<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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
of incorporation or organization) Identification No.)
10165 McKellar Court, San Diego, California 92121
(Address of principal executive offices)
Registrant's telephone number, including area code (619) 552-1100
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 [ ]
The number of shares outstanding of the Registrant's Common Stock as
of December 31, 1998 was 23,787,882.
<PAGE> 2
QUIDEL CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Numbers
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1998 and March 31, 1998..................................3
Condensed Consolidated Statements of Operations
Three months ended December 31, 1998 and 1997.........................4
Condensed Consolidated Statements of Operations
Nine months ended December 31, 1998 and 1997..........................5
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1998 and 1997..........................6
Notes to Unaudited Condensed Consolidated Financial Statements.............7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................9
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.....16
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings..............................................16
ITEM 2. Changes in Securities and Use of Proceeds......................16
ITEM 3. Defaults upon Senior Securities................................16
ITEM 4. Submission of Matters to a Vote of Security Holders............16
ITEM 5. Other Information..............................................16
ITEM 6. Exhibits and Reports on Form 8-K...............................16
Signatures .....................................................................18
Exhibit Index...................................................................19
</TABLE>
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<PAGE> 3
QUIDEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 6,012,000 $ 9,720,000
Accounts receivable, net ..................................... 8,605,000 8,524,000
Inventories, at lower of cost (first-in, first-out) or market:
Raw materials ........................................... 2,999,000 3,190,000
Work in process ......................................... 2,228,000 1,420,000
Finished goods .......................................... 881,000 1,287,000
------------- -------------
6,108,000 5,897,000
Prepaid expenses and other current assets .................... 767,000 540,000
------------- -------------
Total current assets ............................... 21,492,000 24,681,000
Property and equipment, net ........................................ 18,613,000 16,797,000
Deferred tax asset ................................................. 2,707,000 2,707,000
Intangible assets, net ............................................. 3,181,000 3,466,000
Other assets ....................................................... 98,000 131,000
------------- -------------
$ 46,091,000 $ 47,782,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 1,840,000 $ 3,246,000
Accrued payroll and related expenses ......................... 725,000 1,261,000
Current portion of long-term debt and obligations
under capital leases .................................... 177,000 199,000
Deferred contract research revenue ........................... 1,473,000 1,690,000
Accrued royalties ............................................ 723,000 622,000
Other current liabilities .................................... 1,059,000 873,000
------------- -------------
Total current liabilities .......................... 5,997,000 7,891,000
Long-term debt and obligations under capital leases ................ 2,873,000 3,002,000
Stockholders' equity:
Common stock ................................................. 24,000 24,000
Additional paid-in capital ................................... 116,648,000 116,564,000
Accumulated deficit .......................................... (79,451,000) (79,699,000)
------------- -------------
Total stockholders' equity .............................. 37,221,000 36,889,000
------------- -------------
$ 46,091,000 $ 47,782,000
============= =============
</TABLE>
See accompanying notes.
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<PAGE> 4
QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended December 31, 1998 1997
- ----------------------------------------- ------------ ------------
<S> <C> <C>
Revenues:
Net sales ............................ $ 13,746,000 $ 12,447,000
Research contracts and royalties ..... 1,181,000 995,000
------------ ------------
Total revenues ............. 14,927,000 13,442,000
Costs and expenses:
Cost of sales ........................ 7,970,000 6,191,000
Research and development ............. 1,902,000 1,888,000
Sales and marketing .................. 2,330,000 2,621,000
General and administrative ........... 1,550,000 978,000
------------ ------------
Total costs and expenses ... 13,752,000 11,678,000
Operating income ........................... 1,175,000 1,764,000
Other income and expense:
Interest and other income ............ 85,000 113,000
Interest and other expense ........... (6,000) (122,000)
------------ ------------
Income before income taxes ................. 1,254,000 1,755,000
Provision for income taxes ................. 308,000 51,000
------------ ------------
Net income ................................. $ 946,000 $ 1,704,000
============ ============
Basic and diluted earnings per share ....... $ .04 $ .07
============ ============
Shares used in basic per share calculation . 23,788,000 23,714,000
============ ============
Shares used in diluted per share calculation 23,796,000 23,991,000
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 5
QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended December 31, 1998 1997
- ---------------------------------------------------- ------------ ------------
<S> <C> <C>
Revenues:
Net sales .................................... $ 33,893,000 $ 32,448,000
Research contracts and royalties ............. 3,325,000 2,350,000
------------ ------------
Total revenues ..................... 37,218,000 34,798,000
Costs and expenses:
Cost of sales ................................ 19,069,000 16,816,000
Research and development ..................... 6,016,000 5,672,000
Sales and marketing .......................... 6,803,000 7,633,000
General and administrative ................... 4,306,000 3,368,000
Restructuring related to European subsidiaries 687,000 --
------------ ------------
Total costs and expenses ........... 36,881,000 33,489,000
Operating income .................................. 337,000 1,309,000
Other income and expense:
Interest and other income .................... 358,000 343,000
Interest and other expense ................... (139,000) (384,000)
------------ ------------
Income before income taxes ......................... 556,000 1,268,000
Provision for income taxes ......................... 308,000 51,000
------------ ------------
Net income ......................................... $ 248,000 $ 1,217,000
============ ============
Basic and diluted earnings per share ............... $ .01 $ .05
============ ============
Shares used in basic per share calculation ......... 23,774,000 23,622,000
============ ============
Shares used in diluted per share calculation ....... 23,811,000 23,873,000
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 6
QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended December 31, 1998 1997
- ------------------------------ ----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 248,000 $ 1,217,000
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation and amortization 2,482,000 2,308,000
Changes in operating assets and liabilities:
Accounts receivable (81,000) (57,000)
Inventories (211,000) (1,061,000)
Prepaid expenses and other current assets (227,000) 681,000
Accounts payable (1,406,000) 142,000
Accrued payroll and related expenses (536,000) (455,000)
Deferred contract research revenue (217,000) --
Accrued royalties 101,000 460,000
Deferred contract research revenue 1,646,000
Other current liabilities 186,000 (42,000)
----------- -----------
Net cash flows provided by operating activities 339,000 4,839,000
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Additions to equipment and improvements (3,904,000) (4,086,000)
Increase (decrease) in intangible and other assets (76,000) (2,465,000)
----------- -----------
Net cash flows used for investing activities (3,980,000) (6,551,000)
CASH FLOWS (USED FOR) PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 84,000 451,000
Payments on notes payable, long term debt and
obligations under capital leases (151,000) (137,000)
----------- -----------
Net cash flows used for financing activities (67,000) 314,000
Net decrease in cash and cash equivalents (3,708,000) (1,398,000)
Cash and cash equivalents at beginning of period 9,720,000 10,096,0000
----------- -----------
Cash and cash equivalents at end of period $ 6,012,000 $ 8,698,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 231,000 $ 250,000
=========== ===========
Income taxes paid during the period $ 86,000 $ 13,000
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 7
QUIDEL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
QUIDEL Corporation ("QUIDEL" or the "Company") discovers, develops,
manufactures and markets diagnostic products for human health care.
