annual Report)
58
<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, 1997.
RESULTS OF OPERATIONS During the past year there were a number of significant
accomplishments which have begun to translate into meaningful financial
results. Fiscal 1997 established new record highs as net sales increased 22%
over the prior year level and provided the basis for a five-fold increase in
net income to $3,549,000 or $.16 per share.
NET SALES TRENDS BY MAJOR PRODUCT BRANDS
<TABLE>
<CAPTION>
Percent increase (decrease)
Years ended March 31, (in thousands) 1997 1996 1995 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic Sales
Professional sales . . . . . . . . . . . . . . . . $ 25,891 $ 16,132 $ 14,629 60% 10%
OTC sales . . . . . . . . . . . . . . . . . . . . 1,383 2,876 2,413 (52%) 19%
Clinical lab sales . . . . . . . . . . . . . . . . 1,295 1,288 1,451 1% (11%)
OEM sales . . . . . . . . . . . . . . . . . . . . 833 949 2,285 (12%) (58%)
----------------------------------------------------------------
Total domestic sales . . . . . . . . . . . . . 29,402 21,245 20,778 38% 2%
----------------------------------------------------------------
International Sales
Export sales . . . . . . . . . . . . . . . . . . . 8,060 9,059 6,562 (11%) 38%
European subsidiary sales . . . . . . . . . . . . 4,457 4,177 3,727 7% 12%
----------------------------------------------------------------
Total international sales . . . . . . . . . . 12,517 13,236 10,289 (5%) 29%
----------------------------------------------------------------
Total net sales $ 41,919 $ 34,481 $ 31,067 22% 11%
=========================================================================================================================
</TABLE>
Domestic professional sales growth in fiscal 1997 is primarily related to an
increase in sales of the Company's infectious disease products. This category
includes the products which were the first to receive CDC waived categorization
status, the QuickVue(R) In-Line One-Step Strep A Test and the QuickVue(R) H.
Pylori Test, and the introduction of the CARDS(R) QS(R) and Concise(R)
Performance Plus(TM) strep tests, not present in the prior year. Fiscal 1996
represented the first full year following the January 1995 acquisition of
Pacific Biotech, Inc. ("PBI"). Sales of the PBI pregnancy and mononucleosis
products provided the increase in fiscal 1996 sales over the fiscal 1995 level.
Quidel's domestic OTC home testing products have been distributed through
Ansell Consumer Products ("Ansell") since January 1996. The reduction in OTC
sales reflects lower unit sales prices to Ansell versus the previous direct
sales to retail drug stores. This arrangement has allowed the Company to reduce
its level of OTC sales and marketing expense (see Operating Expenses below).
International export sales declined in fiscal 1997 due to lower pregnancy
product sales in Europe and Asia and a reduction in allergy test sales in
Germany, resulting from a change in the authorized reimbursement level. The
fiscal 1996 growth over 1995 is primarily due to the addition of the PBI
products discussed above.
Sales from the Company's four European subsidiaries improved in fiscal 1997.
Growth in existing product sales and the addition of new products such as the
QuickVue(R) Chlamydia Test in Germany more than offset the $861,000
discontinued sales of non-Quidel branded products sold in the Netherlands and
Spain during fiscal 1996.
(Beginning on Page 8 of the 1997 Annual Report)
59
<PAGE> 3
Exhibit 13.1
REVENUE FROM RESEARCH CONTRACTS, LICENSE FEES AND ROYALTIES
<TABLE>
<CAPTION>
Percent increase (decrease)
Years ended March 31, (in thousands) 1997 1996 1995 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract research and development . . . . . . . . . . . $ 2,654 $ 13 $ - N/M N/M
License fee income . . . . . . . . . . . . . . . . . . 25 381 415 (93%) (8%)
Royalty income . . . . . . . . . . . . . . . . . . . . 124 178 55 (30%) 224%
----------------------------------------------------------------
Total $ 2,803 $ 572 $ 470 390% 22%
=========================================================================================================================
</TABLE>
Contract research and development revenue is principally related to funding
provided by Glaxo Wellcome for the development of a rapid diagnostic test for
influenza A and B. This multi-year program commenced in March 1996. The revenue
recognized is equal to the sum of the program direct research cost (see
Operating Expenses below) and allocated support service cost. License fee
income generally relates to one- time fees received for the right to distribute
the Company's products.
