<PAGE>
As filed with the Securities and Exchange Commission on February 18, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ORCHID BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
----------
<TABLE>
<S> <C> <C>
Delaware 8731 22-3392819
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
----------
ORCHID BIOSCIENCES, INC.
303 College Road East
Princeton, NJ 08540
(609) 750-2200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------
DALE R. PFOST, Ph.D.
Chairman of the Board, President and Chief Executive Officer
ORCHID BIOSCIENCES, INC.
303 College Road East
Princeton, NJ 08540
(609) 750-2200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------
Copies to:
<TABLE>
<S> <C>
Joseph E. Mullaney III, Esq. Peter H. Jakes, Esq.
John J. Cheney III, Esq. Gregg B. Shulklapper, Esq.
Mintz, Levin, Cohn, Ferris, Willkie Farr & Gallagher
Glovsky and Popeo, P.C. 787 Seventh Avenue
One Financial Center New York, New York 10019-6099
Boston, Massachusetts 02111 Telephone: (212) 728-8000
Telephone: (617) 542-6000 Telecopy: (212) 728-8111
Telecopy: (617) 542-2241
</TABLE>
----------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Aggregate
Title of each Class of Offering Amount of
Securities to be Registered Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value per share...................... $90,000,000.00 $23,760
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) promulgated under the Securities Act of 1933.
----------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 18, 2000
Shares
(LOGO)
Common Stock
--------
Orchid BioSciences, Inc. is selling shares of common stock. Prior to this
offering, there has been no public market for our common stock. The initial
public offering price of our common stock is expected to be between $ and
$ per share. We have applied to have our common stock approved for quotation
on The Nasdaq Stock Market's National Market under the symbol "ORCH."
The underwriters have an option to purchase up to a maximum of shares to
cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 8.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Orchid
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Robertson Stephens
Salomon Smith Barney
The date of this prospectus is , 2000.
<PAGE>
[Gatefold layout of graphic representation of our GBA primer-extension,
including the steps involved in the process in the "Technology" section and the
criteria for wetware. Photos will represent our product and service offerings,
including SNPstream, SNPware kits and our GeneScreen facility, as well as a
graphic illustration of our microfluidic technology and MegaSNPatron facility.
Captions under each of the images will identify the steps of the SNP scoring
process.]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 8
Special Note Regarding Forward-
Looking Statements................. 22
Use Of Proceeds..................... 23
Dividend Policy..................... 23
Trademarks.......................... 23
Capitalization...................... 24
Dilution............................ 25
Selected Financial Data............. 26
Unaudited Pro Forma Financial Data.. 27
Management's Discussion And Analysis
Of Financial Condition And Results
Of Operations...................... 30
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business......................... 36
Management....................... 53
Transactions With Executive
Officers, Directors And Five
Percent Stockholders............ 66
Principal Stockholders........... 67
Description Of Capital Stock..... 69
Shares Eligible For Future Sale.. 72
Underwriting..................... 74
Notice To Canadian Residents..... 76
Legal Matters.................... 77
Experts.......................... 77
Where You Can Find More
Information..................... 77
Index To Financial Statements.... F-1
</TABLE>
This prospectus contains references to our trademarks GBA(R) and
GeneScreen(R). Genetic Bit Analysis, SNPstream, SNPware, SNPkit, DNAstream,
Chemtel, Agile Arrays, MegaSNPatron, SNPcode, Clinical Genetics Network,
Regional GeneScreen Centers, SNP CONFIRM, SNP ASSOCIATE, SNP WIDEMAP,
GENESCREEN IDENTITY, GENESCREEN FORENSIC, GENESCREEN TRANSPLANT TESTING, and
the Orchid logo are our trademarks for which registration applications have
been filed with the United States Patent and Trademark Office. All other
trademarks or trade names referred to in this prospectus are the property of
their respective owners.
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information you should consider before
buying shares in the offering. Therefore, you should read the entire prospectus
carefully.
Orchid BioSciences
We are a leader in the development and commercialization of genetic
diversity technologies, products and services. We expect our proprietary
technologies will significantly enhance the way companies generate information
about single nucleotide polymorphisms, or "SNPs", the most common form of
genetic diversity. Genetic diversity information can be used to facilitate the
development of highly specific and efficacious drugs, to improve the
effectiveness of existing drugs, and to increase the likelihood of success of
tissue transplants. Our proprietary technologies also have other commercial
applications outside of the healthcare field, including forensics and paternity
testing, as well as improved crop development and livestock breeding programs.
The Opportunity
As the sequencing of the human genome nears a successful completion, we
believe we are entering a post-genomics era that will be driven by the
identification of genetic variation from person to person. We expect millions
of SNPs will be discovered over the next several years, fueling a dramatic
increase in the demand for studies associating particular SNPs or combinations
of SNPs with medically important attributes. These studies are expected to
create a need for the performance of billions of SNP analyses, or SNP scores.
The methods traditionally used to conduct SNP scoring have significant
limitations, including high expense, low accuracy, lack of flexible design,
lack of scalability and sensitivity to variations in experimental conditions.
The transition to the post-genomics era and the increase in the number of SNP
association studies is creating a pressing need for fast and flexible SNP
scoring systems that can score SNPs with a higher level of accuracy and at a
lower cost than is achievable with current methods.
Orchid's Unique Solution
We believe our proprietary Genetic Bit Analysis, or GBA, primer-extension
SNP scoring technology is superior to all other SNP scoring technologies. Our
SNP scoring system is able to rapidly generate highly accurate information
relating to SNPs at a cost that is significantly lower than conventional
systems. We have designed our GBA primer-extension technology to be automated
and scalable. It is also adaptable to a wide variety of hardware platforms and
laboratory conditions. We believe the combination of our GBA primer-extension
technology with our proprietary microfluidics technology will enable us to gain
competitive advantages in the cost and throughput of SNP scoring conducted at
our ultra high-throughput MegaSNPatron facility. As we develop our
microfluidics technologies, we intend to integrate them into our facility in
order to increase its throughput to millions of SNP scores per day and reduce
SNP scoring costs to pennies per SNP score.
We believe our unique approach to SNP scoring will enable pharmaceutical
companies to improve their identification of lead drug candidates for
optimization and development by allowing them to generate and rapidly convert
genetic variation data into diverse collections of potentially useful targets
and drug candidates. In addition, we believe our technologies will be used by
pharmaceutical companies to assess the efficacy and toxicity of drug candidates
within their product pipelines as well as their currently-marketed drugs. We
intend to use our technologies to develop proprietary applications of SNPs
which improve medical treatment. We believe our proprietary technologies will
also be applicable to the development of agricultural and diagnostic products.
We believe these applications of genetic diversity will be an important part of
the post-genomics era.
4
<PAGE>
Our Target Markets
We are targeting our SNP scoring technologies at a number of the most
rapidly developing markets in the field of genetic diversity. Specifically, we
believe our SNP scoring technologies can provide significant value in many
aspects of drug discovery, development and marketing as well as disease
predisposition assessment, diagnostic test development, transplantation
matching and development of agricultural products. Each of these markets
presents us with a wide range of opportunities for our technologies, including
SNP confirmation and SNP association studies, as well as the application of SNP
scoring to clinical trials and in clinical diagnostics.
Our Strategy
Our objective is to become the premier provider of instruments, consumables,
services and technologies for SNP scoring and of other genetic diversity tests.
The key elements of our strategy to achieve this objective include the
following:
. Rapid commercialization. We intend to rapidly commercialize our products
and services, including our line of SNPstream instruments and SNPware
kits for SNP scoring. We intend to commercialize SNPware kits for use on
our hardware instrument platform, as well as on other SNP scoring
platforms. For example, we are developing our SNPware consumable product
line for Affymetrix, a leading DNA chip company. In addition, we intend
to offer our products and services to other major companies for
distribution to their customers. We currently provide SNP scoring
services at our ultra high-throughput MegaSNPatron facility.
. Market extension. We intend to leverage our strong position in the
research market to expand into the clinical and diagnostic markets. We
believe these markets have the largest long-term growth potential in the
genetic diversity field. We also intend to expand geographically by
establishing international SNP scoring facilities to create additional
service revenue and promote the sale of our entire line of products. We
also intend to provide SNP scoring directly to consumers and physicians
through one of our Web sites.
. Proprietary SNP value creation. We intend to continue to create
proprietary rights covering the association of SNPs with medically
important attributes. We expect this will result in proprietary rights
covering a broad range of new and existing drugs consisting of both
"composition of matter patents", which cover the drugs themselves, and
"use patents", which extend the drugs' label coverage.
. Sustained competitive advantage. We plan to expand our scientific
leadership in the genetic diversity field through scientific
collaborations and acquisitions. We intend to use our microfluidics
technologies to leverage our SNP scoring technologies and to maintain a
competitive advantage in SNP scoring costs and throughputs.
Our Products and Services
We currently offer our SNPstream hardware system for turn-key SNP scoring
capabilities, our SNPware consumable kits for conducting SNP scoring, and our
ultra high-throughput MegaSNPatron scoring services. We intend to market our
SNPware on our Web site where customers will be able to order custom SNP panels
to fit their individual needs. We also offer genetic diversity testing services
through our Regional GeneScreen Centers for use in forensic and paternity
testing as well as to improve the success of bone marrow transplants.
Our History
We were incorporated in Delaware on March 8, 1995 and in February 2000 we
changed our name from Orchid Biocomputer, Inc. to Orchid BioSciences, Inc. Our
principal office is located at 303 College Road East, Princeton, NJ 08540 and
our telephone number is (609) 750-2200. Our corporate Web site is located at
http://www.orchid.com. Information contained on any of our Web sites should not
be considered a part of this prospectus.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered...................... shares
Common stock to be outstanding after this
offering................................. shares
Use of proceeds........................... For general corporate and working
capital purposes, including
potential acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.... ORCH
</TABLE>
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding on December 31, 1999 and
excludes:
. 1,463,011 shares of common stock that may be issued upon exercise of
options outstanding as of December 31, 1999 at a weighted average
exercise price of $1.04 per share; and
. 1,229,228 shares of common stock that may be issued upon exercise of
warrants outstanding or obligated to be issued as of December 31, 1999 at
a weighted average exercise price of $4.68 per share.
------------
Unless otherwise indicated, information in this prospectus assumes the
following:
. the conversion of all of our outstanding shares of convertible preferred
stock upon the closing of this offering; including 5,971,903 shares of
Series E mandatorily redeemable convertible preferred stock sold in
January 2000 and 1,040,341 shares issued in January 2000 of Series E
mandatorily redeemable convertible preferred stock, which was recorded as
to be issued at December 31, 1999, into 24,671,450 shares of common
stock;
. the filing of our amended and restated certificate of incorporation
concurrently with the closing of this offering; and
. no exercise of the underwriters' over-allotment option.
6
<PAGE>
Summary Historical and Pro Forma Financial Data
(in thousands, except per share data)
In the "Pro Forma Year Ended December 31, 1999" column, below, we have
adjusted the consolidated statements of operations data to give pro forma
affect to the acquisition of GeneScreen, Inc. on December 30, 1999 as if it had
occurred on January 1, 1999. In the "As Adjusted" column in the consolidated
balance sheet data below, we have adjusted the actual balance sheet data as of
December 31, 1999 to give effect to the automatic conversion of all of our
outstanding convertible preferred stock, including the sale of Series E
mandatorily redeemable convertible preferred stock in January 2000 and the
issuance in January 2000 of Series E mandatorily redeemable convertible
preferred stock recorded as to be issued at December 31, 1999, into 24,671,450
shares of common stock immediately prior to the closing of this offering. We
have further adjusted the actual balance sheet data to give effect to receipt
of the net proceeds from the sale of shares of common stock in this
offering at an assumed initial public offering price of $ per share, after
deducting underwriting discounts and commissions and the estimated offering
expenses payable by us.
<TABLE>
<CAPTION>
Period from
March 8, 1995 Pro Forma
(inception) Year Ended December 31, Year Ended
to ------------------------------------ December 31,
December 31, 1995 1996 1997 1998 1999 1999
----------------- ------- ------- -------- -------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues................ $2,795 $ 6,230 $ 3,763 $ 2,781 $ 1,793 $ 15,456
Operating expenses:
Cost of laboratory
testing revenue....... -- -- -- -- -- 9,035
General and
administrative........ 37 718 2,842 5,024 8,567 14,942
Research and
development........... 2,795 6,727 10,812 7,574 13,412 13,510
Compensation expense
from equity
issuances............. -- -- 86 175 646 646
Acquisition of in-
process research and
development........... -- -- -- 2,353 -- --
------ ------- ------- -------- -------- --------
Total operating
expenses............... 2,832 7,445 13,740 15,126 22,625 38,133
------ ------- ------- -------- -------- --------
Operating loss.......... (37) (1,215) (9,977) (12,345) (20,832) (22,677)
------ ------- ------- -------- -------- --------
Other income (expenses),
net.................... 31 91 49 866 (3,271) (3,180)
------ ------- ------- -------- -------- --------
Net loss................ (6) (1,124) (9,928) (11,479) (24,103) (25,857)
====== ======= ======= ======== ======== ========
Net loss allocable to
common stockholders.... (6) (1,124) (9,928) (11,479) (68,468) 70,222
====== ======= ======= ======== ======== ========
Basic and diluted net
loss per share
allocable to common
stockholders........... $ (.05) $ (3.45) $(27.57) $ (17.09) $ (90.20) $ (92.51)
Shares used in computing
basic and diluted net
loss per share
allocable to common
stockholders........... 131 326 360 672 759 759
Unaudited Pro Forma Net
Loss Per Share Data:
Pro forma basic and
diluted net per share
allocable to common
stockholders
(unaudited)............ $ (10.19)
Shares used in computing
pro forma basic and
diluted loss per share
allocable to common
stockholders
(unaudited)............ 6,718
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
--------------------
Actual As Adjusted
------- -----------
(unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................. $34,204
Working capital........................................... 27,225
Total assets.............................................. 66,305
Long-term debt, less current position..................... 4,122
Mandatorily redeemable convertible preferred stock........ 88,995
Convertible preferred stock issued........................ 1,075
Total stockholders' equity (deficit)...................... (36,964)
</TABLE>
Please see Note 1 to our consolidated financial statements for an
explanation of the method used to calculate net loss allocable to common
stockholders and pro forma net loss per share allocable to common stockholders
and number of shares used in the computation of per share amounts.
7
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Risks and
uncertainties, in addition to those described below, that are not presently
known to us or that we currently believe are immaterial may also impair our
business. If any of the following risks actually occurs, we may not be able to
conduct our business as currently planned and our financial condition and
operating results could be seriously harmed. In that case, the market price of
our common stock could decline, and you could lose all or part of your
investment. See "Special Note Regarding Forward-Looking Statements."
Risks Related to Our Business
We have a relatively short operating history. There is a limited amount of
information about us upon which you can evaluate our business and prospects for
future success.
We were incorporated on March 8, 1995 and have only a relatively limited
operating history upon which you can evaluate our business and prospects for
future success. You must consider the risks and uncertainties frequently
encountered by early stage companies in new and rapidly evolving markets, such
as the market for products and services derived from genomics and microfluidics
technologies. Some of these risks and uncertainties relate to our ability to:
. anticipate and adapt to changes in our rapidly evolving markets;
. retain current customers or collaborators and attract new customers and
collaborators;
. implement and successfully execute our business strategy and sales and
marketing initiatives;
. attract, retain and motivate qualified personnel;
. respond effectively to competitive and technological developments;
. increase our brand recognition; and
. effectively manage our anticipated growth.
If we are unsuccessful in addressing these risks and uncertainties, our
business and financial condition could be materially and adversely affected.
We had an accumulated deficit of $46.6 million as of December 31, 1999, expect
to continue to incur substantial operating losses for several years and may
never achieve or maintain profitability.
We have had substantial operating losses since our inception and our
operating losses are expected to continue over the next several years.
Accordingly, we may never be profitable. For example, we experienced net losses
of $24.1 million in 1999, $11.5 million in 1998 and $9.9 million in 1997. As of
December 31, 1999, we had an accumulated deficit of $46.6 million. In order to
further develop our single nucleotide polymorphism, or SNP, scoring and
microfluidics technologies, we will need to incur significant expenses in
connection with our internal research and development and commercialization
programs. As a result, we expect to incur operating losses for several years.
Our ability to achieve significant revenue or profitability will depend upon
obtaining research collaborations and customers for our products and services.
If we fail to attract new collaborations and customers, our results of
operations and financial condition will be materially and adversely affected.
Fluctuations in our quarterly revenue and operating results may negatively
impact our stock price.
Our revenue and results of operations have fluctuated significantly in the
past and are expected to continue to fluctuate significantly in the future due
to a variety of factors, many of which are outside of our control. These
factors include:
8
<PAGE>
. demand for our products and services;
. our ability to attract and retain customers;
. our ability to attract, retain and motivate qualified technical and
scientific personnel;
. the number, timing and significance of new products and services
introduced by our competitors;
. our ability to develop, market and introduce new and enhanced products
and services on a timely basis;
. changes in the mix of our products and services offered;
. changes in our operating expenses;
. changes in the cost, quality and availability of reagents and components
required to manufacture or use our products;
. changes in commercial and government funding of research using our
products;
. regulatory actions; and
. changes in third-party reimbursement policies.
A substantial portion of our operating expense is related to personnel
costs, marketing programs and overhead, which cannot be adjusted quickly and is
therefore relatively fixed in the short term. Our operating expense levels are
based, in significant part, on our expectations of future revenue. If actual
revenue is below our expectations, our results of operations and financial
condition would be materially and adversely affected.
It is possible that in some future periods our results of operations may be
below the expectations of public market analysts and investors. In this event,
the market price of our common stock is likely to fall and you could lose all
or part of your investment.
We are in the early stages of developing our technologies and commercializing
our products.
We have just begun to incorporate our technologies into commercialized
products, and we cannot assure you that our commercialization of them will be
successful.
Our technologies are still in the early stages of development and we have
just begun to incorporate our technologies into commercialized products. Our
ability to successfully develop our technologies and commercialize our products
is subject to a variety of factors, including our ability:
. to obtain substantial additional capital to support the expenses of
developing our technologies and commercializing our products;
. to develop markets for our products or services;
. to successfully transition from a company with a research focus to a
company capable of supporting commercial activities; and
. to attract and retain qualified management, sales, technical and
scientific staff.
We have limited experience in manufacturing products for commercial sale and
will need to acquire new facilities to manufacture our products on a commercial
scale.
We have limited experience manufacturing products for commercial sale. We
have limited capacity to manufacture our products. We currently have a
manufacturing facility located in Princeton, New Jersey, which can only produce
limited quantities of our SNPware products for sale to our customers and for
internal use. To achieve the production levels necessary for successful
commercialization, we will need to scale-up our manufacturing facilities and
establish automated manufacturing capabilities. We are presently searching for
a facility to meet our manufacturing needs beyond 2000. If we are unable to
acquire additional manufacturing facilities or successfully scale-up our
existing manufacturing capability, we may not be able to provide our
9
<PAGE>
customers with the quantity of products and services they require, which would
adversely affect our business and result in reduced revenue. If our
manufacturing facility were significantly damaged by any natural disaster or if
other events were to cause our operations to fail, we could be prevented from
developing and manufacturing our products. Furthermore, we may not have
adequate insurance to cover the damage, which would adversely affect our
business and operations.
We have limited sales and marketing experience. As a result, we may be
unable to compete successfully with our competitors or commercialize any
potential products we may develop.
We have limited experience in sales and marketing. We do not have a direct
sales force. We intend to market our SNP scoring and microfluidics technologies
and applications through collaborations and distribution agreements with
pharmaceutical and biotechnology companies. We cannot assure you that we will
be able to establish a successful direct sales force or to establish
collaboration or distribution arrangements to market our products, which could
have a material adverse effect on our business and financial condition.
We may not be able to successfully manage our growth, which could adversely
affect our business.
We have grown rapidly in recent years and expect to continue to grow
rapidly. From inception to January 31, 2000, our employee headcount has grown
to 201 and several members of our senior management team have only recently
joined us through our acquisitions of Molecular Tool, Inc. and GeneScreen, Inc.
Our growth has placed, and is expected to continue to place, a significant
strain on our management and operating systems. Our ability to effectively
manage any future growth will depend upon our ability to strengthen our
management team and our ability to attract and retain skilled employees. Our
success will also depend on the ability of our officers and key employees to
continue to implement and improve our operational, management information and
financial control systems and to expand, train and manage our work force. In
addition, we must continue to take steps to provide resources to support our
collaborative parties and customers as their numbers increase. Our inability to
manage our growth effectively could materially and adversely affect our
business and results of operations.
Our technologies and initial commercial products have not achieved market
acceptance and may not be commercially viable or successful, which would
adversely affect our business.
We have not yet completed the development of our SNP scoring technologies or
our ultra high-throughput MegaSNPatron facility for SNP scoring, both of which
are important elements of our business strategy. We may not be able to
successfully develop these technologies or this facility. Even if these
technologies are developed, we cannot be certain that they will be valued by
our prospective customers. We are currently developing and commercializing only
a limited number of products based on our SNP scoring technologies. We cannot
assure you that we or our customers will be able to use these technologies to
successfully identify and score SNPs. Even if we are able to use these
technologies to identify and score SNPs, any SNPs so identified and scored may
not be useful in assisting pharmaceutical or diagnostic product development.
Our technology and development focus with respect to our SNP scoring
technologies are in part directed toward complex diseases associated with one
or more genes. There is limited scientific understanding generally relating to
the role of genes and polymorphisms in these diseases, and relatively few
products based on gene discoveries and/or polymorphisms have been developed and
commercialized. Accordingly, even if we are successful in scoring SNPs and
associating these SNPs with specific drug responses or diseases, we cannot be
certain that these discoveries will lead to the development of therapeutic or
diagnostic products. If we fail to successfully develop our SNP scoring
technologies or any therapeutic or diagnostic products based on such
technologies, our business and results of operation would be materially harmed.
Our SNP scoring technologies involve novel uses of instrumentation, software
and technologies that have not been previously used in commercial applications.
It is possible that previously unrecognized defects or limitations of our SNP
scoring technologies will emerge as they are used. We may be unable to validate
or
10
<PAGE>
achieve the improvements in the components of our SNP scoring technologies
necessary for their successful commercialization. Our SNP scoring technologies
will also need to compete against well-established techniques and enhancements
for discovering novel drugs, including combinatorial chemistry and high-
throughput screening. We may be unable to compete successfully against existing
techniques and instruments, which would materially and adversely affect our
business and results of operations.
Even if we are able to develop products for commercial use based on our SNP
scoring technologies, we may not be able to develop products that:
. meet applicable regulatory standards in a timely manner, if ever;
. can successfully compete with competing products or services;
. can avoid infringing the proprietary rights of others;
. can be manufactured in commercial quantities at a reasonable cost; or
. can be marketed successfully.
We expect that it will be a few years, if ever, before we recognize
significant revenue from the sale of our SNP scoring technologies and products,
or any therapeutic or diagnostic products that are developed from any of our
technologies. If we are unable to develop or commercialize our potential
products, our financial condition would be harmed.
We expect to derive a significant portion of our revenue from the sale of our
SNPware consumables and kits and SNPstream systems. We will need our customers
to purchase sufficient quantities of these products for us to ever become
profitable.
Our customers may not generate sufficient throughput using our SNPstream
product line. This may limit their purchases of our SNPware consumables, kits
and other consumables necessary to conduct SNP scoring with our SNPstream
systems. Other factors which may limit the use of our kits and consumables
include the acceptance of our technologies by our customers and the training of
our customers' personnel. If our customers are slow to, or never, achieve
sufficient results using our SNPstream system, or fail to purchase sufficient
quantities of our SNPware consumables and kits, we may never achieve
profitability. Further, our SNPware consumables and kits may not be adopted by
customers who use their own instrument systems, and even if adopted, may not
work on their systems, which would materially and adversely affect our business
and results of operations.
We rely heavily on paternity testing service contracts we have with various
state agencies. Our business would be seriously harmed if we fail to maintain
any such contracts or fail to enter into any such contracts in the future.
We currently derive a substantial portion of our revenues from the DNA
testing services we provide in the forensic and paternity fields. These
services are heavily dependent upon contracts we have with various state
agencies, which are typically open to bid and awarded every one to three years.
The process and criteria for these awards are typically complex and highly
competitive. We may not be able to maintain any of our existing state contracts
or be the successful bidder on any additional state contracts which may become
available in the future on terms acceptable to us, which would adversely affect
our results of operations and financial condition.