The unaudited financial information included herein is condensed and
has been prepared in accordance with generally accepted accounting
principles applicable to interim periods; consequently it does not
include all generally accepted accounting disclosures required for
complete annual financial statements. The condensed financial
information contains, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary to state fairly
the financial position, results of operations and cash flows. The
results of operations for the nine months ended December 31, 1998 are
not necessarily indicative of the results to be expected for the full
year.
Management suggests that these condensed financial statements be read
in conjunction with the financial statements and notes thereto for
the year ended March 31, 1998, included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange
Commission.
NET INCOME (LOSS) PER SHARE - Effective December 31, 1997, the
Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share". In accordance with this statement, the Company
has changed the method used to calculate earnings per share for the
current and prior periods. The new requirements include a calculation
of basic earnings per share, from which the dilutive effect of stock
options and warrants are excluded, and the calculation of diluted
earnings per share, both of which did not differ from the previous
primary earnings per share calculation.
NEW ACCOUNTING STANDARDS In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive
Income (SFAS 130), which the Company is required to adopt for fiscal
1999. This statement will require the Company to report in the
financial statements, in addition to net income, comprehensive income
and its components including foreign currency items and unrealized
gains and losses on certain investments in debt and equity
securities. Upon adoption of SFAS 130, the Company is also required
to reclassify financial statements for earlier periods provided for
comparative purposes. During the first three quarters of fiscal 1999
and for all of fiscal 1998 the components of comprehensive income are
immaterial.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS 131), which the Company is required to
adopt for fiscal 1999 annual financial
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<PAGE> 8
statements. This statement establishes standards for reporting
information about operating segments in annual financial statements
and requires selected information about operating segments in interim
financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas and major customers. Under SFAS 131, operating
segments are to be determined consistent with the way that management
organizes and evaluates financial information internally for making
operating decisions and assessing performance. The Company has not
determined the impact of the adoption of this new accounting standard
on its consolidated financial statement disclosures.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters
discussed in this report are by their nature forward-looking. Disclosures which
use words such as the Company "believes", "anticipates" or "expects" or use
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and for the reasons stated in this
report or in the Company's other Securities and Exchange Commission filings, or
for various unanticipated reasons, actual results may differ materially. Readers
are cautioned not to place undue reliance on these forward-looking statements.
The Company undertakes no obligation to republish revised forward-looking
statements. The Company's operating results may continue to fluctuate on a
quarter-to-quarter basis as a result of a number of factors, including
seasonality, the competitive and economic factors affecting the Company's
domestic and international markets, actions of major distributors, manufacturing
and production delays or difficulties, adverse actions or delays in product
reviews by the United States Food and Drug Administration ("FDA"), and the
degree of acceptance that our new products achieve during the year. Readers are
urged to carefully review and consider the various disclosures made by the
Company in this report which seek to advise interested parties of the risks and
other factors that affect the Company's business. All forward-looking
statements, whether made in this report or elsewhere, should be considered in
context with the various disclosures made by the Company about its business.
Results of Operations. The Company's financial results for the third quarter
ended December 31, 1998 were impacted by an increase in net sales of 10% from
the prior year's period. Net income for the quarter was $946,000 or $.04 per
share, compared to net income of $1,704,000 or $.07 per share in the third
quarter of the prior year.
NET SALES TRENDS BY MAJOR SALES CHANNELS
<TABLE>
<CAPTION>
INCREASE. INCREASE.
PERIODS ENDED DECEMBER 31, THREE MONTHS (DECREASE) NINE MONTHS (DECREASE)
(IN THOUSANDS) 1998 1997 % 1998 1997 %
------- ------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Domestic sales:
Professional sales $ 8,160 $ 8,075 1% $21,226 $21,443 (1)%
OTC, OEM and Clinical lab 2,745 1,295 112% 4,586 2,840 61%
------- ------- ------- ------- ------- -------
Total domestic sales 10,905 9,370 16% 25,812 24,283 6%
Percent of total sales 79% 75% 76% 75%
------- ------- ------- ------- ------- -------
International sales:
Export sales 2,186 1,766 24% 5,299 4,746 12%
European subsidiary sales 655 1,311 (50)% 2,782 3,419 (19)%
------- ------- ------- ------- ------- -------
Total International sales 2,841 3,077 (8)% 8,081 8,165 (1)%
Percent of total sales 21% 25% 24% 25%
------- ------- ------- ------- ------- -------
Total net sales $13,746 $12,447 10% $33,893 $32,448 4%
======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 10
Overall sales for the third quarter increased $1,299,000 or 10% over the same
period last year. U.S. Professional sales rose to $8,160,000 in 1998, from
$8,075,000 in 1997. Recently launched new products accounted for the 112%
increase in our OTC, OEM and Clinical Lab market segment. Year to date sales
reached $33 million, reflecting a 4% increase over the prior year.