COST OF SALES AND GROSS PROFIT
<TABLE>
<CAPTION>
Percent increase (decrease)
Years ended March 31, (in thousands) 1997 1996 1995 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Direct Cost - material labor and
other variable costs . . . . . . . . . . . . . $ 15,246 $ 11,981 $ 11,567 27% 4%
As a percentage of sales . . . . . . . . . . . . . 36% 34% 37%
Direct Margin - contribution per sales dollar . . 64% 66% 63%
Manufacturing overhead cost . . . . . . . . . . . 4,423 4,052 4,575 9% (11%)
As a percentage of sales . . . . . . . . . . . . . 11% 12% 15%
----------------------------------------------------------------
Total cost of sales . . . . . . . . . . . . . 19,669 16,033 16,142 23% (1%)
----------------------------------------------------------------
Gross profit . . . . . . . . . . . . . . . . . . . $ 22,250 $ 18,448 $ 14,925 21% 24%
As a percentage of sales 53% 54% 48%
=========================================================================================================================
</TABLE>
Gross profit increased with sales volume; however, as a percentage of sales,
gross profit declined in fiscal 1997.
Fiscal 1997 direct margin as a percentage of sales has declined from fiscal
1996 due to a shift in the mix of product sales toward higher sales of strep
throat tests, which provide a slightly lower direct margin contribution. In
addition, the decline in OTC product sales prices to Ansell, discussed above,
has reduced the direct margin percentage.
Manufacturing overhead cost is relatively fixed and, as such, increased sales
volume reduces this cost as a percentage of sales resulting in a corresponding
increase in the Company's gross profit rate. The decline in manufacturing
overhead cost in fiscal 1996 from 1995 is due to the consolidation of the PBI
manufacturing operations into the Company's facility at the beginning of fiscal
1996. 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 provide an improved gross profit ratio.
60
<PAGE> 4
Exhibit 13.1
OPERATING EXPENSES
<TABLE>
<CAPTION>
Percent increase (decrease)
Years ended March 31, (in thousands) 1997 1996 1995 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Research and Development
Quidel research projects . . . . . . . . . . . . . $ 4,539 $ 4,117 $ 3,728 10% 10%
As a percentage of sales . . . . . . . . . . . . . 11% 12% 12%
Contract research - direct costs . . . . . . . . . 2,161 13 - N/M N/M
As a percentage of sales . . . . . . . . . . . . . 5% - -
----------------------------------------------------------------
Total research and development . . . . . . . . 6,700 4,130 3,728 62% 11%
As a percentage of sales . . . . . . . . . . . 16% 12% 12%
----------------------------------------------------------------
Purchased in-process research and development . . . . . - - 1,423 N/M N/M
As a percentage of sales . . . . . . . . . . . . . . . - - 5%
Sales and Marketing
Domestic professional sales and marketing . . . . 6,322 4,941 4,644 28% 6%
Domestic OTC sales and marketing . . . . . . . . . 519 1,378 1,990 (62%) (31%)
International sales and marketing . . . . . . . . 3,903 4,132 3,836 (6%) 8%
----------------------------------------------------------------
Total sales and marketing . . . . . . . . . . 10,744 10,451 10,470 3% -
As a percentage of sales . . . . . . . . . . 26% 30% 34%
General and Administrative . . . . . . . . . . . . . . 3,534 3,483 3,271 1% 6%
As a percentage of sales . . . . . . . . . . . . . 8% 10% 10%
----------------------------------------------------------------
Total operating expenses . . . . . . . . . . . . . . . $ 20,978 $ 18,064 $ 18,892 16% (4%)
As a percentage of sales . . . . . . . . . . . . . . . 50% 52% 61%
Total operating expenses excluding contract research
and purchased in-process research . . . . . . . . $ 18,817 $ 18,051 $ 17,469 4% 3%
As a percentage of sales 45% 52% 56%
=========================================================================================================================
</TABLE>
Research and development effort was substantially increased in fiscal 1997 as
the Company entered into several collaborative product development programs.