We anticipate that we will need to raise additional funding which may not be
available on terms acceptable to us, if at all.
We anticipate that our existing capital resources may not be sufficient to
fund our future operating plans and we may therefore need to raise significant
additional capital. We expect our capital and operating expenses to be
significant over the next several years as we expand our infrastructure and
increase our research and development and commercialization activities. The
amount of additional capital which we expect we will need to raise will depend
on many factors, including:
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. our progress with research and development;
. the number and breadth of our research programs;
. our internal use of and our level of success in selling our SNP scoring
products and associated technologies;
. our ability to establish and maintain successful collaborations; and
. the costs incurred by us in enforcing and defending our patent claims and
other intellectual property rights.
We believe the proceeds from this offering, together with cash on hand, will
be sufficient to fund our operating costs for at least the next 18 months.
However, we may need additional financing sooner if we:
. decide to expand faster than planned;
. develop new or enhanced services or products ahead of schedule;
. need to respond to competitive pressures; or
. decide to acquire complementary products, businesses or technologies.
If we raise additional funds through the sale of equity or convertible debt
or equity-linked securities, your percentage ownership in the company will be
reduced. In addition, these transactions may dilute the value of our
outstanding stock. We may issue securities that have rights, preferences and
privileges senior to our common stock. If we raise additional funds through
collaborations or licensing arrangements, we may relinquish rights to certain
of our technologies or products, or grant licenses to third parties on terms
that are unfavorable to us. We may be unable to raise additional funds on terms
acceptable to us. If future financing is not available to us or is not
available on terms acceptable to us, we may not be able to fund our future
needs which would have a material adverse effect on our results of operations
and financial condition.
We intend to rely on research collaborations and licensing agreements to
implement our business strategy and commercialize our products. Our business
could be seriously harmed if we are unable to enter into new collaborations or
licensing arrangements.
Our strategy for developing and commercializing products based on our
discoveries depends upon our ability to form research collaborations and
licensing arrangements. As a result, we may be dependent on our collaborators
and licensees for regulatory approval, manufacturing and marketing of
therapeutic and diagnostic products resulting from the application of our
technologies. We may not be able to enter into such research collaborations and
licensing arrangements or implement our strategy to develop and commercialize
therapeutic and diagnostic products based upon our discoveries which would have
a material adverse effect on our results of operation and financial condition.
The early termination of any of our collaborations or licenses could harm
our business and financial condition.
Our collaboration agreement with Affymetrix may be terminated early under
certain circumstances, including in the event of a breach of a material term by
us. In addition, we intend to seek additional collaborations and licenses with
third parties, who may negotiate provisions with us that allow them to
terminate their agreements with us prior to the expiration of the negotiated
term under certain circumstances. If Affymetrix or any other third party
collaborator or licensee were to terminate its agreement with us or otherwise
fail to conduct its obligations under our collaboration or to complete them in
a timely manner, we could lose significant revenue.
We intend to establish relationships with new collaborators, consultants and
scientific advisors. We cannot be certain that any of them will choose to work
with us to research or develop our technologies.
We have historically maintained relationships with collaborators,
consultants and scientific advisors at academic and other institutions who have
conducted research on our behalf. The majority of these individuals
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have commitments to other entities and have limited time available to us. Some
of these entities may also compete with us. We intend to establish new
relationships with collaborators, consultants and scientific advisors in our
genetic diversity fields. We will have little, if any, control over the
activities of any new collaborators and can expect only limited amounts of
their time to be dedicated to our activities. Our ability to discover and score
SNPs and commercialize products based on those discoveries may depend in part
on continued collaborations with researchers at academic and other
institutions. We cannot be certain that any of our existing collaborations will
be successful. Further, we may not be able to negotiate acceptable
collaborations in the future with additional collaborators, consultants, or
scientific advisors at academic and other institutions.
Our collaborators could also develop competing products, preclude us from
entering into collaborations with their competitors, fail to obtain timely
regulatory approvals, terminate their agreements with us prematurely or fail to
devote sufficient resources to the development and commercialization of
products. Any of these developments could harm our product development efforts,
which would adversely affect our business and financial condition.
We may not be able to retain commercialization rights, which could limit our
income potential.
In our research collaborations, we may seek to retain commercialization
rights for the development and marketing of any pharmaceutical, agricultural
and diagnostic products or services developed as a result of the collaboration.
No such pharmaceutical, agricultural or diagnostic products or services have
been developed by us to date. Further, even if developed, we may not be
successful in retaining such rights. We may seek to commercialize any such
retained rights, as well as any products developed in our internal development
programs, directly or through collaborations with others. In addition, we may
not realize any value from any retained commercialization rights and products
developed internally, which would adversely affect our business and financial
condition.
We may not be able to compete successfully with our competitors, which would
harm our business.
We are subject to significant competition from organizations that are
pursuing products and services that are substantially similar to our proposed
products and services. Many of the organizations competing with us have greater
experience in financial, manufacturing, marketing, sales distribution and
technical regulatory matters, than we do. In the SNP scoring field, we compete
with several companies offering alternative technology concepts which differ in
the areas of sample amplification, analysis process, sample separation or SNP
detection and are all based on indirect detection of the molecule through
hybridization and/or labeling. We may also compete against our customers, which
could adversely affect our relationships with them.
We believe our future success will depend, in large part, on our ability to
maintain a competitive position in each of the instrument and kit-based SNP
scoring, pharmacogenetics and microfluidics product fields and in the SNP
scoring services field. If we or our competitors rapidly develop new
technologies in product and service development, we may never recover our
investments in research and development and our products or services could
become obsolete, which would adversely affect our business and financial
condition. Less expensive or more effective technologies developed by others
could also make our products and services obsolete. Our inability to make the
enhancements to our technologies necessary to compete successfully with newly
emerging technologies would have a material adverse effect on our business and
competitive position.
If we are unable to protect our proprietary methods and technologies, we may
not be able to operate our business profitably.
If our patent applications do not result in issued patents, our competitors
may obtain rights to commercialize our discoveries and adversely affect our
business.
Our commercial success will depend, in large part, on our ability to obtain
patent protection on many aspects of our business, including the discovery and
the association of particular SNPs with disease
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predisposition and adverse drug metabolism, and on the products, methods and
services we develop. We intend to apply for patent protection on novel SNPs of
known genes and their uses, as well as novel uses for previously identified
SNPs discovered by third parties. In the latter cases, we would need a license
from the holder of the patent with respect to such SNP in order to make, use or
sell any related products. We may not be able to acquire such licenses on terms
acceptable to us, if at all.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including us, are frequently uncertain and involve complex legal and
factual questions. Our patent applications may not protect our technologies,
products or SNP discoveries for any one or more of the following reasons:
. some or all of our pending patent applications may not result in issued
patents;
. we may develop additional proprietary technologies that are not
patentable;
. any patents issued to us may not provide a basis for commercially viable
products;
. any patents issued to us may not provide us with any competitive
advantages; and
. any patents issued to us may be challenged, circumvented or invalidated
by third parties.
The scope of our issued patents may not provide us with adequate protection
of our intellectual property from our competitors, which would harm our
business and financial condition.
We may not be able to obtain new patents for our products or methods. Even
if we are able to obtain new patents, these patents may not provide us with
substantial protection or be commercially beneficial to us. In addition, patent
filing and maintenance fees are very expensive and if we fail to pay these
fees, we may not be able to protect our discoveries which would adversely
affect our business. The issuance of a patent is not conclusive as to its
validity or its enforceability. Furthermore, a patent does not provide the
patent holder with an absolute right to practice such patented technology.
Thus, it is quite possible that third parties may have patents of their own
which could, if asserted, prevent us from practicing our patented technologies.
This inability to practice our own patented technologies may adversely affect
our business. Any of our patents could be challenged by litigation and, if the
outcome of such litigation were adverse to us, competitors could be free to use
the subject matter covered by the patent, or we may have to license the
technologies to others in settlement of such litigation. If key patents owned
by or licensed to us were invalidated or if any of our pending patent
applications were not issued, our competition could increase and harm our
business and financial condition.
If any genomic sequence information related to a SNP is publicly released
prior to the time we apply for patent protection on a related SNP we may be
unable to obtain patent protection with respect to that SNP. In addition,
certain other groups are attempting to rapidly identify and characterize genes
and SNPs through the use of gene expression analysis and other technologies. To
the extent any patents issue to other parties on such partial or full-length
genes or SNPs or uses for such genes or SNPs, the risk increases that the sale
of products, including therapeutics, or processes developed by us or our
collaborators may give rise to claims of patent infringement against us. We may
not prevail in any such action based on a patent infringement claim, which
would adversely affect our ability to commercialize our products. Others may
have filed and, in the future, are likely to file patent applications covering
SNPs. Any such patent application could have priority over our patent
applications and could further require us to obtain rights to previously issued
patents covering SNPs. We cannot assure you that any license that we may
require under any such patent will be made available to us on commercially
acceptable terms, if at all. We believe there may be significant litigation in
the industry regarding patent and other intellectual property rights. If we
become involved in such litigation, it could consume a substantial portion of
our managerial and financial resources.
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If we are unable to gain access to or to obtain a license to use identified
SNPs that are important to the research and development of our products and
services, our business and financial condition would be adversely affected.
We currently obtain significant data on SNPs from several sources, including
The SNP Consortium, Ltd., a group of leading pharmaceutical companies
identifying SNPs. Through The SNP Consortium and these other sources,
information relating to identified non-proprietary SNPs is made publicly
available without licensing fees. We cannot be sure the SNP data will remain
largely non-proprietary or made available to us without payment of licensing
fees to third parties, if at all. There are other sources of SNP data which may
patent SNPs and their uses more rapidly than the sources which make their SNPs
publicly available. There is a risk that The SNP Consortium or other sources of
SNP data might cease to make SNP data publicly available, which would adversely
affect our business.
The U.S. Patent and Trademark Office has issued at least one patent relating
to a SNP. If SNPs are patented by third parties we will need to obtain rights
to them in order to develop and use them. If we fail to obtain licenses to
them, we may never achieve significant revenue or become profitable. Third
parties may be unwilling to license rights to us on commercially acceptable
terms, if at all. Our failure to obtain rights to important patented SNPs would
have an adverse effect on our business. If we were required to pay licensing
fees to develop and use SNPs, our business and financial condition could be
adversely affected.
We may need to initiate lawsuits to protect or enforce our patents, which
would be expensive. If we lose, we may forfeit some of our intellectual
property rights, which would adversely affect our ability to compete in the
market.
In order to protect or enforce our patent rights, we may initiate patent
litigation against third parties. These lawsuits could be expensive, take
significant time, and could divert management's attention from other business
concerns. These lawsuits would put our patents at risk of being invalidated or
interpreted narrowly and our patent applications at risk of not issuing. We may
also provoke these third parties to assert claims against us. Patent law
relating to the scope of claims in the biotechnology fields in which we operate
is still evolving and, consequently, patent positions in our industry are
generally uncertain. We cannot assure you that we will prevail in any of these
suits or that the damages or other remedies awarded, if any, will be
commercially valuable. During the course of these suits, there may be public
announcements of the results of hearings, motions and other interim proceedings
or developments in the litigation. If securities analysts or investors perceive
any of these announcements to be negative, it could cause the market price of
our stock to decline.
Our success will depend partly on our ability to operate without infringing
on or misappropriating the intellectual property rights of others.
We may be sued for infringing on the intellectual property rights of others.
Intellectual property litigation is costly, and, even if we prevail, the costs
of such litigation could adversely affect our business and results of
operations. In addition, litigation is time consuming and could divert
management attention and resources away from our business. If we do not prevail
in any litigation, in addition to any damages we might have to pay, we could be
required to stop the infringing activity or obtain a license to the
intellectual property in question. Any required license may not be available on
terms acceptable to us, if at all. In addition, some licenses may be non-
exclusive, thereby giving our competitors access to the same technologies
licensed to us. If we fail to obtain a required license or are unable to design
around any third party patent, we may be unable to sell some of our products,
which could have a material adverse effect on our business and results of
operations.
The non-patent rights we rely upon to protect our intellectual property may
not be adequate to protect our products and services, which could enable third
parties to use our technologies and would reduce our ability to compete in the
market.
In addition to patents, we rely on a combination of trade secrets, copyright
and trademark laws, nondisclosure agreements and other contractual provisions
and technical measures to protect our intellectual
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property rights. While we require employees, academic collaborators,
consultants and other third parties to enter into confidentiality and/or non-
disclosure agreements where appropriate, any of the following could still
occur:
. the agreements may be breached;
. we may have inadequate remedies for any breach;
. proprietary information could be disclosed to our competitors;
. others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets
or disclose such technologies; or
. we may not be able to meaningfully protect our trade secrets.
We may not be able to maintain the confidentiality of our technologies and
other confidential information in connection with each academic collaboration
or advisory arrangement, and any unauthorized dissemination of our confidential
information could harm our business and results of operations. Further, any
collaborator, consultant or advisor may enter into an employment agreement or
consulting arrangement with one of our competitors. The measures that we take
may not provide protection for our trade secrets or other proprietary
information. If we are unable to protect our intellectual property, our ability
to execute our business plan would be harmed.
Future acquisitions or investments could disrupt our ongoing business, distract
our management and employees, increase our expenses and adversely affect our
business.
We have recently completed acquisitions of Molecular Tool and GeneScreen.
Although we have no commitments or agreements with respect to any additional
acquisitions at present, we anticipate that a portion of our future growth may
be accomplished by acquiring existing businesses. Factors that will affect the
success of any acquisition we might make include our ability to integrate
acquired, personnel, operations, products and technologies into our
organization effectively, to motivate key personnel and to retain customers of
acquired businesses. We may not be able to identify suitable acquisition
opportunities, obtain any necessary financing for such acquisitions on
acceptable terms or successfully integrate acquired personnel and operations.
In addition, as a public company, the cost of acquiring companies may increase
relative to the cost of acquiring similar companies when we were a private
company. These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses and materially and adversely
affect our business. Any future acquisitions would involve certain other risks,
including the assumption of additional liabilities and potentially dilutive
issuances of equity securities.
We are dependent upon certain of the technologies we license from others and
may be adversely affected by changes in the terms of any of these licenses.
We have acquired or licensed certain components of our technologies from
third parties. Changes in such third party license agreements, or the early
termination of any of these license agreements, could harm our research and
development capabilities, which would adversely affect our business and
financial condition.
Compliance with government regulation is critical to our business. Our failure
to comply with any applicable government regulation may adversely affect our
results of operation.
Our research and development, production and service activities involve the
controlled use of hazardous materials and chemicals and patient samples. We are
subject to federal, state and local laws and regulations governing the use,
storage, handling and disposal of such materials and certain waste products,
conveyance, processing, and storage of and data on patient samples. Further,
with our recent acquisition of GeneScreen, we acquired three laboratories which
are subject to specific government regulation under the Clinical Laboratory
Improvement Act, or CLIA, administered by the United States Department of
Health and Human Services relating to the certification of all clinical
laboratories performing tests on human specimens for the purpose of
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providing information for the diagnosis, prevention or testing of any diseases.
Although we believe our procedures for handling and disposing of such materials
comply in all material respects with the standards prescribed by federal, state
and local laws and regulations, including CLIA, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
If we fail to comply with applicable laws or regulations or in the event of an
accident, we could be required to pay penalties or be held liable for any
damages that result and this liability could exceed our financial resources.
We are subject to industry regulations by various federal and state
authorities. The accreditation related to some of our services may be revoked
if we fail to comply with these regulations, which would interrupt our
operations and have an adverse affect on our business.
All three of our GeneScreen laboratories are subject to various industry
regulations and accreditation standards with which we must comply in order to
continue to provide our paternity testing, forensic testing and bone marrow
typing services. In order to provide paternity testing, we must be accredited
by the American Association of Blood Banks, or AABB. In order to provide
criminal forensic testing services, we must be accredited by the National
Forensic Science Testing Center. In order to provide bone marrow donor typing
services, we must be accredited by the American Society of Histocompatibility
and Immunology. Our GeneScreen laboratory located in Dayton is accredited by
the New York Department of Health as a clinical laboratory for paternity and
bone marrow donor typing. If we fail to comply with the applicable regulations
promulgated by any of these agencies or if we were to lose our accreditation by
any of them, our business and results of operation would be adversely affected.
The sale of our products and services involves a lengthy sales cycle which will
make our revenue forecasting extremely difficult.
Our ability to obtain customers for our products and services will depend in
significant part upon the perception that our products and services can help
accelerate or improve drug discovery and development efforts or have beneficial
effects on human health. Our average sales cycle is lengthy due to the
education effort that is required as well as the need to effectively sell the
benefits of our products and services to a variety of constituencies within
potential collaborators and customers, including research and development
personnel and key management. In addition, each collaboration will involve the
negotiation of agreements containing terms that may be unique to each customer
or collaborator. We may expend substantial funds and management effort with no
assurance that a sale or a collaboration will result.
If our customers fail to accurately prepare sample preparations for use with
our products or services, the overall market demand for our products could be
reduced significantly.
Before using our SNPstream product line and MegaSNPatron SNP scoring service
facility, customers must prepare samples by following several steps that are
prone to human error, including DNA isolation and DNA segment amplification. If
DNA samples are not prepared appropriately, our SNPstream products and
MegaSNPatron SNP scoring service will not generate an accurate reading. If our
customers experience similar difficulties, they may achieve lower levels of
throughput than those for which our system was designed. If our customers are
unable to generate expected levels of throughput, they may not continue to
purchase our consumables or services, they may express their discontent with
our products in the marketplace, potentially driving down demand for our
products and services, or they may collaborate with others to jointly use our
products and services. Any or all of these actions would reduce the overall
market demand for our products which could harm our business and financial
condition.
We may be held liable for any inaccuracies associated with our research and DNA
testing services, which may require us to defend ourselves in costly
litigation, the expense and negative publicity of which would adversely affect
our business.
Our Regional GeneScreen Centers frequently provide pharmacogenetic,
forensic, and paternity testing services. Claims may be brought against us for
false identification of paternity or other inaccuracies. Litigation
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of these claims is costly. We cannot assure you we will be able to pay for
potential litigation or damages or that we will successfully defend ourselves
from any claims brought against us.
We rely on single or limited sources of supply for some components of our
products.
Certain key components of our SNP scoring and microfluidic chip system
technologies are currently available only from a single source or a limited
number of sources. We currently rely on outside vendors to manufacture certain
components of our SNPstream system and certain reagents we provide in our
SNPware kits. Some or all of these key components may not continue to be
available in commercial quantities at acceptable costs. For example, we have an
agreement with Beckman Coulter under which they supply us with the components
of our SNPstream system and with NEN Life Science Products, Inc. under which
they supply us with some of the key reagents contained in our SNPware kits. We
also currently rely on DNA samples provided by suppliers and rely on other
third parties to perform DNA synthesis for us. If we are required to seek
alternative sources of supply, it could be time consuming and expensive. In
addition, we are dependent on our vendors to provide components of appropriate
quality and reliability and to meet applicable regulatory requirements.
Consequently, in the event that supplies from these suppliers were delayed or
interrupted for any reason, our ability to develop and supply our products
could be impaired which would adversely affect our results of operations.
If we fail to retain any key personnel or hire, train and retain qualified
employees, we may not be able to compete effectively, which would adversely
affect our business and result in reduced revenue.
Senior Management
Our future success will depend on the continued services and on the
performance of our senior management, in particular the services of:
. Dale R. Pfost, Ph.D., our Chairman of the Board, President and Chief
Executive Officer; and
. Donald R. Marvin, our Senior Vice President, Chief Operating Officer,
Chief Financial Officer and Secretary.
The loss of the services of either of these individuals could seriously
impair our ability to operate, compete in our industry, and improve our
products and services, which could reduce our revenue and have a material
adverse effect on our business and financial condition.
Key Personnel
To succeed, we must hire, train, motivate and retain key personnel and
manage employees with skills related to instrument and kit-based product,
pharmacogenetics and microfluidics fields. Individuals who have expertise and
can perform the research or develop our technologies are scarce. We might not
be able to hire enough experienced individuals or to train, motivate, retain
and manage the employees we do hire. This could hinder our ability to complete
existing projects or perform our obligations under certain agreements. In
addition, because the competition for qualified employees in the biotechnology
industry is intense, hiring, training, motivating, retaining and managing
employees with the strategic and technical skills we need is both time-
consuming and expensive. While our key employees are subject to non-competition
agreements, these agreements may be difficult to enforce. If we fail to
attract, train and retain key personnel, our ability to compete effectively
would be materially and adversely affected.
Our international expansion plans may not succeed.
A key element of our business strategy is to expand our sales and marketing
efforts and our operations into international markets with our Regional
GeneScreen Centers. We have limited experience in marketing, selling and
delivering our services internationally, and we may have difficulty in managing
our international operations because of distance, as well as language and
cultural differences. We may be required to enter into collaboration and
distribution arrangements for the marketing of our products outside of the
United States. We cannot assure you that we will be able to enter into these
arrangements or to market and operate our services successfully in foreign
markets.
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Risks Related to the Biotechnology Industry
Ethical and other concerns surrounding the use of genetic information may
adversely affect demand for our products.
Genetic testing has raised ethical issues regarding confidentiality and the
appropriate uses of the resulting information. For these reasons, governmental
authorities may call for limits on, or regulation of the use of, genetic
testing or prohibit testing for genetic predisposition to certain conditions,
particularly for those that have no known cure. Any of these scenarios could
reduce the potential markets for our products, which could materially and
adversely affect our business and financial condition.
Commercializing pharmaceutical products has associated risks, including
compliance with manufacturing regulations.
Although it is likely to be years before we develop any potential
pharmaceutical products, any future products will require significant research
and development and pre-clinical testing, and will require extensive clinical
testing prior to submission of any regulatory application for commercial use.
Such activities, if undertaken without the collaboration of others, would
require the expenditure of significant funds. Such potential pharmaceutical
products will be subject to the risks of failure inherent in the development of
pharmaceutical products based on new technologies. These risks include the
following possibilities:
. that such potential pharmaceutical products will be found to be unsafe or
non-efficacious or otherwise fail to receive necessary regulatory
clearances;
. that the products, if safe and efficacious, will be difficult to
manufacture on a large scale or uneconomical to market;
. that proprietary rights of third parties will preclude us or our
collaboration partners from marketing such products; or
. that third parties will market superior or equivalent products.
As a result, we may not be able to develop any commercially viable products.
Clinical trials or marketing of any such potential pharmaceutical products may
expose us to liability claims from the use of such pharmaceutical products. We
may not be able to obtain product liability insurance or, even if obtained, we
cannot assure you that sufficient coverage can be acquired at a reasonable
cost. In addition, should we choose to develop pharmaceutical products
ourselves, we will have to make significant investments in pharmaceutical
product development, marketing, sales and regulatory compliance resources, and
we will have to establish or contract for the manufacture of products under the
regulations of the FDA regarding good manufacturing practices. We cannot assure
you that we will be able to develop or commercialize successfully any potential
pharmaceutical products.
Risks Associated With This Offering
The future sale of shares of substantial amounts of our common stock could
negatively affect our stock price.
After this offering, we will have approximately shares of common stock
outstanding. Of these shares, the shares being offered in this offering will
generally be freely tradable. If our stockholders sell substantial amounts of
our common stock following this offering, including shares issued upon the
exercise of outstanding options and warrants, in the public market, the market
price of our common stock is likely to fall.
Our directors, executive officers and substantially all of our other
stockholders have agreed that they will not sell, directly or indirectly, any
shares of common stock without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days from the date of this prospectus.
However, Credit Suisse First Boston Corporation may, at any time or from time
to time and without notice, release all or any portion of the shares subject to
the lock-up agreements.
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Future issuance of preferred stock may dilute the rights of our common
stockholders.
Our Board of Directors will have the authority to issue up to five million
shares of preferred stock and to determine the price, privileges and other
terms of these shares. The Board of Directors may exercise this authority
without any further approval of our stockholders. The rights of the holders of
common stock may be adversely affected by the rights of our holders of our
preferred stock that may be issued in the future.
We have various mechanisms in place to discourage takeover attempts that you as
a stockholder may not consider favorable.
