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FORM 10-Q
QUIDEL CORP /DE/ - QDEL
Filed: October 21, 2009 (period: September 30, 2009)
Quarterly report which provides a continuing view of a company's financial position
Table of Contents
10-Q - FORM 10-Q



PART I

ITEM 1.       Financial Statements
ITEM 2.       Management s Discussion and Analysis of Financial Condition and
              Results of Operations
ITEM 3.       Quantitative and Qualitative Disclosures About Market Risk
ITEM 4.       Controls and Procedures


PART II

ITEM 1.       Legal Proceedings
ITEM 1A.      Risk Factors
ITEM 2.       Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 5.       OTHER INFORMATION
ITEM 6.       Exhibits
SIGNATURES
Exhibit Index
EX-10.1 (EX-10.1)

EX-10.2 (EX-10.2)

EX-31.1 (EX-31.1)

EX-31.2 (EX-31.2)

EX-32.1 (EX-32.1)
Table of Contents




                                           UNITED STATES
                               SECURITIES AND EXCHANGE COMMISSION
                                                      Washington, D.C. 20549




                                                         FORM 10-Q
(Mark One)
   �            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2009
                                                                    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, including zip code)

                                                             (858) 552-1100
                                          (Registrant’s telephone number, including area code)

                                                           Not Applicable
                            (Former name, former address and former fiscal year, if changed since last report)



   Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes � No �
   Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes � No �
    Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):

Large accelerated filer �         Accelerated filer �               Non-accelerated filer �             Smaller reporting company �
                                                          (Do not check if a smaller reporting company)



Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   � No
�
    As of October 16, 2009, 30,146,350 shares of common stock were outstanding.




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
INDEX

PART I—FINANCIAL INFORMATION                                                                            3
ITEM 1. Financial Statements (unaudited)                                                                3
   Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008                           3
   Consolidated Statements of Income for the three and nine months ended September 30, 2009 and 2008    4
   Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008          5
   Notes to Consolidated Financial Statements                                                           6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations          11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk                                     16
ITEM 4. Controls and Procedures                                                                        16
PART II—OTHER INFORMATION                                                                              17
ITEM 1. Legal Proceedings                                                                              17
ITEM 1A. Risk Factors                                                                                  17
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds                                    17
ITEM 5. Other Information                                                                              17
ITEM 6. Exhibits                                                                                       17
Signatures                                                                                             19
 EX-10.1
 EX-10.2
 EX-31.1
 EX-31.2
 EX-32.1
                                                                 2




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements

                                                       QUIDEL CORPORATION
                                                 CONSOLIDATED BALANCE SHEETS
                                               (in thousands, except par value; unaudited)

                                                                                             September 30,       December 31,
                                                                                                 2009                2008
ASSETS
Current assets:
   Cash and cash equivalents                                                                 $     60,348    $        57,908
   Marketable securities                                                                            4,984                 —
   Accounts receivable, net                                                                        25,428             25,320
   Inventories                                                                                     12,883             11,702
   Deferred tax asset—current                                                                       5,043              5,043
   Prepaid expenses and other current assets                                                        1,973              1,053
      Total current assets                                                                        110,659            101,026
Property and equipment, net                                                                        19,829             19,081
Intangible assets, net                                                                              8,753              9,833
Deferred tax asset—non-current                                                                      9,040             11,240
Other non-current assets                                                                            1,518              1,628
Total assets                                                                                 $    149,799    $       142,808
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
   Accounts payable                                                                          $      6,057    $          4,317
   Accrued payroll and related expenses                                                             4,715               2,719
   Accrued royalties                                                                                4,652               2,659
   Current portion of obligations under capital leases                                                941                 862
   Other current liabilities                                                                        7,270               4,877
      Total current liabilities                                                                    23,635              15,434
Capital leases, net of current portion                                                              5,418               6,137
Deferred rent                                                                                         828                 948
Other non-current liabilities                                                                       1,807               1,053
Commitments and contingencies
Stockholders’ equity:
   Preferred stock, $.001 par value per share; 5,000 shares authorized; none issued or
      outstanding at September 30, 2009 and December 31, 2008                                           —                  —
   Common stock, $.001 par value per share; 50,000 shares authorized; 30,141 and 31,894
      shares issued and outstanding at September 30, 2009 and December 31, 2008,
      respectively                                                                                     30                 32
   Additional paid-in capital                                                                     124,227            138,126
   Accumulated deficit                                                                             (6,146)           (18,922)
      Total stockholders’ equity                                                                  118,111            119,236
Total liabilities and stockholders’ equity                                                   $    149,799    $       142,808


                                                        See accompanying notes.
                                                                  3




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



                                                   QUIDEL CORPORATION
                                         CONSOLIDATED STATEMENTS OF INCOME
                                         (in thousands, except per share data; unaudited)

                                                                          Three months ended                Nine months ended
                                                                            September 30,                     September 30,
                                                                       2009                2008          2009               2008

Total revenues                                                     $ 56,152            $ 31,868      $ 97,685            $ 94,649
Costs and expenses
  Cost of sales (excludes amortization of intangible assets)           17,670              12,070        36,169              36,439
  Research and development                                              3,157               2,753         9,003               8,755
  Sales and marketing                                                   6,400               5,141        16,538              16,052
  General and administrative                                            4,325               3,438        12,125              10,175
  Amortization of intangibles                                             345               1,114         1,040               3,408
  Restructuring charges                                                    —                   —          2,038                  —
      Total costs and expenses                                         31,897              24,516        76,913              74,829
Operating income                                                       24,255               7,352        20,772              19,820
Other (expense) income
  Interest income                                                        53                   364         299               1,321
  Interest expense                                                     (148)                 (166)       (459)               (510)
  Other (expense) income                                                 (5)                  160          (5)                145
      Total other (expense) income                                     (100)                  358        (165)                956
  Income before taxes                                                24,155                 7,710      20,607              20,776
  Provision for income taxes                                          9,215                 2,969       7,831               7,998
Net income                                                         $ 14,940            $    4,741    $ 12,776            $ 12,778
Basic earnings per share                                           $     0.50          $     0.15    $     0.42          $     0.40
Diluted earnings per share                                         $     0.50          $     0.15    $     0.42          $     0.39
Shares used in basic per share calculation                             29,713              31,915        30,151              31,891
Shares used in diluted per share calculation                           30,149              32,648        30,547              32,674

                                                       See accompanying notes.
                                                                 4




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



                                               QUIDEL CORPORATION
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (in thousands; unaudited)

                                                                                           Nine months ended
                                                                                             September 30,
                                                                                        2009                2008
OPERATING ACTIVITIES:
Net income                                                                          $ 12,776            $ 12,778
Adjustments to reconcile net income to net cash provided by operating activities:
  Depreciation, amortization and other                                                   4,478               6,213
  Stock-based compensation expense                                                       2,502               2,963
  Deferred tax asset                                                                     2,200                 920
  Excess tax benefit from share-based compensation                                      (1,400)             (6,192)
  Changes in assets and liabilities:
      Accounts receivable                                                                 (108)             (3,536)
      Inventories                                                                       (1,181)               (236)
      Prepaid expenses and other current assets                                           (920)                121
      Accounts payable                                                                     871              (2,335)
      Accrued payroll and related expenses                                               1,996                (464)
      Accrued royalties                                                                  1,993                (628)
      Other current and non-current liabilities                                          4,547               7,968
  Net cash provided by operating activities                                             27,754              17,572

INVESTING ACTIVITIES:
  Acquisition of property and equipment                                                 (3,180)             (1,855)
  Purchases of marketable securities                                                    (4,984)                 —
  Other assets                                                                            (107)                (16)
  Net cash used for investing activities                                                (8,271)             (1,871)

FINANCING ACTIVITIES:
  Payments on capital lease obligation                                                   (640)              (568)
  Purchase of common stock                                                            (19,542)            (6,983)
  Excess tax benefit from share-based compensation                                      1,400              6,192
  Proceeds from issuance of common stock, net                                           1,739              2,193
  Net cash (used for) provided by financing activities                                (17,043)               834
Net increase in cash and cash equivalents                                               2,440             16,535
Cash and cash equivalents, beginning of period                                         57,908             45,489
Cash and cash equivalents, end of period                                            $ 60,348            $ 62,024

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for interest                                          $      459          $      510
  Cash paid during the period for income taxes                                      $      200          $      775


                                                         See accompanying notes.
                                                                   5




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



                                                       Quidel Corporation
                                            Notes to Consolidated Financial Statements
                                                           (Unaudited)

Note 1. Basis of Presentation
   The accompanying unaudited consolidated financial statements of Quidel Corporation and its subsidiaries (the “Company”) have
been prepared in accordance with generally accepted accounting principles in the U.S. for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. The information
at September 30, 2009, and for the three and nine months ended September 30, 2009 and 2008, is unaudited. Operating results for the
three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2009. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended
December 31, 2008 included in the Company’s 2008 Annual Report on Form 10-K. Subsequent events have been evaluated up to and
including October 20, 2009 which is the date these financial statements were issued.
   Each of the Company’s fiscal quarters end on the Sunday closest to the end of the calendar quarter. For 2009 and 2008, the
Company’s fiscal year end is January 3, 2010 and December 28, 2008, respectively. For ease of reference, the calendar quarter end
dates are used herein. The three and nine month periods ended September 30, 2009 and 2008 both included 13 weeks and 39 weeks,
respectively.

Note 2. Comprehensive Income
   Net income is equal to comprehensive income for both the three and nine months ended September 30, 2009 and 2008,
respectively.

Note 3. Computation of Earnings Per Share
    Basic earnings per share were computed by dividing net earnings by the weighted-average number of common shares outstanding,
including vested restricted stock awards, during the period. Diluted earnings per share reflects the potential dilution that would occur
if net earnings were divided by the weighted-average number of common shares and potentially dilutive common shares from
outstanding stock options as well as unvested, time-based restricted stock awards. Potentially dilutive common shares were calculated
using the treasury stock method and represent incremental shares issuable upon exercise of the Company’s outstanding stock options
and unvested, time-based restricted stock awards. The Company has awarded restricted stock with both time-based as well as
performance-based vesting provisions. Stock awards based on performance only are not included in the calculation of basic or diluted
earnings per share until the performance criteria are met. For periods in which the Company incurs losses, potentially dilutive shares
are not considered in the calculation of net loss per share, as their impact would be anti-dilutive. For periods in which the Company
has earnings, out-of-the-money stock options (i.e., the average stock price during the period is below the exercise price of the stock
option) are not included in diluted earnings per share as their effect is anti-dilutive. For the three months ended September 30, 2009
and 2008, 1.4 million shares and 0.8 million shares were excluded from the calculation of diluted earnings per share as their effect was
anti-dilutive. For the nine months ended September 30, 2009 and 2008, 1.6 million shares and 0.6 million shares were excluded from
the calculation of diluted earnings per share as their effect was anti-dilutive.
   The following table reconciles the weighted-average shares used in computing basic and diluted earnings per share in the
respective periods (in thousands; unaudited):

                                                                              Three months                          Nine months
                                                                                  ended                                ended
                                                                              September 30,                        September 30,
                                                                       2009                    2008        2009                     2008
Shares used in basic earnings per share
   (weighted-average common shares outstanding)                    29,713                     31,915      30,151                   31,891
Effect of dilutive stock options and restricted stock
   awards                                                             436                        733         396                      783
Shares used in diluted earnings per share calculation              30,149                     32,648      30,547                   32,674
                                                                   6




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



                                                       Quidel Corporation
                                      Notes to Consolidated Financial Statements (Continued)
                                                           (Unaudited)

Note 4. Inventories
   Inventories are recorded at the lower of cost (first-in, first-out) or market and consist of the following (in thousands):

                                                                                                        September 30,           December 31,
                                                                                                            2009                    2008
Raw materials                                                                                           $       4,732           $     4,956
Work-in-process (materials, labor and overhead)                                                                 3,599                 3,108
Finished goods (materials, labor and overhead)                                                                  4,552                 3,638
                                                                                                        $      12,883           $    11,702

Note 5. Other Current Liabilities
   Other current liabilities consisted of the following (in thousands):

                                                                                                         September 30,          December 31,
                                                                                                             2009                   2008
Income taxes payable                                                                                    $       4,016           $        —
Volume discounts                                                                                                2,497                 3,593
Accrued professional fees                                                                                         423                   337
Amounts due on technology and license acquisition                                                                  —                    250
Other                                                                                                             334                   697
                                                                                                        $       7,270           $     4,877

Note 6. Income Taxes
   The Company recognizes excess tax benefits associated with the exercise of stock options directly to stockholders’ equity only
when realized. As of September 30, 2009 and 2008, $1.4 million and $6.2 million, respectively, was considered realized and was
recorded as a reduction to our income taxes payable and increased additional paid-in capital in the accompanying Consolidated
Balance Sheets.
   The Company is subject to periodic audits by domestic and foreign tax authorities. The Company’s federal tax years for 1993 and
forward are subject to examination by the U.S. authorities due to the carry forward of unutilized net operating losses and research and
development credits.
   With few exceptions, the Company’s tax years for 1999 and forward are subject to examination by state and foreign tax authorities.
The Company believes that it has appropriate support for the income tax positions taken on its tax returns and that its accruals for tax
liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax
law applied to the facts of each matter.