International sales were down 8% from the prior year's period. European
subsidiary sales dropped 50% due to the closing of the Company's sales
subsidiaries in France, The Netherlands and Spain. Sales in these markets are
expected to continue through new distribution partners. The shift from direct to
distributor sales will initially result in lower sales and gross profit, due to
reduced unit sales prices to the distributor. The impact of the gross profit
reduction is expected to be offset by reduced subsidiary sales, marketing, and
administrative expenses.
REVENUE FROM RESEARCH CONTRACTS, LICENSE FEES AND ROYALTIES
<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31, THREE MONTHS NINE MONTHS
(IN THOUSANDS) 1998 1997 1998 1997
------- ----- ------- -------
<S> <C> <C> <C> <C>
Contract research and development $ 1,092 $ 892 $ 3,090 $ 2,192
License Fees 75 50 200 75
Royalty income 14 53 35 83
------- ----- ------- -------
Total $ 1,181 $ 995 $ 3,325 $ 2,350
======= ===== ======= =======
</TABLE>
Revenue from research contracts and royalties is principally related to revenue
from the Glaxo influenza and herpes diagnostic product development programs
which commenced in March 1996 and October 1997, respectively. If successful, the
products developed under these programs are expected to be submitted to the FDA
for marketing approval during the second half of calendar year 1999. The amount
of contract research revenue recognized is substantially equal to the sum of the
direct program research cost (see Operating Expenses, below) and allocated
support service cost.
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<PAGE> 11
COST OF SALES AND GROSS PROFIT
<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31, THREE MONTHS NINE MONTHS
(IN THOUSANDS) 1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Direct Cost - material, labor and other
variable cost $ 5,485 $ 4,273 $ 12,425 $ 11,575
As a percentage of sales 39.9% 34.3% 36.7% 35.7%
Royalty expense - patent licenses 687 565 1,662 1,465
As a percentage of sales 5.0% 4.5% 4.9% 4.5%
--------- --------- --------- ---------
Total direct cost 6,172 4,838 14,087 13,040
As a percentage of sales 44.9% 38.8% 41.6% 40.2%
--------- --------- --------- ---------
Direct Margin - contribution per sales dollar 55.1% 61.2% 58.4% 59.8%
Manufacturing overhead cost 1,798 1,353 4,982 3,776
As a percentage of sales 13.1% 10.9% 14.7% 11.6%
--------- --------- --------- ---------
Total cost of sales 7,970 6,191 19,069 16,816
Gross profit $ 5,776 $ 6,256 $ 14,824 $ 15,632
As a percentage of sales 42.0% 50.3% 43.7% 48.2%
========= ========= ========= =========
</TABLE>
Gross profit as a percentage of sales declined to 42.0%, which represents a
decrease of 8.3 percentage points from the prior year's level. The average
direct margin percentage provided by products sold decreased 6.1% to 55.1%. This
decrease resulted from changes in product mix, cost increases in scrap and
unfavorable production cost variances. Manufacturing overhead cost increased as
a result of expanded production capacity, production supervision to cover
multiple shift operations, and the addition of purchasing and engineering
support staff.
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<PAGE> 12
OPERATING EXPENSES
<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31, THREE MONTHS NINE MONTHS
(IN THOUSANDS) 1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Research and development
Quidel research projects $ 943 $ 1,034 $ 3,245 $ 3,789
As a percentage of sales 6.9% 8.2% 9.6% 11.7%
Contract research---direct costs 959 854 2,771 1,883
As a percentage of sales 7.0% 6.9% 8.2% 5.8%
------- ------- ------- -------
Total research and development 1,902 1888 6,016 5,672
As a percentage of sales 13.9% 15.2% 17.8% 17.5%
Sales and marketing
Domestic professional sales and marketing 1,735 1,645 4,658 4,874
Domestic OTC sales and marketing 36 83 167 230
International sales and marketing 559 893 1,978 2,529
------- ------- ------- -------
Total sales and marketing 2,330 2,621 6,803 7,633
As a percentage of sales 17.0% 21.1% 20.1% 23.5%
General and administrative 1,550 978 4,306 3,368
As a percentage of sales 11.3% 7.9% 12.7% 10.4%
======= ======= ======= =======
Restructuring costs -- -- 687 --
As a percentage of sales 0.0% 0.0% 2.0% 0.0%
======= ======= ======= =======
Total operating expenses $ 5,782 $ 5,487 $17,812 $16,673
As a percentage of sales 42.2% 44.1% 52.6% 51.4%
======= ======= ======= =======
Total operating expenses excluding
contract research and restructuring $ 4,823 $ 4,633 $14,354 $14,790
As a percentage of sales 35.1% 37.2% 42.4% 45.6%
======= ======= ======= =======
</TABLE>
Operating expenses increased $295,000 in the current quarter over the prior year
level. This was a result of relocation and recruitment expenses related to
management changes made during the prior quarter, offset in part by reductions
in marketing expenditures.
Research and Development. Research and development expense reflects increased
contract research expense due to added pre-clinical production costs. Spending
on Quidel research projects dropped from $1.0 million in 1997 to $.9 million in
1998.