Following this offering, certain provisions of our certificate of
incorporation and bylaws, as well as Section 203 of the Delaware General
Corporation Law, may discourage, delay or prevent a change in control of our
company that you as a stockholder may consider favorable. These provisions
include:
. authorizing the issuance of "blank check" preferred stock that could be
issued by our Board of Directors to increase the number of outstanding
shares and thwart a takeover attempt;
. a classified Board of Directors with staggered, three-year terms, which
may lengthen the time required to gain control of our Board of Directors;
. prohibiting cumulative voting in the election of directors, which will
allow a majority of stockholders to control the election of all
directors;
. requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
. limitations on who may call special meetings of stockholders;
. prohibiting stockholder action by written consent, which requires all
actions to be taken at a meeting of stockholders; and
. establishing advance notice requirements for nominations of candidates
for election to the Board of Directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and our
stock incentive plan may discourage, delay or prevent a change in control of
our company.
We expect the market price of our common stock to be volatile and the market
price could fall below the initial public offering price. As a result, you
could lose all or part of your investment.
The initial public offering price will be determined through negotiations
between us and the representatives of the underwriters based on factors that
may not be indicative of future market performance. The initial public offering
price may bear no relationship to the price at which the common stock will
trade upon completion of this offering. An active public market for our common
stock may not develop or be sustained after this offering, and the market price
could fall below the initial public offering price. As a result, you could lose
all or part of your investments.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect on our
business and the market for our common stock.
Our directors, executive officers and principal stockholders will have
substantial control over our affairs.
Our directors, executive officers and principal stockholders will
beneficially own, in the aggregate, approximately % of our common stock
following this offering. These stockholders, acting together, will have the
ability to exert substantial influence over all matters requiring approval by
our stockholders. These matters include the election and removal of directors
and any merger, consolidation or sale of all or substantially all of our
assets. In addition, they may dictate the management of our business and
affairs. This
20
<PAGE>
concentration of ownership could have the effect of delaying, deferring or
preventing a change in control, or impeding a merger or consolidation, takeover
or other business combination of which you might otherwise approve.
We do not have an exact plan for the use of the net proceeds of this offering
and will therefore have broad discretion as to the use of these proceeds, which
we may not use effectively.
We have no exact plan with respect to the use of the net proceeds of this
offering and have not committed these proceeds to any particular purpose apart
from expenses of the business and general working capital. Accordingly, our
management will have broad discretion in applying the net proceeds of this
offering and may use the proceeds in ways with which you and our other
stockholders may disagree. We may not be able to invest these funds effectively
which would adversely affect our financial condition.
You will suffer substantial dilution in the net tangible book value of the
common stock you purchase.
The initial public offering price of our common stock will be substantially
higher than the pro forma net tangible book value per share of our common
stock. Based on an assumed initial public offering price of $ per share, if
you purchase shares of common stock in this offering, you will suffer immediate
and substantial dilution of $ per share in the net tangible book value of
the common stock. To the extent outstanding options and warrants are exercised,
you will suffer further dilution.
There is a large number of shares that may be sold in the market following this
offering, which may depress the market price of our common stock.
Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities law and under
lock-up agreements that our stockholders have entered into with the
underwriters and with us. Those lock-up agreements restrict our stockholders
from selling, pledging or otherwise disposing of their share for a period of
180 days after the date of this prospectus without the prior written consent of
Credit Suisse First Boston Corporation. However, Credit Suisse First Boston
Corporation may, in its sole discretion, release all or any portion of the
common stock from the restrictions of the lock-up agreements. The following
table indicates approximately when the shares of our common stock that are
not being sold in the offering but which were outstanding as of January 31,
2000 will be eligible for sale into the public market:
<TABLE>
<CAPTION>
Eligibility of
Restricted
Shares for Sale
in Public Market
----------------
<S> <C>
On the date of this prospectus.................................
180 days after the date of this prospectus.....................
At various times after the date of this prospectus.............
</TABLE>
If we or our suppliers fail to be year 2000, or Y2K, compliant it could cause
interruptions in our supply of products and generate substantial expenses for
our business.
The Y2K issue is a situation that results from computer systems and software
products being coded using two digits rather than four digits to define the
applicable year. Computer systems and software products often utilize embedded
technology that is time-sensitive and may recognize a date falling in the year
2000 as falling in the year 1900 which could cause computer system failures and
errors leading to a disruption of our business operations. Although the
transition from the year 1999 to year 2000 has occurred, some date recognition
issues may not yet be apparent, and may need to be addressed. The Y2K issue
could affect not only our operations but also the operations of our business
partners, customers and suppliers among others. If we or our suppliers fail to
be Y2K compliant, our business, financial condition and results of operations
could be materially disrupted. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of the Year 2000" for
additional information regarding the Y2K issue.
21
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found
in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Business", as well as in this
prospectus generally. We generally use words such as "believe," "intend,"
"expect," "anticipate," "plan," and similar expressions to identify forward-
looking statements. This prospectus also contains third-party estimates
regarding the size and growth of the biotechnology market in general. You
should not place undue reliance on these forward-looking statements. Our actual
results could differ materially from those anticipated in the forward-looking
statements for many reasons, including the risks described above and elsewhere
in this prospectus.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, they relate only to events as of the date on which
the statements are made, and we cannot assure you that our future results,
levels of activity, performance or achievements will meet these expectations.
Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of the forward-looking statements. We are under no
duty to update any of the forward-looking statements after the date of this
prospectus to conform these statements to actual results or to changes in our
expectations.
22
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of shares of common stock we are
offering, at an assumed initial public offering price of $ per share, are
estimated to be $ million after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us. We expect to use
the net proceeds for general corporate purposes, including potential
acquisitions.
The amount and timing of our actual expenditures will depend upon numerous
factors, including the status of our product development and commercialization
efforts, the amount of proceeds actually raised in this offering, the amount of
cash generated by our operations, competition, and sales and marketing
activities. We may also use a portion of the proceeds for the acquisition of,
or investment in, companies, technologies or assets that we believe can
complement our business. However, we have no present understandings,
commitments or agreements to enter into any potential acquisitions or make any
investments. Further, we have not determined the amounts we plan to spend on
any of the areas listed above or the timing of these expenditures. As a result,
our management will have broad discretion to use the net proceeds from this
offering. Pending application of the net proceeds as described above, we intend
to invest the net proceeds of the offering in short-term, investment-grade,
interest-bearing securities.
The principal purposes of this offering are:
. to increase our equity capital;
. to facilitate future access by us to public equity markets;
. to provide increased visibility and credibility in a marketplace where
several of our current and prospective competitors are, or may in the
future be, public companies; and
. to enhance our ability to use our common stock as consideration for
acquisitions and as a means of attracting and retaining key employees.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently
anticipate retaining all of our future earnings, if any, to support operations
and to finance the growth and development of our business and do not anticipate
paying any cash dividends for the foreseeable future. The terms of future
credit agreements may prevent us from paying any dividend or making any
distributions or payment with respect to our capital stock.
TRADEMARKS
GBA and GeneScreen are our registered trademarks. Genetic Bit Analysis,
SNPstream, SNPware, SNPkit, DNAstream, Chemtel, Agile Arrays, MegaSNPatron,
SNPcode, Clinical Genetics Network, Regional GeneScreen Centers, SNP CONFIRM,
SNP ASSOCIATE, SNP WIDEMAP, GENESCREEN IDENTITY, GENESCREEN FORENSIC,
GENESCREEN TRANSPLANT, and the Orchid logo are our trademarks. Other service
marks, trademarks and trade names referred to in this prospectus are the
property of their respective owners.
23
<PAGE>
CAPITALIZATION
The following table presents the following information:
. our actual capitalization as of December 31, 1999;
. our pro forma capitalization reflecting the conversion of all
outstanding shares of mandatorily redeemable convertible preferred stock
and convertible preferred stock into common stock, including Series E
mandatorily redeemable convertible preferred stock sold in January 2000,
and the issuance in January 2000 of Series E manditorily redeemable
convertible preferred stock recorded as Series E to be issued at
December 31, 1999, upon the closing of this offering; and
. our pro forma as adjusted capitalization reflecting the aforementioned
pro forma adjustments and the sale of shares of common stock offered
by us at an assumed initial public offering price of $ per share,
less underwriting discounts and commissions and the estimated offering
expenses payable by us.
This table should be read with "Management's Discussion and Analysis of
Financial Condition and Results of Operations and our consolidated financial
statements and notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ----------- -------------
(unaudited)
(in thousands,
except share and per share data)
<S> <C> <C> <C>
Current portion of long-term debt....... 1,141 1,141 1,141
Long-term debt, less current portion.... 4,122 4,122 4,122
---------- ---------- ----------
Mandatorily redeemable convertible
preferred stock, $.001 par value,
21,493,692 shares designated,
15,366,588 shares issued and
outstanding or to be issued on an
actual basis (none authorized, issued
or outstanding on a pro forma or pro
forma as adjusted basis)............... 88,995 -- --
Stockholders' Equity (Deficit):
Preferred stock, $.001 par value,
authorized 23,400,000 shares, 38,961
shares with no designation, no shares
issued or outstanding on an actual
basis (5,000,000 authorized and none
issued or outstanding on a pro forma
or pro forma as adjusted basis)...... -- -- --
Convertible preferred stock, $.001 par
value, 1,867,347 shares designated,
1,074,740 shares issued and
outstanding on an actual basis (none
authorized, issued or outstanding on
a pro forma or pro forma as adjusted
basis)............................... 1 -- --
Common stock, $.001 par value,
30,000,000 shares designated,
845,450, 19,544,997 and
issued and outstanding on an actual,
pro forma and pro forma as adjusted
basis................................ 1 26
Common stock to be issued (10,000
shares) ............................. 58 58 58
Additional paid-in capital............ 16,054 134,598
Deferred compensation................. (6,437) (6,437) (6,437)
Accumulated deficit................... (46,641) (46,641) (46,641)
---------- ---------- ----------
Total stockholders' equity (deficit).... (36,964) (81,604)
---------- ---------- ----------
Total capitalization.................. 57,294 86,867
========== ========== ==========
</TABLE>
This table excludes the following shares:
. 1,463,011 shares of common stock that may be issued upon exercise of stock
options outstanding as of December 31, 1999 at a weighted average exercise
price of $1.04; and
. 1,229,228 shares of common stock that may be issued upon the exercise of
warrants outstanding or obligated to be issued as of December 31, 1999 at a
weighted average exercise price of $4.68.
24
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of December 31,
1999, after reflecting the sale of Series E mandatorily redeemable convertible
preferred stock in January 2000, the issuance in January 2000 of Series E
mandatorily redeemable preferred stock recorded as Series E to be issued at
December 31, 1999, and conversion of all outstanding shares of preferred stock
into shares of common stock upon the closing of this offering, was $62,615,507,
or $2.45 per share. Pro forma net tangible book value per share represents the
amount of our total tangible assets less total liabilities divided by the
number of shares of common stock outstanding, assuming conversion of all
outstanding shares of mandatorily redeemable and convertible preferred stock,
including shares of Series E mandatorily redeemable convertible preferred stock
sold in January 2000 and the issuance in January 2000 of Series E mandatorily
redeemable preferred stock recorded as Series E to be issued at December 31,
1999, into shares of common stock. Dilution in pro forma net tangible book
value per share represents the difference between the amount per share paid by
purchasers of shares of common stock in this offering and the net tangible book
value per share of our common stock immediately afterwards. Assuming our sale
of shares of common stock offered by this prospectus at an assumed initial
public offering price of $ per share, and after deducting underwriting
discounts and commissions and the estimated offering expenses payable by us,
our net tangible book value as of December 31, 1999 would have been
approximately $ , or $ per share. This represents an immediate increase in
net tangible book value to existing investors of $ per share and decrease in
net tangible book value of $ per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this dilution on
a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share as of December 31,
1999............................................................. $2.45
Increase per share attributable to new investors..................
-----
Pro forma net tangible book value per share after this offering
----
Dilution per share to new investors................................. $
====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, assuming the sale of all outstanding shares of mandatorily redeemable
convertible preferred stock and convertible preferred stock into common stock,
including the sale of Series E mandatorily redeemable convertible preferred
stock in January 2000 and the issuance in January 2000 of Series E mandatorily
redeemable preferred stock recorded as Series E to be issued at December 31,
1999, differences between the number of shares of common stock purchased from
us, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors purchasing shares of common
stock in this offering.
<TABLE>
<CAPTION>
Shares
Purchased Total Consideration Average
-------------- --------------------- price per
Number Percent Number Percent Share
------ ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... % $ % $
New investors..................
--- ----- --------- ---------- ----
Total........................ 100.0% $ 100.0%
=== ===== ========= ==========
</TABLE>
The foregoing discussion and tables assume no exercise of any outstanding
stock options or warrants or those obligated to be issued at December 31, 1999.
The exercise of all options and warrants outstanding as of December 31, 1999
having an exercise price less than the initial public offering price would
increase the dilutive effect to new investors to $ per share.
25
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The consolidated statements of operations data for the years ended December
31, 1997, 1998 and 1999 and the consolidated balance sheet data as of December
31, 1998 and 1999 have been derived from our consolidated financial statements
included elsewhere in this prospectus which have been audited by KPMG LLP,
independent certified public accountants. The consolidated statement of
operations data for the period from March 8, 1995 (inception) to December 31,
1995 and for the year ended December 31, 1996 and the consolidated balance
sheet data as of December 31, 1995, 1996 and 1997 have been derived from our
audited financial statements not included in this prospectus, which have been
audited by KPMG LLP. Our historical results are not necessarily indicative of
results to be expected for any future period. The data presented below should
be read with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
March 8, 1995 Year Ended December 31,
(inception) to ------------------------------------
December 31, 1995 1996 1997 1998 1999
----------------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues:
Contract revenue from
related parties....... 2,795 6,230 3,763 2,748 --
Contract revenue from
unrelated parties..... -- -- -- -- 828
Grant revenue.......... -- -- -- 33 811
License and other
revenue............... -- -- -- -- 154
------ ------- ------- -------- --------
Total revenues.......... 2,795 6,230 3,763 2,781 1,793
------ ------- ------- -------- --------
Operating expenses:
General and
administrative........ 37 718 2,842 5,024 8,567
Research and
development........... 2,795 6,727 10,812 7,574 13,412
Compensation expense
from equity
issuances............. -- -- 86 175 646
Acquisition of in-
process research and
development........... -- -- -- 2,353 --
------ ------- ------- -------- --------
Total operating
expenses............... 2,832 7,445 13,740 15,126 22,625
------ ------- ------- -------- --------
Operating loss.......... (37) (1,215) (9,977) (12,345) (20,832)
------ ------- ------- -------- --------
Other income (expense):
Interest income........ 31 91 49 932 203
Interest expense....... -- -- -- (66) (3,474)
------ ------- ------- -------- --------
Total other income
(expenses)............. 31 91 49 866 (3,271)
------ ------- ------- -------- --------
Net loss................ (6) (1,124) (9,928) (11,479) (20,103)
Beneficial conversion
feature of preferred
stock.................. -- -- -- -- 44,365
------ ------- ------- -------- --------
Net loss allocable to
common stockholders.... (6) (1,124) (9,928) (11,479) (68,468)
====== ======= ======= ======== ========
Basic and diluted net
loss per share
allocable to common
stockholders........... $ (.05) $ (3.45) $(27.57) $ (17.09) $ (90.20)
Shares used in computing
basic and diluted net
loss per share
allocable to common
stockholders........... 131 326 360 672 759
Unaudited Pro Forma Net
Loss Per Share Data:
Pro forma basic and
diluted net loss per
share allocable to
common stockholders
(unaudited)............ $ (10.19)
Shares used in computing
pro forma basic and
diluted shares
allocable to common
stockholders
(unaudited)............ 6,718
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1996 1997 1998 1999
----- ----- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ 1,710 1,618 6,405 473 34,204
Working capital......... 544 (201) 773 5,733 27,225
Total assets............ 1,961 2,406 6,884 15,599 66,305
Long-term debt, less
current portion........ -- -- -- 3,547 4,122
Mandatorily redeemable
preferred stock........ -- -- 9,230 27,530 88,995
Convertible preferred
stock.................. 1 1 1 212 1
Total stockholders'
equity (deficit)....... 795 188 (8,009) (18,140) (36,964)
</TABLE>
Please see Note 1 to our consolidated financial statements for an
explanation of the method used to calculate the net loss allocable to common
stockholders and pro forma net loss per share allocable to common stockholders
and number of shares used in the computation of per share amounts.
26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statement of operations is
based on our historical consolidated financial statements for the year ended
December 31, 1999 and the historical financial statements of GeneScreen for the
period from January 1, 1999 to December 29, 1999, included elsewhere in this
prospectus, adjusted to give pro forma effect to the acquisition of GeneScreen
on December 30, 1999 as if it occurred on January 1, 1999. The historical
consolidated balance sheet as of December 31, 1999 reflects our acquisition of
GeneScreen.
On December 30, 1999, we acquired all of the outstanding shares of our
common and preferred stock of GeneScreen in exchange for a stated price of
$18,000,000 which was satisfied by consideration consisting primarily of up to
4,000,000 shares of our Series E mandatorily redeemable convertible preferred
stock with a stated value of $4.50 per share. The note payable to GeneScreen
related to our purchase of Molecular Tool in the amount of $3,547,821 and other
liabilities totaling $421,000 were also cancelled. We accounted for our
acquisition of the GeneScreen under the purchase method of accounting.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1999 gives effect to the GeneScreen acquisition as if it had
occurred on January 1, 1999. The unaudited pro forma adjustments are based upon
available information and certain assumptions that we believe are reasonable
under the circumstances. The unaudited pro forma consolidated statement of
operations does not purport to represent what our results of operations would
actually have been had the transaction occurred on such date, nor does it
purport to project our results of operations for any future period.
27
<PAGE>
ORCHID BIOSCIENCES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Actual
------------------------- Pro Forma
Orchid GeneScreen Adjustments Pro Forma
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Laboratory testing.... $ -- $13,662,510 $ -- $ 13,662,510
Contract revenue from
unrelated party...... 828,000 -- -- 828,000
Grant revenue......... 810,838 -- -- 810,838
License and other
revenue.............. 154,167 -- -- 154,167
------------ ----------- ---------- ------------
Total revenues.... 1,793,005 13,662,510 -- 15,455,515
Operating expenses:
Cost of laboratory
testing revenue...... -- 9,034,730 -- 9,034,730
Compensation expense
from equity
issuances............ 646,359 964,334 (964,334)(1) 646,359
General and
administrative....... 8,566,538 5,922,537 (902,490)(2) 14,941,585
1,355,000 (3)
Research and
development.......... 13,412,586 97,909 -- 13,510,495
------------ ----------- ---------- ------------
Total operating
expenses........... 22,625,483 16,019,510 (511,824) 38,133,169
------------ ----------- ---------- ------------
Operating loss...... (20,832,478) (2,357,000) 511,824 (22,677,654)
Other income (expenses):
Interest income....... 202,699 -- (33,000)(4) 169,699
Interest expense...... (3,473,662) (159,698) 284,000 (5) (3,349,360)
------------ ----------- ---------- ------------
Total other income
(expenses)......... (3,270,963) (159,698) 251,000 (3,179,661)
------------ ----------- ---------- ------------
Loss from continuing
operations......... (24,103,441) (2,516,698) 762,824 (25,857,315)
------------ ----------- ---------- ------------
Discontinued operations:
Gain on sale of
Molecular Tool, net
of tax............... -- 357,175 (357,175)(6) --
------------ ----------- ---------- ------------
Total discontinued
operations......... -- 357,175 (357,175) --
------------ ----------- ---------- ------------
Net loss............ (24,103,441) (2,159,523) 405,649 (25,857,315)
Beneficial conversion
feature of preferred
stock.................. 44,365,000 -- -- 44,365,000
------------ ----------- ---------- ------------
Net loss allocable
to common
stockholders....... $(68,468,441) $(2,159,523) $ 405,649 $(70,222,315)
============ =========== ========== ============
Basic and diluted net
loss per share
allocable to common
stockholders........... $ (90.20) $ (92.51)
Shares used in computing
basic and diluted net
loss per share
allocable to common
stockholders........... 759,078 759,078
============ ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations.
28
<PAGE>
ORCHID BIOSCIENCES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The unaudited pro forma consolidated financial information is based on the
historical consolidated financial statements of Orchid BioSciences, Inc.
("Orchid") and GeneScreen, adjusted to give pro forma effect to the acquisition
of GeneScreen.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1999 give effect to the GeneScreen acquisition as if it had
occurred on January 1, 1999. The unaudited pro forma adjustments set forth
below are based upon available information and assumptions that Orchid believes
are reasonable under the circumstances. The unaudited pro forma consolidated
statements of operations does not purport to project Orchid's operating results
for any future period. The information set forth below should be read together
with the historical consolidated financial statements of Orchid and GeneScreen
and related notes included elsewhere in this prospectus.
(1) Adjustment to reduce compensation expense from equity issuances for
accelerated vesting and cashless exercise of GeneScreen common stock
options in connection with Orchid's acquisition of GeneScreen.
(2) Adjustment to reduce general and administrative expense for transaction
related costs incurred by GeneScreen in connection with Orchid's
acquisition of GeneScreen.
(3) Adjustment to record the amortization of goodwill and other intangible
assets on a straight line basis over the estimated useful life. In the
application of purchase accounting for Orchid's acquisition of GeneScreen,
Orchid allocated $14,540,000 of the net purchase price to intangible
assets, as follows:
<TABLE>
<CAPTION>
Amortization
Value Period
----------- ------------
<S> <C> <C>
Customer lists................................. $ 4,210,000 11 years
Base technology................................ 5,580,000 12 years
Trademark and tradename........................ 1,762,000 15 years
Goodwill....................................... 2,402,000 15 years
Other intangible assets........................ 586,000 4 years
-----------
$14,540,000
===========
</TABLE>
(4) Adjustment to reduce Orchid's interest income for cash paid in lieu of
issuing Series E shares and transaction costs incurred in the acquisition
of GeneScreen.
(5) Adjustment to reduce interest expense on Orchid's note payable to
GeneScreen which was cancelled in connection with the acquisition of
GeneScreen.
(6) In 1998, Orchid acquired GeneScreen's Molecular Tool division.
GeneScreen's historical financial statements for the period ended December
29, 1999 reflect a gain on the sale of Molecular Tool, net of tax, which
has been reported as a discontinued operation. Such gain has been
eliminated in the pro forma adjustments.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read with "Selected
Financial Data" and our consolidated financial statements and related notes
included elsewhere in this prospectus. This discussion in this prospectus
contains forward-looking statements that involve risks and uncertainties, such
as statements of our plans, objectives, expectations and intentions. The
cautionary statements made in this prospectus should be read as applying to all
related forward-looking statements wherever they appear in this prospectus. Our
actual results could differ materially from those discussed here. Factors that
could cause or contribute to these differences include those discussed in "Risk
Factors," as well as those discussed elsewhere. See "Risk Factors" and "Special
Note Regarding Forward-Looking Statements."
Overview
We are a leader in the development and commercialization of genetic
diversity technologies, products and services. Since we began operations in
March 1995, we have devoted substantially all of our resources to the
development and application of a portfolio of products and services using our
proprietary biochemistry for scoring SNPs and microfluidics technologies for
applications in drug discovery, principally in the field of pharmacogenetics
and DNA synthesis.
For the first three years of our existence, we were primarily focused on
developing our microfluidics technologies for applications in high-throughput
synthesis of small molecules under collaborative research programs with
SmithKline Beecham and Sarnoff Corporation. During this period, we derived most
of our revenue from payments from a strategic partner. Revenue during these
early years fluctuated due to the timing of both work performed under the
contract with this strategic partner and of earning milestone revenue. After
management and an independent third-party consulting firm conducted a strategic
review of our business strategy in the first half of 1998, we decided to
redirect our research and development efforts to the fields of pharmacogenetics
and DNA synthesis. As a result of this realignment of our business focus, we
acquired Molecular Tool, Inc. in September 1998, a wholly-owned subsidiary of
GeneScreen, Inc., for approximately $7.1 million in cash, debt and equity
securities. Molecular Tool's proprietary GBA primer-extension technology for
scoring SNPs matched very well with our microfluidics technologies that we
developed earlier and has together formed the basis for our SNP technology
products and services.
On December 30, 1999, we acquired GeneScreen, Inc. for a net purchase price
of approximately $14.2 million consisting of a combination of cash and shares
of our Series E mandatorily redeemable convertible preferred stock offset by
the cancellation of certain debt to GeneScreen. GeneScreen is a company engaged
in DNA laboratory analysis for paternity, forensics and transplantation testing
and had revenues of approximately $13.7 million in 1999. GeneScreen analyzed
over 290,000 specimens for the determination of paternity, which represented
70.9% of their revenue in 1999. Forensic testing services, which represent a
small but growing segment of GeneScreen's revenue, represented 3.8% of
GeneScreen's revenue in 1999. In 1999, GeneScreen provided transplantation
testing for over 71,000 bone marrow donors. Transplantation testing services
represented 25.3% of GeneScreen's revenue in 1999, most of which was related to
a contract which was not renewed.