Note 7. Line of Credit
    The Company currently has a $120.0 million senior secured syndicated credit facility (the “Senior Credit Facility”), which matures
on October 8, 2013. The Senior Credit Facility bears interest at a rate ranging from 0.50% to 1.75% plus the lender’s prime rate or, at
the Company’s option, a rate ranging from 1.50% to 2.75% plus the London InterBank Offering Rate. The agreement governing the
Senior Credit Facility is subject to certain customary limitations, including among others: limitation on liens; limitation on mergers,
consolidations and sales of assets; limitation on debt; limitation on dividends, stock redemptions and the redemption and/or
prepayment of other debt; limitation on investments (including loans and advances) and acquisitions; limitation on transactions with
affiliates; and limitation on annual capital expenditures. The Company is also subject to financial covenants which include a funded
debt to earnings before interest, taxes, depreciation and amortization (EBITDA, as defined in the Senior Credit Facility) ratio, and an
interest coverage ratio. The Senior Credit Facility is secured by substantially all present and future assets and properties of the
Company. As of September 30, 2009, the Company had approximately $118.0 million available under the Senior Credit Facility,
which can fluctuate from time to time due to, among other factors, the Company’s funded debt to EBITDA ratio. At September 30,
2009, the Company had no amounts outstanding under the Senior Credit Facility and was in compliance with all financial covenants.
                                                                      7




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



                                                      Quidel Corporation
                                     Notes to Consolidated Financial Statements (Continued)
                                                          (Unaudited)

Note 8. Stockholders’ Equity
   During the nine months ended September 30, 2009, 172,289 shares of restricted stock were awarded, 168,418 shares of restricted
stock were cancelled, 328,899 shares of common stock were issued due to the exercise of stock options and 22,384 shares of common
stock were issued in connection with the Company’s employee stock purchase plan (the “ESPP”), resulting in net proceeds to the
Company of approximately $1.7 million. Additionally, during the nine months ended September 30, 2009, 2,114,884 shares of
outstanding common stock were repurchased for approximately $19.5 million, which primarily included shares repurchased under the
Company’s previously announced share repurchase program, but also included 58,952 shares repurchased in connection with the
Company’s payment of minimum tax withholding obligations for certain employees relating to the lapse of restrictions on certain
restricted stock awards during the nine months ended September 30, 2009.

Note 9. Stock-Based Compensation
   The compensation expense related to the Company’s stock-based compensation plans included in the accompanying Statements of
Income for the three and nine months ended September 30, 2009 and 2008 was as follows (in millions):

                                                                                    Three months                         Nine months
                                                                                        ended                               ended
                                                                                    September 30,                       September 30,
                                                                             2009                   2008         2009                   2008
Cost of sales                                                            $      0.1            $       0.1   $      0.3            $       0.3
Research and development                                                        0.1                    0.2          0.2                    0.5
Sales and marketing                                                             0.1                    0.1          0.2                    0.1
General and administrative                                                      0.5                    0.7          2.0                    2.1
Restructuring charges                                                            —                      —          (0.2)                    —
                                                                         $      0.8            $       1.1   $      2.5            $       3.0

   Total compensation expense recognized for the three months ended September 30, 2009 and 2008 includes $0.7 million and
$0.5 million related to stock options and $0.1 million and $0.6 million related to restricted stock, respectively. Total compensation
expense recognized for the nine months ended September 30, 2009 and 2008 includes $1.9 million and $1.7 million related to stock
options and $0.6 million and $1.3 million related to restricted stock, respectively. Total compensation expense for the nine months
ended September 30, 2009 is net of a $0.2 million compensation expense reversal for certain terminated employees in connection with
the Company’s restructuring plan. As of September 30, 2009, total unrecognized compensation expense related to nonvested stock
options was $6.5 million, which is expected to be recognized over a weighted-average period of approximately 3.1 years. As of
September 30, 2009, total unrecognized compensation expense related to nonvested restricted stock was $1.4 million, which is
expected to be recognized over a weighted-average period of approximately 3.2 years. Compensation expense capitalized to inventory
and compensation expense related to the Company’s ESPP were not material for the three and nine months ended September 30, 2009
and 2008.
                                                                     8




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



                                                       Quidel Corporation
                                      Notes to Consolidated Financial Statements (Continued)
                                                           (Unaudited)

Note 9. Stock-Based Compensation (Continued)
  The estimated fair value of each stock option award was determined on the date of grant using the Black-Scholes option valuation
model with the following weighted-average assumptions for the option grants.

                                                                                                                     Nine months
                                                                                                                        ended
                                                                                                                    September 30,
                                                                                                             2009                   2008
Expected option life (in years)                                                                              4.65                   4.27
Volatility rate                                                                                              0.52                   0.50
Risk-free interest rate                                                                                      1.87%                  2.43%
Forfeiture rate                                                                                              15.5%                  12.7%
Dividend rate                                                                                                   0%                     0%
  The weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2009 and 2008
was $4.80 and $7.03, respectively. The grant date fair value of restricted stock is determined based on the closing market price of the
Company’s common stock on the grant date.

Note 10. Industry and Geographic Information
   The Company operates in one reportable segment. Sales to customers outside the U.S. represented $21.7 million (22%) and
$12.3 million (13%) of total revenue for the nine months ended September 30, 2009 and 2008, respectively. As of September 30, 2009
and December 31, 2008, balances due from foreign customers were $8.5 million and $4.7 million, respectively.
   The Company had sales to individual customers in excess of 10% of total revenue, as follows:

                                                                                                                        Nine months
                                                                                                                           ended
                                                                                                                       September 30,
                                                                                                                2009                   2008
Customer:
  A                                                                                                              16%                   20%
  B                                                                                                              14%                   18%
  C                                                                                                              13%                    4%
  D                                                                                                              11%                    8%
  E                                                                                                               9%                   11%
                                                                                                                 63%                   61%

   As of September 30, 2009, accounts receivable from customers with balances due in excess of 10% of total accounts receivable
totaled $21.7 million while, at December 31, 2008, accounts receivable from customers with balances due in excess of 10% of total
accounts receivable totaled $17.9 million.

Note 11. Fair Value Measurement
   The Company’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable
data from independent sources, while unobservable inputs are generally developed internally, utilizing management’s estimates,
assumptions and specific knowledge of the assets/liabilities and related market assumptions. The fair value of our cash equivalents and
marketable securities are determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. The
Company’s marketable securities consist of commercial paper with maturities no greater than 180 days. Unrealized gains were
immaterial in the period.
                                                                    9




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



                                                        Quidel Corporation
                                       Notes to Consolidated Financial Statements (Continued)
                                                            (Unaudited)

Note 12. Restructuring Charges
   In March 2009, the Company announced and implemented a restructuring plan (the “Restructuring Plan”). The Restructuring Plan
primarily consisted of a workforce reduction (approximately 10% of the Company’s total workforce) as well as consolidation of
facility space at its Santa Clara, California location. The expected completion or cash payout date for the workforce reduction is the
end of fiscal 2009, at which time the COBRA benefits will expire for terminated employees. The expected completion date relating to
the Santa Clara lease liability is November 2014, the end of the current lease term. The Company recorded a charge of $2.0 million
during the nine months ended September 30, 2009, which is net of a $0.2 million stock-based compensation expense reversal for
certain terminated employees. During the three months ended September 30, 2009, the Company reduced the restructuring liability by
$0.1 million for cash payments made during the period. As of September 30, 2009, the remaining accrual is classified as accrued
payroll and related expenses of $0.1 million, other current liabilities of $0.2 million and other non-current liabilities of $0.8 million in
the accompanying Consolidated Balance Sheets. As part of the Restructuring Plan, the Company recorded an impairment charge
related to a fixed asset no longer in use. Additionally, the Company vacated the unutilized portion of its Santa Clara facility in
April 2009 and recorded a restructuring charge of approximately $1.1 million in the second quarter of 2009.
                                                                     10




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
   In this quarterly report, all references to “we,” “our” and “us” refer to Quidel Corporation and its subsidiaries.

Future Uncertainties and Forward-Looking Statements
   This Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws that involve
material risks, assumptions and uncertainties. Many possible events or factors could affect our future financial results and
performance, such that our actual results and performance may differ materially from those that may be described or implied in the
forward-looking statements. As such, no forward-looking statement can be guaranteed. Differences in actual results and performance
may arise as a result of a number of factors including, without limitation, seasonality, the timing of onset, length and severity of cold
and flu seasons, the level of success in executing on our strategic initiatives, our reliance on sales of our influenza diagnostic tests,
uncertainty surrounding the detection of novel influenza viruses involving human specimens, adverse changes in the competitive and
economic conditions in domestic and international markets, our reliance on and actions of our major distributors, technological
changes and uncertainty with research and technology development, including any future molecular-based technology, the
reimbursement system currently in place and future changes to that system, manufacturing and production delays or difficulties,
adverse actions or delays in product reviews by the U.S. Food and Drug Administration (the “FDA”), intellectual property, product
liability, environmental or other litigation, potential required patent license fee payments not currently reflected in our costs, potential
inadequacy of booked reserves and possible impairment of goodwill, and lower than anticipated sales or market penetration of our
new products. Forward-looking statements typically are identified by the use of terms such as “may,” “will,” “should,” “might,”
“expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently.
Forward-looking statements in this Quarterly Report include, among others, statements concerning: our outlook for the remainder of
2009, including projections about our revenue, gross margins and expenses, projected capital expenditures during the remainder of
2009 and our source of funds for such expenditures; the sufficiency of our liquidity and capital resources; and our intention to
continue to evaluate acquisition licensing opportunities. The risks described under “Risk Factors” in Item 1A of this Report on Form
10-Q and our Annual Report on Form 10-K for the year ended December 31, 2008, and elsewhere herein and in reports and
registration statements that we file with the Securities and Exchange Commission (the “SEC”) from time to time, should be carefully
considered. You are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis
only as of the date of this Quarterly Report. The following should be read in conjunction with the Consolidated Financial Statements
and notes thereto beginning on page 3 of this Quarterly Report. We undertake no obligation to publicly release the results of any
revision or update of these forward-looking statements, except as required by law.

Overview
   We have a leadership position in the development, manufacturing and marketing of rapid diagnostic solutions for decentralized
applications including point-of-care (“POC”) in infectious diseases and reproductive and women’s health. We focus on POC testing
solutions specifically developed for the physician office lab and acute care markets globally. We sell our products to professionals for
use in physician offices, hospitals, clinical laboratories, retail clinics and wellness screening centers. We market our products in the
U.S. through a network of national and regional distributors, supported by a direct sales force. Internationally, we sell and market
primarily in Japan, Europe and the Middle East through exclusive distributor arrangements.

Outlook
   For the remainder of fiscal year 2009, we anticipate year-over-year revenue growth primarily driven by our infectious disease
product lines. We expect gross margins will be positively affected by a more favorable product mix and improved average selling
prices through a significant reduction and re-alignment of incentive programs throughout our distribution channel. Internationally, we
expect continued growth for fiscal year 2009 as we increase the reach of our products to markets around the world. While we
successfully executed our restructuring in the first quarter of 2009, we expect costs and expenses to be higher year-over-year, largely
as a result of significant investments in new product development, evaluating new technologies, marketing programs aimed at driving
increased awareness for influenza testing and increases in our telesales and managed care sales groups.
                                                                    11




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



Results of Operations
Three months ended September 30, 2009 compared to the three months ended September 30, 2008
Total Revenues
The following table compares total revenues for the three months ended September 30, 2009 and 2008 (in thousands, except
percentages):

                                                                            For the three months
                                                                            ended September 30,                    Increase (Decrease)
                                                                         2009                  2008            $                         %
Infectious disease net product sales                                   $ 47,023            $ 24,620         $ 22,403                         91%
Reproductive and women’s health net product sales                         5,524               4,013            1,511                         38%
Other net product sales                                                   3,288               2,892              396                         14%
Royalty income and license fees                                             317                 343              (26)                        (8)%
Total revenues                                                         $ 56,152            $ 31,868         $ 24,284                         76%

   The increase in total revenues was primarily due to increased sales globally of our influenza products during the quarter. We
believe this increase reflects a combination of factors, including a significantly higher than normal incidence of influenza during the
summer with the emergence of the 2009 H1N1 virus and an increase in the number of new physicians using flu tests to aid in the
diagnosis of influenza.
   The revenue from royalty income and license fees for all periods primarily relate to royalty payments earned on our patented
technologies utilized by third parties.

Cost of Sales
   Cost of sales increased 46% to $17.7 million, or 31% of total revenues for the three months ended September 30, 2009, compared
to $12.1 million, or 38% of total revenues for the three months ended September 30, 2008. The percentage decrease in cost of sales as
a percentage of total revenue was largely due to a more favorable product mix of increased sales of our infectious disease products.

Operating Expenses
   The following table compares operating expenses for the three months ended September 30, 2009 and 2008 (in thousands, except
percentages):

                                                              For the three months
                                                              ended September 30,
                                                    2009                                 2008                        Increase (Decrease)
                                                           As a % of                            As a % of
                                        Operating            total           Operating            total
                                        expenses           revenues          expenses           revenues             $                       %
Research and development                $3,157                 6%            $2,753                    9%      $ 404                      15%
Sales and marketing                      6,400                11%             5,141                   16%       1,259                     25%
General and administrative               4,325                 8%             3,438                   11%         887                     26%
Amortization of intangibles                345                 1%             1,114                    3%        (769)                   (69)%

Research and Development Expense
   Research and development expense increased due primarily to development of potential new technologies and products under
development, clinical studies related to our influenza products and an employee bonus accrual.

Sales and Marketing Expense
   Sales and marketing expense increased largely as a result of product promotions related to influenza, increased investment in our
sales force to further support our leadership position and higher sales commissions corresponding to increased sales of our infectious
disease products. Other key components of this expense relate to continued investment in assessing future product extensions and
enhancements and market research.
                                                                    12




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Table of Contents



General and Administrative Expense
   The increase in general and administrative expense is primarily related to an employee bonus accrual and increased costs in
connection with our new credit facility.