The Glaxo Wellcome influenza A and B program, discussed above, is the largest
of these projects. Contract research expense now represents one-third of the
Company's total research and development investment.
Sales and marketing efficiency continued to improve in fiscal 1997 as the
overall cost declined to 26% of sales. The domestic professional sales and
marketing cost increased 28% in fiscal 1997 which is related to the 60%
increase in domestic professional sales volume discussed above. Domestic OTC
sales and marketing cost continues to decline as these costs are assumed by
Ansell. This savings partially offsets the lower margin from reduced sales
prices under this distribution agreement.
General and administrative costs continue to be closely managed and have now
declined to 8% of sales.
Overall operating expenses, excluding contract research expense that is funded
by contract research revenue, increased 4% in fiscal 1997 and declined as a
percent of sales to 45% from 52% in fiscal 1996.
OTHER INCOME AND EXPENSE Interest and other expense consisted primarily of
interest expense which declined $92,000 in fiscal 1997 to $449,000 due to the
reduction in the level of debt.
NET INCOME (LOSS) The fiscal 1997 net income of $3,549,000 reflects the impact
of a 22% increase in sales volume creating a 21% increase in gross profit
which, when offset by a 4% increase in operating expenses (excluding contract
research), accomplished a five-fold increase over fiscal 1996. The fiscal 1996
improvement in net income over the 1995 net loss was due to increased sales and
gross profit provided by the PBI products and reduced operating expenses
related to the PBI consolidation and the prior year's $1,423,000 expense of PBI
in-process research and development.
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
61
<PAGE> 5
Exhibit 13.1
achieve during the year and the seasonal nature (fall and winter sales) of the
Company's strep throat tests which accounted for approximately 25% of fiscal
1997 total sales.
In April 1997, Becton Dickinson and Co. (the "plaintiff") filed a lawsuit
against the Company alleging that the Company's strep and chlamydia products
and certain of its pregnancy and ovulation products (collectively, the
"Products") infringe on two patents of the plaintiff. The Products in issue
represent a substantial majority of the Company's revenues. In June 1997, the
Company entered into a settlement agreement with the plaintiff. As a part of
that agreement, the Company received a license from the plaintiff under both
patents in exchange for a cash license fee, a royalty on net sales of the
Products after April 1, 1997, and a license of the Company's Q-Label technology
back to plaintiff (with a royalty on future net sales). The Company currently
estimates that the annual amortization of the license fee and royalty payments
(based on current sales levels of the Products) will result in an annual
expense of approximately $1,900,000 per year. While the Company denied the
allegations in the complaint and admitted no liability as part of the suit's
resolution, the Company believed the settlement was warranted when balanced
against the anticipated defense costs, the uncertainties of litigation in
general, and the expected diversion of management's time and attention over an
extended period.
LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company had cash and
cash equivalents of $10,096,000 compared to $2,538,000 at March 31, 1996.
During fiscal 1997 the Company generated $5,197,000 in cash from operating
activities. Cash flow provided by profitable operations and non-cash
depreciation and amortization amounted to $6,082,000 and was offset by a net
$885,000 in cash used to effect changes in other asset and liability accounts,
principally accounts receivable.
Cash used for investment activities of $2,302,000 related primarily to capital
expenditures to increase production capacity and enhance scientific research.
Cash generated from financing activities totaled $4,663,000 which was
principally related to the $5,891,000 proceeds from the issuance of common
stock (comprised of $5,500,000 from the exercise of warrants with a six-year
life which were originally issued in January 1991 and $391,000 from employee
stock option and stock purchase plan exercises), offset by the repayment of
debt totaling $1,228,000.
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, 1998. As of March 31, 1997, 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 the Company's current cash position and its current assessment of
future operating results, management believes that its existing sources of
liquidity should be adequate to meet the Company's operating needs during
fiscal 1998.
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.