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<PAGE> 13
Sales and Marketing. Sales and marketing expenditures declined to $2.3 million
in 1998, from $2.6 million in 1997. The closure of the Company's international
subsidiaries was primarily responsible for the reduction.
General and Administrative. General and administrative expense as a percent of
sales increased 3.4% in the current quarter to $1.6 million, from $1.0 million
for the third quarter of 1997. The 1998 increases were primarily costs
associated with management personnel transition costs, outside consulting and
increases in information technology personnel to support conversion to a new
business software platform.
Provision (Benefit) for Income Taxes In the fourth quarter of fiscal 1998, the
Company recorded a partial benefit of its net operating loss ("NOL")
carryforwards through a reduction in the valuation allowance of deferred tax
assets, as the realization of such assets became probable. The recognition of
this asset provided a tax credit, which increased net income by $2,707,000. The
amount of the net deferred tax asset estimated to be recoverable was based on
the Company's assessment of near-term operations.
In periods prior to the fourth quarter of fiscal 1998, the Company recognized
the tax benefit of its NOL carryforward only as income was earned, the impact of
which reduced the effective income tax rate to be equivalent to the alternative
minimum tax rate of approximately three percent. In fiscal 1999, the Company has
recorded an income tax provision at the normal statutory tax rate, currently
amounting to approximately forty percent of pre-income tax. The effective tax
rate for the Company in first nine months of fiscal 1999 is 55%, due to losses
in the closed foreign subsidiaries, which could not be offset against domestic
earnings.
During the fourth quarter of fiscal 1999, the Company will reassess the
estimated valuation allowance required to reduce deferred tax assets, in
accordance with the Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes ("SFAS No. 109"), to an amount the Company believes
appropriate. At the beginning of the fiscal year, the valuation allowance for
deferred taxes was $ 27,066,000.
Net Income. The quarter's $946,000 ($.04 per share) net income was $758,000
below the $1,704,000 ($.07 per share) net income of the comparable prior year
period. Net income during the third quarter of fiscal 1999 was reduced by
$308,000, related to income taxes, compared to $51,000 in the third quarter of
fiscal 1998. Results for the nine months ended December 31 reflect net income of
$248,000 or $.01 cents per share, as compared to net income of $1,217,000 or
$.05 per share, in the prior year period.
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<PAGE> 14
Liquidity and Capital Resources. At December 31, 1998, the Company had cash and
cash equivalents of $6,012,000, compared to $9,720,000 at March 31, 1998. During
the nine months ended December 31, 1998, the Company generated $339,000 in cash
from operating activities. Net cash provided by operating activities reflects
cash generated from net income, the non-cash impact of depreciation and
amortization offset by decreases in accounts payable, and accrued payroll and
related expenses.
Net cash used for investment activities of $3,980,000 related primarily to
$3,904,000 in capital expenditures for equipment and improvements to increase
production capacity and reduce product manufacturing cost.
Net cash used in financing activities totaled $67,000, primarily related to
$151,000 in debt repayment offset by $84,000 in proceeds from the exercise of
employee stock options.
QUIDEL's principal capital requirements are currently for working capital. These
requirements fluctuate as a result of numerous factors, such as the extent to
which the Company uses or generates cash in operations, progress in research and
development projects, competition and technological developments and the time
and expenditures required to obtain governmental approval of its products. Based
on its current cash position and its current assessment of future operating
results, management believes that its existing sources of liquidity should be
adequate to meet its operating needs for the next twelve months.
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<PAGE> 15
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries to represent years. For example, the year "1998"
would be represented by "98". These systems and products will need to be able to
accept four digit entries to distinguish years beginning with 2000 from prior
years. As a result, systems and products that do not accept four digit year
entries will need to be upgraded or replaced to comply with such "Year 2000"
requirements. The Company believes that its internal systems are Year 2000
compliant or will be upgraded or replaced in connection with previously planned
changes to information systems prior to the need to comply with Year 2000
requirements without material cost or expense. The Company has an enterprise
resource planning ("ERP") project underway which will replace the majority of
the management information systems currently utilized by the Company by
September 1999. This system is certified by the software vendor to be Year 2000
compliant, but has not yet been tested by the Company. This project was
initiated to support the Company's current and future growth plans and is not
the result of Year 2000 information technology issues. Plans to address vendor
issues and contingency plans are in process. The anticipated costs of any Year
2000 modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability or cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes and similar uncertainties. In addition, there can be no
assurance that Year 2000 compliance problems will not be revealed in the future,
which could have a material adverse affect on the Company's business, financial
condition and results of operations. Many of the Company's customers and
suppliers may be affected by Year 2000 issues that may require them to expend
significant resources to modify or replace their existing systems. This may
result in those customers having reduced funds to purchase the Company's
products or in those suppliers experiencing difficulties in producing or
shipping key components to the Company on a timely basis or at all.
Except for the historical information contained herein, the matters discussed in
this report are by their nature forward-looking. For the reasons stated in this
report or in the Company's other Securities and Exchange Commission filings, or
for various unanticipated reasons, actual results may differ materially.
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<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
PART II - OTHER INFORMATION
<TABLE>
<S> <C> <C>
ITEM 1. LEGAL PROCEEDINGS None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE None
OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
</TABLE>
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<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.)
4.1 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.)
4.2 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.)
</TABLE>
-16-
<PAGE> 17
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
4.3 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.)
4.4 Rights Agreement dated as of December 31,1996, by and between the
Registrant and American Stock Transfer and Trust Company, as Rights
Agent (Incorporated by reference to Exhibit 1 to the Registrants
Registration Statement on Form 8-A (SEC File No. 000-10961) filed with
the SEC on January 14,1997)
10.28* Employment Agreement dated December 14,1998 between the Registrant and
Charles J. Cashion, Chief Financial Officer of Registrant.