Amortization of Intangibles
   The amortization of intangible assets decreased primarily due to the full amortization of a license agreement in December 2008.

Other Income (Expense)
   The decrease in interest income is related to the decrease in interest rates and a decrease in our average cash balance during the
three months ended September 30, 2009 as compared to the three months ended September 30, 2008. Interest expense relates to
interest paid on obligations under capital leases, primarily associated with our San Diego facility.

Income Taxes
   The effective tax rate for the three months ended September 30, 2009 and 2008 was 38.1% and 38.5%, respectively. We recognized
tax expense of $9.2 million and $3.0 million for the three months ended September 30, 2009 and 2008, respectively.

Nine months ended September 30, 2009 compared to the nine months ended September 30, 2008
Total Revenues
The following table compares total revenues for the nine months ended September 30, 2009 and 2008 (in thousands, except
percentages):

                                                                            For the nine months
                                                                            ended September 30,                     Increase (Decrease)
                                                                         2009                 2008              $                         %
Infectious disease net product sales                                  $ 70,918            $ 66,250          $  4,668                            7%
Reproductive and women’s health net product sales                       15,686              18,495            (2,809)                         (15)%
Other net product sales                                                 10,107               9,038             1,069                           12%
Royalty income and license fees                                            974                 866               108                           12%
Total revenues                                                        $ 97,685            $ 94,649          $ 3,036                             3%

   The increase in total revenues was largely due to a net increase in global sales of our influenza products, partially offset by a
decrease in sales of our women’s and reproductive health products. The decrease in sales of our women’s and reproductive health
products was primarily related to our 2008 strategic sales initiative that affected distributor ordering patterns and had a resulting
increase in their inventories at the beginning of fiscal year 2009. The increase in other net product sales was largely attributable to
higher sales of our veterinary products.
   We derive a significant portion of our total revenue from a relatively small number of distributors. Approximately 63% and 61% of
our total revenue for the nine months ended September 30, 2009 and 2008, respectively, were derived from sales through our five
largest distributors.
   The revenue from royalty income and license fees for all periods primarily relate to royalty payments earned on our patented
technologies utilized by third parties.

Cost of Sales
   Cost of sales decreased 1% to $36.2 million, or 37% of total revenues for the nine months ended September 30, 2009, compared to
$36.4 million, or 38% of total revenues for the nine months ended September 30, 2008. The percentage decrease in cost of sales as a
percentage of total revenue was largely due to a more favorable product mix of increased sales of our infectious disease products.
                                                                  13




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



Operating Expenses
   The following table compares operating expenses for the nine months ended September 30, 2009 and 2008 (in thousands, except
percentages):

                                                             For the nine months
                                                             ended September 30,
                                                   2009                                 2008                      Increase (Decrease)
                                                          As a % of                            As a % of
                                       Operating            total           Operating            total
                                       expenses           revenues          expenses           revenues          $                      %
Research and development               $ 9,003                9%           $ 8,755                 9%        $    248                 3%
Sales and marketing                     16,538               17%            16,052                17%             486                 3%
General and administrative              12,125               12%            10,175                11%           1,950                19%
Amortization of intangibles              1,040                1%             3,408                 4%          (2,368)              (70)%
Restructuring charges                    2,038                2%                —                 —             2,038              N/A

Research and Development Expense
   Research and development expense increased due primarily to development of potential new technologies and products under
development, clinical studies related to our influenza products and an employee bonus accrual.

Sales and Marketing Expense
   Sales and marketing expense increased in 2009 primarily due to product promotions related to influenza and an increased
investment in our sales force to further support our leadership position. Other key components of this expense relate to continued
investment in assessing future product extensions and enhancements and market research.

General and Administrative Expense
   The increase in general and administrative expense is primarily related to the hiring of new executives, an employee bonus accrual
and costs incurred in connection with our new credit facility.

Amortization of Intangibles
   The amortization of intangible assets decreased primarily due to the full amortization of a license agreement in December 2008.

Restructuring Charges
   We recorded a restructuring charge of $2.0 million, comprised of severance costs and costs associated with vacating the unutilized
portion of our Santa Clara facility, during the nine months ended September 30, 2009, which is net of a $0.2 million stock-based
compensation expense reversal for certain terminated employees.

Other Income (Expense)
   The decrease in interest income is related to the decrease in interest rates and a decrease in our average cash balance during the
nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008. Interest expense relates to interest
paid on obligations under capital leases, primarily associated with our San Diego facility.

Income Taxes
   The effective tax rate for the nine months ended September 30, 2009 and 2008 was 38.0% and 38.5%, respectively. We recognized
tax expense of $7.8 million and $8.0 million for the nine months ended September 30, 2009 and 2008, respectively.

Liquidity and Capital Resources
   As of September 30, 2009, our principal sources of liquidity consisted of $60.3 million in cash and cash equivalents, $5.0 million
in marketable securities, as well as the $118.0 million available to us under our senior secured syndicated credit facility (the “Senior
Credit Facility”), which can fluctuate from time to time due to, among other factors, our funded debt to EBITDA ratio. Our working
capital as of September 30, 2009 was $87.0 million.
                                                                     14




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents


   Changes in operating assets and liabilities are primarily driven by the increase and timing of revenue during the nine months ended
September 30, 2009.
   Our investing activities used $8.3 million during the nine months ended September 30, 2009 primarily for the acquisition of
production and scientific equipment, building improvements and the purchase of marketable securities.
   We are planning approximately $4.0 million in capital expenditures for the remainder of 2009. The primary purpose for our capital
expenditures is to acquire manufacturing equipment, implement facility improvements, and for information technology. We plan to
fund these capital expenditures with cash flow from operations. We have $4.0 million in firm purchase commitments with respect to
such planned capital expenditures as of the date of filing this report.
   Our financing activities used $17.0 million of cash during the nine months ended September 30, 2009. This was primarily related to
the repurchase of approximately 2.1 million shares of our common stock at a cost of approximately $19.5 million. Our proceeds from
the issuance of common stock, associated with the exercising of stock options, was $1.7 million during the nine months ended
September 30, 2009. Additionally, a benefit was realized in the amount of $1.4 million from excess taxes from share-based
compensation.
   Our $120.0 million Senior Credit Facility matures on October 8, 2013. The Senior Credit Facility bears interest at a rate ranging
from 0.50% to 1.75% plus the lender’s prime rate or, at our option, a rate ranging from 1.50% to 2.75% plus the London InterBank
Offering Rate. The agreement governing the Senior Credit Facility is subject to certain customary limitations, including among others:
limitation on liens; limitation on mergers, consolidations and sales of assets; limitation on debt; limitation on dividends, stock
redemptions and the redemption and/or prepayment of other debt; limitation on investments (including loans and advances) and
acquisitions; limitation on transactions with affiliates; and limitation on annual capital expenditures. The terms of the Senior Credit
Facility require us to comply with certain financial covenants which include a funded debt to earnings before interest, taxes,
depreciation and amortization (EBITDA, as defined in the Senior Credit Facility) ratio, and an interest coverage ratio. The Senior
Credit Facility is secured by substantially all present and future assets and properties of the Company. As of September 30, 2009, we
had approximately $118.0 million available under the Senior Credit Facility. At September 30, 2009, we had no amounts outstanding
under the Senior Credit Facility and we were in compliance with all financial covenants.
   We also intend to continue evaluation of acquisition and technology licensing candidates. As such, we may need to incur additional
debt, or issue additional equity, to successfully complete these transactions. Cash requirements fluctuate as a result of numerous
factors, such as the extent to which we generate cash from operations, progress in research and development projects, competition and
technological developments and the time and expenditures required to obtain governmental approval of our products. Based on our
current cash position and the current assessment of future operating results, we believe that our existing sources of liquidity will be
adequate to meet operating needs during the next 12 months and the foreseeable future.

Off-Balance Sheet Arrangements
   At September 30, 2009, we did not have any relationships with unconsolidated entities or financial partners, such as entities often
referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any
financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Critical Accounting Policies and Estimates
    Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to
customer programs and incentives, bad debts, inventories, intangible assets, income taxes, stock-based compensation, restructuring
and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
                                                                     15




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents


   There have been no significant changes in critical accounting policies or management estimates since the year ended December 31,
2008. A comprehensive discussion of our critical accounting policies and management estimates is included in Management’s
Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended
December 31, 2008.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
   Interest Rate Risk
   The fair market value of our floating interest rate debt is subject to interest rate risk. Generally, the fair market value of floating
interest rate debt will vary as interest rates increase or decrease. A hypothetical 100 basis point adverse move in interest rates along
the entire interest rate yield curve would not materially affect the fair value of our interest sensitive financial instruments at
September 30, 2009. Based on our market risk sensitive instruments outstanding at September 30, 2009 and 2008, we have determined
that there was no material market risk exposure to our consolidated financial position, results of operations or cash flows as of such
dates.
   Our current investment policy with respect to our cash and cash equivalents and marketable securities focuses on maintaining
acceptable levels of interest rate risk and liquidity. Although we continually evaluate our placement of investments, as of
September 30, 2009, our cash and cash equivalents and marketable securities were placed in certificates of deposit, commercial paper,
money market or overnight funds that are highly liquid and which we believe are not subject to material market fluctuation risk.

   Foreign Currency Exchange Risk
   All of our international sales are negotiated for and paid in U.S. dollars. Nonetheless, these sales are subject to currency risks, since
changes in the values of foreign currencies relative to the value of the U.S. dollar can render our products comparatively more
expensive. These exchange rate fluctuations could negatively impact international sales of our products, as could changes in the
general economic conditions in those markets. Continued change in the values of the Euro, the Japanese Yen and other foreign
currencies could have a negative impact on our business, financial condition and results of operations. We do not currently hedge
against exchange rate fluctuations, which means that we are fully exposed to exchange rate changes.

ITEM 4. Controls and Procedures
   Evaluation of disclosure controls and procedures: We have performed an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the
effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective
as of September 30, 2009 to provide reasonable assurance that information required to be disclosed by us in the reports filed or
submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms.
   Changes in internal control over financial reporting: There was no change in our internal control over financial reporting during
the three months ended September 30, 2009 that materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
                                                                 16




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
      None.

ITEM 1A. Risk Factors
   There has been no material change in our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2008. For a detailed description of our risk factors, refer to Item 1A, “Risk Factors” of our Annual Report
on Form 10-K for the year ended December 31, 2008.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  The table below sets forth information regarding repurchases of our common stock by us during the three months ended
September 30, 2009:

                                                                                                                  Approximate dollar
                                                                                                                  value of shares that
                                                                                          Total number                 may yet be
                                                      Total number     Average        of shares purchased              purchased
                                                        of shares     price paid       as part of publicly     under the plan or program
                 Period                                purchased      per share    announced plan or program               (1)
July 1 — July 31, 2009                                          —    $       —                           —     $             8,066,000
August 1 — August 31, 2009                                      —            —                           —                   8,066,000
September 1 — September 30, 2009                                —            —                           —                   8,066,000
Total                                                           —    $       —                           —     $             8,066,000


(1) In June 2005, we announced that our Board of Directors authorized us to repurchase up to $25.0 million in shares of our common
    stock under a stock repurchase program. In March 2007, we announced that our Board of Directors authorized us to repurchase
    up to an additional $25.0 million in shares of our common stock under our stock repurchase program. In December 2008, we
    announced that our Board of Directors authorized us to repurchase up to an additional $25.0 million in shares of our common
    stock under our stock repurchase program. Any shares of common stock repurchased under this program will no longer be
    deemed outstanding upon repurchase and will be returned to the pool of authorized shares. This repurchase program will expire
    on December 1, 2010 unless extended by our Board of Directors.

ITEM 5. OTHER INFORMATION
   None.

ITEM 6. Exhibits

Exhibit
Number
3.1           Certificate of Incorporation, as amended. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on
              Form 8-K filed on February 26, 1991.)

3.2           Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Form 8-K dated
              November 8, 2000.)

4.1           Certificate of Designations of Series C Junior Participating Preferred Stock as filed with the State of Delaware on
              December 31, 1996. (Incorporated by reference to Exhibit 1(A) to the Registrant’s Registration Statement on Form 8-A
              filed on January 14, 1997.)

4.2           Amended and Restated Rights Agreement dated as of December 29, 2006 between Registrant and American Stock
              Transfer and Trust Company, as Rights Agent. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current
              Report on Form 8-K filed on January 5, 2007.)
                                                                 17




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents


Exhibit
Number
10.1*(1)     Employment Offer Letter, dated June 22, 2009, between Quidel Corporation and Timothy T. Stenzel.

10.2*(1)     Agreement Re: Change in Control, entered into on September 1, 2009, between Quidel Corporation and Timothy T.
             Stenzel.

31.1*        Certification by Principal Executive Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to
             Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*        Certification by Principal Financial and Accounting Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as
             adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*        Certifications by Principal Executive Officer and Principal Financial and Accounting Officer of Registrant pursuant to
             18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*   Filed herewith.
(1) Indicates a management plan or compensatory plan or arrangement.
                                                              18




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



                                                           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.

Date: October 20, 2009                        QUIDEL CORPORATION

                                              /s/ DOUGLAS C. BRYANT
                                              Douglas C. Bryant
                                              President and Chief Executive Officer
                                              (Principal Executive Officer)

                                              /s/ JOHN M. RADAK
                                              John M. Radak
                                              Chief Financial Officer
                                              (Principal Financial Officer and Accounting Officer)

                                                                  19




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Table of Contents



                                                           Exhibit Index

Exhibit
Number
3.1          Certificate of Incorporation, as amended. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on
             Form 8-K filed on February 26, 1991.)