62
<PAGE> 6
Exhibit 13.1
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended March 31, (in thousands, except per share data) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Net sales, including $354, $431, and $2,285 from related parties for the
years ended March 31, 1997, 1996 and 1995, respectively $ 41,919 $ 34,481 $ 31,067
Research contracts, license fees and royalties 2,803 572 470
-------------------------------------
Total revenues 44,722 35,053 31,537
COSTS AND EXPENSES
Cost of sales 19,669 16,033 16,142
Purchased in-process research and development - - 1,423
Research and development 6,700 4,130 3,728
Sales and marketing 10,744 10,451 10,470
General and administrative 3,534 3,483 3,271
-------------------------------------
Total costs and expenses 40,647 34,097 35,034
Operating income (loss) 4,075 956 (3,497)
OTHER INCOME AND EXPENSE
Interest and other income 191 164 219
Interest and other expense (594) (541) (757)
-------------------------------------
Income (loss) before provision for income taxes 3,672 579 (4,035)
Provision for income taxes 123 - -
-------------------------------------
Net income (loss) 3,549 579 (4,035)
Dividends and accretion on preferred stock - - 19
-------------------------------------
Net income (loss) applicable to common stockholders $ 3,549 $ 579 $ (4,054)
-------------------------------------
Net income (loss) applicable to common stockholders per share $ .16 $ .03 $ (.21)
-------------------------------------
Shares used in per share calculation 22,791 22,684 18,987
-------------------------------------
</TABLE>
See accompanying notes.
(Beginning on Page 11 of the 1997 Annual Report)
63
<PAGE> 7
Exhibit 13.1
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, (in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,096 $ 2,538
Accounts receivable, net of allowances of $800 ($647 in 1996) 8,384 7,602
Inventories, at lower of cost (first-in, first-out) or market:
Raw materials 1,842 1,899
Work in process 1,216 1,014
Finished goods 726 578
---------------------------
3,784 3,491
Prepaid expenses and other current assets 1,080 555
---------------------------
Total current assets 23,344 14,186
Property and equipment, at cost
Land 1,080 1,080
Building and improvements 8,976 8,704
Equipment, furniture and fixtures 10,857 10,114
---------------------------
20,91 19,898
Less accumulated depreciation and amortization (7,027) (6,171)
---------------------------
Net property and equipment 13,886 13,727
Intangible assets, net of accumulated amortization
of $2,502 ($1,761 in 1996) 4,854 5,161
Other assets 177 260
---------------------------
$ 42,261 $ 33,334
---------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,132 $ 1,361
Accrued payroll and related expenses 1,123 772
Note payable to bank under line of credit - 441
Current portion of long-term debt and obligations under capital leases 183 683
Deferred contract research revenue - 337
Other current liabilities 462 532
---------------------------
Total current liabilities 3,900 4,126
Long-term debt and obligations under capital leases 3,203 3,490
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, 23,546
shares issued and outstanding (21,550 in 1996) 24 22
Additional paid-in capital 115,943 110,054
Accumulated deficit (80,809) (84,358)
---------------------------
Total stockholders' equity 35,158 25,718
---------------------------
$ 42,261 $ 33,334
---------------------------
</TABLE>
See accompanying notes.
64
<PAGE> 8
Exhibit 13.1
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31, (in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 3,549 $ 579 $(4,035)
Adjustments to reconcile net income (loss) to net
cash flows provided by operating activities:
Depreciation and amortization 2,533 2,059 1,860
Changes in assets and liabilities net of effects from the purchase
of Pacific Biotech and Inmuno Analitica:
Accounts receivable (782) (780) 2,495
Inventories (293) 1,374 378
Prepaid expenses and other current assets (525) 78 317
Accounts payable 771 (815) (708)
Accrued payroll and related expenses 351 (108) 44
Accrued acquisition expenses - (621) (515)
Deferred contract research revenue (337) 337 -
Other current liabilities (70) (1,151) 243
----------------------------------------
Net cash flows from operating activities 5,197 952 79
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (1,878) (2,489) (1,878)
Payment for purchase of Pacific Biotech, Inc., net of cash acquired - - (2,968)
Decrease in restricted certificate of deposit - - 2,000
Decrease (increase) in other assets and intangibles (424) (319) 623
----------------------------------------
Net cash flows used for investing activities (2,302) (2,808) (2,223)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock and warrants 5,891 1,201 5,487
Payments on obligations under capital leases (43) (117) (7)
Proceeds from issuance of debt - - 4,352
Repayments of debt (744) (335) (5,631)
Repayments of line of credit (441) (233) (1,333)
Cash dividends paid to preferred stockholders - - (19)
----------------------------------------
Net cash flows provided by financing activities 4,663 516 2,849
----------------------------------------
Net increase (decrease) in cash and cash equivalents 7,558 (1,340) 705
Cash and cash equivalents at beginning of year 2,538 3,878 3,173
----------------------------------------
Cash and cash equivalents at end of year $ 10,096 $ 2,538 $ 3,878
----------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 415 $ 506 $ 694
Cash paid during the year for income taxes 122 - -
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.