Most of our current activities and resources are directed toward
commercializing our SNP scoring products and services which apply our
proprietary GBA primer-extension technology. We expect to recognize revenues
from the sale of both our SNPstream instrument systems and our SNPware
consumables. We also expect each SNPstream system we sell or lease will
generate a recurring revenue stream from the sale of our SNPware consumables.
We also provide, or plan to provide, a variety of genetic diversity services to
the pharmaceutical and biotechnology industry through our ultra high-throughput
MegaSNPatron facility.
GeneScreen's established business in paternity testing, forensics and
transplantation supported our goal of building our business in genetic
diversity. We believe our GBA and microfluidics technologies will be able to
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improve the performance of GeneScreen's genetic testing laboratories. We plan
on using the clinically approved laboratories at GeneScreen to expand our SNP
scoring services to pharmacogenetics testing of patient samples in
pharmaceutical clinical trials. We also plan on using these laboratories to
conduct the SNP scoring for our planned direct-to-consumer SNP scoring service
which we will provide over the Internet.
GeneScreen's DNA testing business is dependent upon contracts with various
states and counties to provide paternity testing. These contracts are generally
put out to bid by each respective state every one to three years. The contract
bidding process is highly competitive and the award varies from state to state.
Some states and counties award contracts solely based on the lowest price while
others use a scoring matrix to achieve the desired mix of price, quality and
service. GeneScreen's transplantation business is derived through contracts
with the National Marrow Donor Program, a not-for-profit agency that
facilitates hematopoietic cell transplants through organizing volunteer donor
drives, maintaining a national donor registry and other educational services.
Contracts with the National Marrow Donor Program are also awarded on a bid
basis. With the acquisition of GeneScreen, we expect to generate service
revenue in fiscal year 2000 and use GeneScreen's CLIA approved testing
laboratories to expand our genetic diversity testing business and services.
Our ability to achieve profitability will depend in part on our ability to
successfully develop and commercialize our proprietary SNP scoring and
microfluidics technologies in the form of products and services for
pharmaceutical and biotechnology companies and research institutions. Our
SNPstream 25K GBA-based SNP scoring system, SNPware consumables and related
services were introduced in late 1999. We intend to develop additional models
of SNPstream instruments with lower throughput capabilities. Because our
proprietary GBA primer-extension technology is very adaptable to other hardware
platforms, we intend to offer our SNPware kits for use on instruments made or
sold by other companies. Our collaboration with Affymetrix, Inc. is an example
of this platform propagation strategy.
Our proprietary SNP value creation strategy is based on the creation of
proprietary rights covering the identification of SNPs and their associations
to medically important attributes of patients. We intend to develop
intellectual property rights in this area through collaborations with members
of our Clinical Genetics Network, pharmaceutical and biotechnology companies.
Royalties from commercial sale or license of intellectual property rights
generated by using our technologies are not expected for at least several
years, if at all.
We have incurred losses since our inception and, as of December 31, 1999, we
had a total stockholders' deficit of $36.9 million, including an accumulated
deficit of $46.6 million. We anticipate incurring additional losses over at
least the next several years. These losses are expected to continue as we
expand the commercialization of our products and services to the research
market and we fully implement our proprietary SNP value creation business
strategies. This expansion is expected to result in increases in research and
development, marketing and sales, and general and administrative expenses.
Payments under strategic alliances, collaborations and licensing arrangements
will be subject to significant fluctuation in both timing and amount and
therefore our results of operations for any period may not be comparable to the
results of operations for any other period.
Sources of Revenue and Revenue Recognition
We expect to generate substantial recurring revenue from the sale of our
SNPware consumables for use in our SNPstream hardware systems.
Prior to our acquisition of GeneScreen, substantially all of our revenue was
from collaborations, technology grants and awards from several governmental
agencies. We recognize revenue on product sales upon the transfer of title to
the customer and development and support fees in the period in which the
related costs are incurred and our specific performance obligations under the
terms of the respective agreements are satisfied. Payments received in advance
under all of these agreements are recorded as deferred revenue until earned. As
of December 31, 1999, we had $.8 million of deferred revenue. Revenue on
laboratory testing is
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recognized on a percentage-of-completion basis. Percentage of completion for
tests in process is estimated by relating labor and supplies costs expended to
date to expected total labor and supplies cost.
Results of Operations
Pro forma results discussed below give pro forma effect to our acquisition
of GeneScreen as if it was acquired on January 1, 1999.
Years Ended December 31, 1999 and 1998
Revenues. Revenue decreased to $1.8 million for the year ended December 31,
1999 from $2.8 million for the comparable period in 1998. The $1.0 million
decrease, resulted primarily from a $2.7 million decrease in contract revenue
from SmithKline Beecham, offset by an increase in grant revenue of $.8 million
and contract revenue from Motorola of $.8 million. On a pro forma basis,
revenue was $15.4 million for the year ended December 31, 1999.
Research and Development Expenses. Research and development expenses consist
primarily of salaries and related personnel costs, fees paid to consultants and
outside service providers for chip development, material costs for prototype
and test units, and other expenses related to the design, development, testing
and enhancement of our products. We expense our research and development costs
as they are incurred. Research and development expenses increased to
approximately $13.4 million during the year ended December 31, 1999 from
approximately $7.6 million in the comparable period in 1998. The increase was
attributable to continued growth of research and development activities,
including increased personnel and services to support our technology program
and development of our initial products, higher operating expenses as a result
of our move to a larger facility in May 1999, non-cash expenses from equity
issuances for licensed technology, and expansion of our operating activities.
We expect research and development spending to increase significantly over the
next several years as we expand our research and product development efforts.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related expenses for executive, finance and
other administrative personnel, recruiting expenses, professional fees, legal
expenses resulting from intellectual property prosecution and litigation, and
other corporate expenses including business development and general legal
activities. General and administrative expenses increased to approximately $8.6
million during the year ended December 31, 1999 from approximately $5.0 million
in the comparable period in 1998. The increase was primarily due to increased
compensation for general and administrative personnel, higher operating
expenses as a result of our move to a larger facility in May 1999, increased
costs related to intellectual property prosecution and protection and overall
expansion of our operations. We expect general and administrative expenses to
continue to increase over the next several years to support our growing
business activities, the commercialization of our products, and due to the
costs associated with operating as a public company. On a pro forma basis,
general and administrative expense was $14.9 million for the year ended
December 31, 1999.
Compensation Expense from Equity Issuances. Compensation expense from equity
issuances increased to $.6 million for the year ended December 31, 1999 from
$.2 million for the comparable period in 1998 due to an increase in the number
of stock options granted in 1999 with an exercise price less than the deemed
fair value for financial reporting purposes at the grant date. This difference
is deferred and amortized over the respective vesting periods of the respective
options. Amortization related to deferred compensation recorded in prior years
is also included in 1999 expense. Some of the increase also results from grants
to non-employees which are subject to remeasurement each reporting period based
upon changes in the fair value of our common stock, until the non-employee
completes performance under the option agreement.
Acquisition of in-process research and development. Acquisition of in-
process research and development amounted to $2.4 million in 1998 arising from
our acquisition of Molecular Tool in 1998, which had an
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in-process research and development component which was immediately charged to
expense upon acquisition. No comparable charge was incurred in 1999. No
comparable charge was incurred in 1999. Please see Note 2 to the Notes to
Consolidated Financial Statements for a discussion of this charge.
Interest Income. Interest income consists of income from our cash and short-
term investments. Interest income decreased to $.2 million in the year ended
December 31, 1999 from $.9 million in the comparable period of 1998. This $.7
million decrease resulted from a declining cash and short-term investment
balance due to cash used in operating activities.
Interest Expense. Interest expense was $3.5 million for the year ended
December 31, 1999. This $3.5 million increase resulted from substantially non-
cash interest expense on the bridge notes which was converted into Series E
mandatorily redeemable convertible preferred stock in December 1999, the
convertible note payable to GeneScreen, which was canceled in the GeneScreen
acquisition, and interest expense attributable to warrants issued in connection
with our bridge financing and borrowings on our line of credit in 1999.
Net Loss. Due to the factors discussed above, our net loss was $24.1 million
for the year ended December 31, 1999 compared with a net loss of $11.5 million
for the comparable period in 1998.
Years Ended December 31, 1998 and 1997.
Revenue. Revenue decreased to $2.8 million for the year ended December 31,
1998 from $3.8 million for the comparable period in 1997. The $1.0 million
decrease resulted from a decrease in contract revenue recognized from
SmithKline Beecham.
Research and Development Expenses. Our research and development expenses
decreased to $7.6 million for the year ended December 31, 1998 from $10.8
million for the comparable period in 1997. The decrease of $3.2 million was
primarily due to a reduction in our expenditures at Sarnoff Corporation and
expenses recorded in 1997 related to an obligation under the SmithKline Beecham
contract which did not have a corresponding charge in 1998.
General and Administrative Expense. General and administrative expenses
increased to $5.0 million for the year ended December 31, 1998 from $2.8
million for the comparable period in 1997. The $2.2 million increase was
primarily due to hiring of additional personnel to support our growing business
activities.
Acquisition of in-process research and development. Acquisition of in-
process research and development was $2.4 million for the year ended December
31, 1998 resulting from our acquisition of Molecular Tool in 1998, which had an
in-process research and development component which was immediately charged to
expense upon acquisition. No comparable charge was incurred in 1997.
Interest Income. Interest income increased to approximately $.9 million for
the year ended December 31, 1998 from approximately $0 for the comparable
period in 1997. This $.9 million increase resulted from a higher cash and
short-term investment balance due to the sale of Series C mandatorily
redeemable convertible preferred stock in a private placement.
Net loss. Due to the factors discussed above, our net loss was $11.4 million
for the year ended December 31, 1998 compared to $9.9 million for the
comparable period in 1997.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through
research and development funding from collaborative partners and two private
placements of equity securities that closed in March 1998 and January 2000 with
aggregate net proceeds from the private placements of approximately $101
million. The
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issuance at the initial closing of the Series E mandatorily redeemable
convertible preferred stock resulted in a $44,365,000 beneficial conversion
feature included in net loss allocable to common stockholders in 1999. The
closing of Series E mandatorily redeemable convertible preferred stock in
January 2000 will result in an additional significant beneficial conversion
feature. In December 1998, we obtained a secured $6.0 million equipment line of
credit, for the purchase of plant and equipment at our corporate headquarters
and research and development laboratories. At December 31, 1999, borrowings of
$4.6 million were outstanding under this line. We lease our corporate facility
under an operating lease which expires in 2009.
In June 1999, we completed a bridge financing in which we issued convertible
promissory notes in the aggregate principal amount of approximately $7.6
million. These notes and all accrued interest on the principal amount of the
notes were automatically converted into shares of Series E mandatorily
redeemable convertible preferred stock on December 22, 1999 in connection with
the first closing of the private placement.
In November 1999, we completed a bridge financing in which we issued a
senior convertible promissory note in the original principal amount of
approximately $2.3 million to Affymetrix, Inc. The principal amount of this
note and all accrued interest thereon was automatically converted into shares
of Series E mandatorily redeemable convertible preferred stock in December 1999
with the related shares being issued in January 2000.
Net cash used in operations for the year ended December 31, 1999 was
approximately $14.8 million compared with approximately $11.7 million for the
comparable period in 1998. Non-cash charges in 1999 included compensation
expense and research and development expense from the issuance of equity
securities, depreciation and amortization expense and interest expense related
to warrants issued in connection with our 1999 bridge financing. Investing
activities included $8.2 million in cash used during the year ended December
31, 1999 for leasehold improvements and equipment purchases for our new
facility in Princeton, New Jersey.
Working capital increased to approximately $27.2 million at December 31,
1999 from approximately $5.8 million at December 31, 1998. The increase in
working capital was primarily due to our Series E mandatorily redeemable
convertible preferred stock financing in December 1999.
At January 31, 2000, we held cash and cash equivalents of approximately
$60.8 million. We believe that cash reserves, expected short-term revenue, and
the net proceeds of this offering will be sufficient to fund our operations
through at least the next 18 months. We may need to access the capital markets
for additional financing to operate our ongoing business activities.
In connection with the December 1997 License and Option Agreement with
Sarnoff, we are obligated to fund research to be performed by Sarnoff in an
amount not less than $5.5 million in the aggregate over four years for each of
the two option fields that we have exercised, beginning from the date of
exercise.
In February 2000, we issued 1,633,400, 39,750 and 39,750 stock options at
exercise prices of $6, $12 and at the per share price of the offering
contemplated herein, respectively, for which a substantial compensation charge
will be recognized over the respective vesting periods of the options.
As of December 31, 1999, our net operating loss carryforwards were
approximately $40.0 million and $44.0 million for federal and state income tax
purposes, respectively. If not utilized, our federal and state tax loss
carryforwards will begin to expire in 2003 and 2003, respectively. Utilization
of our net operating losses to offset future taxable income, if any, may be
substantially limited due to "change of ownership" provisions in the Internal
Revenue Code of 1986. This annual limitation may result in the expiration of
certain net operating losses prior to their use.
We cannot assure you that our business or operations will not change in a
manner that would consume available resources more rapidly than anticipated. We
also cannot assure you that we will not require
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substantial additional funding before we can achieve profitable operations. Our
capital requirements depend on numerous factors, including the following:
. our ability to enter into strategic alliances or make acquisitions;
. regulatory changes and competing technological and market developments;
. changes in our existing collaborative relationships;
. the cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights;
. the purchase of additional capital equipment;
. the development of our SNPstream and DNAstream and software product
lines and associated reagent consumables;
. the development of our SNPware consumables and kits;
. the success rate of establishing new contracts, and renewal rate of
existing contracts, for DNA testing services in the areas of paternity,
forensics and transplantation;
. the progress of our existing and future milestone and royalty producing
activities; and
. the availability of additional funding, if necessary, and if at all, on
favorable terms.
Disclosure About Market Risk
Our exposure to market risk is principally confined to our cash equivalents
and investments, all of which have maturities of less than one year. We
maintain a non-trading investment portfolio of investment grade, liquid debt
securities that limits the amount of credit exposure to any one issue, issuer
or type of instrument. The fair value of these securities approximates their
cost.
Year 2000 Impact
Computer systems and software programs of many companies are currently coded
to recognize only two digit entries in the date code field. These systems may
accept a date using "00" as the year 1900 rather than the year 2000. As a
result, these computer systems and software programs may need to be upgraded to
comply with year 2000 requirements. We have made an assessment of the year 2000
readiness of our technology systems, including our SNPstream hardware system
and associated software and our corporate information technology systems. We
intend to revise our proprietary software to improve our year 2000 compliance,
if necessary. We have been informed by our vendors who provide the SNPstream
hardware system that this hardware is year 2000 compliant. We believe that
substantially all of our applications, databases and corporate infrastructure
are year 2000 compliant. We have been informed by many of our vendors of
material hardware and software components of our information technology systems
that substantially all of the products or components we use are year 2000
compliant.
Inflation
We do not believe inflation has had a material impact on our business or
operating results during the periods presented.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133, as amended is effective for fiscal years
beginning after June 15, 2000 and is not anticipated to have an impact on our
financial position or results of operations.
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BUSINESS
Overview
We are a leader in the development and commercialization of genetic
diversity technologies, products and services. We expect our proprietary
technologies will significantly enhance the way the companies generate
information about single nucleotide polymorphisms, or "SNPs", the most common
form of genetic diversity. Genetic diversity information can be used to
facilitate the development of highly specific and efficacious drugs, to improve
the effectiveness of existing drugs, and to increase the likelihood of success
of tissue transplants. Our proprietary technologies also have other commercial
applications outside of the healthcare field, including forensics and paternity
testing, as well as improved crop development and livestock breeding programs.
Background
Genetic information provides a basis for understanding biological and
medical functions in organisms. In recent years, scientists have begun to
analyze large portions of deoxyribonucleic acid, or DNA, to determine the
sequence of nucleotide bases in DNA within the human genome and within the
genomes of plant and animal species. The Human Genome Project and other major
genetic research programs are identifying hundreds of millions of DNA base
sequences. These studies are expected to be completed within the next few
years.
The first phase of the genomics revolution has centered around sequencing
significant portions of DNA within the human genome. We believe the next phase
of the genomics revolution will involve the identification of genetic variation
within the genome from person to person resulting from differences, or
polymorphisms, in these DNA sequences.
The Impact of Genetic Variation
The study of the impact of genetic variation on the efficacy, pharmacology
and toxicity of a drug is referred to as pharmacogenetics. As the understanding
of genetic variation has evolved, it has become clear that the effect a drug
has upon an individual is often a function of that individual's unique genetic
sequence. Genetic variation may indicate why some individuals contract certain
diseases and others do not and may also determine why two individuals respond
differently to the same drug. Drugs are typically developed to interact with a
single version of a given protein or receptor. Accordingly, a drug may only be
effective in individuals who carry the specific protein or receptor for which
the drug was designed. Individuals who have a slight genetically caused
variation in these proteins or receptors, or the proteins involved in the
metabolism of the drug, may not respond to the drug or may experience adverse
side effects.
The methods used by the pharmaceutical industry to develop new drugs and to
improve existing drugs are expected to undergo a fundamental transformation to
take genetic variation into account. In fact, genetic variation can play a
significant role in all stages of drug discovery and development. The
usefulness of genetic variation information is not limited to drug development.
Genetic variation information can also be used to improve drugs already on the
market by providing information to select the best drug for a particular
patient. Genetic variation information may also be used to match the
compatibility of donors to recipients to improve the success of organ and bone
marrow transplantations as well as for paternity testing, forensics testing and
for agricultural and livestock breeding programs.
SNPs: A Key Indicator of Genetic Variation
There are a variety of polymorphisms known to occur in DNA sequences. The
most common form of polymorphism involves a change in a single nucleotide base
and is called a single nucleotide polymorphism, or SNP. Because SNPs are the
most common type of polymorphism, they can have significant effects on both
susceptibility to disease as well as drug response. As a result, the discovery
of SNPs has recently become the focus of increased attention. This is evidenced
by the formation in 1999 of The SNP Consortium, Ltd., a group
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of leading pharmaceutical companies which have joined together for the primary
purpose of discovering new SNPs and making them publicly available. The SNP
Consortium members include: The Wellcome Trust, AstraZeneca, Aventis, Bayer,
Bristol-Myers Squibb, F. Hoffmann-LaRoche, Glaxo Wellcome, IBM, Motorola,
Novartis, Pfizer, Searle, and SmithKline Beecham.
The increased focus on the discovery of SNPs highlights the important
distinction between SNP discovery and SNP scoring. SNP discovery refers to the
identification of the specific location in a gene where there is variability in
a single nucleotide base across a population. By contrast, SNP scoring refers
to the measurement of the presence or absence of a particular SNP in the
genetic sequence of a particular individual. Unlike SNP discovery, SNP scoring
focuses on what we believe is a compelling and potentially more valuable
opportunity of correlating a given SNP or combination of SNPs with important
medical attributes. There are estimated to be in excess of one million SNPs in
each individual. While some of these SNPs have obvious and immediate medical
relevance, the significance of the vast majority of SNPs is currently unknown.
The mere discovery of SNPs has not been of significant value in the treatment
of disease. We believe the commercial value of SNPs will be realized by
identifying SNPs with medical relevance by performing SNP scoring studies on
hundreds of thousands of SNPs on hundreds of thousands of individuals.
As the Human Genome Project nears completion, the number of identified SNPs
will increase dramatically. SNP association studies will be required to find
the potential relevance of identified SNPs to human health. As a result, we
expect the demand for SNP scoring to increase significantly over the next few
years. The increase in demand for SNP scoring will be driven not only by a
small group of dedicated laboratories conducting large-scale experiments, but
also by a large number of smaller research and clinical laboratories conducting
a more diverse set of experiments. To find the subset of SNPs that occurs with
the greatest frequency in human disease or are potentially responsible for
variations in drug response, hundreds of millions of SNP scores must be made
and correlated with health and other features of interest. Finding these
valuable SNPs will require the use of a highly accurate, high-throughput SNP
scoring technology that can be implemented at a competitive cost.
The SNP Consortium has announced its intention to identify a set of
approximately 300,000 SNPs by April 2001. If all of these SNPs were to be
scored in a group of 1,000 patients, it would require large-scale experiments
consisting of over 300,000,000 individual SNP scores. Since there are many
research laboratories currently conducting research on SNPs, we believe
billions of SNP scores will have to be performed over the next few years and
potentially a thousand-fold more over the next decade. Since SNP scoring using
traditional sequencing methods can cost several dollars per SNP score, these
studies would be cost-prohibitive without further technological advancement.
Traditional Methods of SNP Analysis and Their Limitations
SNPs are typically discovered by DNA sequencing, which is currently
conducted by large dedicated laboratories using automated electrophoresis
instruments. DNA sequencing is an efficient SNP discovery tool. However, the
use of DNA sequencing to conduct SNP scoring is an expensive and complex
process. As a result, variations upon standard DNA sequencing methods, such as
DNA hybridization, have been developed. DNA hybridization is based upon the
premise that a unique piece of DNA will hybridize most strongly to its exact
complement as opposed to a complement containing a SNP.
A significant problem with hybridization as a DNA sequencing method,
however, is that it requires ideal testing conditions. Slight changes in
temperature, salt concentration or DNA composition will dramatically affect the
reliability of the hybridization reaction. As a result, some commercial tests
based on hybridization require ten or more repetitive analyses for every SNP
scored. While various commercial variations of the hybridization technique have
improved the reliability of hybridization, the technique remains complex and
costly.
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SNP Scoring Systems
SNP scoring systems typically contain two basic elements: an instrument
platform or "hardware" component and a biochemistry or "wetware" component. The
hardware component, which is the instrument platform where the SNP scoring
takes place, typically consists of a means of detection, such as fluorescence,
mass spectroscopy or optical density; a separation apparatus such as
electrophoresis, beads or multi-well plates; and a liquid dispensing apparatus
having such features as pipetting or microfluidics. The wetware component,
which is a specifically designed set of biochemical reagents, conducts the
test, or assay, that recognizes the SNP at the molecular level as being present
or absent at its expected location. The SNP recognition, or SNP scoring, takes
place by having molecules bind or react with or near the location of the SNP in
a test tube or other suitable chamber. Since the wetware component consists of
consumable reagents designed for a specific set of procedures and packaged
within a single kit, multiple kits must be purchased for multiple SNP analyses.
The hardware and wetware components may be assembled from various
technologies. There are certain key criteria of both components that contribute
to the success of the overall SNP scoring system. For the hardware component,
these criteria include throughput, cost, flexibility, automation and ease of
use. For the wetware component, these criteria include the following:
. Accuracy. The sensitivity of the biochemistry wetware in accurately
recognizing and scoring a single SNP or a group of SNPs in a large group
of samples.
. Flexibility. The ability of the biochemistry wetware to be adapted for
use on many different instrument platform hardware systems having various
degrees of automation and detection methods.
. Cost. The cost of the reagents and the labor used to perform each SNP
score.
. Robustness. The ability of the assay to perform well under a variety of
experimental conditions and the user-friendliness of the protocol
required to conduct the test.
. Scalability. The ability of the biochemistry wetware to be easily scaled
from single sample tests to large scale mass production.
Because each SNP scoring customer will have specific system requirements,
the ideal SNP scoring system should be capable of addressing all of the
criteria described above.
With the increased focus on the value of SNPs and the increase in the number
of discovered SNPs, there is a pressing need for a fast and flexible SNP
scoring system that can score SNPs with a higher level of accuracy and at a
lower cost than is achievable with current methods.
Orchid's Unique Solutions
Our Proprietary Wetware -- Genetic Bit Analysis
We conduct SNP scoring using our proprietary Genetic Bit Analysis, or GBA,
primer-extension SNP scoring technology. GBA primer extension is a method of
isolating the precise location of the site of a suspected SNP and utilizing the
inherent accuracy of DNA polymerase to determine the SNP's presence or absence.
In GBA primer extension, a specially synthesized DNA primer is bound to the
sample DNA to expose the DNA site of interest where a SNP may be present. DNA
polymerase, a naturally occurring molecule whose design is specifically
tailored to accurately and reliably insert the appropriate complementary base
to a chain of DNA, is then added to extend the DNA chain by one base at the
suspected SNP location. This single base extension is then detected by one of
several conventional methods, including fluorescence, optical density,
electrophoresis and mass spectroscopy. The result is a direct read-out method
of detecting SNPs that creates a simple binary "bit" of genetic information
representing the presence of a SNP in a DNA sample.