3.2          Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Form 8-K dated
             November 8, 2000.)

4.1          Certificate of Designations of Series C Junior Participating Preferred Stock as filed with the State of Delaware on
             December 31, 1996 (Incorporated by reference to Exhibit 1(A) to the Registrant’s Registration Statement on Form 8-A
             filed on January 14, 1997.)

4.2          Amended and Restated Rights Agreement dated as of December 29, 2006 between Registrant and American Stock
             Transfer and Trust Company, as Rights Agent. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current
             Report on Form 8-K filed on January 5, 2007.)

10.1*(1)     Employment Offer Letter, dated June 22, 2009, between Quidel Corporation and Timothy T. Stenzel.

10.2*(1)     Agreement Re: Change in Control, entered into on September 1, 2009, between Quidel Corporation and Timothy T.
             Stenzel.

31.1*        Certification by Principal Executive Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to
             Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*        Certification by Principal Financial and Accounting Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as
             adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*        Certifications by Principal Executive Officer and Principal Financial and Accounting Officer of Registrant pursuant to
             18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*   Filed herewith.
(1) Indicates a management plan or compensatory plan or arrangement.
                                                              20




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Exhibit 10.1

June 22, 2009
Dr. Tim Stenzel
1700 Hog Hollow Road
Dripping Springs, TX 78620
Dear Tim:
We are pleased to extend the following offer of employment to you:

Title:                      Chief Scientific Officer

Reporting to:               Doug Bryant, President & CEO

Compensation:               $285,000 annually

Annual Bonus:               You will participate in the bonus plan with a target bonus of 40% at achievement of plan, consistent with
                            our SVP level executives.

Equity:                     You will receive equity equal to $325,000 in total value with half of such value awarded in the form of
                            non-qualified stock options (vesting over four years with 50% vesting on the second anniversary of the
                            grant date and annually thereafter) and half of such value in the form of time-based restricted stock (cliff
                            vesting at the end of four years). The purchase price will be the closing NASDAQ market price of
                            Quidel’s stock on your actual start date.

Vacation Benefit:           You will receive four weeks of vacation per year, accrued from your anniversary date.

Relocation/                 You will receive $100,000 (net), payable as a lump sum in the first ten days of employment. In addition,
Inducement Bonus:           Quidel will pay for up to 90 days of temporary housing and will put you in touch with Relocation
                            Coordinates for assistance with your move.

Change in Control           You will be provided with change of control protection as outlined for other officers. Details of this
Agreement:                  protection are contained in the attached Agreement re:
                            Change in Control.

Start Date:                 TBD
In addition to the above, as a Quidel employee, you will be eligible to participate in our benefits programs, which will take effect on
your first day of employment. A summary of these benefits is provided in the enclosed materials. Details of these benefit plans will be
provided to you upon your employment.
As a condition of employment with Quidel Corporation, you will be required to: (1) read, sign and return one copy of the enclosed
Invention and Confidential Information Agreement; (2) within the first three days of employment, you must provide documents from
the enclosed List of Acceptable Documents (I-9) which prove your identity and right to work in the United States; and (3) read, sign
and return one copy of page 5 of the enclosed Employee Code of Conduct.




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Dr. Tim Stenzel
Offer Letter
Page 2
This offer of employment is contingent upon successfully passing a pre-employment drug screen, background and reference check.
Our vendor will be in contact with you to set up your drug screen appointment, which must be completed as soon as reasonably
possible.
Quidel Corporation is an at-will employer. This means that you have the right to terminate your employment with Quidel at any time,
for any reason, with or without notice. Similarly, Quidel has the right to terminate the employment relationship at any time, for any
reason, with or without notice. Any contrary representations, which may have been made to you, are superseded by this offer. Any
modifications to this “at-will” term of your employment must be in writing and signed by you and Quidel’s President.
If you should voluntarily leave the company within two years of beginning work, or two years of receiving relocation assistance,
whichever is later, you will be required to repay a prorated portion of all relocation expenses covered by Quidel. You must make this
repayment within 30 days of providing notice of your resignation.
This offer expires seven days from the date of this letter. Please indicate your acceptance of our offer by signing below and returning a
copy of this letter to Human Resources as soon as possible.
Tim, on behalf of senior management, we are looking forward to having you join us as we work together to provide quality products
to the medical community and to create value for the employees and shareholders of Quidel Corporation.

Sincerely,
/s/ Phyllis Huckabee
Phyllis Huckabee
Vice President, Human Resources

cc: Doug Bryant
    Human Resources

Enclosures
I have read, understand and accept these terms and conditions of employment. I further understand that while my salary, benefits, job
title and job duties may change from time to time without a written modification of this agreement, the at-will term of my employment
is a term of employment which cannot be altered or modified except in writing, signed by me and Quidel’s President.

/s/ Tim Stenzel                                                                   July 6, 2009
Signature                                                                         Date




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Exhibit 10.2

                                           AGREEMENT RE: CHANGE IN CONTROL
   This AGREEMENT RE: CHANGE IN CONTROL (this “Agreement”) is dated as of September 1, 2009 and is entered into by and
between Timothy T. Stenzel (“Executive”) and Quidel Corporation, a Delaware corporation (the “Company”).

                                                              Background
   The Company believes that because of its position in the industry, financial resources and historical operating results there is a
possibility that the Company may become the subject of a Change in Control (as defined below), either now or at some time in the
future.
   The Company believes that it is in the best interest of the Company and its stockholders to foster Executive’s objectivity in making
decisions with respect to any pending or threatened Change in Control of the Company and to assure that the Company will have the
continued dedication and availability of Executive, notwithstanding the possibility, threat or occurrence of a Change in Control. The
Company believes that these goals can best be accomplished by alleviating certain of the risks and uncertainties with regard to
Executive’s financial and professional security that would be created by a pending or threatened Change in Control and that inevitably
would distract Executive and could impair his ability to objectively perform his duties for and on behalf of the Company. Accordingly,
the Company believes that it is appropriate and in the best interest of the Company and its stockholders to provide to Executive
compensation arrangements upon a Change in Control that lessen Executive’s financial risks and uncertainties and that are reasonably
competitive with those of other corporations.
   With these and other considerations in mind, the Compensation Committee of the Company has authorized the Company to enter
into this Agreement with the Executive to provide the protections set forth herein for Executive’s financial security following a
Change in Control.
   NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration the receipt of which is
hereby acknowledged, it is hereby agreed as follows:

                                                              Agreement
   1. Term of Agreement. This Agreement shall be effective as of the date of commencement of work and, subject to the provisions
of Section 4, shall extend to (and thereupon automatically terminate) one (1) day after Executive’s termination of employment with
the Company for any reason. No termination of this Agreement shall limit, alter or otherwise affect Executive’s rights hereunder with
respect to a Change in Control which has occurred prior to such termination, including without limitation Executive’s right to receive
the various benefits hereunder.
   2. Purpose of Agreement. The purpose of this Agreement is to provide that, in the event of a “Change in Control,” Executive may
become entitled to receive certain additional benefits, as described herein, in the event of his termination under specified
circumstances.
   3. Change in Control. As used in this Agreement, the phrase “Change in Control” shall mean:




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
(i) Except as provided by subparagraph (iii) hereof, the acquisition (other than from the Company) by any person, entity or
“group”, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) (excluding, for this purpose, the Company or its subsidiaries, or any executive benefit plan of the Company or its subsidiaries
which acquires beneficial ownership of voting securities of the Company), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of forty percent (40%) 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; or
       (ii) Individuals who, as of the date hereof, constitute the Board of Directors of the Company (as of the date hereof the
“Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any
person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders,
is or was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to
the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or
      (iii) Approval by the stockholders of the Company of a reorganization, merger or consolidation with any other person, entity or
corporation, other than
         (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior
  thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of another entity) more
  than fifty percent (50%) of the combined voting power of the voting securities of the Company or such other entity outstanding
  immediately after such merger or consolidation, or
        (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no
  person acquires forty percent (40%) or more of the combined voting power of the Company’s then outstanding voting securities; or
       (iv) Approval by the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the
sale or other disposition by the Company of all or substantially all of the Company’s assets.
   4. Effect of a Change in Control. In the event of a Change in Control, Sections 6 through 13 of this Agreement shall become
applicable to Executive. These Sections shall continue to remain applicable until the third anniversary of the date upon which the
Change in Control occurs. On such third anniversary date, and provided that the employment of Executive has not been terminated on
account of a Qualifying Termination (as defined in Section 5 below), this Agreement shall terminate and be of no further force or
effect.
   5. Qualifying Termination. If following, or within thirty (30) days prior to, a Change in Control Executive’s employment with the
Company and its affiliated companies is terminated, such termination shall be conclusively considered a “Qualifying Termination”
unless:
                                                                    2




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
(a) Executive voluntarily terminates his employment with the Company and its affiliated companies. Executive, however, shall
  not be considered to have voluntarily terminated his employment with the Company and its affiliated companies if, following, or
  within thirty (30) days prior to, the Change in Control, Executive’s base salary is reduced or adversely modified in any material
  respect, or Executive’s authority or duties are materially changed, and subsequent to such reduction, modification or change
  Executive elects to terminate his employment with the Company and its affiliated companies within sixty (60) days following such
  reduction, modification or change after having given the Company at least thirty (30) days notice of the same and a reasonable
  opportunity to cure during such 30-day notice period. For such purposes, Executive’s authority or duties shall conclusively be
  considered to have been “materially changed” if, without Executive’s express and voluntary written consent, there is any substantial
  diminution or adverse modification in Executive’s title, status, overall position, responsibilities, reporting relationship, general
  working environment (including without limitation secretarial and staff support, offices, and frequency and mode of travel), or if,
  without Executive’s express and voluntary written consent, Executive’s job location is transferred to a site more than twenty-five
  (25) miles away from his place of employment thirty (30) days prior to the Change in Control. In this regard as well, Executive’s
  authority and duties shall conclusively be considered to have been “materially changed” if, without Executive’s express and
  voluntary written consent, Executive no longer holds the same title or no longer has the same authority and responsibilities or no
  longer has the same reporting responsibilities, in each case with respect and as to a publicly held parent company which is not
  controlled by another entity or person.
      (b) The termination is on account of Executive’s death or Disability. For such purposes, “Disability” shall mean a physical or
  mental incapacity as a result of which Executive becomes unable to continue the performance of his responsibilities for the
  Company and its affiliated companies and which, at least three (3) months after its commencement, is determined to be total and
  permanent by a physician agreed to by the Company and Executive, or in the event of Executive’s inability to designate a
  physician, Executive’s legal representative. In the absence of agreement between the Company and Executive, each party shall
  nominate a qualified physician and the two physicians so nominated shall select a third physician who shall make the determination
  as to Disability.
     (c) Executive is involuntarily terminated for “Cause.” For this purpose, “Cause” shall be limited to only three types of events:
        (1) the willful and deliberate refusal of Executive to comply with a lawful, written instruction of the Board of Directors,
     which refusal is not remedied by Executive within a reasonable period of time after his receipt of written notice from the
     Company identifying the refusal, so long as the instruction is consistent with the scope and responsibilities of Executive’s
     position prior to the Change in Control;
       (2) an act or acts of personal dishonesty by Executive which were intended to result in substantial personal enrichment of
     Executive at the expense of the Company; or
        (3) Executive’s conviction of any felony involving an act of moral turpitude.
                                                                   3




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
6. Severance Payment. If Executive’s employment is terminated as a result of a Qualifying Termination, the Company shall pay
Executive within thirty (30) days after the Qualifying Termination a cash lump sum equal to two (2) times the Executive’s
Compensation (the “Severance Payment”).
     (a) For purposes of this Agreement, Executive’s “Compensation” shall equal the sum of (i) Executive’s highest annual salary
  rate with the Company within the three year period ending on the date of Executive’s Qualifying Termination, plus (ii) a “Bonus
  Increment.” The Bonus Increment shall equal the annualized average of all bonuses and incentive compensation payments paid to
  Executive during the two (2) year period immediately before the date of Executive’s Qualifying Termination under all of the
  Company’s bonus and incentive compensation plans or arrangement.
     (b) [Intentionally Deleted.]
     (c) The Severance Payment hereunder is in lieu of any severance payment that Executive might otherwise be entitled to from the
  Company in the event of a Change in Control under the Company’s applicable severance pay policies, if any, or under any other
  oral or written agreement; provided, however, that Executive shall continue to be entitled to receive the severance pay benefits
  under the Company’s applicable policies, if any, or under another written agreement if and to the extent Executive’s termination is
  not a Qualifying Termination after, or within thirty (30) days prior to, a Change in Control.
      (d) Notwithstanding any provision of this Agreement to the contrary, if, at the time of Executive’s termination of employment
  with the Company, Executive is a “specified employee” as defined in Section 409A of the Code, and one or more of the payments
  or benefits received or to be received by Executive pursuant to this Agreement (or any portion thereof) would become subject to the
  additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code
  (the “Section 409A Taxes”) if provided at the time otherwise required under this Agreement, no such payment or benefit will be
  provided under this Agreement until the earlier of (a) the date which is six (6) months after Executive’s “separation from service”
  or (b) the date of Executive’s death, or such shorter period that, as determined by the Company, is sufficient to avoid the imposition
  of Section 409A Taxes. The provisions of this Section 6(d) shall only apply to the minimum extent required to avoid Executive’s
  incurrence of any Section 409A Taxes. In addition, if any provision of this Agreement would cause Executive to incur any penalty
  tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder, the Company may
  reform such provision to maintain to the maximum extent practicable the original intent of the applicable provision without
  violating the provisions of Section 409A of the Code.
   7. Additional Benefits.
     (a) In the event of a Qualifying Termination, any and all unvested stock options of Executive shall immediately become fully
  vested and exercisable and any and all restrictions on Executive’s restricted stock shall immediately and automatically lapse (except
  as otherwise expressly agreed to, in writing, by both parties, including whether prior to or after the execution of this Agreement).
                                                                     4