65
<PAGE> 9
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, 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
Issuance of common stock for cash under
stock options and stock purchase plans 134 - 391 - 391
Issuance of common stock upon exercise of warrants 1,862 2 5,498 - 5,500
Net income - - - 3,549 3,549
-------------------------------------------------------------
Balance at March 31, 1997 23,546 $24 $ 115,943 $(80,809) $ 35,158
-------------------------------------------------------------
</TABLE>
See accompanying notes.
66
<PAGE> 10
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 healthcare. The following is a summary of the
Company's significant accounting policies.
CONSOLIDATION The consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of all significant
intercompany accounts and transactions.
CASH AND CASH EQUIVALENTS Cash equivalents consist of short-term highly liquid
investments which include certificates of deposit, commercial paper, bankers
acceptances with original maturities of three months or less, and money market
fund investments, all of 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 ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS
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
distribution companies 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 are 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 licensing of distribution rights is
recorded at the time of the transaction.
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 year in which the Company had net income.
Common shares issuable upon exercise of certain warrants and stock options were
not included in the calculations of loss per share since the effect of their
inclusion would be antidilutive. Common stock equivalents result from
outstanding warrants and options to purchase common stock.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
Earnings per Share. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997 and replaces APB Opinion 15,
Earnings per Share ("EPS"). SFAS No. 128 requires dual presentation of basic
and diluted earnings per share by entities with complex capital structures.
Basic EPS includes no dilution and is computed by dividing net income (loss) by
the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share in
the earnings of this entity. The Company plans to adopt SFAS No. 128 beginning
with its financial statements for the third fiscal quarter ended December 31,
1997. The impact of SFAS No. 128 on the calculation of either basic or diluted
net income (loss) per share for the years ended March 31, 1997, 1996 and 1995
is not expected to be material.
(Beginning on Page 15 of the 1997 Annual Report)
67
<PAGE> 11
Exhibit 13.1
FOREIGN OPERATIONS Foreign currency transaction gains and losses were not
significant during any period presented.
IMPAIRMENT OF LONG-LIVED ASSETS Effective April 1, 1996, the Company adopted
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the estimated undiscounted cash flows 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
adoption of the SFAS No. 121 had no material effect on the Company's financial
position or results of operations.
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 because
the alternative fair value accounting provided for under SFAS No. 123
"Accounting for Stock-Based Compensation" requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals 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 accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
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 develops and manufactures 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 forward.
The acquisition was accounted for as a purchase and the Company 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 was expensed as in-process research and development in the 1995
statement of operations.
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
Intangible assets consist of the following:
<TABLE>
<CAPTION>
March 31, (in thousands) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Trademarks and distribution agreements . . . . $ 4,461 $ 4,456
Patent costs . . . . . . . . . . . . . . . . . 2,115 1,882
Other . . . . . . . . . . . . . . . . . . . . . 780 584
-------------------------
7,356 6,922
Less accumulated amortization . . . . . . . . . (2,502) (1,761)
-------------------------
$ 4,854 $ 5,161
===========================================================================
</TABLE>
Certain patent filing costs are capitalized and amortized upon the issuance of
the related patent.