We believe our proprietary GBA primer-extension SNP scoring technology is
superior to all other SNP scoring technologies currently in use and overcomes
most of the limitations present in other SNP scoring
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systems. Further, our GBA primer-extension technology uses experimental steps
and instruments already familiar to technicians and scientists in the life
sciences field. GBA primer extension can be distinguished from other currently
available SNP scoring technologies in the following ways:
. Accuracy. We believe our proprietary technologies permit users to realize
higher levels of accuracy without incurring the time and expense of
conducting repetitive analyses of the same SNP. Unlike most alternative
hybridization-based methods, our SNP scoring technologies rely on the
inherent accuracy of DNA polymerase. The use of DNA polymerase enables
our GBA primer-extension technology to achieve the accuracy and
reproducibility of DNA sequencing, while lowering costs and reducing
complexity. Since a SNP scoring technology that is susceptible to even a
one percent error rate could double the sample requirements and
significantly increase the costs of a clinical trial, the degree of
accuracy of our SNP scoring technologies should improve the design and
reduce the cost of entire clinical studies. The accuracy of our SNP
scoring technologies has been confirmed by one of our customers who
conducted a recent independent analysis and reported that our
technologies were 100% accurate in performing 4,000 SNP scores.
. Flexibility. We have developed a biochemistry wetware component which is
not limited to use on our hardware platform, but can also be used with
the 100,000 other instrument systems already installed around the world.
Unlike the wetware components of competing systems, our wetware may be
applied to a wide range of formats and systems including: arrays, gels
and beads, as well as mass spectroscopy and optical systems. The unique
flexibility of our GBA primer-extension technology permits
commercialization opportunities on multiple platforms to provide the best
combination of price and performance for a wide range and large number of
customers.
. Cost. The use of our GBA primer extension for SNP scoring is expected to
provide a significant reduction in data point analysis relative to
current hybridization-based methods. We believe eliminating the need for
repetitive SNP scoring tests will reduce costs associated with both
clinical trial sample collection and SNP scoring.
. Robustness. Our GBA primer-extension technology provides accurate results
over a wide range of testing conditions and is less vulnerable to failure
or false results if testing conditions are not ideal.
. Scalability. We believe we are unique in our ability to scale our SNP
technologies to meet the needs of potential customers who will require
tests ranging from a single SNP per sample to hundreds of thousands of
SNPs on thousands of samples.
Our Complementary Technologies
We also have a portfolio of microfluidics technologies which we are applying
to the field of SNP scoring. We plan to use our microfluidics systems to
increase the throughput and decrease the costs of SNP scoring. We also plan to
use our microfluidics systems to synthesize DNA for use as primers in SNP
scoring. Our primer arrays can be manufactured for use in a wide variety of
formats, including industry standard 384-well plates in our MegaSNPatron
facility and arrays compatible with other DNA chip systems. This should allow
us to format SNP arrays and tailor them rapidly on a project-by-project basis
and give us the ability to produce DNA arrays on demand. By applying these
technologies, we believe we will be able to increase the throughput and reduce
the cost of SNP scoring to pennies per score.
We have also developed additional chemistries and technologies which augment
our SNP scoring capabilities, including detection methods, target preparation
methods, signaling chemistries, surface chemistries, SNP scoring algorithms,
primer design software, data management tools and primer extension
permutations. We have designed proprietary algorithms which allow for the
automated selection of important SNP patterns associated with the scoring of
inherited SNPs. We intend to continue to pursue new technologies which improve
our core technology position in SNP scoring and analysis.
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Genetic Diversity Markets
Due to the key role of SNPs as indicators of genetic diversity, we believe
SNP scoring will have significant applicability in all stages of drug discovery
and development. In each of these stages, we believe SNP scoring can provide
significant value for our customers and create market opportunities for us as
partially described below:
The Use of SNP Scoring in Drug Discovery
. Target Identification. Correlations between individuals with a given
disease and SNPs can be used to identify candidate genes that are related
to the disease. These candidate genes can then serve as candidate targets
for new drug development.
. Target Validation. A target containing many SNPs is likely to be a poor
target for traditional drug discovery since too much variability may lead
to a lack of uniform response in a patient population. SNP studies can be
used to validate candidate targets by either taking into account the
target's variability or by eliminating targets with excessive variability
at an early stage of the drug discovery process.
. Lead Identification. Lead compounds can be identified which act on
proteins encoded by the target gene, including the SNP variants of the
gene. In this manner, lead compounds can be identified for many versions
of a target protein.
. Lead Validation. Biological assays can be conducted on lead compounds
against SNP variants of a given protein, thereby validating a lead
candidate.
The Use of SNP Scoring in Drug Development
. Lead Optimization. Studies on known SNP variants of targets can be used
to improve existing drugs by seeking broader efficacy over larger
populations with genetic variations. SNP scoring may also be used to re-
evaluate and modify drugs that previously failed or that have been
dropped from the market through evaluation of efficacy on specific SNP
variants of drug targets.
. Pre-clinical Testing. Studies with model systems to correlate drug
response or lack of response and metabolism to known SNPs in the target
or in related enzymes can yield better efficacy and permit more accurate
safety predictions for a drug.
. Clinical Trials. Patients may be selected for clinical trials based on
the presence or absence of SNPs known to be associated with drug
response. The duration and expense of clinical trials may be reduced by
using SNP scoring in smaller patient populations.
The Use of SNP Scoring in Drug Marketing
. Market Extension. SNP scoring may be used in marketing programs to expand
or extend markets of an existing drug to new patient groups based on SNP
variants. This may lead to label extensions and longer commercial lives
for existing compounds based on patient SNP type. In addition, SNP
scoring may be used to exclude patients that are more likely to
experience toxicity when treated with a certain drug. This should permit
drugs to remain on the market for a longer period of time.
. Generic Drugs. SNP scoring may be used to discover novel uses of existing
non-proprietary drugs.
. Drug Revival. SNP scoring may be used to bring drugs which previously
failed due to adverse drug response or lack of response in a given
indication back to the market for different indications or for use on
better defined populations.
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The Use of SNP Scoring and Other Polymorphism Analyses in Healthcare Delivery
. Clinical Diagnostics. SNP scoring may be used in direct patient testing
for disease diagnosis or in determining the appropriate medical treatment
for a patient.
. Drug Selection. SNP scoring may be used to tailor formulations of drug
treatments selected specifically for a patient having a unique set of
SNPs. This could revolutionize drug prescription, significantly reducing
erroneous or ineffective prescriptions. Tailored formulations may be
utilized to develop more cost-effective formularies for managed care
systems. In the future, drugs may be approved with labels requiring the
presence or absence of a SNP in the patient.
. Medical Treatment Selection. SNP scoring may be used not only for drug
selection but also to modulate drug dosage and to select non-
pharmaceutical treatment, such as surgery, in cases where drugs may not
be effective in a particular patient. Reducing the time to identify an
effective treatment is expected to improve medical outcomes.
. Transplantation Matching. Genetic variability in genes plays a key role
in the success of transplantation therapy. The ability to rapidly and
accurately match donated tissues to recipients through polymorphism
matching has become increasingly important.
Potential Impact of SNP Scoring on Our Markets
The market potential for SNP scoring is a function not only of the variety
of different markets as described above but also of the impact of our SNP
scoring technologies on each of these markets. This impact is reflected in new
and expanding uses of SNP scoring, which we believe may best be described in
terms of the so-called lifecycle of a SNP consisting of the following five
stages.
Stage 1: Discovery. Discovery of a SNP, typically through high-throughput
DNA sequencing.
Stage 2: Confirmation. Confirmation that the suspected SNP is indeed a SNP
and not a sequencing mistake or rare mutation. This is accomplished by scoring
the SNP on hundreds of patients, plants or animals to determine its frequency
of occurrence.
Stage 3: Association. Association of the confirmed SNP with the occurrence
of an adverse drug response, the lack of response to a drug or perhaps the
presence or absence of a disease through SNP scoring on a set of patient
samples grouped by medical attributes. In this manner, SNP associations can be
used to determine the optimal drug selection for each patient SNP type.
Stage 4: Clinical Trial. The use of SNP scoring in clinical trials where
knowledge of the presence or absence of one or more SNPs is used to predict or
improve the outcome of the experiment.
Stage 5: Diagnostic Testing and Industrial Application. The use of SNPs in
the clinical diagnostic testing of a patient prior to providing a particular
medicine or in industrial applications.
Each of these stages of the SNP lifecycle represents a separate business
opportunity with unique market dynamics and product or service requirements. As
a SNP progresses through this lifecycle, the throughput requirements at any
given laboratory for scoring this SNP may decrease. However we expect the
number of laboratories performing SNP scoring in these later stages to increase
substantially. For example, it may take a laboratory with a throughput of a
million SNPs per day to identify the one specific SNP from a potential pool of
several thousand that can predict the response to a specific drug. In order to
make such association studies commercially viable, such a laboratory would
probably want to use a SNP scoring technology such as GBA primer extension,
that can provide accurate results without the need for repetitive testing. Once
a SNP progresses through the SNP association stage, that one SNP might find its
way into thousands of clinical laboratories performing tests on a few hundred
patients a day in order to complete clinical trials or diagnostic testing.
Thus, as the field of genetic diversity matures over the next few years, it is
expected that more and
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more SNPs will be used in a larger number of smaller laboratories such as
clinical laboratories. Following the completion of the sequencing of the human
genome and the progression of many SNPs through the early stages of the SNP
lifecycle, we expect that our GBA primer-extension technology, which can adapt
to existing diagnostic testing instruments, will have the greatest market
appeal.
Industrial Applications of Genetic Diversity
Genetic diversity also has many commercial and industrial applications.
Genetic diversity between individuals can be used to determine identity and
paternity. For example, DNA material collected from a crime scene can be tested
to determine if a particular individual was involved in the crime. Similarly,
the DNA of a child can be matched to that of the mother and the purported
father to determine unambiguously the actual parents of the child. These two
applications have revolutionized forensics and child support enforcement. DNA
tests are also undertaken to check for likely compatibility of organ or tissue
for transplantation from one unrelated individual to another. Large numbers of
potential donors are screened for compatibility. We estimate that the market
size for DNA testing in these areas is more than $100 million per year.
As with humans, genetic diversity in plants and animals results in
differences between species as well as differences in characteristics within
the members of given species. For example, plants have genetic variations
responsible for differences in crop yield as well as product size and flavor.
Animals also have genetic variations responsible for traits such as fertility
and resistance to disease. By using genetic variation information, traditional
hybridization and breeding programs can be optimized to more rapidly attain
desired quality traits of plants and animals without engaging in genetic
engineering.
Our Business and Commercialization Strategy
Our objective is to become the premier provider of instruments, consumables,
services and technologies for SNP scoring and other genetic diversity tests.
The key elements of our strategy to achieve this objective include the
following:
Rapid Commercialization
We intend to rapidly commercialize our growing line of instruments,
consumables and services for SNP scoring. Our product lines include our
SNPstream hardware instruments, our SNPware wetware consumables and our ultra
high-throughput MegaSNPatron facility for SNP scoring services. We intend to
expand our existing products and services to offer a wide range of performance
options.
We provide non-exclusive, one-time use licenses of our GBA primer-extension
technology in connection with the sale of our SNPware consumables. We expect to
generate substantial recurring revenue from the sale of our SNPware consumables
for our growing installed base of our SNPstream hardware systems.
We also intend to expand the market for our proprietary SNP scoring
biochemistry wetware through our platform propagation strategy by offering it
for use on instruments made and sold by other companies. We will implement this
strategy by selling SNPware consumables and kits directly to the existing
customer base of such companies. In addition, we will develop, manufacture and
supply kits directly to instrument companies to take advantage of their
existing marketing and distribution channels. Our collaboration with Affymetrix
is an example of this strategy. We also intend to form marketing distribution
relationships to enhance the distribution of our products. We believe our
proprietary biochemistry underlying our wetware is flexible enough to be
adapted to various instrument platforms. Instrument platforms for which we may
produce compatible wetware kits may include capillary and slab-gel
electrophoresis, DNA sequencers, mass spectrometers, optical plate readers,
fluorescence plate readers, micro array readers and DNA chip systems. We
believe the installed base of such instruments is more than 100,000 instruments
in the aggregate. We believe this strategy will allow us to establish our
technologies as the leading means of SNP scoring more quickly than if our
technologies were limited to a single platform.
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Market Extension
We believe the pharmaceutical and research communities are currently our
largest SNP scoring markets. Although these markets are expected to grow
rapidly over the next several years, we expect SNP scoring for the clinical and
diagnostic markets, which are still in the early stages of development, has the
most significant long-term potential. Our market extension strategy is designed
to leverage our developing research market position, which we expect to
establish using our SNPstream and SNPware product lines, as well as the
services we conduct in our ultra high-throughput MegaSNPatron facility, to
enable us to expand into the clinical markets. As researchers find more
medically important SNPs using our technologies, products and services, we
believe more suppliers to the clinical and diagnostic markets will select our
SNP scoring technologies. Due to the flexibility and scalability of our SNP
scoring technologies, we also believe many systems in the clinical and
diagnostic markets can be readily adapted for use of our technologies. As a
result, we believe we are well positioned to collaborate with companies with
large installed bases of clinical systems.
We have already expanded our genetic diversity services by acquiring
GeneScreen. GeneScreen sells genetic diversity testing services for use in
forensic and paternity testing as well as for improving the success of
transplantation of bone marrow. We believe we are currently the second largest
provider of paternity tests in the United States. We will review other
acquisition opportunities to further expand applications of SNP scoring in
industrial and clinical markets.
We also intend to expand our markets geographically by establishing SNP
scoring facilities and distribution channels in many countries through what we
call our Regional GeneScreen Centers. Through this strategy, we intend to
rapidly penetrate the global market and form relationships with a diverse group
of scientists throughout the world. The Regional GeneScreen Centers are
intended not only to create service revenue but also to serve as applications
laboratories to promote the local sale of our products.
As the clinical value of SNPs becomes more accepted, we believe retail
consumers will represent a significant potential market for our products and
services. We plan on developing a Web site based service to provide SNP scoring
on samples provided by individuals. This service would provide a report to
individual consumers, which may be shared with their doctor, that would
indicate the adverse drug responses to which they may be susceptible or
assisting in the selection of drugs which may work best for them. We plan to
provide a similar service to the healthcare industry which would be designed to
provide important topical information about our available services and the
field of pharmacogenetics generally. We plan on providing leadership in
establishing high standards of medical ethics, confidentiality and data
security in introducing and establishing these services. If implemented, we
intend to perform this type of testing at our Regional GeneScreen Centers.
We also intend to expand into industrial applications of SNP scoring,
including agricultural applications which represent a growing market
opportunity for our products and services. We believe the SNP scoring needs in
the agricultural industry will be similar to those for the pharmaceutical
industry and may involve similar products and/or SNP scoring facilities.
Therefore, we believe we are well-positioned to take advantage of this market.
Proprietary SNP Value Creation
Our proprietary SNP value creation strategy is based on the creation of
proprietary rights covering the identification of SNPs and their associations
to medically important attributes of patients. We believe the knowledge gained
from such associations will allow patients to be more accurately screened for
appropriate medication. We expect this will result in proprietary rights
covering a broad range of new and existing drugs, consisting of both
"composition of matter" patents which cover the drugs themselves and "use
patents" which extend their label coverage. Because this approach leverages
existing drugs and molecular targets, we expect our drug development programs
will be faster and less expensive than those relying solely on new chemical
entities or new molecular targets.
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We believe our proprietary SNP value creation strategy can also be used to
extend patent coverage on existing drugs as well as drugs that are off patent.
We also believe, in some cases, SNP-enhanced pharmaceuticals will be tantamount
to novel drugs and may either be licensed to pharmaceutical companies or
commercially developed by us.
We believe SNPs will be useful in a variety of research and clinical
applications. As SNPs are associated with medically or commercially important
attributes, they can be assembled into SNP scoring panels designed for specific
applications. Once SNP associations are found, we believe patents can be filed
on the use of specific SNPs. For example, a panel of five SNPs that were all
known to correlate with a lack of response to a certain drug could be packaged
as a SNP scoring kit. Individual patients might be able to benefit from such a
SNP panel by receiving an effective drug in a shorter period of time. We
believe we will generate revenue from the licensed use of our GBA primer
extension technology as well as from our growing portfolio of proprietary uses
of SNPs.
Sustained Competitive Advantage
In order to build and sustain our scientific leadership in the field of
genetic diversity, we plan on forming strategic alliances and scientific
collaborations and making strategic acquisitions. We believe our financial and
technology positions will make us an attractive partner to a variety of other
participants in this industry. We will seek to expand our paternity, forensic
and transplant genetic testing services in our Regional GeneScreen Centers to
include new testing services marketed to new groups of customers. We believe
our SNP scoring technologies can be used at GeneScreen and in other Regional
GeneScreen Centers to reduce costs or increase the types of testing offered.
Through our collaborations and acquisitions, we will seek access to
distribution channels and opportunities to improve operational efficiencies. We
have formed a number of collaborations with research physicians in what we call
our Clinical Genetics Network. Through this network, we believe we will gain
access to clinical samples which will enable us to find correlations between
SNPs and medically important attributes. This may create additional
intellectual property rights for us.
We also intend to continue our aggressive investment in our proprietary
technologies through internal development and by licensing third-party
technologies. Examples of this include the application of our microfluidics
technology to DNA synthesis for use in genomics research and to increase the
throughput and reduce the costs of SNP scoring in our MegaSNPatron facility. We
will also seek to improve the cost-effectiveness of our products and services
through increased automation and development of improved information
technologies.
Products and Services
We are currently marketing or developing the following products and
services:
Instruments and Systems -- Hardware
We have developed our instrument systems using an original equipment
manufacturer, or OEM, strategy by modifying instruments already produced by
other companies. Where possible, we intend to continue this OEM strategy to
expand the number of instruments that we offer while minimizing the engineering
expenses normally associated with the internal development of these systems.
SNPstream Product Line
We introduced our SNPstream 25K system in September 1999 and currently have
five systems in operation. This system is based on an OEM robotic system
optimized for use with our proprietary GBA primer-extension SNP scoring assays,
formatted in 384-well plates, and uses our dedicated consumables and software
and provides the user with turn-key SNP scoring capabilities of approximately
25,000 SNPs per day. This system is installed and serviced by the equipment
manufacturer. We support the SNP scoring applications. We also intend to
develop a lower-throughput version of our SNPstream system that will enable
users to analyze up to 1,000 SNPs per day. The system is in product development
and is expected to be beta tested by the end of 2000. In addition, we intend to
introduce a medium-throughput SNP scoring systems capable of scoring between
1,000 and 10,000 SNPs a day.
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DNAstream Product Line
Our DNAstream line of products is being designed to enable the simultaneous
synthesis of up to 384 oligonucleotides. These oligonucleotides may be used,
among other applications, as the DNA primers for our GBA primer-extension
technology. We are developing our proprietary Chemtel microfluidic chips for
use in DNA synthesis instruments. The unique control features of our Chemtel
chip enable the use of standard chemistry to produce DNA of exceptional purity
using controlled pore glass or polystyrene supports in arrays of microreactors.
Potential benefits of our DNAstream products include reduced reagent usage and
lower cost enabled by the execution of reactions in a microreactor well,
instead of on the surface of glass plates or in flow-through cartridges
commonly used in current commercial DNA synthesizers. The high-throughput
versions of this line of products may be used internally to produce the DNA
required for our ultra high-throughput MegaSNPatron facility and/or offered on
a service basis. We currently anticipate the DNAstream product line to be
launched in 2003.
SNPware Consumables -- Wetware
Our SNP scoring biochemistry is conducted with a set of approximately ten
reagents. These reagents can be pre-dispensed in the necessary amounts to run a
specific number of SNP scores. This set of reagents along with the labware and
instructions are assembled in a kit for the convenience of our customers. These
kits would be sold under the SNPware brand name for use on our own SNPstream
systems as well as the systems of other companies. We intend to market our
SNPware on one of our Web sites, where individuals would be able to order
custom panels of SNPs to fit their personal needs. Our SNPware consumable
product line includes the following:
SNPkits
SNPkits are the custom 384 plate kits supplied with SNPstream 25K,
containing optimized reagents and software for performing accurate, robust SNP
scoring. These kits are typically formatted for scoring of specific sets of
SNPs at the request of our customers. A given panel may screen thousands of
samples for a small number of SNPs.
SNPcode 100, 1000 and custom kits
The initial version of SNPcode kits are designed for use with the Affymetrix
GeneChip system and will enable users to run GBA primer extension for SNP
scoring on the Affymetrix GeneChip system. We currently anticipate launching
this line of kits in 2000.
Additional SNPware Products
In the future, we anticipate commercializing GBA primer-extension technology
kits for use on other platforms or for other readout methods, including
fluorescence polarization, gel-based sequencers, optical readers, and mass
spectroscopy.
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The following chart summarizes the important features of our SNPstream,
DNAstream and SNPware product lines:
<TABLE>
<CAPTION>
Assay Expected Expected
Products Media Mode Platform/Readout Beta Test Launch
- -------------------------- -------------- ---------------- --------- ---------
<S> <C> <C> <C> <C>
SNPstream Product Line
SNPstream 25K (high Plate Orchid 1999 1999
throughput)..............
SNPstream 1K (low Plate Orchid 2000 2001
throughput)..............
SNPstream 10K (medium Plate, bead or Orchid 2000 2001
throughput) ............. glass slide
DNAstream Product Line
DNAstream 96.............. Bead/cleave Orchid 2002 2003
DNAstream 384............. Bead/cleave Orchid 2003 2004
SNPware Product Line
SNPkit.................... Custom kit Orchid 1999 1999
SNPcode 100............... Generic kit Affymetrix 2000 2000
SNPcode 1000.............. Generic kit Affymetrix 2000 2000
SNPcode custom............ Custom SNP kit Affymetrix 2000 2001
Additional SNPware Generic kits Multiple 2000-2002 2001-2003
Products................. instruments
</TABLE>
Services
We provide, or plan to provide, a variety of genetic diversity services
through our ultra high-throughput MegaSNPatron facility and Regional GeneScreen
Centers.
MegaSNPatron Facility Services
It is our intent to continue to provide the highest throughput and lowest
cost SNP scoring services available in the industry. We introduced the first
phase of our MegaSNPatron facility in March 1999. We are continuing to expand
throughput capabilities with a view to performing over one million SNP scores
per day by the first quarter of 2001.
. SNP CONFIRM service. We offer customers SNP confirmation services to
score new SNPs and verify the existence of SNPs discovered through DNA
sequencing. We currently provide this service for The SNP Consortium.
. SNP ASSOCIATE service. Association of SNPs with medically important
attributes of patients is a critical phase in the lifecycle of a SNP. We
offer our service to pharmaceutical companies to develop and undertake
SNP association studies. These studies are improved by our use of our
Clinical Genetics Network, whose members have expertise in specific
areas of medical science.
. SNP WIDEMAP service. We are able to perform genome-wide SNP studies at
the chromosome or genome scale. Typically 300 to 3,000 SNPs are used to
identify genome regions of interest for further mapping studies and
candidate gene location. We believe we are well positioned with our
relationship with The SNP Consortium to utilize the SNP sets from its
discovery effort in these genome-wide mapping studies.
Regional GeneScreen Center Services
. GENESCREEN IDENTITY service. We offer a variety of paternity tests,
consisting primarily of a standard test involving the mother, child and
purported father.
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. GENESCREEN TRANSPLANT TESTING service. We provide screening test
services for the typing of bone marrow specimens containing human
leukocyte antigen, or HLA, through both DNA and serological testing.
. GENESCREEN FORENSIC service. We test a variety of forensic samples found
at crime scenes, such as hair, blood, semen, saliva, skin, bone, muscle
tissue and urine.
. DIRECT-TO-PATIENT service. We plan to provide direct-to-patient SNP
scoring services via the Internet through one of our Web sites within
the next 12 months.
Technology
Genetic Bit Analysis
The use of GBA primer extension in a typical experiment would include the
following steps:
. Preparation of the target DNA sample.