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
(b) In the event of a Qualifying Termination, Executive shall be entitled to continue to participate in the following executive
  benefit programs which had been made available to Executive (including his family) before the Qualifying Termination: group
  medical insurance, group dental insurance, and group vision insurance. These programs shall be continued at no cost to Executive,
  except to the extent that tax rules require the inclusion of the value of such benefits in Executive’s income. The programs shall be
  continued in the same way and at the same level as immediately prior to the Qualifying Termination. The programs shall continue
  for Executive’s benefit for two (2) years after the date of the Qualifying Termination; provided, however, that Executive’s
  participation in each of such programs shall be earlier terminated or reduced, as applicable, if and to the extent Executive receives
  benefits as a result of concurrent coverage through another program.
     (c) In the event of a Qualifying Termination, Executive shall be entitled to receive from the Company, upon such Termination,
  the sum of $25,000 to help defray legal fees, tax and accounting fees, executive outplacement services, and other costs associated
  with transitional matters.
    8. Limitation on Payments. Notwithstanding anything to the contrary herein, in the event that the sum aggregate present value of
(i) the Severance Payment payable under Section 6 hereof, (ii) any and all additional amount or benefits which may be paid or
conferred to or on behalf of Executive in accordance with Section 7 hereof, and (iii) any and all other amounts or benefits paid or
conferred to or on behalf of Executive would constitute a “parachute payment” (“parachute payment” as used in this Agreement shall
be defined in accordance with Section 280G(b)(2), or any successor thereto, of the Internal Revenue Code of 1986, as amended), the
payments under this Agreement shall be reduced (by the minimum possible amounts) until no amount payable to Executive under this
Agreement constitutes a parachute payment; provided, however, that no such reduction under this Section 8 shall be made if the net
after-tax payment (after taking into account, Federal, state, local or other income and excise taxes) to which Executive would
otherwise be entitled without such reduction would be greater than the net after-tax payment (after taking into account Federal, state,
local or other income and excise taxes) to Executive resulting from the receipt of such payments with such reduction. If, as a result of
subsequent events or conditions (including a subsequent payment or absence of a subsequent payment under this Agreement), it is
determined that payments hereunder have been reduced by more than the minimum amount required under this Section 8, then an
additional payment shall be promptly made to Executive in an amount equal to the excess reduction. All determinations required to be
made under this Section 8, including whether a payment would result in a parachute payment and the assumptions to be utilized in
arriving at such determination, shall be made and approved within fifteen (15) days after the Qualifying Termination by both
(1) accountants selected by the Company and (2) Executive’s designated financial advisor.
   9. Nonsolicitation Covenant. In consideration of the payments to be made to Executive hereunder, Executive hereby covenants, for
a period of two (2) years following the Qualifying Termination, that he will not, directly or indirectly (whether as an officer, director,
employee, individual proprietor, control shareholder, consultant, partner or otherwise) (i) solicit, recruit or hire-away any employee of
the Company or successor of the Company or (ii) solicit, influence or attempt to influence any person or entity to terminate such
person’s or entity’s contractual and/or business relationship with the Company or successor of the Company. With regard to this
Section 9, Executive acknowledges that the provisions herein are reasonable in both scope and duration and necessary to protect the
business of the Company or its successor.
                                                                     5




Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
Q3 2009 Earning Report of Quidel Corporation
Q3 2009 Earning Report of Quidel Corporation
Q3 2009 Earning Report of Quidel Corporation
Q3 2009 Earning Report of Quidel Corporation
Q3 2009 Earning Report of Quidel Corporation
Q3 2009 Earning Report of Quidel Corporation
Q3 2009 Earning Report of Quidel Corporation

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Q3 2009 Earning Report of Quidel Corporation