10.29* Employment Agreement dated September 1,1998 between the Registrant and
Charles Bowden, Chief Medical Officer of Registrant.
27* Financial Data Schedule
</TABLE>
* Attached hereto.
(b) Reports on Form 8-K filed in the third quarter of fiscal 1999 None
-17-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUIDEL CORPORATION
(Registrant)
Date: February 12, 1999
/s/ ANDRE DE BRUIN
---------------------------------------
ANDRE DE BRUIN
President and Chief Executive Officer
(Principle Executive Officer)
Date: February 12, 1999
/s/ CHARLES J. CASHION
---------------------------------------
CHARLES J. CASHION
Senior Vice President Corporate
Operations, Chief Financial Officer and
Secretary
(Chief Financial Officer)
Date: February 12, 1998 /s/ WILLIAM D. ATHING
---------------------------------------
WILLIAM D. ATHING
Controller
(Chief Accounting Officer)
-18-
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
<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.)
4.1 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.)
4.2 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.)
4.3 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.)
4.4 Rights Agreement dated as of December 31,1996, by and between the
Registrant and American Stock Transfer and Trust Company, as Rights
Agent. (Incorporated by reference to Exhibit 1 to the Registrants
Registration Statement on Form 8-A (SEC File No. 000-10961) filed with
the SEC on January 14, 1997.)
10.28* Employment Agreement dated December 14, 1998 between the Registrant and
Charles J. Cashion.
10.29* Employment Agreement dated September 1, 1998 between the Registrant and
Charles Bowden, Chief Medical Officer of Registrant.
27* Financial Data Schedule
</TABLE>
-19-
<PAGE> 20
* Attached hereto.
(b) Reports on Form 8-K filed in the third quarter of fiscal 1999 None
-20-
<PAGE> 1
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into
as of December 14, 1998 (the "EFFECTIVE DATE"), by and between QUIDEL
CORPORATION, a Delaware corporation (the "COMPANY"), and CHARLES J. CASHION, an
individual ("CASHION").
1. EMPLOYMENT. The Company hereby engages Cashion as its Senior Vice
President Corporate Operations, Chief Financial Officer and Secretary and
Cashion accepts such employment upon the terms and subject to the conditions set
forth in this Agreement.
2. DUTIES AND RESPONSIBILITIES. Cashion will report directly to the
President and Chief Executive Officer. Cashion shall initially be responsible
for the following functional areas and departments, each of which will report
directly to him: Finance, Accounting and Administration; Investor Relations;
Information Systems, Human Resources and Facilities Management. In addition,
Cashion shall perform such other duties and functions consistent with his role
as may from time to time be assigned to him by the President and Chief Executive
Officer. Cashion agrees that during the course of the Company's business hours
throughout the term of this Agreement, he will devote the whole of his time,
attention and efforts to the performance of his duties and obligations
hereunder. Cashion shall not, without the prior written approval of the
President and Chief Executive Officer, and obtained in each instance, directly
or indirectly (i) accept employment or receive any compensation for the
performance of services from any business enterprise other than the Company or
(ii) enter into or be concerned or interested in any trade or business or public
or private work (whether for profit or otherwise and whether as partner,
principal, shareholder or otherwise), which may, in the reasonable discretion of
the Board, hinder or otherwise interfere with the performance by Cashion of his
duties and obligations hereunder; provided, however, that Cashion may serve on
the board of directors of one for-profit corporation and one non-profit
organization of his choice; so long as such commitments do not unreasonably
interfere with Cashion's duties and responsibilities to the Company and the
Board of Directors does not object to Cashion's directorship based upon
reasonable concerns relating to the nature of the company in question or its
business.
3. COMPENSATION.
(a) SALARY. For all services to be rendered by Cashion under
this Agreement, the Company agrees to pay Cashion, beginning December 14, 1998,
a salary (the "Base Salary") equal to Two Hundred Twenty Five Thousand Dollars
($200,000) per year, payable in the Company's normal payroll cycle, less all
amounts required by law to be withheld or deducted. The Compensation Committee
of the Board of Directors shall review Cashion's Base Salary on about April 1,
1999 and yearly thereafter. The Compensation Committee, in its sole and absolute
discretion from time to time, may increase (but not decrease without Cashion's
prior written consent) Cashion's Base Salary.
<PAGE> 2
(1) In addition to Cashion's salary, the Company
agrees to pay Cashion a sign-on bonus of $20,000 in cash payable to
the order of Cashion on his first day of employment by the Company.
(2) Cashion is eligible to receive a cash bonus,
to be paid each year at the same time bonuses are generally paid to
other senior executives of the Company for the relevant fiscal year
of up to 30% of Cashion's Base Salary, as determined by the
Compensation Committee of the Board of Directors. Calculation and
payment of the bonus is subject to achievement of the goals set from
year to year by the Compensation Committee for the relevant fiscal
year.
(b) STOCK OPTIONS. The Compensation Committee of the Board of
Directors of the Company granted Cashion Incentive and Nonqualified Stock
Options to purchase up to 225,000 shares of Common Stock of the Company under
the terms and conditions set forth in that certain Stock Option Agreement
executed by the Company and Cashion concurrently with this Agreement.
(c) BENEFITS.
During the Term of Cashion's employment hereunder:
(1) Cashion shall be entitled to four weeks
annual vacation leave consistent with the Company's policies for
other senior executives of the Company.