. Capture of the target DNA from a patient sample by hybridization. The
GBA primer is typically synthesized and includes approximately twenty
nucleotide bases ending immediately prior to the location of the
suspected SNP on the patient's sample. Selective extension with labeled
DNA, or primer extension, of the GBA primer will only occur when the
base available at the expected location of the SNP matches the modified
base available for extension.
. Analysis of the GBA primer-extension product. This analysis can be done
by a variety of means including fluorescence, optical density and mass
spectroscopy.
[Illustration showing the three steps of GBA primer extension]
Since GBA primer extension can be performed in both solution and solid-phase
formats, the operational advantages of the system are significant. The
biochemistry can be automated using liquid handling robots and the data
acquisition and analysis of test results can be automated using readily
available array scanners or Microtiter plate readers that transmit quantitative
information to a computer. This digitized data can then be automatically
interpreted to provide customizable reports and statistical information on SNP
scoring results.
Standardization and reproducibility of GBA primer extension is facilitated
by the stable attachment or capture and detection of oligonucleotide primers to
the solid phase. This permits large-scale batch preparation of the GBA arrays,
signal uniformity and quality control of the test.
Microfluidics
Microfluidics is a set of technologies designed to control the flow,
reactions and measurements of minute amounts of chemicals and biochemicals in
miniaturized systems. Our microfluidics chips are multi-layered devices
consisting of arrayed networks of liquid reagent flow paths in channels or
conduits. These chips allow the processing of sequential and/or parallel
reactions. The reagents conveyed in the conduits and delivered to the location
of the reactions can range in volume from nanoliters to milliliters with a
typical reactor volume being from 100 to 800 nanoliters. We can use a variety
of materials to create our chips, including glass, silicon and polymers. These
structures are typically flat and layered to create the desired three-
dimensional structures with the required network of fluidic channels in the
upper reusable portions and an array of reactors in a consumable lower portion.
We employ a variety of means to create the defined fluidic conduits or reactors
within our chips, which may include laser ablation, etching, photolithography,
milling, molding and embossing.
Proprietary rights and patents cover our pumping and valving techniques
which control the timing, location and amount of desired reagent delivery
within our chips. Our proprietary valving technology relies on a capillary
break, which halts the reagent flow at a defined expansion point in a fluidic
channel. Once the flow
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is halted, it can be reinitiated by pressure or electronically induced means.
Our proprietary pumping technology includes simple pneumatic or hydraulic
pressure and electrohydrodynamic pumping, which is created by electrodes in the
channel.
Combined Technologies
Our microfluidics technologies are designed to drive drug discovery to
higher throughput while achieving lower costs. By applying our GBA primer-
extension technology to our two-dimensional arrays of identical reactors and
channels, we intend to process in parallel a large number of similar samples to
create highly automated internal facilities capable of performing millions of
SNP scoring experiments per day. Traditional SNP scoring techniques, including
DNA sequencing, cost several dollars per SNP score. We plan to use our
microfluidics technologies to synthesize the DNA for use in our MegaSNPatron
facility. This is expected to accelerate our ability to introduce new SNPs and
increase the throughput at this facility. By significantly increasing the
throughput of SNP scoring, we intend to reduce the cost of SNP scoring to
pennies per SNP score.
Research and Development
We intend to continue our aggressive investment in our proprietary
technologies through internal development and licensing of third-party
technologies to increase and improve other characteristics of our systems. We
will also continue to invest in improving the cost-effectiveness of our
products through automation and information technologies. We are actively
pursuing research projects aimed at identifying and developing new technologies
to improve and expand on our genetic diversity, microfluidics and software
products. These projects involve research conducted by us, collaborations with
other researchers and the acquisition of chemistries and other technologies
developed by universities and other academic institutions.
Collaborations and Licenses
A significant element of our business strategy is to enter into
collaborative research programs and licenses with major pharmaceutical,
biotechnology and agricultural companies which have proven capabilities in
gene-based product discovery and commercialization. We believe this strategy
will allow us to apply our technologies to a broader range of product
development efforts, thereby generating a growing base of intellectual property
rights and revenue for us.
To date, we have entered into a license agreement with Affymetrix which is
still in effect. We have also entered into license and collaboration agreements
with Sarnoff, SmithKline Beecham and Motorola relating to the microfluidics
field, none of which are material to our current business.
Affymetrix, Inc.
In November 1999, as part of our platform propagation strategy, we entered
into a Collaboration Agreement with Affymetrix, Inc. to develop, manufacture,
market and sell kits capable of performing GBA-based SNP detection on
Affymetrix's GeneChip system and software applications for certain instruments
commercialized by Affymetrix. We agreed to collaborate on the development of
three types of kits, designated under our agreement as Generic Kits, Standard
Kits and Custom Kits. We are responsible for all development costs associated
with the development of Generic Kits and Custom Kits and the optimization of
the GBA primer-extension tests to be used on the Affymetrix GeneChip system.
Affymetrix is responsible for optimizing its GeneChip system for the GBA
primer-extension test. We will share costs associated with the development of
approved Standard Kits. Affymetrix will market and distribute all Generic and
Standard Kits developed under the agreement, and we will market and distribute
all Custom Kits. Affymetrix has agreed to purchase, and we have agreed to
manufacture and supply, all of Affymetrix's requirements of Generic and
Standard kits at an agreed-upon transfer price.
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Sarnoff Corporation
In December 1997, we entered into a License and Option Agreement with
Sarnoff Corporation pursuant to which Sarnoff granted us rights under certain
technology to research, develop and sell products and services in the field of
combinatorial chemistry and in vitro diagnostics. Sarnoff also granted us
options to acquire exclusive licenses in certain other fields related to
microfluidics, including the fields of genomics, high throughput screening,
research products and cell-based assays. These options extend for a period of
four years and expire one per year over such four year period. In consideration
of the grant of these licenses, in December 1997 we issued to Sarnoff 82,500
shares of our common stock and 167,500 shares of our Series A convertible
preferred stock. Upon the exercise of each option, we are obligated to issue to
Sarnoff 33,300 shares of our common stock and 66,700 shares of our Series A
convertible preferred stock and to fund research to be performed by Sarnoff in
an amount of not less than $5.5 million in the aggregate over a four year
period. We exercised one option in each of December 1998 and December 1999. In
addition, we are obligated to issue Sarnoff 50,000 shares of our common stock
at the end of each year during the term of the agreement for each option
exercised. We are also obligated to make royalty payments on future net sales
of products and services developed under these licenses, if any.
Other Licenses and Collaborations
In the past, we have entered into license and collaboration agreements with
respect to our microfluidics technology with various third parties which are
nearing completion and which are not material to our SNP scoring business. We
intend to continue to enter into similar agreements to enable us to apply our
microfluidics technologies for use in our SNP scoring products and services.
Manufacturing and Suppliers
We manufacture biochemical kits and microfluidic chips at our Princeton, New
Jersey facility. We believe we currently have sufficient manufacturing capacity
to meet commercial demand for our products through the end of 2000. Although
our manufacturing capacity may be scaled up at our facility, we may need to
acquire additional facilities during the period from 2000 to 2002 and beyond.
We plan to increase our manufacturing capacity by constructing additional
facilities which we believe will be completed within the next 12 months. We may
need to enter into manufacturing arrangements with third parties to produce
commercial quantities of our products.
Our manufacturing facility is designed to optimize material flow and
personnel movement with centrally located manufacturing and quality control
operations. Critical components are produced in an environmentally controlled
clean room and isolated from the rest of the facility. We are planning on
achieving compliance with quality system requirements, or QSRs, analyte
specific reagents, or ASRs, and ISO 9001 registration standards over the next
two years. Access and safety features are designed to meet federal, state and
local health ordinances.
We rely on outside vendors to manufacture a number of components of our
SNPstream system and some reagents which we provide in our SNPware kits. We
have agreements with Beckman Coulter for the components of our SNPstream system
and NEN Life Science Products, Inc. for some of the key reagents in our SNPware
kits. We also have an agreement with Motorola that relates to the manufacture
and supply of our microfluidics chips. We also currently rely on DNA provided
by suppliers and rely on other third parties to perform DNA synthesis for us.
We are establishing a company-wide enterprise resource planning system to
manage and control our material and product inventories. This system will
encompass product costing, materials procurement, production planning and
scheduling, inventory tracking and control and batch records, with links to
document control for all manufacturing, quality control, quality assurance and
regulatory compliance procedures.
We also perform service testing at all of our facilities. Three of our
facilities have the Clinical Laboratory Improvement Act, or CLIA,
accreditations necessary to be in compliance with the required regulations.
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Distribution
We intend to expand our business internationally by establishing
relationships with distributors in several countries. In larger countries, we
will consider establishing our own direct sales force. Our international
operations would also serve as service locations and redistribution centers for
our consumables.
Intellectual Property
We have implemented and continue to implement an aggressive patent strategy
designed to provide us with a unique proprietary position in the fields of
pharmacogenetics and microfluidics. This strategy will continue to focus on
protecting and commercializing our current and future products. Our patent
portfolio reflects our international ambitions and includes pursuing patent
protection in many of the industrialized nations of the world. We currently
own, or have exclusive licenses to, 44 United States patents and 6 foreign
patents, and have received notices of allowance for 4 additional U.S. and 1
Australian patent applications. Additionally, we have 175 pending patent
applications of which 70 are United States applications and 105 are foreign
patent applications.
Our commercial success will also depend in part on obtaining patent
protection on SNPs for which we discover utility and on products, methods and
services based on such discoveries. We intend to apply for patent protection on
novel SNPs of known genes and their uses and novel uses for previously
identified SNPs discovered by third parties. We have sought and intend to
continue to seek patent protection for novel uses for SNPs which may have
initially been patented by third parties. In such cases, we might need a
license from the holders of the patent with respect to these SNPs in order to
make, use or sell products using these SNPs.
We also rely on both patent and trade secret protection of our intellectual
property. Complex legal and factual determinations and evolving laws make
patent protection uncertain. As a result, we cannot be certain that patents
will be issued from any of our patent applications or from applications
licensed to us or that any issued patents will have sufficient breadth to offer
meaningful protection. In addition, our issued patents or patents licensed to
us may be successfully challenged, invalidated, circumvented or unenforceable
so that our patent rights would not create an effective competitive barrier.
Moreover, the laws of some foreign countries may not protect our proprietary
rights to the same extent as do U.S. and Canadian laws.
We attempt to protect our trade secrets by entering into confidentiality
agreements with third parties, employees and consultants. Our employees and
consultants also sign agreements requiring that they assign to us their
interests in discoveries, inventions, patents and copyrights arising from their
work for us, maintain the confidentiality of our intellectual property, and
refrain from unfair competition with us during their employment and for a
period of time after their employment with us, which includes solicitation of
our employees and customers. We cannot be certain that these agreements will
not be breached or invalidated. In addition, we cannot assure you that third
parties will not independently discover or invent competing technologies or
reverse engineer our trade secrets or other technologies. If our intellectual
property is not protected from disclosure to, or use by, third parties, our
competitive market position may be adversely affected.
Although we are not a party to any material legal proceedings, in the
future, third parties may file claims asserting that our technologies or
products infringe on their intellectual property. We cannot predict whether
third parties will assert such claims against us or against the licensors of
technologies licensed to us, or whether those claims will harm our business. If
we are forced to defend against such claims, whether they are with or without
any merit, whether they are resolved in favor of or against us or our
licensors, we may face costly litigation and diversion of management's
attention and resources. As a result of such disputes, we may have to develop
costly non-infringing technologies, or enter into licensing agreements. These
agreements, if necessary, may be unavailable on terms acceptable to us, or at
all, which could seriously harm our business and financial condition.
Competition
The markets for our products are competitive, and we expect the intensity of
competition to increase. Currently, we compete primarily with other companies
that are pursuing technologies and products that are similar to our
technologies and products. Many of our competitors have greater financial,
operational, sales and
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marketing resources, and more experience in research and development and
commercialization than we have. Moreover, competitors may have greater name
recognition than we do, and may offer discounts as a competitive tactic. These
competitors and other companies may have developed or could in the future
develop new technologies that compete with our products or which could render
our products obsolete. We cannot assure you that we will be able to make the
enhancements to our technologies necessary to compete successfully with newly
emerging techniques.
In the SNP scoring field, we compete with several companies offering
alternative technology concepts based on indirect detection of the molecule
through hybridization and/or labeling. These companies include: Affymetrix,
Inc., Amersham Pharmacia Biotech Ltd., Genometrix Inc., Luminex Corporation,
Nanogen, Inc., PE Corporation, Rapigene, Inc., Sequenom, Inc., Third Wave
Technologies, Inc. and Visible Genetics, Inc.,
Our principal competitors in the field of pharmacogenetics research and
development include: Celera Genomics Corporation, CLONTECH Laboratories, Inc.,
CuraGen Corporation, Genaissance Pharmaceuticals, Inc., GENSET Corp.,
Millennium Pharmaceuticals, Inc., Myriad Genetics, Inc. and Variagenics, Inc.
Our competitors in the field of DNA testing include: Identagene Corporation,
Laboratory Corporation of America and Lifecodes Corporation, and in the field
of microfluidics include: ACLARA Biosciences Corporation and Caliper
Technologies Corporation.
Government Regulation
While most of our initial research products will not be subject to
government regulation, we anticipate the manufacturing, labeling, distribution
and marketing of some or all of our future diagnostic products and services
developed or performed using our SNP-related technologies or microfluidics will
be subject to government regulation in the United States and in certain other
countries.
In the United States, the FDA regulates, as medical devices, most diagnostic
tests and in vitro reagents that are marketed as finished test kits or
equipment. Some clinical laboratories, however, purchase individual reagents
intended for specific analyses, and, using those reagents, develop and prepare
their own finished diagnostic tests. The FDA has not generally exercised
regulatory authority over these individual reagents or the finished tests
prepared from them by the clinical laboratories. The FDA has recently proposed
a rule that, if adopted, would regulate reagents sold to clinical laboratories
as medical devices. The proposed rule would also restrict sales of these
reagents to clinical laboratories certified under CLIA as high complexity
laboratories. We intend to market some diagnostic products as finished test
kits or equipment and others as individual reagents. Consequently, some or all
of these products will be regulated as medical devices. Our CLIA laboratories
are accredited by the American Association of Blood Banks which does not permit
publicly funded DNA testing services to be offered together with privately
funded testing services in a CLIA laboratory. As a result, we must maintain the
separation of our DNA testing services or risk losing our accreditation which
would adversely affect our business.
The FDA has also adopted a set of regulations known as Analyte Specific
Reagents, or ASRs, which cover the production of assays and their components
consistent with Good Manufacturing Practices for use in clinical research and
by clinical reference laboratories producing their own assays. We are planning
to satisfy these ASR guidelines within two years in connection with our
manufacture of any SNPstream product that may be affected by these guidelines.
The Food, Drug, and Cosmetic Act requires that medical devices introduced to
the United States market, unless exempted by regulation, be the subject of
either a premarket notification clearance, also known as a 510(k) or an
approved premarket approval, or PMA. Some of our products may require a PMA and
others may require a 510(k). With respect to devices reviewed through the
510(k) process, we may not market a device until an order is issued by the FDA
finding the product to be substantially equivalent to a legally marketed device
known as a "predicate device." A 510(k) submission may involve the presentation
of a substantial volume of data, including clinical data, and may require a
substantial FDA review. The FDA may agree the product is substantially
equivalent to a predicate device and allow the product to be marketed in the
United States. The FDA, however, may (i) determine that the device is not
substantially equivalent and require a PMA,
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or (ii) require further information, such as additional test data, including
data from clinical studies, before it is able to make a determination regarding
substantial equivalence. By requesting additional information, the FDA can
further delay market introduction of our products. If the FDA indicates that a
PMA is required for any of our products, the application will require extensive
clinical studies, manufacturing information and likely review by a panel of
experts outside the FDA. Clinical studies to support either a 510(k) submission
or a PMA application would need to be conducted in accordance with FDA
requirements. Failure to comply with FDA requirements could result in the FDA's
refusal to accept the data or the imposition of regulatory sanctions. FDA
approval of a PMA application could take significantly longer than a 510(k)
approval.
Medical device laws and regulations are also in effect in many countries in
which we may do business outside the United States. These range from
comprehensive device approval requirements for some or all of our medical
device products to requests for product data or certifications. The number and
scope of these requirements are increasing. Medical laws and regulations are
also in effect in some states in which we do business. We cannot assure you
that we will obtain regulatory approvals in such countries or that we will not
be required to incur significant costs in obtaining or maintaining any such
foreign regulatory approvals. In addition, the export by us of certain of our
products which have not yet been cleared for domestic commercial distribution
may be subject to FDA export restrictions. The failure to obtain product
approvals in a timely fashion or to comply with state or foreign medical device
laws and regulations may have material adverse impact on our business and
results of operations.
Our current DNA testing laboratories are regulated under CLIA. CLIA is
intended to ensure the quality and reliability of clinical laboratories in the
United States by mandating specific standards in the areas of personnel
qualifications, administration, participation in proficiency testing, patient
test management, quality control, quality assurance and inspections. The
regulations promulgated under CLIA establish three levels of diagnostic tests,
(i) waived, (ii) moderately complex and (iii) highly complex, and the standards
applicable to a clinical laboratory depend on the level of the tests it
performs. Therefore we cannot assure you that the CLIA regulations and future
administrative interpretations of CLIA will not have a material adverse impact
on us by limiting the potential market for our DNA testing services.
We are also subject to numerous environmental and safety laws and
regulations, including those governing the use and disposal of hazardous
materials. Any violation of, and the cost of compliance with, these regulations
could have a material adverse effect on our business and results of operations.
Employees
As of January 31, 2000, we employed 201 persons, of whom 38 hold Ph.D. or
M.D. degrees and 13 hold other advanced degrees. Approximately 61 employees are
engaged in research and development, 15 employees are engaged in business
development, sales and marketing, 75 employees are engaged in manufacturing and
DNA testing services and 50 employees are engaged in intellectual property,
finance and other administrative functions. None of our employees is
represented by a collective bargaining agreement, nor have we experienced any
work stoppage. We believe we maintain good relations with our employees.
Facilities
We lease a 30,000 square foot facility in Princeton, New Jersey for our
headquarters and as the base for our marketing and product support operations,
research and development and manufacturing activities. We also lease an
approximate 19,000 square foot facility in Dallas, Texas; an approximate 12,500
square foot facility in Dayton, Ohio; and an approximate 5,100 square foot
facility in Sacramento, California. The latter three facilities include CLIA
approved laboratories where our genetic DNA diversity testing services are
located. We currently believe our facilities are sufficient to meet our space
requirements through the year 2000.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Executive Officers, Directors and Key Employees
Our executive officers, directors and key employees and their respective
ages and position(s) as of February 3, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Dale R. Pfost, Ph.D................ 42 Chairman, Chief Executive Officer,
President
Donald R. Marvin................... 47 Senior Vice President, Chief Operating
Officer, Chief Financial Officer and
Secretary
Keith W. Brown..................... 46 Vice President and General Manager of
GeneScreen
Michael T. Boyce-Jacino, Ph.D. .... 40 Vice President of Research and
Development
Sarajane N. Mackenzie.............. 43 Vice President of Human Resources and
Chief People Officer
Russell T. Granzow................. 37 Executive Director of Business
Development and Marketing
Gary J. Schnerr.................... 56 Executive Director of Engineering and
Manufacturing
Robert C. Giles, Ph.D. ............ 47 Science Director of GeneScreen
Denis M. Grant, Ph.D. ............. 42 Senior Director of Pharmacogenetics
Frank A. Shemansky, Jr., Ph.D. .... 38 Senior Director of Microsystems
Development
William M. Testa, CPA.............. 34 Corporate Controller
Sheldon M. Kugelmass, Ph.D. ....... 35 Director of Manufacturing and Process
Development
Kevin B. Nash, Esquire............. 35 Director of Licensing and Intellectual
Property Counsel
Rolf E. Swenson, Ph.D. ............ 37 Director of Chemistry
Michael S. Pettigrew............... 38 Director of Worldwide Commercial
Programs
Sidney M. Hecht, Ph.D.(1),(2)...... 55 Director
Samuel D. Isaly(2)................. 53 Director
Jeremy M. Levin, D.Phil., 45 Director
MB.BChir.(1),(2)..................
Robert M. Tien, M.D., M.P.H. ...... 42 Director
Anne M. VanLent(1),(2)............. 51 Director
</TABLE>
- ---------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Dale R. Pfost, Ph.D. has served as our Chairman, Chief Executive Officer and
President since November 1996. From 1988 to 1996, Dr. Pfost was the President
and Chief Executive Officer of Oxford GlycoSciences, a leader in proteomics and
glycobiology. From 1982 to 1986, Dr. Pfost was the President and a founder of
Infinitek, Inc., the company that developed the Biomek 1000. From 1987 to 1988,
Dr. Pfost served as the General Manager of the Robotics and Automated Chemistry
Systems business at SmithKline Beckman following its acquisition of Infinitek.
Dr. Pfost received his B.S. in Physics from the University of California Santa
Barbara and his Ph.D. in Physics from Brown University. Dr. Pfost also serves
on the Board of Directors of Spectra Science, an optical science company.
Donald R. Marvin has served as our Senior Vice President, Chief Operating
Officer and Secretary since November 1997 and has served as our Chief Financial
Officer since February 2000. From 1994 to 1997, Mr. Marvin was the founder and
President of Cairn Associates Inc., a firm providing management and financial
services to emerging biomedical companies. From 1986 to 1994, Mr. Marvin was
President and Chief Executive Officer of Diatron Corporation, a biomedical
company developing fluorescence-based instrument
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systems for the clinical diagnostics industry. Mr. Marvin received his B.S. in
Microbiology from Ohio State University and his M.B.A. from Iona College. Mr.
Marvin serves on the Board of Directors of GenoVision AS, a diagnostic test
systems company.
Keith W. Brown has served as our Vice President and General Manager of our
GeneScreen business, since January 2000. Mr. Brown co-founded GeneScreen in
1987 and from 1988 through December 1999 served as its President and Chief
Executive Officer. Mr. Brown received his B.S. in Computer Science and
Statistics from the University of Manitoba and his M.B.A. from Harvard Graduate
School of Business Administration.
Michael T. Boyce-Jacino, Ph.D. has served as our Vice President of Research
and Development since September 1998. From 1991 until our acquisition of
Molecular Tool, Inc. in 1998, Dr. Boyce-Jacino served in various capacities at
Molecular Tool as a scientist, General Manager and Director, Research and
Development and most recently President. Dr. Boyce-Jacino received his B.S. in
Medical Microbiology from the University of Wisconsin Madison, and his Ph.D. in
Microbiology from the University of Minnesota.
Sarajane N. Mackenzie has served as our Vice President of Human Resources
and Chief People Officer since January 2000. From 1998 to 1999, Ms. Mackenzie
was founder and President of Mackenzie Strategic Human Resources, Inc., a
consulting firm. From 1987 to 1997, Ms. Mackenzie was with Novo Nordisk A/S,
first as head of international human resources and then as Vice President of
Human Resources for their U.S. affiliate. Ms. Mackenzie received her B.A. in
Psychology from the University of California at Santa Cruz, and her M.S. in
Organization Development and Human Resources from the University of San
Francisco.
Russell T. Granzow has served as our Executive Director of Business
Development and Marketing since 1997. From 1996 to 1997, Mr. Granzow served as
Manager, Business Development at Sarnoff Corporation. Mr. Granzow was a founder
of Pharmacia Biosensor, now BIAcore, and from 1992 to 1996 served in various
positions, most recently as Manager, Marketing and Business Development. Prior
to 1992, Mr. Granzow was involved in drug discovery in the Inflammation Group
at Schering-Plough Corp. Mr. Granzow received his B.S. in Biochemistry from the
University of Illinois.
Gary J. Schnerr has served as our Executive Director of Engineering and
Manufacturing since May 1998. From 1993 to 1997, Mr. Schnerr served as Vice
President Manufacturing and Technology of Peak Instruments. From 1985 to 1993,
he served as Vice President of Operations at Applied Color Systems. Mr. Schnerr
received his B.S. in Electrical Engineering from Drexel University and his
M.B.A. in Marketing/Finance from the Wharton School of the University of
Pennsylvania.
Robert C. Giles, Ph.D. has served as our Science Director of our GeneScreen
business since January 2000. Dr. Giles co-founded GeneScreen in October 1987
and most recently served as Corporate Science Director and Operations Manager
of its Dallas facility through December 1999. Dr. Giles has served as an
auditor for laboratory accreditation for human parentage testing for the
American Association of Blood Banks since 1995. Dr. Giles received his B.S. in
General Science and his M.S. in Microbiology from Mississippi State University
and his Ph.D. in Immunology and Medical Microbiology from the University of
Florida.