  • 1. FORM 10-Q QUIDEL CORP /DE/ - QDEL Filed: October 21, 2009 (period: September 30, 2009) Quarterly report which provides a continuing view of a company's financial position
  • 2. Table of Contents 10-Q - FORM 10-Q PART I ITEM 1. Financial Statements ITEM 2. Management s Discussion and Analysis of Financial Condition and Results of Operations ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ITEM 4. Controls and Procedures PART II ITEM 1. Legal Proceedings ITEM 1A. Risk Factors ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds ITEM 5. OTHER INFORMATION ITEM 6. Exhibits SIGNATURES Exhibit Index EX-10.1 (EX-10.1) EX-10.2 (EX-10.2) EX-31.1 (EX-31.1) EX-31.2 (EX-31.2) EX-32.1 (EX-32.1)
  • 3. Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) � QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2009 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, including zip code) (858) 552-1100 (Registrant’s telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes � No � Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes � No � Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer � Accelerated filer � Non-accelerated filer � Smaller reporting company � (Do not check if a smaller reporting company) Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 4. Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes � No � As of October 16, 2009, 30,146,350 shares of common stock were outstanding. Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 5. INDEX PART I—FINANCIAL INFORMATION 3 ITEM 1. Financial Statements (unaudited) 3 Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008 3 Consolidated Statements of Income for the three and nine months ended September 30, 2009 and 2008 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 5 Notes to Consolidated Financial Statements 6 ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 11 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 16 ITEM 4. Controls and Procedures 16 PART II—OTHER INFORMATION 17 ITEM 1. Legal Proceedings 17 ITEM 1A. Risk Factors 17 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 17 ITEM 5. Other Information 17 ITEM 6. Exhibits 17 Signatures 19 EX-10.1 EX-10.2 EX-31.1 EX-31.2 EX-32.1 2 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 6. Table of Contents PART I FINANCIAL INFORMATION ITEM 1. Financial Statements QUIDEL CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except par value; unaudited) September 30, December 31, 2009 2008 ASSETS Current assets: Cash and cash equivalents $ 60,348 $ 57,908 Marketable securities 4,984 — Accounts receivable, net 25,428 25,320 Inventories 12,883 11,702 Deferred tax asset—current 5,043 5,043 Prepaid expenses and other current assets 1,973 1,053 Total current assets 110,659 101,026 Property and equipment, net 19,829 19,081 Intangible assets, net 8,753 9,833 Deferred tax asset—non-current 9,040 11,240 Other non-current assets 1,518 1,628 Total assets $ 149,799 $ 142,808 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 6,057 $ 4,317 Accrued payroll and related expenses 4,715 2,719 Accrued royalties 4,652 2,659 Current portion of obligations under capital leases 941 862 Other current liabilities 7,270 4,877 Total current liabilities 23,635 15,434 Capital leases, net of current portion 5,418 6,137 Deferred rent 828 948 Other non-current liabilities 1,807 1,053 Commitments and contingencies Stockholders’ equity: Preferred stock, $.001 par value per share; 5,000 shares authorized; none issued or outstanding at September 30, 2009 and December 31, 2008 — — Common stock, $.001 par value per share; 50,000 shares authorized; 30,141 and 31,894 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively 30 32 Additional paid-in capital 124,227 138,126 Accumulated deficit (6,146) (18,922) Total stockholders’ equity 118,111 119,236 Total liabilities and stockholders’ equity $ 149,799 $ 142,808 See accompanying notes. 3 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 7. Table of Contents QUIDEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data; unaudited) Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 Total revenues $ 56,152 $ 31,868 $ 97,685 $ 94,649 Costs and expenses Cost of sales (excludes amortization of intangible assets) 17,670 12,070 36,169 36,439 Research and development 3,157 2,753 9,003 8,755 Sales and marketing 6,400 5,141 16,538 16,052 General and administrative 4,325 3,438 12,125 10,175 Amortization of intangibles 345 1,114 1,040 3,408 Restructuring charges — — 2,038 — Total costs and expenses 31,897 24,516 76,913 74,829 Operating income 24,255 7,352 20,772 19,820 Other (expense) income Interest income 53 364 299 1,321 Interest expense (148) (166) (459) (510) Other (expense) income (5) 160 (5) 145 Total other (expense) income (100) 358 (165) 956 Income before taxes 24,155 7,710 20,607 20,776 Provision for income taxes 9,215 2,969 7,831 7,998 Net income $ 14,940 $ 4,741 $ 12,776 $ 12,778 Basic earnings per share $ 0.50 $ 0.15 $ 0.42 $ 0.40 Diluted earnings per share $ 0.50 $ 0.15 $ 0.42 $ 0.39 Shares used in basic per share calculation 29,713 31,915 30,151 31,891 Shares used in diluted per share calculation 30,149 32,648 30,547 32,674 See accompanying notes. 4 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 8. Table of Contents QUIDEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands; unaudited) Nine months ended September 30, 2009 2008 OPERATING ACTIVITIES: Net income $ 12,776 $ 12,778 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other 4,478 6,213 Stock-based compensation expense 2,502 2,963 Deferred tax asset 2,200 920 Excess tax benefit from share-based compensation (1,400) (6,192) Changes in assets and liabilities: Accounts receivable (108) (3,536) Inventories (1,181) (236) Prepaid expenses and other current assets (920) 121 Accounts payable 871 (2,335) Accrued payroll and related expenses 1,996 (464) Accrued royalties 1,993 (628) Other current and non-current liabilities 4,547 7,968 Net cash provided by operating activities 27,754 17,572 INVESTING ACTIVITIES: Acquisition of property and equipment (3,180) (1,855) Purchases of marketable securities (4,984) — Other assets (107) (16) Net cash used for investing activities (8,271) (1,871) FINANCING ACTIVITIES: Payments on capital lease obligation (640) (568) Purchase of common stock (19,542) (6,983) Excess tax benefit from share-based compensation 1,400 6,192 Proceeds from issuance of common stock, net 1,739 2,193 Net cash (used for) provided by financing activities (17,043) 834 Net increase in cash and cash equivalents 2,440 16,535 Cash and cash equivalents, beginning of period 57,908 45,489 Cash and cash equivalents, end of period $ 60,348 $ 62,024 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 459 $ 510 Cash paid during the period for income taxes $ 200 $ 775 See accompanying notes. 5 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 9. Table of Contents Quidel Corporation Notes to Consolidated Financial Statements (Unaudited) Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements of Quidel Corporation and its subsidiaries (the “Company”) have been prepared in accordance with generally accepted accounting principles in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. The information at September 30, 2009, and for the three and nine months ended September 30, 2009 and 2008, is unaudited. Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2008 included in the Company’s 2008 Annual Report on Form 10-K. Subsequent events have been evaluated up to and including October 20, 2009 which is the date these financial statements were issued. Each of the Company’s fiscal quarters end on the Sunday closest to the end of the calendar quarter. For 2009 and 2008, the Company’s fiscal year end is January 3, 2010 and December 28, 2008, respectively. For ease of reference, the calendar quarter end dates are used herein. The three and nine month periods ended September 30, 2009 and 2008 both included 13 weeks and 39 weeks, respectively. Note 2. Comprehensive Income Net income is equal to comprehensive income for both the three and nine months ended September 30, 2009 and 2008, respectively. Note 3. Computation of Earnings Per Share Basic earnings per share were computed by dividing net earnings by the weighted-average number of common shares outstanding, including vested restricted stock awards, during the period. Diluted earnings per share reflects the potential dilution that would occur if net earnings were divided by the weighted-average number of common shares and potentially dilutive common shares from outstanding stock options as well as unvested, time-based restricted stock awards. Potentially dilutive common shares were calculated using the treasury stock method and represent incremental shares issuable upon exercise of the Company’s outstanding stock options and unvested, time-based restricted stock awards. The Company has awarded restricted stock with both time-based as well as performance-based vesting provisions. Stock awards based on performance only are not included in the calculation of basic or diluted earnings per share until the performance criteria are met. For periods in which the Company incurs losses, potentially dilutive shares are not considered in the calculation of net loss per share, as their impact would be anti-dilutive. For periods in which the Company has earnings, out-of-the-money stock options (i.e., the average stock price during the period is below the exercise price of the stock option) are not included in diluted earnings per share as their effect is anti-dilutive. For the three months ended September 30, 2009 and 2008, 1.4 million shares and 0.8 million shares were excluded from the calculation of diluted earnings per share as their effect was anti-dilutive. For the nine months ended September 30, 2009 and 2008, 1.6 million shares and 0.6 million shares were excluded from the calculation of diluted earnings per share as their effect was anti-dilutive. The following table reconciles the weighted-average shares used in computing basic and diluted earnings per share in the respective periods (in thousands; unaudited): Three months Nine months ended ended September 30, September 30, 2009 2008 2009 2008 Shares used in basic earnings per share (weighted-average common shares outstanding) 29,713 31,915 30,151 31,891 Effect of dilutive stock options and restricted stock awards 436 733 396 783 Shares used in diluted earnings per share calculation 30,149 32,648 30,547 32,674 6 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 10. Table of Contents Quidel Corporation Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 4. Inventories Inventories are recorded at the lower of cost (first-in, first-out) or market and consist of the following (in thousands): September 30, December 31, 2009 2008 Raw materials $ 4,732 $ 4,956 Work-in-process (materials, labor and overhead) 3,599 3,108 Finished goods (materials, labor and overhead) 4,552 3,638 $ 12,883 $ 11,702 Note 5. Other Current Liabilities Other current liabilities consisted of the following (in thousands): September 30, December 31, 2009 2008 Income taxes payable $ 4,016 $ — Volume discounts 2,497 3,593 Accrued professional fees 423 337 Amounts due on technology and license acquisition — 250 Other 334 697 $ 7,270 $ 4,877 Note 6. Income Taxes The Company recognizes excess tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. As of September 30, 2009 and 2008, $1.4 million and $6.2 million, respectively, was considered realized and was recorded as a reduction to our income taxes payable and increased additional paid-in capital in the accompanying Consolidated Balance Sheets. The Company is subject to periodic audits by domestic and foreign tax authorities. The Company’s federal tax years for 1993 and forward are subject to examination by the U.S. authorities due to the carry forward of unutilized net operating losses and research and development credits. With few exceptions, the Company’s tax years for 1999 and forward are subject to examination by state and foreign tax authorities. The Company believes that it has appropriate support for the income tax positions taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter. Note 7. Line of Credit The Company currently has a $120.0 million senior secured syndicated credit facility (the “Senior Credit Facility”), which matures on October 8, 2013. The Senior Credit Facility bears interest at a rate ranging from 0.50% to 1.75% plus the lender’s prime rate or, at the Company’s option, a rate ranging from 1.50% to 2.75% plus the London InterBank Offering Rate. The agreement governing the Senior Credit Facility is subject to certain customary limitations, including among others: limitation on liens; limitation on mergers, consolidations and sales of assets; limitation on debt; limitation on dividends, stock redemptions and the redemption and/or prepayment of other debt; limitation on investments (including loans and advances) and acquisitions; limitation on transactions with affiliates; and limitation on annual capital expenditures. The Company is also subject to financial covenants which include a funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA, as defined in the Senior Credit Facility) ratio, and an interest coverage ratio. The Senior Credit Facility is secured by substantially all present and future assets and properties of the Company. As of September 30, 2009, the Company had approximately $118.0 million available under the Senior Credit Facility, which can fluctuate from time to time due to, among other factors, the Company’s funded debt to EBITDA ratio. At September 30, 2009, the Company had no amounts outstanding under the Senior Credit Facility and was in compliance with all financial covenants. 7 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 11. Table of Contents Quidel Corporation Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 8. Stockholders’ Equity During the nine months ended September 30, 2009, 172,289 shares of restricted stock were awarded, 168,418 shares of restricted stock were cancelled, 328,899 shares of common stock were issued due to the exercise of stock options and 22,384 shares of common stock were issued in connection with the Company’s employee stock purchase plan (the “ESPP”), resulting in net proceeds to the Company of approximately $1.7 million. Additionally, during the nine months ended September 30, 2009, 2,114,884 shares of outstanding common stock were repurchased for approximately $19.5 million, which primarily included shares repurchased under the Company’s previously announced share repurchase program, but also included 58,952 shares repurchased in connection with the Company’s payment of minimum tax withholding obligations for certain employees relating to the lapse of restrictions on certain restricted stock awards during the nine months ended September 30, 2009. Note 9. Stock-Based Compensation The compensation expense related to the Company’s stock-based compensation plans included in the accompanying Statements of Income for the three and nine months ended September 30, 2009 and 2008 was as follows (in millions): Three months Nine months ended ended September 30, September 30, 2009 2008 2009 2008 Cost of sales $ 0.1 $ 0.1 $ 0.3 $ 0.3 Research and development 0.1 0.2 0.2 0.5 Sales and marketing 0.1 0.1 0.2 0.1 General and administrative 0.5 0.7 2.0 2.1 Restructuring charges — — (0.2) — $ 0.8 $ 1.1 $ 2.5 $ 3.0 Total compensation expense recognized for the three months ended September 30, 2009 and 2008 includes $0.7 million and $0.5 million related to stock options and $0.1 million and $0.6 million related to restricted stock, respectively. Total compensation expense recognized for the nine months ended September 30, 2009 and 2008 includes $1.9 million and $1.7 million related to stock options and $0.6 million and $1.3 million related to restricted stock, respectively. Total compensation expense for the nine months ended September 30, 2009 is net of a $0.2 million compensation expense reversal for certain terminated employees in connection with the Company’s restructuring plan. As of September 30, 2009, total unrecognized compensation expense related to nonvested stock options was $6.5 million, which is expected to be recognized over a weighted-average period of approximately 3.1 years. As of September 30, 2009, total unrecognized compensation expense related to nonvested restricted stock was $1.4 million, which is expected to be recognized over a weighted-average period of approximately 3.2 years. Compensation expense capitalized to inventory and compensation expense related to the Company’s ESPP were not material for the three and nine months ended September 30, 2009 and 2008. 8 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 12. Table of Contents Quidel Corporation Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 9. Stock-Based Compensation (Continued) The estimated fair value of each stock option award was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions for the option grants. Nine months ended September 30, 2009 2008 Expected option life (in years) 4.65 4.27 Volatility rate 0.52 0.50 Risk-free interest rate 1.87% 2.43% Forfeiture rate 15.5% 12.7% Dividend rate 0% 0% The weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2009 and 2008 was $4.80 and $7.03, respectively. The grant date fair value of restricted stock is determined based on the closing market price of the Company’s common stock on the grant date. Note 10. Industry and Geographic Information The Company operates in one reportable segment. Sales to customers outside the U.S. represented $21.7 million (22%) and $12.3 million (13%) of total revenue for the nine months ended September 30, 2009 and 2008, respectively. As of September 30, 2009 and December 31, 2008, balances due from foreign customers were $8.5 million and $4.7 million, respectively. The Company had sales to individual customers in excess of 10% of total revenue, as follows: Nine months ended September 30, 2009 2008 Customer: A 16% 20% B 14% 18% C 13% 4% D 11% 8% E 9% 11% 63% 61% As of September 30, 2009, accounts receivable from customers with balances due in excess of 10% of total accounts receivable totaled $21.7 million while, at December 31, 2008, accounts receivable from customers with balances due in excess of 10% of total accounts receivable totaled $17.9 million. Note 11. Fair Value Measurement The Company’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs are generally developed internally, utilizing management’s estimates, assumptions and specific knowledge of the assets/liabilities and related market assumptions. The fair value of our cash equivalents and marketable securities are determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. The Company’s marketable securities consist of commercial paper with maturities no greater than 180 days. Unrealized gains were immaterial in the period. 9 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 13. Table of Contents Quidel Corporation Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 12. Restructuring Charges In March 2009, the Company announced and implemented a restructuring plan (the “Restructuring Plan”). The Restructuring Plan primarily consisted of a workforce reduction (approximately 10% of the Company’s total workforce) as well as consolidation of facility space at its Santa Clara, California location. The expected completion or cash payout date for the workforce reduction is the end of fiscal 2009, at which time the COBRA benefits will expire for terminated employees. The expected completion date relating to the Santa Clara lease liability is November 2014, the end of the current lease term. The Company recorded a charge of $2.0 million during the nine months ended September 30, 2009, which is net of a $0.2 million stock-based compensation expense reversal for certain terminated employees. During the three months ended September 30, 2009, the Company reduced the restructuring liability by $0.1 million for cash payments made during the period. As of September 30, 2009, the remaining accrual is classified as accrued payroll and related expenses of $0.1 million, other current liabilities of $0.2 million and other non-current liabilities of $0.8 million in the accompanying Consolidated Balance Sheets. As part of the Restructuring Plan, the Company recorded an impairment charge related to a fixed asset no longer in use. Additionally, the Company vacated the unutilized portion of its Santa Clara facility in April 2009 and recorded a restructuring charge of approximately $1.1 million in the second quarter of 2009. 