NOTE 4. TRANSACTIONS WITH RELATED PARTY
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. Revenues from BD totaled approximately $476,000 (1% of
total
68
<PAGE> 12
Exhibit 13.1
revenues), $604,000 (2% of total revenues) and $2,549,000 (8% of total
revenues) for the three years ended March 31, 1997, 1996 and 1995,
respectively.
NOTE 5. EXPORT SALES AND FOREIGN OPERATIONS
The Company's export sales were as follows:
<TABLE>
<CAPTION>
Years ended March 31, (in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe . . . . . . . . . . . . . . . . . . . $ 4,275 $ 4,572 $ 3,631
Asia . . . . . . . . . . . . . . . . . . . . 3,047 3,805 2,340
Other international . . . . . . . . . . . . . 738 682 591
-----------------------------------------
$ 8,060 $ 9,059 $ 6,562
=========================================================================================
</TABLE>
Sales and operating income (loss) for the three years ended March 31, 1997 and
identifiable assets at the end of each of those years, classified by geographic
area, were as follows:
<TABLE>
<CAPTION>
Years Ended March 31, (in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers from:
United States . . . . . . . . . . . . . . $37,462 $30,304 $ 27,340
Europe . . . . . . . . . . . . . . . . . . 4,457 4,177 3,727
-----------------------------------------
$41,919 $34,481 $ 31,067
-----------------------------------------
Operating income (loss):
United States . . . . . . . . . . . . . . $ 3,679 $ 865 $(4,385)
Europe . . . . . . . . . . . . . . . . . . 396 91 888
-----------------------------------------
$ 4,075 $ 956 $(3,497)
-----------------------------------------
Identifiable assets:
United States . . . . . . . . . . . . . . $36,308 $27,117 $ 27,444
Europe . . . . . . . . . . . . . . . . . . 5,953 6,217 7,080
-----------------------------------------
$42,261 $33,334 $ 34,524
==========================================================================================
</TABLE>
Intersegment sales to affiliates totaled $2,301,000, $1,613,000 and $1,002,000
in the three years ended March 31, 1997, 1996 and 1995, respectively.
NOTE 6. LEASE COMMITMENTS
Rent expense under operating leases totaled $152,000, $128,000 and $103,000 for
the years ended March 31, 1997, 1996 and 1995, respectively.
The Company leases equipment under capital lease agreements. Cost and
accumulated amortization of equipment under capital leases in the accompanying
balance sheets at March 31, 1997 are $181,000 and $64,000, respectively, and at
March 31, 1996 are $203,000 and $47,000, respectively.
NOTE 7. LONG-TERM DEBT, CAPITAL LEASES AND CREDIT FACILITY
Long-term debt and capital leases consist of the following:
69
<PAGE> 13
Exhibit 13.1
<TABLE>
<CAPTION>
March 31, (in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
9.4% note secured by deed of trust on the Company's San Diego facility,
principal and interest of $37 payable monthly through November 2009 . . . . . . . . . . $ 3,303 $ 3,435
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 613
Obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 125
-------------------------
3,386 4,173
Less current portion of long-term debt and obligations under capital leases . . . . . . . . 183 683
-----------------------------
$ 3,203 $ 3,490
=========================================================================================================================
</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 (10.25%
at March 31, 1997). The line of credit expires August 5, 1998. As of March 31,
1997, there were no outstanding borrowings under the line of credit.
Future debt and lease payments for fiscal years ended after March 31, 1997 are
as follows (in thousands):
<TABLE>
<S> <C>
1998 . . . . . . . . $ 183
1999 . . . . . . . . 200
2000 . . . . . . . . 174
2001 . . . . . . . . 191
2002 . . . . . . . . 209
Thereafter . . . . . 2,429
--------
$3,386
--------
</TABLE>
NOTE 8. 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>
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
------------
1,455,371
----------
</TABLE>
During the period of October 1996 through January 1997, warrants for a total of
1,861,294 common shares, at an exercise price of $2.95, were exercised and
resulted in the receipt of $5,500,000.