Denis M. Grant, Ph.D. has served as our Senior Director of Pharmacogenetics
since May 1999. From 1995 to 1998, Dr. Grant was a Senior Scientist in the
Genetics and Genomic Biology Program, Research Institute at the Hospital for
Sick Children in Toronto, Canada. Prior to joining the Hospital for Sick
Children Dr. Grant was a faculty member in the Department of Pharmacology at
the University of Toronto. Dr. Grant received his B.S. in Biochemistry from
McMaster University and his Ph.D. in Pharmacology from the University of
Toronto.
Frank A. Shemansky, Jr., Ph.D. has served as our Senior Director of
Microsystems since March 1999. From September 1991 to March 1999, Dr. Shemansky
worked at Motorola, Inc., where he held several positions and was most recently
Manager of Sensor Technology Development for the Semiconductor Products Sector.
Dr. Shemansky received his B.S. in Chemical Engineering from The Pennsylvania
State University, and his M.S. and Ph.D. in Chemical Engineering from Arizona
State University.
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William M. Testa, has served as our Corporate Controller since February
1998. From 1996 to 1998, Mr. Testa worked as a tax accountant for Sarnoff
Corporation, where he was involved in maintaining the accounting functions of
several spin-off companies, including Orchid. From 1994 to 1996, Mr. Testa
served as the Controller of a manufacturing company. Prior to that, he spent
seven years in public accounting. Mr. Testa received his B.S. in Accounting
from Rider College.
Sheldon M. Kugelmass, Ph.D. has served as our Director of Manufacturing and
Process Development since October 1997. From 1992 to 1997, Dr. Kugelmass held a
number of positions at Lepton, Inc., and was most recently Manager of Customer
Applications. Dr. Kugelmass received his B.S.E. in Electrical Engineering from
the University of Pennsylvania and his Ph.D. in Electrical Engineering from
Cornell University.
Kevin B. Nash, Esq. has served as our Director of Licensing and Intellectual
Property Counsel since April 1999. From 1995 to 1998, Mr. Nash was patent
counsel for Integra Life Sciences Corporation. Prior to joining Integra Life
Sciences he was a special project assistant in the Office of Technology
Licensing at Stanford University. Mr. Nash received his B.A. in Genetics from
University of California, Berkeley and his J.D. from Golden Gate University
School of Law.
Rolf E. Swenson, Ph.D. has served as our Director of Chemistry since October
1998. From 1990 to 1998, Dr. Swenson was employed at Abbott Laboratories in a
variety of capacities, where most recently he was Chemistry Group Leader for
Combinatorial Chemistry. Dr. Swenson received his B.A. in Chemistry from the
University of California at San Diego and his M.S. and Ph.D. in Organic
Chemistry from Cornell University. Dr. Swenson served as a Postdoctoral
Research Associate at the University of Wisconsin, Madison and the Universite
de Geneve in Geneva, Switzerland.
Michael S. Pettigrew has served as our Director of Worldwide Commmercial
Programs since February 2000. From January 1997 to January 2000, he was at
Amersham Pharmacia Biotech, Inc., where his most recent position was Director
of Applied Genomics Marketing and Sales Support. From February 1986 to January
1997, he was at Pharmacia Biotech, Inc., where his most recent position was
Senior Marketing Manager of Chromatography Instruments, Software and Media. Mr.
Pettigrew received his B.S. in Biology from Fairleigh Dickinson University.
Sidney M. Hecht, Ph.D. has served as a member of our Board of Directors
since 1995. He has served as John W. Mallet Professor of Chemistry and
Professor of Biology at University of Virginia since 1978. From 1981 to 1987,
Dr. Hecht held concurrent appointments first as Vice President, Preclinical
Research and Development, and then Vice President, Chemical Research and
Development at SmithKline & French Laboratories, where he was appointed a
Distinguished Fellow. From 1971 to 1979, he was Assistant Professor and then
Associate Professor of Chemistry at the Massachusetts Institute of Technology.
Dr. Hecht received his B.A. in Chemistry from the University of Rochester and
his Ph.D. in Chemistry from the University of Illinois.
Samuel D. Isaly has served as a member of our Board of Directors since
February 1998. He has served as the Managing Member of OrbiMed Advisors LLC
since January 1998. Mr. Isaly founded the investment consulting firm Mehta and
Isaly in 1989, which provided consulting and investment management services to
the biotechnology and healthcare industries, where he was a General Partner
until 1998. He received his B.A. from Princeton University and his M.Sc. in
International Economics, Mathematics and Econometrics at the London School of
Economics, where he was a Fulbright Scholar.
Jeremy M. Levin, D.Phil., MB.BChir. has served as a member of our Board of
Directors since May 1998. From 1996 to 2000, Dr. Levin served as the Chairman
of Physiome Sciences, Inc., and was appointed as Physiome Sciences' Chief
Executive Officer in 2000. From 1998 through 1999, he was Managing Director of
Perseus Capital LLC and from 1992 to 1998, Dr. Levin served as the President
and Chief Executive Officer of Cadus Pharmaceutical Corporation, where he also
served as Chairman from 1996 to 1998. Prior to 1992, Dr. Levin was a Vice
President at IG Laboratories, a wholly owned subsidiary of Genzyme Corporation.
Dr. Levin has served on a number of public biosciences companies and on the
Executive Committee and the Emerging
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Companies Section of the Biotechnology Industry Organization. He currently
serves as an advisor to a global agricultural research company and on the Board
of NeuroNZ. Dr. Levin received an MB.BChir. from the University of Cambridge
and a D.Phil. in DNA structure from the University of Oxford.
Robert M. Tien, M.D. M.P.H. has served as a member of our Board of Directors
since February 2000. He is Founder and Chairman of Electronic Business
International and Vice President and member of the International Scientific
Advisory Board for the American Academy of Anti-Aging Medicine. He has several
academic and hospital appointments, including a tenured Professorship at Duke
University Medical Center, where his most recent positions included Director of
Neuroradiology and Director of Neuro-MR from 1991 to 1996. He has authored or
co-authored more than 160 papers. Dr. Tien received his B.S. and M.D. from the
National Taiwan University and School of Medicine and his Master of Public
Health, or M.P.H., from Harvard University Graduate School of Public Health.
Anne M. VanLent has served as a member of our Board of Directors since June
1999. She has served as Vice President, Ventures of Sarnoff Corporation since
July 1997. From March 1994 to July 1997, she was the founder and President of
AMV Associates, which provides consulting services to emerging growth life
sciences companies. Ms. VanLent received her B.S. in Physics from Mount Holyoke
College and completed a graduate fellowship at Universite de Strasbourg,
Strasbourg, France. She serves on the Board of Directors of Penwest
Pharmaceuticals Co. and i-STAT Corp., both publicly traded life science
companies, as well as several private companies.
Composition of the Board of Directors
Following this offering, our Board of Directors will be divided into three
staggered classes. The Board will initially consist of two Class I directors
(Ms. VanLent and Dr. Hecht), two Class II directors (Messrs. Tien and Levin)
and two Class III directors (Messrs. Pfost and Isaly). At each annual meeting
of stockholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The
terms of the Class I directors, Class II directors and Class III directors will
expire upon the election and qualification of successor directors at the annual
meeting of our Stockholders to be held during calendar years 2001, 2002, and
2003 respectively.
Each officer serves at the discretion of the Board of Directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. There are no family relationships among any of
our directors or executive officers.
Committees of the Board of Directors
Our Board of Directors has standing audit and compensation committees. The
audit committee consists of Dr. Hecht, Mr. Isaly, Dr. Levin and Ms. VanLent.
The audit committee oversees the engagement of our independent public
accountants, reviews the annual financial statements and the scope of the
annual audits and considers matters relating to accounting policy and internal
contracts. The compensation committee reviews, approves and makes
recommendations to our Board of Directors concerning our compensation
practices, policies and procedures for our executive officers, including our
Chief Executive Officer. The compensation committee's duties include the
administration of our 1995 Stock Incentive Plan and 2000 Employee, Director and
Consultant Stock Plan. The compensation committee is currently composed of Dr.
Hecht, Mr. Isaly, Dr. Levin and Ms. VanLent.
Compensation Committee Interlocks and Insider Participation
Dr. Hecht, Mr. Isaly, Dr. Levin and Ms. VanLent, all of whom are non-
employee directors, constitute our compensation committee. None of our
executive officers serve as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving as a
member of our Board of Directors or compensation committee.
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Scientific Advisory and Medical Advisory Boards
Our Scientific Advisory and Medical Advisory Boards consist of individuals
with demonstrated expertise in various fields who advise us concerning long-
term scientific and medical planning, research and development. Members also
evaluate our research program, recommend personnel to us and advise us on
technology and medical matters.
Scientific Advisory Board
Dr. Sidney M. Hecht has served as Chairman of our Scientific Advisory Board
since March 1997. Dr. Hecht is the John W. Mallet Professor of Chemistry and
Professor of Biology at University of Virginia. A member of our Board of
Directors, Dr. Hecht has been an Alfred P. Sloan Fellow and a John Simon
Guggenheim Fellow. Throughout his career, Dr. Hecht has been the recipient of
numerous distinguished awards, including the 1996 Cope Scholar Award of the
American Chemical Society and Virginia's Outstanding Scientist for 1996. He is
also the author or co-author of more than 250 scientific papers. Dr. Hecht
received his B.A. in Chemistry from the University of Rochester and his Ph.D.
in Chemistry from the University of Illinois.
Dr. Richard J. Roberts has served as Research Director of New England
Biolabs since 1992. In 1993, Dr. Roberts was awarded a Nobel Prize for the
discovery of introns. From 1972 to 1992, Dr. Roberts served as Assistant
Director of Research at Cold Spring Harbor Laboratory. He has served as an
advisor to many research organizations including HUGO, EMBO, and GENBANK. He is
executive editor of Nucleic Acids Research and an editor of Bioinformatics,
Inc. as well as several other scientific journals. Dr. Roberts has been a long-
time advisor to Molecular Tools, Inc. and to us. He is also the Chairman of the
Scientific Advisory Board for Celera Corporation. He received his Ph.D. in
Organic Chemistry from the University of Sheffield and performed postdoctoral
work at Harvard University.
Dr. Michael C. Pirrung has been our first appointed President's Fellow since
December 1999. He is a Professor of Chemistry at Duke University and Director
of the University's Biotechnology for Business Program and Director of the
Program in Biological Chemistry and was formerly an Assistant Professor of
Chemistry at Stanford University. Dr. Pirrung is the co-founder of the VSLIPS
technology for using photolithography to perform chemical synthesis. He also is
a founder of and former Senior Scientist at Affymax Research Institute. He is
the author or co-author of more than one hundred scientific papers and has
previously been appointed an Alfred P. Sloan Fellow and a John Simon Guggenheim
Fellow. Dr. Pirrung received his B.A. in Chemistry from the University of Texas
and his Ph.D. in Organic Chemistry from the University of California, Berkeley.
Dr. Nabil M. Lawandy has been a Research Professor of Engineering and
Physics at Brown University since August 1981 and the Chief Executive Officer
of Spectra Science Corporation and SpectraDisc Corporation since November 1996.
From 1974 to 1980, Dr. Lawandy worked as a physicist at the Laser Technology
Branch of NASA's Goddard Space Flight Center where he developed lasers for
submillimeter heterodyne astronomy and upper atmospheric LIDAR. While at Brown
University, Dr. Lawandy worked primarily on non-linear optics, opto-electronic
devices and micro-structures. Dr. Lawandy has authored over 170 papers, holds
over 30 patents, is a recipient of a Presidential Young Investigator Award and
an Alfred P. Sloan Fellowship. He received his B.S. in Physics and M.S. and
Ph.D. in Chemistry from The Johns Hopkins University.
Dr. Nathan Lewis has been teaching at the California Institute of
Technology, or CalTech, since 1988, and has served as Professor since 1991. He
has also served as the Principal Investigator of the Beckman Institute
Molecular Materials Resource Center at CalTech since 1992. From 1981 to 1986,
he taught at Stanford where his most recent position was Associate Professor
with tenure. Dr. Lewis has been an Alfred P. Sloan Fellow, a Camille and Henry
Dreyfus Teacher-Scholar, and a Presidential Young Investigator. He received the
Fresenius Award in 1990 and the ACS Award in Pure Chemistry in 1991. He has
published approximately 150 papers and supervised approximately 50 graduate
students and postdoctoral associates. Dr. Lewis received his Ph.D. in Chemistry
from the Massachusetts Institute of Technology.
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Dr. F. Peter Guengerich has served as a Professor of Biochemistry and
Director of the Center in Molecular Toxicology at Vanderbilt University since
1981. He has been the recipient of numerous awards, including Outstanding
Investigator Awards from the National Cancer Institute, John Jacob Abel Award,
Bernard B. Brodie Award in Drug Metabolism, and George H. Scott Award. Dr.
Guengerich has also recently been awarded the distinction of AAAS Fellow by the
American Association of the Advancement of Science. Dr. Guengerich received his
B.S. in Agricultural Science from the University of Illinois, Urbana, and his
Ph.D. in Biochemistry from Vanderbilt University.
Dr. Philip Goelet serves as Director for Ribo Targets, Ltd., The Rhode
Island Corporation and Boyce Thompson Institute for Plant Research, Inc. From
1996 to 1999, Dr. Goelet served as Director of GeneScreen, Inc. prior to its
acquisition by Orchid. In 1989, he founded Molecular Tool, Inc. and served as
Chairman and Chief Executive Officer until the company merged with GeneScreen
in 1996. While at Molecular Tool, Dr. Goelet participated in the invention and
development of a number of the company's key technologies and products. He has
authored or co-authored more than 30 papers. Dr. Goelet received his B.A. from
Oxford University and his M.Phil. and Ph.D. in Biochemistry from Cambridge
University.
Dr. Jonathan Karn is a leading molecular biologist who has made significant
contributions in the areas of gene discovery, recombinant DNA technology and
virology. Dr. Karn is a member of the Board of Directors of RiboTargets Ltd.,
and Chairman of its Scientific Advisory Board. In 1997, Dr. Karn founded
RiboTargets, and served as the Company's Chief Scientific Officer until 1999.
Since 1984, as a Senior Scientist at the MRC Laboratory of Molecular Biology,
Dr. Karn has headed the laboratory's research efforts on AIDS, playing a
leading role in the establishment of the UK's research effort into AIDS. During
1984, as a visiting scientist at the Salk Institute in California, he initiated
his current program in the area of gene expression in retroviruses. He has
authored more than 80 papers. Dr. Karn received his B.S. in Biology from Yale
College and his Ph.D. in Molecular Biology from Rockefeller University.
Medical Advisory Board
Dr. Stephen B. Liggett has been Professor of Medicine, Pharmacology, and
Molecular Genetics and Director of Pulmonary and Critical Care Medicine at the
University of Cincinnati College of Medicine, since 1995. From 1992 to 1995, he
was Associate Professor of Pharmacology at the University of Cincinnati College
of Medicine. From 1989 to 1992, Dr. Liggett was Assistant Professor at Duke
University School of Medicine. Dr. Liggett is on the editorial boards of
Molecular Pharmacology and the Journal of Biological Chemistry. He is author of
more than 70 papers and a world-recognized expert in adrenegic receptors and
pulmonary pharmocogenetics. He received his M.D. from the University of Miami
School of Medicine and performed postgraduate work at Washington University and
as a Howard Hughes Medical Institute Fellow at Duke University.
Dr. Daniel J. Rader has been an Assistant Professor of Medicine at the
University of Pennsylvania since 1994. At the University of Pennsylvania, Dr.
Rader is Director of the Lipid Research Center and co-directs the
Cardiovascular Disease Program in the Institute for Human Gene Therapy. From
1991 to 1993, he was a Research Associate at the National Institute of Health
and from 1987 to 1988, was Chief Resident and Instructor in Medicine at Yale
School of Medicine. Dr. Rader has authored more than 50 publications on lipid
metabolism, including familial hyper-cholesterolemia and the influence of
genetic polymorphisms on lipid metabolism. He received his B.A. from Lehigh
University and his M.D. summa cum laude from the Medical College of
Pennsylvania.
Dr. Richard J. Davies is Chairman and Professor of the Department of Surgery
at the Hackensack University Medical Center since 1993, as well as Professor of
Surgery at University of Medicine and Dentistry New Jersey. From 1983 to 1993,
he held various positions at the University of California at San Diego, School
of Medicine. From 1981 to 1983, Dr. Davies was a fellow in surgical oncology at
Memorial Sloan Kettering Cancer Center, New York, and Chief Surgical Fellow. He
formerly served as Chairman of the Scientific
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Advisory Board of Biofield Corporation of Atlanta, GA, and is a member of the
Scientific Advisory Board of Dynamic Imaging, as well as the holder of many
other national committee memberships. Dr. Davies is an internationally
recognized specialist in surgical oncology who has published over 80 articles
and chapters. Dr. Davies received his M.D. from the London Hospital Medical
College, University of London.
Dr. Garret A. FitzGerald has been a Professor of Medicine and Pharmacology
and Director of the Clinical Research Center since 1994, and chair of the
Department of Pharmacology since 1996, at the University of Pennsylvania. From
1991 to 1994, he was Professor and Chairman of the Department of Medicine and
Experimental Therapeutics at the University of Dublin. From 1981 to 1991, he
served in various positions at Vanderbilt University School of Medicine, most
recently as Director of the Division of Clinical Pharmacology. He is the author
of nearly 200 articles and has served as an editor of several clinical research
journals including Circulation. Dr. FitzGerald received his M.D. from the
University College of Dublin, Ireland and performed postgraduate work at
several institutions including Max Planck.
Dr. Michael B. Harris is Professor of Pediatrics at the University of
Medicine and Dentistry of New Jersey since 1997. He also serves as Chief of
Pediatric Hematology-Oncology and Director of the Tomorrow's Children's
Institute at the Hackensack University Medical Center since 1987. Dr. Harris
previously served as an Associate Professor at Mount Sinai School of Medicine
from 1977 to 1987. He has published more than 50 peer reviewed articles in the
field of pediatric oncology. He received his M.D. from Albert Einstein School
of Medicine, New York, and completed post-doctoral training at the Children's
Hospital of Philadelphia.
Dr. Stephen Anderson is Chair, Department of Molecular Biology and
Biochemistry at Rutgers University. He has served as Associate Professor of
this department and Resident Member of the Center for Advanced Biotechnology
and Medicine at Rutgers University since 1988. From 1987 to 1989, Dr. Anderson
was an Associate Adjunct Professor in the Department of Pharmaceutical
Chemistry, School of Pharmacy, at the University California at San Francisco.
From 1982 to 1988, he was Associate Director of the Biocatalysis Department and
leader of the Second Generation t-PA project team at Genentech, Inc. Dr.
Anderson has authored or co-authored over 60 papers and holds over 20 patents.
He received his A.B. in Biochemical Sciences from Harvard College and his Ph.D.
in Biochemistry from Harvard University.
Each member of our Scientific Advisory and Medical Advisory Boards has
entered into a consulting agreement with us covering the terms of such person's
position as a consultant to us and member of the Scientific Advisory and
Medical Advisory Boards. All scientific or medical advisors own shares and/or
options to acquire shares of our common stock, some of which are subject to
vesting. All of our scientific or medical advisors are employed by employers
other than us and may have commitments to, or consulting or advisory contracts
with, other entities which may conflict or compete with their obligations to
us. Generally, scientific or medical advisors are not expected to devote a
substantial portion of their time to our matters.
Stock Incentive Plans
We maintain two stock incentive plans for the benefit of our employees,
directors and consultants: our 1995 Stock Incentive Plan and our 2000 Employee,
Director and Consultant Stock Plan.
1995 Stock Incentive Plan
Our 1995 Stock Incentive Plan was approved by our Board of Directors and
stockholders in November 1995. The 1995 plan authorizes the issuance of stock
options and restricted stock grants to our employees, directors and
consultants.
Share Reserve. A total of 3,500,000 shares of our common stock have been
reserved for issuance under the 1995 plan.
Administration. The compensation committee of our Board of Directors
administers the 1995 plan. The compensation committee has the authority to
determine the following:
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. the persons to whom stock-based awards will be granted;
. the number of shares to be covered by each stock-based award; and
.the terms and conditions upon which a stock-based award may be granted.
Stock-based awards under the 1995 plan will be subject to such terms and
conditions as the compensation committee deems to be appropriate and in our
best interest. These terms may include conditions relating to our right to
reacquire the shares subject to a stock-based award, including the time and
events upon which such rights shall accrue and the purchase price of the
shares.
Eligibility. Options granted under the 1995 plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended or (ii) non-qualified stock options.
Incentive stock options may be granted to our employees. The compensation
committee may also grant options at an exercise price less than, equal to or
greater than the fair market value of the common stock on the date of grant.
Under present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code may not be granted at an exercise price less than the fair market value of
the common stock on the date of grant or less than 110% of the fair market
value in the case of incentive stock options granted to optionees holding more
than 10% of our voting power. The 1995 plan permits the compensation committee
to determine how optionees may pay the exercise price of their options,
including by cash, check or in connection with a "cashless exercise" through a
broker, by surrender of shares of common stock, by delivery of a promissory
note, or by any combination of the permitted forms of payment. Non-qualified
stock options may be granted to our consultants, non-employee directors or
employees.
General Provisions. The aggregate fair market value, determined on the date
of grant, of shares issuable pursuant to incentive stock options that become
exercisable in any calendar year under the 1995 plan and any of our other
existing or future potential incentive stock plans may not exceed $100,000.
Incentive stock options granted under the 1995 plan may not be granted at a
price less than the fair market value of our common stock on the date of grant,
or 110% of fair market value in the case of employees holding 10% or more of
our voting stock. Non-qualified stock options granted under the 1995 plan may
not be granted at an exercise price less than the par value per share of our
common stock on the date of the grant. Incentive stock options granted under
the 1995 plan expire not more than ten years from the date of grant, or not
more than five years from the date of grant in the case of incentive stock
options granted to an employee or officer holding 10% or more of our voting
stock.
Effect of Employment Termination. An incentive stock option granted under
the 1995 plan may be exercised after the termination of the optionholder's
employment with us, other than by reason of death, disability or termination
for "cause" as defined in the 1995 plan, to the extent exercisable on the date
of termination, at any time prior to the earlier of the option's specified
expiration date or 90 days after such termination. The compensation committee
may specify the termination or cancellation provisions applicable to a non-
qualified stock option. In the event of the optionholder's death or disability,
both incentive stock options and non-qualified stock options generally may be
exercised, to the extent exercisable on the date of death or disability, by the
optionholder or the optionholder's survivors at any time prior to the earlier
of the option's specified expiration date or one year from the date of death or
six months from the date of disability. Generally, in the event of the
optionholder's termination for cause, all outstanding and unexercised options
shall be forfeited.
Effect of a Change in Control. The 1995 plan provides that in the event of a
"change in control" as defined in the 1995 plan in the beneficial ownership of
us, all options may, at the discretion of the compensation committee, become
fully vested and exercisable immediately prior to the change in control.
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<PAGE>
2000 Employee, Director and Consultant Stock Plan.
Our 2000 Employee, Director and Consultant Stock Plan was approved by our
Board of Directors in February 2000. We intend to submit the 2000 plan to our
stockholders for their approval in March 2000. The 2000 plan authorizes the
issuance of stock options and restricted stock grants to our employees,
directors and consultants.
Share Reserve. A total of 1,500,000 shares of our common stock have been
reserved for issuance under the 2000 plan.
Administration. Our Board of Directors has the authority to adopt, amend and
repeal the administrative rules, guidelines and practices relating to the 2000
plan and to interpret its provisions and may delegate authority under the 2000
plan to a committee of the Board of Directors. The compensation committee of
our Board of Directors administers the 2000 plan. The compensation committee
has the authority to determine the following:
. the persons to whom stock-based awards will be granted;
. the number of shares to be covered by each stock-based award; and
.the terms and conditions upon which a stock-based award may be granted.
Stock-based awards under the 2000 plan will be subject to such terms and
conditions as the compensation committee deems to be appropriate and in our
best interest. These terms may include conditions relating to our right to
reacquire the shares subject to a stock-based award, including the time and
events upon which such rights shall accrue and the purchase price of the
shares.
Eligibility. Options granted under the 2000 plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended or (ii) non-qualified stock options.
Incentive stock options may be granted to our employees. The compensation
committee may also grant options at an exercise price less than, equal to or
greater than the fair market value of the common stock on the date of grant.