10 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 14. Table of Contents ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations In this quarterly report, all references to “we,” “our” and “us” refer to Quidel Corporation and its subsidiaries. Future Uncertainties and Forward-Looking Statements This Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws that involve material risks, assumptions and uncertainties. Many possible events or factors could affect our future financial results and performance, such that our actual results and performance may differ materially from those that may be described or implied in the forward-looking statements. As such, no forward-looking statement can be guaranteed. Differences in actual results and performance may arise as a result of a number of factors including, without limitation, seasonality, the timing of onset, length and severity of cold and flu seasons, the level of success in executing on our strategic initiatives, our reliance on sales of our influenza diagnostic tests, uncertainty surrounding the detection of novel influenza viruses involving human specimens, adverse changes in the competitive and economic conditions in domestic and international markets, our reliance on and actions of our major distributors, technological changes and uncertainty with research and technology development, including any future molecular-based technology, the reimbursement system currently in place and future changes to that system, manufacturing and production delays or difficulties, adverse actions or delays in product reviews by the U.S. Food and Drug Administration (the “FDA”), intellectual property, product liability, environmental or other litigation, potential required patent license fee payments not currently reflected in our costs, potential inadequacy of booked reserves and possible impairment of goodwill, and lower than anticipated sales or market penetration of our new products. Forward-looking statements typically are identified by the use of terms such as “may,” “will,” “should,” “might,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. Forward-looking statements in this Quarterly Report include, among others, statements concerning: our outlook for the remainder of 2009, including projections about our revenue, gross margins and expenses, projected capital expenditures during the remainder of 2009 and our source of funds for such expenditures; the sufficiency of our liquidity and capital resources; and our intention to continue to evaluate acquisition licensing opportunities. The risks described under “Risk Factors” in Item 1A of this Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2008, and elsewhere herein and in reports and registration statements that we file with the Securities and Exchange Commission (the “SEC”) from time to time, should be carefully considered. You are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Quarterly Report. The following should be read in conjunction with the Consolidated Financial Statements and notes thereto beginning on page 3 of this Quarterly Report. We undertake no obligation to publicly release the results of any revision or update of these forward-looking statements, except as required by law. Overview We have a leadership position in the development, manufacturing and marketing of rapid diagnostic solutions for decentralized applications including point-of-care (“POC”) in infectious diseases and reproductive and women’s health. We focus on POC testing solutions specifically developed for the physician office lab and acute care markets globally. We sell our products to professionals for use in physician offices, hospitals, clinical laboratories, retail clinics and wellness screening centers. We market our products in the U.S. through a network of national and regional distributors, supported by a direct sales force. Internationally, we sell and market primarily in Japan, Europe and the Middle East through exclusive distributor arrangements. Outlook For the remainder of fiscal year 2009, we anticipate year-over-year revenue growth primarily driven by our infectious disease product lines. We expect gross margins will be positively affected by a more favorable product mix and improved average selling prices through a significant reduction and re-alignment of incentive programs throughout our distribution channel. Internationally, we expect continued growth for fiscal year 2009 as we increase the reach of our products to markets around the world. While we successfully executed our restructuring in the first quarter of 2009, we expect costs and expenses to be higher year-over-year, largely as a result of significant investments in new product development, evaluating new technologies, marketing programs aimed at driving increased awareness for influenza testing and increases in our telesales and managed care sales groups. 11 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 15. Table of Contents Results of Operations Three months ended September 30, 2009 compared to the three months ended September 30, 2008 Total Revenues The following table compares total revenues for the three months ended September 30, 2009 and 2008 (in thousands, except percentages): For the three months ended September 30, Increase (Decrease) 2009 2008 $ % Infectious disease net product sales $ 47,023 $ 24,620 $ 22,403 91% Reproductive and women’s health net product sales 5,524 4,013 1,511 38% Other net product sales 3,288 2,892 396 14% Royalty income and license fees 317 343 (26) (8)% Total revenues $ 56,152 $ 31,868 $ 24,284 76% The increase in total revenues was primarily due to increased sales globally of our influenza products during the quarter. We believe this increase reflects a combination of factors, including a significantly higher than normal incidence of influenza during the summer with the emergence of the 2009 H1N1 virus and an increase in the number of new physicians using flu tests to aid in the diagnosis of influenza. The revenue from royalty income and license fees for all periods primarily relate to royalty payments earned on our patented technologies utilized by third parties. Cost of Sales Cost of sales increased 46% to $17.7 million, or 31% of total revenues for the three months ended September 30, 2009, compared to $12.1 million, or 38% of total revenues for the three months ended September 30, 2008. The percentage decrease in cost of sales as a percentage of total revenue was largely due to a more favorable product mix of increased sales of our infectious disease products. Operating Expenses The following table compares operating expenses for the three months ended September 30, 2009 and 2008 (in thousands, except percentages): For the three months ended September 30, 2009 2008 Increase (Decrease) As a % of As a % of Operating total Operating total expenses revenues expenses revenues $ % Research and development $3,157 6% $2,753 9% $ 404 15% Sales and marketing 6,400 11% 5,141 16% 1,259 25% General and administrative 4,325 8% 3,438 11% 887 26% Amortization of intangibles 345 1% 1,114 3% (769) (69)% Research and Development Expense Research and development expense increased due primarily to development of potential new technologies and products under development, clinical studies related to our influenza products and an employee bonus accrual. Sales and Marketing Expense Sales and marketing expense increased largely as a result of product promotions related to influenza, increased investment in our sales force to further support our leadership position and higher sales commissions corresponding to increased sales of our infectious disease products. Other key components of this expense relate to continued investment in assessing future product extensions and enhancements and market research. 12 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 16. Table of Contents General and Administrative Expense The increase in general and administrative expense is primarily related to an employee bonus accrual and increased costs in connection with our new credit facility. Amortization of Intangibles The amortization of intangible assets decreased primarily due to the full amortization of a license agreement in December 2008. Other Income (Expense) The decrease in interest income is related to the decrease in interest rates and a decrease in our average cash balance during the three months ended September 30, 2009 as compared to the three months ended September 30, 2008. Interest expense relates to interest paid on obligations under capital leases, primarily associated with our San Diego facility. Income Taxes The effective tax rate for the three months ended September 30, 2009 and 2008 was 38.1% and 38.5%, respectively. We recognized tax expense of $9.2 million and $3.0 million for the three months ended September 30, 2009 and 2008, respectively. Nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 Total Revenues The following table compares total revenues for the nine months ended September 30, 2009 and 2008 (in thousands, except percentages): For the nine months ended September 30, Increase (Decrease) 2009 2008 $ % Infectious disease net product sales $ 70,918 $ 66,250 $ 4,668 7% Reproductive and women’s health net product sales 15,686 18,495 (2,809) (15)% Other net product sales 10,107 9,038 1,069 12% Royalty income and license fees 974 866 108 12% Total revenues $ 97,685 $ 94,649 $ 3,036 3% The increase in total revenues was largely due to a net increase in global sales of our influenza products, partially offset by a decrease in sales of our women’s and reproductive health products. The decrease in sales of our women’s and reproductive health products was primarily related to our 2008 strategic sales initiative that affected distributor ordering patterns and had a resulting increase in their inventories at the beginning of fiscal year 2009. The increase in other net product sales was largely attributable to higher sales of our veterinary products. We derive a significant portion of our total revenue from a relatively small number of distributors. Approximately 63% and 61% of our total revenue for the nine months ended September 30, 2009 and 2008, respectively, were derived from sales through our five largest distributors. The revenue from royalty income and license fees for all periods primarily relate to royalty payments earned on our patented technologies utilized by third parties. Cost of Sales Cost of sales decreased 1% to $36.2 million, or 37% of total revenues for the nine months ended September 30, 2009, compared to $36.4 million, or 38% of total revenues for the nine months ended September 30, 2008. The percentage decrease in cost of sales as a percentage of total revenue was largely due to a more favorable product mix of increased sales of our infectious disease products. 13 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 17. Table of Contents Operating Expenses The following table compares operating expenses for the nine months ended September 30, 2009 and 2008 (in thousands, except percentages): For the nine months ended September 30, 2009 2008 Increase (Decrease) As a % of As a % of Operating total Operating total expenses revenues expenses revenues $ % Research and development $ 9,003 9% $ 8,755 9% $ 248 3% Sales and marketing 16,538 17% 16,052 17% 486 3% General and administrative 12,125 12% 10,175 11% 1,950 19% Amortization of intangibles 1,040 1% 3,408 4% (2,368) (70)% Restructuring charges 2,038 2% — — 2,038 N/A Research and Development Expense Research and development expense increased due primarily to development of potential new technologies and products under development, clinical studies related to our influenza products and an employee bonus accrual. Sales and Marketing Expense Sales and marketing expense increased in 2009 primarily due to product promotions related to influenza and an increased investment in our sales force to further support our leadership position. Other key components of this expense relate to continued investment in assessing future product extensions and enhancements and market research. General and Administrative Expense The increase in general and administrative expense is primarily related to the hiring of new executives, an employee bonus accrual and costs incurred in connection with our new credit facility. Amortization of Intangibles The amortization of intangible assets decreased primarily due to the full amortization of a license agreement in December 2008. Restructuring Charges We recorded a restructuring charge of $2.0 million, comprised of severance costs and costs associated with vacating the unutilized portion of our Santa Clara facility, during the nine months ended September 30, 2009, which is net of a $0.2 million stock-based compensation expense reversal for certain terminated employees. Other Income (Expense) The decrease in interest income is related to the decrease in interest rates and a decrease in our average cash balance during the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008. Interest expense relates to interest paid on obligations under capital leases, primarily associated with our San Diego facility. Income Taxes The effective tax rate for the nine months ended September 30, 2009 and 2008 was 38.0% and 38.5%, respectively. We recognized tax expense of $7.8 million and $8.0 million for the nine months ended September 30, 2009 and 2008, respectively. Liquidity and Capital Resources As of September 30, 2009, our principal sources of liquidity consisted of $60.3 million in cash and cash equivalents, $5.0 million in marketable securities, as well as the $118.0 million available to us under our senior secured syndicated credit facility (the “Senior Credit Facility”), which can fluctuate from time to time due to, among other factors, our funded debt to EBITDA ratio. Our working capital as of September 30, 2009 was $87.0 million. 14 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 18. Table of Contents Changes in operating assets and liabilities are primarily driven by the increase and timing of revenue during the nine months ended September 30, 2009. Our investing activities used $8.3 million during the nine months ended September 30, 2009 primarily for the acquisition of production and scientific equipment, building improvements and the purchase of marketable securities. We are planning approximately $4.0 million in capital expenditures for the remainder of 2009. The primary purpose for our capital expenditures is to acquire manufacturing equipment, implement facility improvements, and for information technology. We plan to fund these capital expenditures with cash flow from operations. We have $4.0 million in firm purchase commitments with respect to such planned capital expenditures as of the date of filing this report. Our financing activities used $17.0 million of cash during the nine months ended September 30, 2009. This was primarily related to the repurchase of approximately 2.1 million shares of our common stock at a cost of approximately $19.5 million. Our proceeds from the issuance of common stock, associated with the exercising of stock options, was $1.7 million during the nine months ended September 30, 2009. Additionally, a benefit was realized in the amount of $1.4 million from excess taxes from share-based compensation. Our $120.0 million Senior Credit Facility matures on October 8, 2013. The Senior Credit Facility bears interest at a rate ranging from 0.50% to 1.75% plus the lender’s prime rate or, at our option, a rate ranging from 1.50% to 2.75% plus the London InterBank Offering Rate. The agreement governing the Senior Credit Facility is subject to certain customary limitations, including among others: limitation on liens; limitation on mergers, consolidations and sales of assets; limitation on debt; limitation on dividends, stock redemptions and the redemption and/or prepayment of other debt; limitation on investments (including loans and advances) and acquisitions; limitation on transactions with affiliates; and limitation on annual capital expenditures. The terms of the Senior Credit Facility require us to comply with certain financial covenants which include a funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA, as defined in the Senior Credit Facility) ratio, and an interest coverage ratio. The Senior Credit Facility is secured by substantially all present and future assets and properties of the Company. As of September 30, 2009, we had approximately $118.0 million available under the Senior Credit Facility. At September 30, 2009, we had no amounts outstanding under the Senior Credit Facility and we were in compliance with all financial covenants. We also intend to continue evaluation of acquisition and technology licensing candidates. As such, we may need to incur additional debt, or issue additional equity, to successfully complete these transactions. Cash requirements fluctuate as a result of numerous factors, such as the extent to which we generate cash from operations, progress in research and development projects, competition and technological developments and the time and expenditures required to obtain governmental approval of our products. Based on our current cash position and the current assessment of future operating results, we believe that our existing sources of liquidity will be adequate to meet operating needs during the next 12 months and the foreseeable future. Off-Balance Sheet Arrangements At September 30, 2009, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer programs and incentives, bad debts, inventories, intangible assets, income taxes, stock-based compensation, restructuring and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 15 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 19. Table of Contents There have been no significant changes in critical accounting policies or management estimates since the year ended December 31, 2008. A comprehensive discussion of our critical accounting policies and management estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2008. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk The fair market value of our floating interest rate debt is subject to interest rate risk. Generally, the fair market value of floating interest rate debt will vary as interest rates increase or decrease. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of our interest sensitive financial instruments at September 30, 2009. Based on our market risk sensitive instruments outstanding at September 30, 2009 and 2008, we have determined that there was no material market risk exposure to our consolidated financial position, results of operations or cash flows as of such dates. Our current investment policy with respect to our cash and cash equivalents and marketable securities focuses on maintaining acceptable levels of interest rate risk and liquidity. Although we continually evaluate our placement of investments, as of September 30, 2009, our cash and cash equivalents and marketable securities were placed in certificates of deposit, commercial paper, money market or overnight funds that are highly liquid and which we believe are not subject to material market fluctuation risk. Foreign Currency Exchange Risk All of our international sales are negotiated for and paid in U.S. dollars. Nonetheless, these sales are subject to currency risks, since changes in the values of foreign currencies relative to the value of the U.S. dollar can render our products comparatively more expensive. These exchange rate fluctuations could negatively impact international sales of our products, as could changes in the general economic conditions in those markets. Continued change in the values of the Euro, the Japanese Yen and other foreign currencies could have a negative impact on our business, financial condition and results of operations. We do not currently hedge against exchange rate fluctuations, which means that we are fully exposed to exchange rate changes. ITEM 4. Controls and Procedures Evaluation of disclosure controls and procedures: We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2009 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Changes in internal control over financial reporting: There was no change in our internal control over financial reporting during the three months ended September 30, 2009 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 16 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 20. Table of Contents PART II OTHER INFORMATION ITEM 1. Legal Proceedings None. ITEM 1A. Risk Factors There has been no material change in our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. For a detailed description of our risk factors, refer to Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2008. ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The table below sets forth information regarding repurchases of our common stock by us during the three months ended September 30, 2009: Approximate dollar value of shares that Total number may yet be Total number Average of shares purchased purchased of shares price paid as part of publicly under the plan or program Period purchased per share announced plan or program (1) July 1 — July 31, 2009 — $ — — $ 8,066,000 August 1 — August 31, 2009 — — — 8,066,000 September 1 — September 30, 2009 — — — 8,066,000 Total — $ — — $ 8,066,000 (1) In June 2005, we announced that our Board of Directors authorized us to repurchase up to $25.0 million in shares of our common stock under a stock repurchase program. In March 2007, we announced that our Board of Directors authorized us to repurchase up to an additional $25.0 million in shares of our common stock under our stock repurchase program. In December 2008, we announced that our Board of Directors authorized us to repurchase up to an additional $25.0 million in shares of our common stock under our stock repurchase program. Any shares of common stock repurchased under this program will no longer be deemed outstanding upon repurchase and will be returned to the pool of authorized shares. This repurchase program will expire on December 1, 2010 unless extended by our Board of Directors. ITEM 5. OTHER INFORMATION None. ITEM 6. Exhibits Exhibit Number 3.1 Certificate of Incorporation, as amended. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 26, 1991.) 3.2 Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Form 8-K dated November 8, 2000.) 4.1 Certificate of Designations of Series C Junior Participating Preferred Stock as filed with the State of Delaware on December 31, 1996. (Incorporated by reference to Exhibit 1(A) to the Registrant’s Registration Statement on Form 8-A filed on January 14, 1997.) 4.2 Amended and Restated Rights Agreement dated as of December 29, 2006 between Registrant and American Stock Transfer and Trust Company, as Rights Agent. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 5, 2007.) 17 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 21. Table of Contents Exhibit Number 10.1*(1) Employment Offer Letter, dated June 22, 2009, between Quidel Corporation and Timothy T. Stenzel. 10.2*(1) Agreement Re: Change in Control, entered into on September 1, 2009, between Quidel Corporation and Timothy T. Stenzel. 31.1* Certification by Principal Executive Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification by Principal Financial and Accounting Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certifications by Principal Executive Officer and Principal Financial and Accounting Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Filed herewith. (1) Indicates a management plan or compensatory plan or arrangement. 