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. In fiscal 1997 the number of shares authorized to be issued under
the Company's 1990 Employee Stock Plan was increased by 750,000 to a total of
2,500,000 shares of common stock, under incentive stock rights, stock options,
stock appreciation rights and stock purchase rights. Also in fiscal 1997, the
Company's stockholders authorized the establishment of the 1996 Non-Employee
Directors Stock Option Plan ("1996 Plan") which provides for the grant of
options to purchase up to 400,000 shares of common stock. As of March 31, 1997,
320,000 shares have been granted under the 1996 Plan. Options for 131,625
shares of common stock previously granted under the 1990 Director Option Plan
remain outstanding.
70
<PAGE> 14
Exhibit 13.1
The following table summarizes option activity in terms of thousands of shares
and the weighted average exercise per share:
<TABLE>
<CAPTION>
1997 1996 1995
For the years ended March 31, Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year . . . . . . . . . . . . . . . 1,748 $ 4.03 1,905 $ 3.57 1,730 $ 3.43
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 818 3.77 440 3.74 335 3.96
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . (87) 2.41 (497) 2.05 (74) .82
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . (348) 4.33 (100) 4.15 (86) 4.65
-----------------------------------------------------
Outstanding at end of year 2,131 $ 3.94 1,748 $ 4.03 1,905 $ 3.57
=========================================================================================================================
</TABLE>
At March 31, 1997, 904,636 shares remained available for grant under the plans.
Following is a further breakdown of the options outstanding as of March 31,
1997:
<TABLE>
<CAPTION>
Contractual Weighted
Weighted Weighted Average
Options Average Average Options Exercise Price
Range of Outstanding Remaining Exercise Exercisable of Options
Exercise Prices (000's) Life in Years Price (000's) Exercisable
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.72 80 0.71 $ 0.72 80 $ 0.72
$2.875-$3.625 1,044 8.59 3.60 90 3.42
$3.75-$4.50 681 5.85 4.30 318 4.26
$4.625-$6.625 326 4.96 5.08 303 5.09
- -------------------------------------------------------------------------------------------------------------------------
$0.72-$6.625 2,131 6.86 $ 3.94 791 $ 4.12
</TABLE>
The weighted average fair value of options granted during 1997 and 1996 was
$2.53 and $2.22, respectively.
Pro forma information regarding net income and net income per share is required
by SFAS No. 123 and has been determined as if the Company has accounted for its
employee stock options under the fair value method of that Statement. The fair
value of these options was established at the date of grant using the Black -
Scholes option pricing model with the following weighted average assumptions
for 1997 and 1996, respectively: risk-free interest rates of 6.6% and 6.4%;
dividend yields of 0%; volatility factor of the expected market price of the
Company's common stock of 65% and a weighted-average life of the options of 5.7
years.
The Black - Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
and the shares granted under the employee stock purchase plan is amortized to
expense over their respective vesting or option periods. The effects of
applying SFAS No. 123 for pro forma disclosure purposes are not likely to be
representative of the effects on pro forma net income in future years because
they do not take into consideration pro forma compensation expense related to
grants made prior to 1996. The Company's pro forma information follows:
<TABLE>
<CAPTION>
Years ended March 31, (in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,549 $ 579
Adjusted pro forma net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,135 $ 363
Net income per share as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .16 $ .03
Adjusted pro forma net income per share $ .14 $ .02
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN In fiscal 1997, the number of shares authorized
to be issued under The Employee Stock Purchase Plan ("the Plan") was increased
by 100,000 to a total of 500,000 shares of common stock. Under the Plan,
full-time employees are allowed to purchase common stock through payroll
deductions (which cannot exceed 10% of the employee's compensation) at the
71
<PAGE> 15
Exhibit 13.1
lower of 85% of fair market value at the beginning or end of each six-month
option period. As of March 31, 1997, 374,853 shares had been sold under the
Plan, leaving 125,147 shares available for future issuance.
NOTE 9. INCOME TAXES
The provision for income taxes for fiscal 1997 totaled $123,000, comprised of a
current federal tax provision of $93,000 and a current state tax provision of
$30,000. An income tax provision was not applicable in fiscal 1996 and 1995.