(2) The Company shall pay or reimburse Cashion
for all reasonable and necessary travel and other business expenses
incurred or paid by Cashion in connection with the performance of his
services under this Agreement consistent with the Company's policies
for other senior executives of the Company as approved by the
Compensation Committee. Additionally, Cashion shall be entitled to
receive an annual $2,500 tax consulting and preparation allowance.
(3) Commencing on the date of this Agreement, the
Company shall provide and pay for the annual cost of premiums for
health, dental and medical insurance coverage for Cashion and
Cashion's dependents consistent with the coverage generally made
available by the Company to senior executives of the Company.
(4) In addition to the benefits set forth above,
Cashion shall be entitled to participate in any other policies,
programs and benefits which the Compensation Committee may, in its
sole and absolute discretion, make generally available to its other
senior executives from time to time including, but not limited to,
life insurance, disability insurance, pension and retirement plans,
stock plans, cash and/or other bonus programs, and other similar
programs.
4. AT WILL EMPLOYMENT. The Company and Cashion acknowledge and agree
that Cashion's employment by the Company is expressly "at will" and not for a
specified term. This means that either party may terminate Cashion's employment
at any time, with
-2-
<PAGE> 3
or without cause. Any termination of Cashion's employment is, however, subject
to the terms and provisions of this Agreement.
5. INVENTIONS.
(a) DISCLOSURE. Cashion will disclose promptly to the Company
each Invention (as defined below), whether or not reduced to practice, that is
conceived or learned by Cashion (either alone or jointly with others) during the
term of his employment by the Company. Further, Cashion will disclose in
confidence to the Company all patent applications filed by or on behalf of
Cashion 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 Cashion (alone or in conjunction with others)
during the duration of Cashion's employment and for a period of one (1) year
thereafter, and which:
(1) 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;
(2) results from or is suggested by work
performed by Cashion for or on behalf of the Company; or
(3) 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. Cashion 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. Cashion hereby assigns all of his right, title and
interest in any such Inventions to the Company.
(c) EXCLUSION NOTICE. The assignment by Cashion 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, Cashion is not required to assign an idea or invention for which
all of the following are applicable:
-3-
<PAGE> 4
(1) No equipment, supplies, facility or trade
secret information of the Company was used and the
invention or idea was developed entirely on Cashion's own
time;
(2) The invention or idea does not relate to
the business of the Company;
(3) The invention or idea does not relate to
the Company's actual or demonstrably anticipated research
or development; and
(4) The invention or idea does not result from
any work performed by Cashion for the Company.
As used in this Section 7(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. Cashion 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, Cashion 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. Cashion'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
Cashion at a reasonable rate after such termination for the time actually spent
by Cashion at the Company's request on such assistance. Cashion hereby
irrevocably appoints the Company, and its duly authorized officers and agents,
as Cashion's agent and attorney-in-fact to act for and on behalf of Cashion 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, Cashion 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 Cashion 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 strategic plans, insurance plans, 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 data and records 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; provided, however, that Confidential Information shall not
-4-
<PAGE> 5
include information, documents or data that (i) is or subsequently becomes
publicly available without Cashion's breach of any obligation of confidentiality
owed to the Company; (ii) was known to Cashion prior to his original employment
by the Company; (iii) becomes known to Cashion from a source other than the
Company (which is not breaching an obligation to the Company) and which Cashion
learns of outside the scope of his employment with the Company; or (iv) is
required to be disclosed by law or other governmental authority.
7. RETURN OF MATERIALS AT TERMINATION. In the event of any
termination of Cashion's employment for any reason whatsoever, Cashion will
promptly deliver to the Company all documents, data, and other information
pertaining to Inventions and Confidential Information. Cashion 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.
8. NON-SOLICITATION. Cashion 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
Cashion became aware during his tenure at 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 Cashion of
Section 8 or 9 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 Cashion from violating such terms of this
Agreement, to enforce the specific performance by Cashion 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:
-5-
<PAGE> 6
To the Company: QUIDEL CORPORATION
10165 McKellar Court
San Diego, CA 92121
Attention: Chief Executive Officer
To Cashion: Charles J. Cashion
18778 Olmeda Place
San Diego, CA 92128
ASSIGNMENT. This Agreement may not be assigned by Cashion.
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 Cashion and the Company, and contains the entire
understanding of the parties hereto with respect to the terms and conditions of
Cashion'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, in counterparts, each of which will be deemed an original, as of
the Effective Date.
QUIDEL CORPORATION, a Delaware corporation
By:
----------------------------------------
for the Compensation Committee
----------------------------------------
Charles J. Cashion
-6-
<PAGE> 1
EXHIBIT 10.29
CONFIDENTIAL DISCUSSION
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into as
of September 1, 1998 (the "EFFECTIVE DATE"), by and between QUIDEL CORPORATION,
a Delaware corporation (the "COMPANY"), and CHARLES BOWDEN, an individual
("BOWDEN").
1. EMPLOYMENT. The Company hereby engages Bowden as its Vice President,
Technology and Business Development and Chief Medical Officer and Bowden accepts
such employment upon the terms and subject to the conditions set forth in this
Agreement.
2. DUTIES AND RESPONSIBILITIES. Bowden will report directly to the
President and Chief Executive Officer. Bowden shall be responsible for
identifying, assessing and negotiating external new business, technology and
product opportunities. Bowden will serve as the Company's Chief Medical Officer.