18 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 22. Table of Contents 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. Date: October 20, 2009 QUIDEL CORPORATION /s/ DOUGLAS C. BRYANT Douglas C. Bryant President and Chief Executive Officer (Principal Executive Officer) /s/ JOHN M. RADAK John M. Radak Chief Financial Officer (Principal Financial Officer and Accounting Officer) 19 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 23. Table of Contents Exhibit Index Exhibit Number 3.1 Certificate of Incorporation, as amended. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 26, 1991.) 3.2 Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Form 8-K dated November 8, 2000.) 4.1 Certificate of Designations of Series C Junior Participating Preferred Stock as filed with the State of Delaware on December 31, 1996 (Incorporated by reference to Exhibit 1(A) to the Registrant’s Registration Statement on Form 8-A filed on January 14, 1997.) 4.2 Amended and Restated Rights Agreement dated as of December 29, 2006 between Registrant and American Stock Transfer and Trust Company, as Rights Agent. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 5, 2007.) 10.1*(1) Employment Offer Letter, dated June 22, 2009, between Quidel Corporation and Timothy T. Stenzel. 10.2*(1) Agreement Re: Change in Control, entered into on September 1, 2009, between Quidel Corporation and Timothy T. Stenzel. 31.1* Certification by Principal Executive Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification by Principal Financial and Accounting Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certifications by Principal Executive Officer and Principal Financial and Accounting Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Filed herewith. (1) Indicates a management plan or compensatory plan or arrangement. 20 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 24. Exhibit 10.1 June 22, 2009 Dr. Tim Stenzel 1700 Hog Hollow Road Dripping Springs, TX 78620 Dear Tim: We are pleased to extend the following offer of employment to you: Title: Chief Scientific Officer Reporting to: Doug Bryant, President & CEO Compensation: $285,000 annually Annual Bonus: You will participate in the bonus plan with a target bonus of 40% at achievement of plan, consistent with our SVP level executives. Equity: You will receive equity equal to $325,000 in total value with half of such value awarded in the form of non-qualified stock options (vesting over four years with 50% vesting on the second anniversary of the grant date and annually thereafter) and half of such value in the form of time-based restricted stock (cliff vesting at the end of four years). The purchase price will be the closing NASDAQ market price of Quidel’s stock on your actual start date. Vacation Benefit: You will receive four weeks of vacation per year, accrued from your anniversary date. Relocation/ You will receive $100,000 (net), payable as a lump sum in the first ten days of employment. In addition, Inducement Bonus: Quidel will pay for up to 90 days of temporary housing and will put you in touch with Relocation Coordinates for assistance with your move. Change in Control You will be provided with change of control protection as outlined for other officers. Details of this Agreement: protection are contained in the attached Agreement re: Change in Control. Start Date: TBD In addition to the above, as a Quidel employee, you will be eligible to participate in our benefits programs, which will take effect on your first day of employment. A summary of these benefits is provided in the enclosed materials. Details of these benefit plans will be provided to you upon your employment. As a condition of employment with Quidel Corporation, you will be required to: (1) read, sign and return one copy of the enclosed Invention and Confidential Information Agreement; (2) within the first three days of employment, you must provide documents from the enclosed List of Acceptable Documents (I-9) which prove your identity and right to work in the United States; and (3) read, sign and return one copy of page 5 of the enclosed Employee Code of Conduct. Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 25. Dr. Tim Stenzel Offer Letter Page 2 This offer of employment is contingent upon successfully passing a pre-employment drug screen, background and reference check. Our vendor will be in contact with you to set up your drug screen appointment, which must be completed as soon as reasonably possible. Quidel Corporation is an at-will employer. This means that you have the right to terminate your employment with Quidel at any time, for any reason, with or without notice. Similarly, Quidel has the right to terminate the employment relationship at any time, for any reason, with or without notice. Any contrary representations, which may have been made to you, are superseded by this offer. Any modifications to this “at-will” term of your employment must be in writing and signed by you and Quidel’s President. If you should voluntarily leave the company within two years of beginning work, or two years of receiving relocation assistance, whichever is later, you will be required to repay a prorated portion of all relocation expenses covered by Quidel. You must make this repayment within 30 days of providing notice of your resignation. This offer expires seven days from the date of this letter. Please indicate your acceptance of our offer by signing below and returning a copy of this letter to Human Resources as soon as possible. Tim, on behalf of senior management, we are looking forward to having you join us as we work together to provide quality products to the medical community and to create value for the employees and shareholders of Quidel Corporation. Sincerely, /s/ Phyllis Huckabee Phyllis Huckabee Vice President, Human Resources cc: Doug Bryant Human Resources Enclosures I have read, understand and accept these terms and conditions of employment. I further understand that while my salary, benefits, job title and job duties may change from time to time without a written modification of this agreement, the at-will term of my employment is a term of employment which cannot be altered or modified except in writing, signed by me and Quidel’s President. /s/ Tim Stenzel July 6, 2009 Signature Date Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 26. Exhibit 10.2 AGREEMENT RE: CHANGE IN CONTROL This AGREEMENT RE: CHANGE IN CONTROL (this “Agreement”) is dated as of September 1, 2009 and is entered into by and between Timothy T. Stenzel (“Executive”) and Quidel Corporation, a Delaware corporation (the “Company”). Background The Company believes that because of its position in the industry, financial resources and historical operating results there is a possibility that the Company may become the subject of a Change in Control (as defined below), either now or at some time in the future. The Company believes that it is in the best interest of the Company and its stockholders to foster Executive’s objectivity in making decisions with respect to any pending or threatened Change in Control of the Company and to assure that the Company will have the continued dedication and availability of Executive, notwithstanding the possibility, threat or occurrence of a Change in Control. The Company believes that these goals can best be accomplished by alleviating certain of the risks and uncertainties with regard to Executive’s financial and professional security that would be created by a pending or threatened Change in Control and that inevitably would distract Executive and could impair his ability to objectively perform his duties for and on behalf of the Company. Accordingly, the Company believes that it is appropriate and in the best interest of the Company and its stockholders to provide to Executive compensation arrangements upon a Change in Control that lessen Executive’s financial risks and uncertainties and that are reasonably competitive with those of other corporations. With these and other considerations in mind, the Compensation Committee of the Company has authorized the Company to enter into this Agreement with the Executive to provide the protections set forth herein for Executive’s financial security following a Change in Control. NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration the receipt of which is hereby acknowledged, it is hereby agreed as follows: Agreement 1. Term of Agreement. This Agreement shall be effective as of the date of commencement of work and, subject to the provisions of Section 4, shall extend to (and thereupon automatically terminate) one (1) day after Executive’s termination of employment with the Company for any reason. No termination of this Agreement shall limit, alter or otherwise affect Executive’s rights hereunder with respect to a Change in Control which has occurred prior to such termination, including without limitation Executive’s right to receive the various benefits hereunder. 2. Purpose of Agreement. The purpose of this Agreement is to provide that, in the event of a “Change in Control,” Executive may become entitled to receive certain additional benefits, as described herein, in the event of his termination under specified circumstances. 3. Change in Control. As used in this Agreement, the phrase “Change in Control” shall mean: Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 27. (i) Except as provided by subparagraph (iii) hereof, the acquisition (other than from the Company) by any person, entity or “group”, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (excluding, for this purpose, the Company or its subsidiaries, or any executive benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of forty percent (40%) 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; or (ii) Individuals who, as of the date hereof, constitute the Board of Directors of the Company (as of the date hereof the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, is or was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iii) Approval by the stockholders of the Company of a reorganization, merger or consolidation with any other person, entity or corporation, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of another entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such other entity outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires forty percent (40%) or more of the combined voting power of the Company’s then outstanding voting securities; or (iv) Approval by the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or other disposition by the Company of all or substantially all of the Company’s assets. 4. Effect of a Change in Control. In the event of a Change in Control, Sections 6 through 13 of this Agreement shall become applicable to Executive. These Sections shall continue to remain applicable until the third anniversary of the date upon which the Change in Control occurs. On such third anniversary date, and provided that the employment of Executive has not been terminated on account of a Qualifying Termination (as defined in Section 5 below), this Agreement shall terminate and be of no further force or effect. 5. Qualifying Termination. If following, or within thirty (30) days prior to, a Change in Control Executive’s employment with the Company and its affiliated companies is terminated, such termination shall be conclusively considered a “Qualifying Termination” unless: 2 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 28. (a) Executive voluntarily terminates his employment with the Company and its affiliated companies. Executive, however, shall not be considered to have voluntarily terminated his employment with the Company and its affiliated companies if, following, or within thirty (30) days prior to, the Change in Control, Executive’s base salary is reduced or adversely modified in any material respect, or Executive’s authority or duties are materially changed, and subsequent to such reduction, modification or change Executive elects to terminate his employment with the Company and its affiliated companies within sixty (60) days following such reduction, modification or change after having given the Company at least thirty (30) days notice of the same and a reasonable opportunity to cure during such 30-day notice period. For such purposes, Executive’s authority or duties shall conclusively be considered to have been “materially changed” if, without Executive’s express and voluntary written consent, there is any substantial diminution or adverse modification in Executive’s title, status, overall position, responsibilities, reporting relationship, general working environment (including without limitation secretarial and staff support, offices, and frequency and mode of travel), or if, without Executive’s express and voluntary written consent, Executive’s job location is transferred to a site more than twenty-five (25) miles away from his place of employment thirty (30) days prior to the Change in Control. In this regard as well, Executive’s authority and duties shall conclusively be considered to have been “materially changed” if, without Executive’s express and voluntary written consent, Executive no longer holds the same title or no longer has the same authority and responsibilities or no longer has the same reporting responsibilities, in each case with respect and as to a publicly held parent company which is not controlled by another entity or person. (b) The termination is on account of Executive’s death or Disability. For such purposes, “Disability” shall mean a physical or mental incapacity as a result of which Executive becomes unable to continue the performance of his responsibilities for the Company and its affiliated companies and which, at least three (3) months after its commencement, is determined to be total and permanent by a physician agreed to by the Company and Executive, or in the event of Executive’s inability to designate a physician, Executive’s legal representative. In the absence of agreement between the Company and Executive, each party shall nominate a qualified physician and the two physicians so nominated shall select a third physician who shall make the determination as to Disability. (c) Executive is involuntarily terminated for “Cause.” For this purpose, “Cause” shall be limited to only three types of events: (1) the willful and deliberate refusal of Executive to comply with a lawful, written instruction of the Board of Directors, which refusal is not remedied by Executive within a reasonable period of time after his receipt of written notice from the Company identifying the refusal, so long as the instruction is consistent with the scope and responsibilities of Executive’s position prior to the Change in Control; (2) an act or acts of personal dishonesty by Executive which were intended to result in substantial personal enrichment of Executive at the expense of the Company; or (3) Executive’s conviction of any felony involving an act of moral turpitude. 3 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 29. 6. Severance Payment. If Executive’s employment is terminated as a result of a Qualifying Termination, the Company shall pay Executive within thirty (30) days after the Qualifying Termination a cash lump sum equal to two (2) times the Executive’s Compensation (the “Severance Payment”). (a) For purposes of this Agreement, Executive’s “Compensation” shall equal the sum of (i) Executive’s highest annual salary rate with the Company within the three year period ending on the date of Executive’s Qualifying Termination, plus (ii) a “Bonus Increment.” The Bonus Increment shall equal the annualized average of all bonuses and incentive compensation payments paid to Executive during the two (2) year period immediately before the date of Executive’s Qualifying Termination under all of the Company’s bonus and incentive compensation plans or arrangement. (b) [Intentionally Deleted.] (c) The Severance Payment hereunder is in lieu of any severance payment that Executive might otherwise be entitled to from the Company in the event of a Change in Control under the Company’s applicable severance pay policies, if any, or under any other oral or written agreement; provided, however, that Executive shall continue to be entitled to receive the severance pay benefits under the Company’s applicable policies, if any, or under another written agreement if and to the extent Executive’s termination is not a Qualifying Termination after, or within thirty (30) days prior to, a Change in Control. (d) Notwithstanding any provision of this Agreement to the contrary, if, at the time of Executive’s termination of employment with the Company, Executive is a “specified employee” as defined in Section 409A of the Code, and one or more of the payments or benefits received or to be received by Executive pursuant to this Agreement (or any portion thereof) would become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code (the “Section 409A Taxes”) if provided at the time otherwise required under this Agreement, no such payment or benefit will be provided under this Agreement until the earlier of (a) the date which is six (6) months after Executive’s “separation from service” or (b) the date of Executive’s death, or such shorter period that, as determined by the Company, is sufficient to avoid the imposition of Section 409A Taxes. The provisions of this Section 6(d) shall only apply to the minimum extent required to avoid Executive’s incurrence of any Section 409A Taxes. In addition, if any provision of this Agreement would cause Executive to incur any penalty tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder, the Company may reform such provision to maintain to the maximum extent practicable the original intent of the applicable provision without violating the provisions of Section 409A of the Code. 7. Additional Benefits. (a) In the event of a Qualifying Termination, any and all unvested stock options of Executive shall immediately become fully vested and exercisable and any and all restrictions on Executive’s restricted stock shall immediately and automatically lapse (except as otherwise expressly agreed to, in writing, by both parties, including whether prior to or after the execution of this Agreement). 4 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009
  • 30. (b) In the event of a Qualifying Termination, Executive shall be entitled to continue to participate in the following executive benefit programs which had been made available to Executive (including his family) before the Qualifying Termination: group medical insurance, group dental insurance, and group vision insurance. These programs shall be continued at no cost to Executive, except to the extent that tax rules require the inclusion of the value of such benefits in Executive’s income. The programs shall be continued in the same way and at the same level as immediately prior to the Qualifying Termination. The programs shall continue for Executive’s benefit for two (2) years after the date of the Qualifying Termination; provided, however, that Executive’s participation in each of such programs shall be earlier terminated or reduced, as applicable, if and to the extent Executive receives benefits as a result of concurrent coverage through another program. (c) In the event of a Qualifying Termination, Executive shall be entitled to receive from the Company, upon such Termination, the sum of $25,000 to help defray legal fees, tax and accounting fees, executive outplacement services, and other costs associated with transitional matters. 8. Limitation on Payments. Notwithstanding anything to the contrary herein, in the event that the sum aggregate present value of (i) the Severance Payment payable under Section 6 hereof, (ii) any and all additional amount or benefits which may be paid or conferred to or on behalf of Executive in accordance with Section 7 hereof, and (iii) any and all other amounts or benefits paid or conferred to or on behalf of Executive would constitute a “parachute payment” (“parachute payment” as used in this Agreement shall be defined in accordance with Section 280G(b)(2), or any successor thereto, of the Internal Revenue Code of 1986, as amended), the payments under this Agreement shall be reduced (by the minimum possible amounts) until no amount payable to Executive under this Agreement constitutes a parachute payment; provided, however, that no such reduction under this Section 8 shall be made if the net after-tax payment (after taking into account, Federal, state, local or other income and excise taxes) to which Executive would otherwise be entitled without such reduction would be greater than the net after-tax payment (after taking into account Federal, state, local or other income and excise taxes) to Executive resulting from the receipt of such payments with such reduction. If, as a result of subsequent events or conditions (including a subsequent payment or absence of a subsequent payment under this Agreement), it is determined that payments hereunder have been reduced by more than the minimum amount required under this Section 8, then an additional payment shall be promptly made to Executive in an amount equal to the excess reduction. All determinations required to be made under this Section 8, including whether a payment would result in a parachute payment and the assumptions to be utilized in arriving at such determination, shall be made and approved within fifteen (15) days after the Qualifying Termination by both (1) accountants selected by the Company and (2) Executive’s designated financial advisor. 9. Nonsolicitation Covenant. In consideration of the payments to be made to Executive hereunder, Executive hereby covenants, for a period of two (2) years following the Qualifying Termination, that he will not, directly or indirectly (whether as an officer, director, employee, individual proprietor, control shareholder, consultant, partner or otherwise) (i) solicit, recruit or hire-away any employee of the Company or successor of the Company or (ii) solicit, influence or attempt to influence any person or entity to terminate such person’s or entity’s contractual and/or business relationship with the Company or successor of the Company. With regard to this Section 9, Executive acknowledges that the provisions herein are reasonable in both scope and duration and necessary to protect the business of the Company or its successor. 5 Source: QUIDEL CORP /DE/, 10-Q, October 21, 2009