The Company's effective Federal and California tax rate differed from the
Federal statutory rate in fiscal 1997, 1996 and 1995 due to the utilization of
available net operating loss carryforwards.
Significant components of the Company's deferred tax assets as of March 31 are
shown below. A valuation allowance of $29,343,000 has been recognized to offset
the deferred tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
March 31, (in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,244 $ 27,112
Tax on credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,841 1,850
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,258 2,366
------------------------------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,343 31,328
Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . (29,343) (31,328)
------------------------------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ -
=========================================================================================================================
</TABLE>
At March 31, 1997, the Company had Federal and California income tax net
operating loss carryforwards of approximately $72,790,000 and $5,967,000,
respectively, which will expire if not utilized to offset taxable income. 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, research and development and
alternative minimum tax credit carryforwards of $1,673,000 and California
research and development, manufacturers' investment and alternative minimum tax
credit carryforwards of $168,000 which will expire if not utilized to offset
taxable income.
A reconciliation between the amount of tax computed by multiplying income
before taxes by the applicable statutary rate and the effective tax rate is as
follows:
<TABLE>
<CAPTION>
Years Ended March 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutary tax rate . . . . . . . . . . . . . . . 34.0% 34.0% (34.0%)
Utilization of valuation allowance . . . . . . . (31.2) (34.0) -
Increases in valuation allowance . . . . . . . . - 34.0
State taxes net of federal benefit . . . . . . . 0.6 - -
Other . . . . . . . . . . . . . . . . . . . . . . 0.1 - -
------------------------------------------
Effective rate 3.5% - -
============================================================================================
</TABLE>
In accordance with Internal Revenue Code Section 382, 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 net operating losses and tax credit
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, such a
change in ownership has occurred. However, the Company does not believe
application of Section 382 will materially impact the utilization of the
Company's net operating losses and tax credits.
72
<PAGE> 16
Exhibit 13.1
NOTE 10. LEGAL PROCEEDINGS
In April 1997, Becton Dickinson and Co. (the "plaintiff") filed a lawsuit
against the Company alleging that the Company's strep and chlamydia products
and certain of its pregnancy and ovulation products (collectively, the
"Products") infringe on two patents of the plaintiff. The Products in issue
represent a substantial majority of the Company's revenues. In June 1997, the
Company entered into a settlement agreement with the plaintiff. As a part of
that agreement, the Company received a license from the plaintiff under both
patents in exchange for a cash license fee, a royalty on net sales of the
Products after April 1, 1997, and a license of the Company's Q-Label technology
back to plaintiff (with a royalty on future net sales).
73
<PAGE> 17
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, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1997. 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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
-------------------------------
San Diego, California
May 9, 1997, except for Note 10,
as to which the date is June 13, 1997
(Page 20 of the 1997 Annual Report)
74
<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 9, 1997, except for Note 10, as
to which the date is June 13, 1997, included in the 1997 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 9, 1997, except for Note 10, as to which the date is June 13,
1997, with respect to the consolidated financial statements of Quidel
Corporation incorporated by reference in the Annual Report (Form 10-K) of
Quidel Corporation for the year ended March 31, 1997.
/S/ ERNST & YOUNG LLP
-------------------------------
San Diego, California
June 26, 1997
75
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 10,096
<SECURITIES> 0
<RECEIVABLES> 8,384
<ALLOWANCES> 800
<INVENTORY> 3,784
<CURRENT-ASSETS> 23,344
<PP&E> 20,913
<DEPRECIATION> 7,027
<TOTAL-ASSETS> 42,261
<CURRENT-LIABILITIES> 3,900
<BONDS> 3,203
0
0
<COMMON> 24
<OTHER-SE> 35,134
<TOTAL-LIABILITY-AND-EQUITY> 42,261
<SALES> 41,919
<TOTAL-REVENUES> 44,722
<CGS> 19,669
<TOTAL-COSTS> 40,647
<OTHER-EXPENSES> (191)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 594
<INCOME-PRETAX> 3,672
<INCOME-TAX> 123
<INCOME-CONTINUING> 3,549
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,549
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