In addition, Bowden shall perform such other duties and functions consistent
with his role as may from time to time be assigned to him by the President and
Chief Executive Officer. Bowden agrees that during the course of the Company's
business hours throughout the term of this Agreement, he will devote the whole
of his time, attention and efforts to the performance of his duties and
obligations hereunder. Bowden shall not, without the prior written approval of
the President and Chief Executive Officer, and obtained in each instance,
directly or indirectly (i) accept employment or receive any compensation for the
performance of services from any business enterprise other than the Company or
(ii) enter into or be concerned or interested in any trade or business or public
or private work (whether for profit or otherwise and whether as partner,
principal, shareholder or otherwise), which may, in the reasonable discretion of
the Board, hinder or otherwise interfere with the performance by Bowden of his
duties and obligations hereunder; provided, however, that Bowden may serve on
the board of directors of one for-profit corporation and one non-profit
organization of his choice; so long as such commitments do not unreasonably
interfere with Bowden's duties and responsibilities to the Company and the Board
of Directors does not object to Bowden's directorship based upon reasonable
concerns relating to the nature of the company in question or its business.
3. COMPENSATION.
(a) SALARY. For all services to be rendered by Bowden under this
Agreement, the Company agrees to pay Bowden, beginning September 1, 1998, a
salary (the "BASE SALARY") equal to Two Hundred and Fifteen Thousand Dollars
($215,000) per year, payable in the Company's normal payroll cycle, less all
amounts required by law to be withheld or deducted. The Compensation Committee
of the Board of Directors shall review Bowden's Base Salary on about April 1,
1999 and yearly thereafter. The Compensation Committee, in its sole and absolute
discretion from time to time, may increase (but not decrease without Bowden's
prior written consent) Bowden's Base Salary.
<PAGE> 2
(1) In addition to Bowden's salary, the Company agrees to
pay Bowden a one-time sign-up bonus of $25,000 in cash payable to the
order of Bowden, on his first day of employment by the Company.
(2) Bowden is eligible to receive a cash performance
bonus, to be paid each year at the same time bonuses are generally paid
to other senior executives of the Company for the relevant fiscal year
of up to 30% of Bowden's Base Salary, as determined by the Compensation
Committee of the Board of Directors. Calculation and payment of the
bonus is subject to achievement of the goals set from year to year by
the Compensation Committee for the relevant fiscal year.
(b) STOCK OPTIONS. The Compensation Committee of the Board of Directors
of the Company granted Bowden Incentive and Nonqualified Stock Options to
purchase up to 200,000 shares of Common Stock of the Company under the terms and
conditions set forth in that certain Stock Option Agreement executed by the
Company and Bowden concurrently with this Agreement, a copy of which is attached
hereto as Exhibit A.
(c) BENEFITS.
During the Term of Bowden's employment hereunder:
(1) Bowden shall be entitled to four weeks annual vacation leave
consistent with the Company's policies for other senior executives of
the Company.
(2) The Company shall pay or reimburse Bowden for all reasonable
and necessary travel and other business expenses incurred or paid by
Bowden in connection with the performance of his services under this
Agreement consistent with the Company's policies for other senior
executives of the Company as approved by the Compensation Committee.
Additionally, Bowden shall be entitled to receive an annual $2,500 tax
consulting and preparation allowance.
(3) Commencing on the date of this Agreement, the Company shall
provide and pay for the annual cost of premiums for health, dental and
medical insurance coverage for Bowden and Bowden's dependents consistent
with the coverage generally made available by the Company to senior
executives of the Company.
(4) In addition to the benefits set forth above, Bowden shall be
entitled to participate in any other policies, programs and benefits
which the Compensation Committee may, in its sole and absolute
discretion, make generally available to its other senior executives from
time to time including, but not limited to, life insurance, disability
insurance, pension and retirement plans, stock plans, cash and/or other
bonus programs, and other similar programs.
4. RELOCATION: Upon Bowden's physical relocation to San Diego and for a
period of six months, the Company will reimburse Bowden for all mortgage
interest, property taxes, reasonable property maintenance costs and reasonable
selling and closing costs associated with
2
<PAGE> 3
relocation, up to six months temporary living and moving costs from San
Francisco to San Diego including reasonable costs associated with the purchase
of a new home in San Diego (such as allocable closing costs and up to one
"point" in up-front financing costs, but excluding real estate broker
commissions and fees). To the extent that any of the foregoing is taxable income
to Bowden, the Company will pay to Bowden an additional amount in cash (the
"GROSS-UP PAYMENT") equal to the sum of (i) the federal, state and local taxes
payable by Bowden as a result of the benefits set forth in this Section 4, plus
(ii) all Attributable Taxes. For purposes hereof, "ATTRIBUTABLE TAXES" means all
taxes payable by Bowden as a result of receipt of the Gross-Up Payment. Bowden
must submit customary and reasonable documentation, including proof of payment,
for any and all such reimbursements.
5. AT WILL EMPLOYMENT. The Company and Bowden acknowledge and agree that
Bowden's employment by the Company is expressly "at will" and not for a
specified term. This means that either party may terminate Bowden's employment
at any time, with or without cause. Any termination of Bowden's employment is,
however, subject to the terms and provisions of this Agreement.
6. INVENTIONS.
(a) DISCLOSURE. Bowden will disclose promptly to the Company each
Invention (as defined below), whether or not reduced to practice, that is
conceived or learned by Bowden (either alone or jointly with others) during the
term of his employment by the Company. Further, Bowden will disclose in
confidence to the Company all patent applications filed by or on behalf of
Bowden 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 Bowden (alone or in conjunction with others)
during the duration of Bowden's employment and for a period of one (1) year
thereafter, and which:
(1) 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;
(2) results from or is suggested by work performed by
Bowden for or on behalf of the Company; or
(3) 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.
3
<PAGE> 4
(b) COMPANY PROPERTY; ASSIGNMENT. Bowden 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. Bowden hereby assigns all of his right, title and interest in any
such Inventions to the Company.
(c) EXCLUSION NOTICE. The assignment by Bowden 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,
Bowden is not required to assign an idea or invention for which all of the
following are applicable:
(1) No equipment, supplies, facility or trade secret
information of the Company was used and the invention or idea was
developed entirely on Bowden's own time;
(2) The invention or idea does not relate to the business
of the Company;
(3) The invention or idea does not relate to the Company's
actual or demonstrably anticipated research or development; and
(4) The invention or idea does not result from any work
performed by Bowden for the Company.
As used in this Section 7(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. Bowden 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, Bowden 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. Bowden'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
Bowden at a reasonable rate after such termination for the time actually spent
by Bowden at the Company's request on such assistance. Bowden hereby irrevocably
appoints the Company, and its duly authorized officers and agents, as Bowden's
agent and attorney-in-fact to act for and on behalf of Bowden in filing all
patent applications, applications for copyright protection and registration
amendments, renewals, and all other appropriate documents in any way related to
Inventions.
4
<PAGE> 5
8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Except in the performance
of his duties hereunder, Bowden 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 Bowden 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
strategic plans, insurance plans, 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 data and records 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; provided,
however, that Confidential Information shall not include information, documents
or data that (i) is or subsequently becomes publicly available without Bowden's
breach of any obligation of confidentiality owed to the Company; (ii) was known
to Bowden prior to his original employment by the Company; (iii) becomes known
to Bowden from a source other than the Company (which is not breaching an
obligation to the Company) and which Bowden learns of outside the scope of his
employment with the Company; or (iv) is required to be disclosed by law or other
governmental authority.
9. RETURN OF MATERIALS AT TERMINATION. In the event of any termination
of Bowden's employment for any reason whatsoever, Bowden will promptly deliver
to the Company all documents, data, and other information pertaining to
Inventions and Confidential Information. Bowden 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.
10. NON-SOLICITATION. Bowden 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
Bowden became aware during his tenure at 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.
11. REMEDIES UPON BREACH. In the event of any breach by Bowden of
Section 8 or 9 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 Bowden from violating such terms of this
Agreement, to enforce the specific performance by Bowden 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.
12. 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.
5
<PAGE> 6
13. 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 Bowden: Charles Bowden
2608 Warring Street
Berkeley, CA 94704
14. ASSIGNMENT. This Agreement may not be assigned by Bowden. This
Agreement will be binding upon the Company's successors and assigns.
15. 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 Bowden and the Company, and contains the entire
understanding of the parties hereto with respect to the terms and conditions of
Bowden's employment with the Company.
16. 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, in counterparts, each of which will be deemed an original, as of the
Effective Date.
QUIDEL CORPORATION, a Delaware corporation
By:
-------------------------------------
for the Compensation Committee
-----------------------------------------
Charles Bowden
6
<PAGE> 7
EXHIBIT A
Stock Option Agreement
7
<PAGE> 8
QUIDEL CORPORATION
NOTICE OF GRANT OF STOCK OPTIONS ID: 94-2573850
AND OPTION AGREEMENT 10165 McKellar Court
San Diego, CA 92121
CHARLES H. BOWDEN OPTION NUMBER: 002059
2608 WARRING STREET PLAN: 98
BERKELEY, CA USA 94704 ID: ###-##-####
Effective 9/1/98, you have been granted a(n) Incentive Stock Option to buy
167,072 shares of QUIDEL CORPORATION (the Company) stock at $2.5625 per share.
The total option price of the shares granted is $428,122.00.
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
------ --------- --------- ----------
<S> <C> <C> <C> <C>
12,500 Quarterly 12/1/98 9/1/08
39,024 Quarterly 12/1/99 9/1/08
39,024 Quarterly 12/1/00 9/1/08
39,024 Quarterly 12/1/01 9/1/08
37,500 Quarterly 9/1/02 9/1/08
</TABLE>
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
- ------------------------- -----------------------------------------
QUIDEL CORPORATION Date
- ------------------------- -----------------------------------------
Charles H. Bowden Date
<PAGE> 9
QUIDEL CORPORATION
NOTICE OF GRANT OF STOCK OPTIONS ID: 94-2573850
AND OPTION AGREEMENT 10165 McKellar Court
San Diego, CA 92121
CHARLES H. BOWDEN OPTION NUMBER: 002060
2608 WARRING STREET PLAN: 98
BERKELEY, CA USA 94704 ID: ###-##-####
Effective 9/1/98, you have been granted a(n) Non-Qualified Stock Option to buy
32,928 shares of QUIDEL CORPORATION (the Company) stock at $2.5625 per share.
The total option price of the shares granted is $84,378.00.
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
------ --------- --------- ----------
<S> <C> <C> <C> <C>
0 Quarterly 12/1/98 9/1/08
10,976 Quarterly 12/1/99 9/1/08
10,976 Quarterly 12/1/00 9/1/08
10,976 Quarterly 12/1/01 9/1/08
</TABLE>
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
- ----------------------------- -----------------------------------
QUIDEL CORPORATION Date
- ----------------------------- -----------------------------------
Charles H. Bowden Date
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,012
<SECURITIES> 0
<RECEIVABLES> 8,605
<ALLOWANCES> 1,032
<INVENTORY> 6,108
<CURRENT-ASSETS> 21,492
<PP&E> 29,119
<DEPRECIATION> 10,506
<TOTAL-ASSETS> 46,091
<CURRENT-LIABILITIES> 5,997
<BONDS> 2,873
0
0
<COMMON> 24
<OTHER-SE> 37,197
<TOTAL-LIABILITY-AND-EQUITY> 46,091
<SALES> 13,746
<TOTAL-REVENUES> 14,927
<CGS> 7,970
<TOTAL-COSTS> 13,752
<OTHER-EXPENSES> (85)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 1,254
<INCOME-TAX> 308
<INCOME-CONTINUING> 946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 946
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