Under present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code may not be granted at an exercise price less than the fair market value of
the common stock on the date of grant or less than 110% of the fair market
value in the case of incentive stock options granted to optionees holding more
than 10% of our voting power. The 2000 plan permits the Board of Directors to
determine how optionees may pay the exercise price of their options, including
by cash, check or in connection with a "cashless exercise" through a broker, by
surrender of shares of common stock, by delivery of a promissory note, or by
any combination of the permitted forms of payment. Non-qualified stock options
may be issued to our consultants, directors or employees.
General Provisions. The aggregate fair market value, determined on the date
of grant, of shares issuable pursuant to incentive stock options that become
exercisable in any calendar year under the 2000 plan and under any of our other
existing or future potential incentive stock plans may not exceed $100,000.
Incentive stock options granted under the 2000 plan may not be granted at a
price less than the fair market value of our common stock on the date of grant,
or 110% of fair market value in the case of employees holding 10% or more of
our voting stock. Non-qualified stock options granted under the 2000 plan may
not be granted at an exercise price less than the par value per share of our
common stock on the date of the grant. Incentive stock options granted under
the 2000 plan expire not more than ten years from the date of grant, or not
more than five years from the date of grant in the case of incentive stock
options granted to an employee or officer holding 10% or more of our voting
stock. An option granted under the 2000 plan is not transferable by the
optionholder except by will or by the laws of descent and distribution or as
otherwise determined by the compensation committee and set forth in the
applicable option agreement.
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Effect of Termination of Employment. An incentive stock option granted
under the 2000 plan may be exercised after the termination of the
optionholder's employment with us, other than by reason of death, disability or
termination for "cause" as defined in the 2000 plan, to the extent exercisable
on the date of termination, at any time prior to the earlier of the option's
specified expiration date or 90 days after such termination. The compensation
committee may specify the termination or cancellation provisions applicable to
a non-qualified stock option. In the event of the optionholder's death or
disability, both incentive stock options and non-qualified stock options
generally may be exercised, to the extent exercisable on the date of death or
disability, by the optionholder or the optionholder's survivors at any time
prior to the earlier of the option's specified expiration date or one year from
the date of death or disability. Generally, in the event of the optionholder's
termination for cause, all outstanding and unexercised options shall be
forfeited.
Effect of Acquisition. If we are to be consolidated with or acquired by
another entity in a merger, sale of all or substantially all of our assets or
otherwise, the compensation committee or the board of directors of any entity
assuming our obligations under the 2000 plan shall, as to outstanding options
under the 2000 plan, either (i) make appropriate provision for the continuation
of such options by substituting, on an equitable basis, for the shares then
subject to such options, the consideration payable with respect to the
outstanding shares of common stock in connection with such an acquisition or
securities of the successor or acquiring entity; or (ii) upon written notice to
the optionholders, provide that all options must be exercised (either to the
extent then exercisable or, at the discretion of the compensation committee,
all options being made fully exercisable for purposes of the transaction)
within a specified number of days of the date of such notice, at the end of
which period the options shall terminate; or (iii) terminate all options in
exchange for a cash payment equal to the excess of the fair market value of the
shares subject to each such option (either to the extent then exercisable or,
at the discretion of the compensation committee, all options being made fully
exercisable for purposes of the transaction) over the exercise price thereof.
Director Compensation
All of the directors are reimbursed for expenses incurred to attend meetings
of our Board of Directors and any committees of the Board of Directors. We have
in the past granted non-employee directors options to purchase our common stock
pursuant to the terms of our 1995 Incentive Stock Plan and our Board of
Directors continues to have the discretion to grant options to new non-employee
directors. All non-employee directors have received stock options.
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Executive Compensation
The following table sets forth the total compensation paid to or earned for
the fiscal year ended December 31, 1999 by our chief executive officer and by
all of our executive officers whose salary and bonus exceed $100,000. We refer
to these persons as named executive officers:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------------- ------------
Securities
Underlying
Name and Principal Position Salary Bonus Options
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
Dale R. Pfost, Ph.D.......................... $291,500(1) $66,250 160,300
Chairman, Chief Executive Officer and
President
Donald R. Marvin............................. $220,500(2) $52,500 67,300
Senior Vice President, Chief Operating
Officer,
Chief Financial Officer and Secretary
</TABLE>
(1) Includes $26,500 contributed by us on behalf of Dr. Pfost to our Executive
Deferred Compensation Plan.
(2) Includes $10,500 contributed by us on behalf of Mr. Marvin to our
Executive Deferred Compensation Plan.
Option Grants in Last Fiscal Year
The following table sets forth information regarding options granted by us
to our named executive officers during the fiscal year ended December 31, 1999.
We have never granted any stock appreciation rights. The potential realizable
value is calculated based on the term of the option at its time of grant. It is
calculated assuming that the fair market value of common stock on the date of
grant appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price. These numbers are calculated
based on the requirements of the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth. Actual gains, if any, on
stock option exercises are dependent on the future performance of the common
stock and overall stock market conditions. The amounts reflected in the table
may not necessarily be achieved. The percentage of total options granted to
employees in the last fiscal year is based on options to purchase an aggregate
of shares of common stock granted under our option plans. There was no
public market for our common stock as of December 31, 1999. Accordingly, the
fair market value on December 31, 1999 is based on an assumed initial public
offering price of $ per share.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Potential
Realizable Value at
Assumed Annual
Number of Percent of Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees in Price Per Expiration -------------------
Granted 1999 Share Date 5% 10%
---------- ------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dale R. Pfost, Ph.D..... 160,300 16.7 $1.25 2009
Donald R. Marvin........ 67,300 7.0 $1.25 2009
</TABLE>
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Aggregate Stock Option Exercises in Fiscal Year 1999 and
Fiscal Year-End Option Values
The following table sets forth certain information concerning the number of
unexercised options held by each of our named executive officers on December
31, 1999 and the value realized by named executive officers. None of our
executive officers exercised stock options in the fiscal year ended December
31, 1999. There was no public market for our common stock as of December 31,
1999. Accordingly, the fair market value on December 31, 1999 is based on an
assumed initial public offering price of per share.
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1999 December 31, 1999
------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dale R. Pfost, Ph.D. ....... 62,934 197,336 $ $
Donald R. Marvin............ 31,792 110,617
</TABLE>
Corporate 401(k) Plan
We sponsor a 401(k) plan covering all of our employees who meet certain
defined requirements. Under the terms of our 401(k) plan, participants may
elect to make contributions on a pre-tax and after-tax basis, subject to
certain limitations under the Internal Revenue Code and we may match 50% of the
first 4% of employee contributions as determined by our Board of Directors. We
may make other discretionary contributions to the 401(k) plan. Although we
currently match employee contributions, we have discretion to change that
amount at any time.
Executive Deferred Compensation Plan
We have established an executive deferred compensation plan, which took
effect on February 3, 1999. It was established primarily for the purpose of
providing life and disability insurance and retirement benefits as well as
deferred compensation for our executive officers, directors and highly
compensated employees. Participants in the plan are permitted to defer receipt
of, and income taxation on, a portion of their salary and all or any portion of
any bonus until they terminate their employment with us. Under the terms of the
plan, we will also provide an annual cash allowance to each eligible
participant to pay the premiums for their supplemental life and disability
insurance.
GeneScreen 401(k) Plan
We sponsor a 401(k) plan covering our GeneScreen employees who meet certain
defined requirements. Under the terms of the GeneScreen 401(k) plan,
participants may elect to make contributions on a pre-tax basis, up to 15% of
compensation, subject to certain limitations under the Internal Revenue Code.
We may at our discretion match employee contributions at a discretionary rate
and make discretionary profit sharing contributions to the 401(k) Plan.
Employment Agreements
In November 1996, we entered into an employment agreement with Dale R.
Pfost, Ph.D., to serve as our Chairman of the Board, President and Chief
Executive Officer at an annual base salary of $225,000 and with an annual
discretionary bonus of up to 25% of his base salary based upon achievement of
specific performance milestones to be agreed upon by Dr. Pfost and us. We also
contribute an additional amount equal to 10% of Dr. Pfost's annual salary to a
non-qualified retirement plan for the sole benefit of Dr. Pfost. In addition,
in connection with the closing of a certain licensing transaction with Sarnoff
Corporation in November 1997, Dr. Pfost received 109,333 shares of our common
stock, 25% of which vested initially and the remaining 75% of which vested
monthly in 36 equal installments over a three-year period. Upon termination of
his employment for any reason, Dr. Pfost has the right to require us to
repurchase all, but not less than all, of these
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shares at their fair market value as determined in good faith by our Board of
Directors. If Dr. Pfost disagrees with the Board's valuation of the shares,
fair market value shall be determined by a neutral independent appraiser. Dr.
Pfost's employment agreement may be terminated by us at any time on 12 months'
notice and contains a one year non-competition agreement. The agreement also
provides that if Dr. Pfost voluntarily terminates his employment after a
material breach by us, he will be paid his then current salary and have his
benefits continued for an additional 12 months in monthly installments.
In June 1998, we entered into an employment agreement with Donald R. Marvin,
to serve as our Senior Vice President, Corporate Development and Chief
Operating Officer at an annual base salary of $185,000, and with an annual
discretionary bonus of up to 20% of his base salary based upon achievement of
specific performance milestones to be determined by our Board of Directors. We
also contribute an additional amount equal to 5% of Mr. Marvin's annual salary
to a non-qualified retirement plan for the sole benefit of Mr. Marvin. Upon
execution of the agreement, Mr. Marvin received options to purchase 60,000
shares of common stock, which vest over a four year period, and a four-year
warrant to purchase 60,000 shares of common stock at an exercise price of
$11.10 per share. Mr. Marvin's employment agreement may be terminated by us at
any time on 12 months' notice and contains a one year non-competition
agreement. The agreement also provides that if Mr. Marvin voluntarily
terminates his employment after a material breach by us, he will be paid his
then current salary and have his benefits continued for an additional 12
months.
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TRANSACTIONS WITH EXECUTIVE OFFICERS,
DIRECTORS AND FIVE PERCENT STOCKHOLDERS
Since January 1999, there has not been nor is there currently proposed, any
transaction or series of similar transactions to which were or are to be a
party in which the amount involved exceeded or exceeds $60,000 and in which any
director, executive officer, holder of more than 5% of our common stock or any
member of the immediate family of any of the foregoing persons had or will have
a direct or indirect material interest other than the transactions described
below.
In December 1997, we entered into a License and Option Agreement with
Sarnoff Corporation, a five percent beneficial stockholder, pursuant to which
we received a license under certain technology to research, develop and sell
products and services in the field of combinatorial chemistry and in vitro
diagnostics and options to obtain exclusive licenses for the use of technology
in four designated areas of microfluidics. In consideration of the grant of the
license, we issued Sarnoff 82,500 shares of our common stock and 167,500 shares
of our Series A convertible preferred stock. Concurrent with the exercise of
each option, we are obligated to issue Sarnoff 33,300 shares of our common
stock and 66,700 shares of our Series A convertible preferred stock and to fund
research to be performed by Sarnoff at an amount defined in the agreement, but
no less than $5.5 million in the aggregate. We exercised one option in each of
December 1998 and 1999. In consideration of the exercise of each option, we
issued Sarnoff 33,300 shares of our common stock and 66,700 shares of our
Series A convertible preferred stock in 1998 and in 1999. We are also obligated
to issue Sarnoff an additional 50,000 shares of common stock at the end of each
year during the term of the agreement for each option exercised. We issued
Sarnoff 50,000 shares of common stock in 1999 in connection with the option we
exercised in December 1998. In connection with this agreement, we also issued
SmithKline Beecham an aggregate of 75,000 sharees of our common stock.
In June 1999, we completed a bridge financing in which we issued
subordinated convertible term notes in the aggregate principal amount of
$7,590,000 and warrants to purchase an aggregate of 383,590 shares of common
stock. In connection with this offering, we issued OrbiMed Advisors, LLC, a
five percent beneficial stockholder, through each of Eaton Vance Worldwide
Health Sciences Fund, Finsbury Worldwide Pharmaceutical Trust and
PHARMA/wHEALTH, notes in the aggregate principal amount of $2,750,000 and
warrants to purchase an aggregate of 275,000 shares of our common stock. We
also issued INVESCO Global Health Sciences Fund, a five percent beneficial
stockholder, through its affiliate Pirate Ship & Co., a note in the aggregate
principal amount of $180,000 and warrants to purchase 90,090 shares of our
common stock. On December 22, 1999, in accordance with the terms of the bridge
financing, we issued OrbiMed Advisors and INVESCO Global Health Sciences Fund,
warrants to purchase an additional 275,000 and 180,000 shares of stock,
respectively.
In December 1999 and January 2000, we completed a private placement in which
we issued 14,930,204 shares of Series E convertible preferred stock. INVESCO
Global Health Sciences Fund, a five percent beneficial stockholder, through
each of Global Health Sciences Fund and Pirate Ship & Co., purchased an
aggregate of 645,189 shares of Series E convertible preferred stock in this
offering for an aggregate purchase price of $1,158,612.50 consisting of cash in
the aggregate principal amount of $1,000,000, and the conversion of the
principal amount of and accrued interest on a bridge note held by Pirate Ship &
Co. in the aggregate amount of $158,612.50. OrbiMed Advisors, LLC, a five
percent beneficial stockholder, through each of Caduceus II, L.P., Eaton Vance
Worldwide Health Sciences Fund, Finsbury Worldwide Pharmaceutical Trust,
PHARMAw/HEALTH and Winchester Global Trust Company Limited, as Trustee for
Caduceus Capital Trust, purchased an aggregate of 1,312,864 shares of Series E
convertible preferred stock for an aggregate purchase price of $6,056,006.84 in
this offering consisting of cash in the aggregate amount of $3,148,147, and the
conversion of the principal of and all accrued interest on the three bridge
notes held by each of Eaton Vance Worldwide Health Sciences Fund, Finsbury
Worldwide Pharmaceutical Trust and PHARMA w/HEALTH in the aggregate amount of
$2,907,859.84. Oracle Strategic Partners, LP, a five percent beneficial
stockholder, purchased an aggregate of 2,150,000 shares of Series E convertible
preferred stock in this offering for an aggregate purchase price of $9,675,000.
Dale R. Pfost purchased an aggregate of 5,558 shares of Series E convertible
preferred stock in this offering for an aggregate purchase price of $25,011.
Fred and JoAnn Pfost, parents of Dr. Pfost, purchased an aggregate of 4,500
shares of Series E convertible preferred stock in this offering for an
aggregate purchase price of $20,250. The holders of Series E convertible
preferred stock were also granted certain registration rights. See "Description
of Capital Stock -- Registration Rights".
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding the
beneficial ownership of our common stock as of January 31, 2000 and as adjusted
to reflect the sale of the shares of our common stock in this offering for:
. each person known by us to beneficially own more than 5% of our common
stock;
. each of our directors;
. each of our executive officers named in the summary compensation table;
and
. all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock under options held by that person that are currently
exercisable or exercisable within 60 days of January 31, 1999 are considered
outstanding. These shares, however, are not considered outstanding when
computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to state
community property laws, each stockholder named in the table has sole voting
and investment power for the shares shown as beneficially owned by them.
Percentage of ownership is based on 25,400,199 shares of common stock
outstanding on January 31, 2000 and shares of common stock outstanding
after completion of this offering. This table assumes no exercise of the
underwriters' over-allotment option. Unless otherwise indicated in the
footnotes, the address of each of the individuals named below is: c/o Orchid
BioSciences, Inc., 303 College Road East, Princeton, NJ 08540.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Beneficially
Owned
-----------------
Shares Prior to After
Name and Address of Beneficial Owner(1) Beneficially Owned Offering Offering
--------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Stockholders owning approximately 5% or
more
OrbiMed Advisors, LLC (2)................ 2,450,676 9.6%
767 Third Avenue, 6th Floor
New York, NY 10017
Oracle Strategic Partners, LP............ 2,150,000 8.5%
712 5th Avenue, 45th Floor,
New York, NY 10019
INVESCO Global Health Sciences Fund(3)... 1,685,779 6.6%
7800 East Union Avenue, Mail Stop 1102,
Denver, CO 80237
Sarnoff Corporation(4)................... 1,490,550 5.9%
201 Washington Road,
Princeton, NJ 08543-5300
SmithKline Beecham plc(5)................ 1,279,230 5.0%
New Horizons Court, Brentford,
Middlesex, TW89EP, England
Directors and Executive Officers
Dale R. Pfost, Ph.D.(6).................. 194,094 0.7%
Donald R. Marvin(7)...................... 127,703 0.5%
Sidney M. Hecht, Ph.D.(8)................ 12,721 *
Samuel D. Isaly(9)....................... 2,450,676 9.6%
Jeremy M. Levin, D.Phil., MB.BChir.(10).. 8,333 *
Robert M. Tien, M.D., M.P.H.(11)......... 1,875 *
Anne M. VanLent(12)...................... 0 *
All directors and executive officers as a
group (7 persons)(13)................... 2,795,402 10.8%
</TABLE>
67
<PAGE>
- ---------------------
* Represents beneficial ownership of less than one percent of our common
stock.
(1) Unless otherwise indicated, the address of each shareholder is c/o Orchid
BioSciences, Inc., 303 College Road East, Princeton, New Jersey, 08540.
(2) Includes 637,383 shares of common stock held by Eaton Vance Worldwide
Health Sciences Fund, 100,000 shares of common stock subject to a
currently exercisable warrant, held by Eaton Vance Worldwide Health
Sciences Fund, 407,099 shares of common stock held by Finsbury Worldwide
Pharmaceutical Trust, 100,000 shares of common stock subject to a
currently exercisable warrant held by Finsbury Worldwide Pharmaceutical
Trust, 520,472 shares of common stock held by PHARMAw/HEALTH, 75,000
shares of common stock subject to a currently exercisable warrant held by
PHARMAw/HEALTH, 74,074 shares of common stock held by Caduceus Capital II,
L.P., 148,148 shares held by Winchester Global Trust Company Limited as
Trustee For Caduceus Capital Trust, 222,222 shares of common stock held by
Hare & Co. for the benefit of Finsbury Worldwide Pharmaceutical Trust and
2,222 shares of common stock subject to a currently exercisable option
held by OrbiMed Advisors, LLC OrbiMed Advisors, LLC is the investment
advisor, and as such is considered the beneficial owner of the common
stock held by each of these funds.
(3) Includes 873,417 shares of common stock held by Pirate Ship & Co., 222,222
shares of common stock held by Global Health Sciences Fund and 180,000
shares of common stock subject to a currently exercisable warrant held by
Pirate Ship & Co.
(4) Includes 1,236,559 shares of common stock held by Sarnoff Corporation and
251,769 shares of common stock owned by certain current and former
employees of Sarnoff Corporation with respect to which Sarnoff Corporation
maintains voting discretion pursuant to the terms of a Common Stock
Purchase Agreement by and among Sarnoff Corporation and each such
stockholder.
(5) Includes 464,615 shares of common stock owned by SmithKline Beecham plc,
539,615 shares of common stock subject to a currently exercisable warrant
held by SmithKline Beecham plc, 539,516 shares of common stock owned by
SmithKline Beecham Corporation and 275,000 shares of common stock subject
to a currently exercisable warrant held by SmithKline Beecham Corporation.
(6) Includes 70,870 shares of common stock subject to currently exercisable
options.
(7) Includes 60,452 shares of common stock subject to currently exercisable
options and 70,000 shares of common stock subject to currently exercisable
warrants held by Cairn Investments Inc.
(8) Includes 12,721 shares of common stock subject to currently exercisable
options. Mr. Hecht disclaims any beneficial ownership of the shares of
common stock beneficially owned by SmithKline Beecham Corporation and
SmithKline Beecham plc, except to the extent of his pecuniary interest in
such shares, if any.
(9) Mr. Isaly who is the Managing Member of OrbiMed Advisors, LLC is deemed to
be the beneficial owner of shares of common stock attributed to OrbiMed
Advisors, LLC. See footnote number 2, above.
(10) Includes 8,333 shares of common stock subject to currently exercisable
options.
(11) Includes 1,875 shares of common stock subject to a currently exercisable
option. Mr. Tien disclaims any beneficial ownership of EB Finance Co.,
Ltd., except to the extent of his pecuniary interest in such shares, if
any.
(12) Ms. VanLent disclaims any beneficial ownership of the shares of common
stock beneficially owned by Sarnoff Corporation, except to the extent of
her pecuniary interest in such shares, if any. See footnote number 4.
(13) Includes 162,057 shares subject to currently exercisable options and
345,080 shares subject to currently exercisable warrants.
68
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of shares
of common stock, $.001 par value per share, and 5,000,000 shares of preferred
stock, $.001 par value per share.
After the closing of this offering, there will be:
. shares of common stock outstanding;
. options to purchase shares of common stock outstanding of which
will be exercisable upon the closing of the offering;
. warrants to purchase shares of common stock outstanding, all of which
will be exercisable upon the closing of this offering; and
. no shares of preferred stock outstanding.
Common Stock
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
common stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock are entitled to
receive proportionately any such dividends declared by the board of directors,
out of legally available funds for the dividends subject to the rights of the
holders of our preferred stock and any preferences that may be applicable to
any other then outstanding preferred stock. Upon our liquidation, dissolution
or winding up, the holders of our common stock are entitled to receive ratably
our net assets available after the payment of all debts and other liabilities
and subject to the liquidation preferences of any outstanding preferred stock.
Holders of common stock have no preemptive, subscription, redemption or
conversion rights and are not subject to future calls or assessments by us. No
sinking fund provisions apply to our common stock. The outstanding shares of
common stock are, and the shares offered by us in this offering will be, when
issued and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of our common stock are subject to the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future. Some holders of common stock have the right to require us
to register their shares of common stock under the Securities Act in specified
circumstances. See "Shares Eligible for Future Sale."
Preferred Stock
Upon the closing of this offering, all of our outstanding shares of Series A
convertible preferred stock, Series B convertible preferred stock, Series C
mandatorily redeemable convertible preferred stock and Series E mandatorily
redeemable convertible preferred stock will be converted into 24,671,450 shares
of common stock.
Under the terms of our certificate of incorporation, our Board of Directors
will be authorized to issue up to 5,000,000 shares of preferred stock in one or
more series without stockholder approval. Our Board of Directors also has
discretion to determine the rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences of each series of preferred stock.
The purpose of authorizing our Board of Directors to issue preferred stock
in one or more series and determine the number of shares in the series and its
rights and preferences is to eliminate delays associated with a stockholder
vote on specific issuances. Examples of rights and preferences that the Board
of Directors may fix are (1) dividend rights, (2) dividend rates, (3)
conversion rights, (4) voting rights, (5) terms of redemption, including
sinking price or prices, and (6) liquidation preferences. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could make it more
difficult for a third party to acquire, or could discourage a third party from
acquiring, a
69
<PAGE>
majority of our outstanding voting stock. The rights of holders of our common
stock described above will be subject to, and may be adversely affected by, the
rights of any preferred stock that we may designated and issue in the future.
Warrants
As of December 31, 1999, there were outstanding warrants to purchase
1,229,228 shares of common stock held by 16 investors. Such warrants have
expiration dates ranging from June 2002 to June 2004, and have a weighted
average exercise price of $4.68 per share. The number of shares for which the
warrants are exercisable is subject to adjustment for stock splits,
combinations or dividends and reclassifications, exchanges or substitutions.
Registration Rights
After this offering, the holders of approximately 24,680,952 shares of
common stock will be entitled to rights with respect to the registration of
those shares under the Securities Act of 1933. Under the terms of the
agreements between us and the holders of those registrable shares, the former
holder of Series A convertible preferred stock, the former holder of Series B
convertible preferred stock and the holders of not less than one-third of the
former holders of Series C convertible preferred stock and Series E convertible
preferred stock may at any time require us to file a registration statement
under the Securities Act with respect to shares of common stock owned by them
and we are required to use our reasonable best efforts to effect that
registration. This right will accrue to the former holder of Series A
convertible preferred stock and the former holder of Series B convertible
preferred stock at any time after the closing of this offering and to the
former holders of Series C convertible preferred stock and Series E convertible
preferred stock at any time after the first anniversary of the closing of this
offering. Also, if we propose to register any of our securities under the
Securities Act, other than in connection with demand registrations,
registrations on Form S-8 or in connection with our initial public offering,
the foregoing holders are entitled to notice of and to include in the
registration shares of common stock owned by them. This right will accrue to
the former holder of Series A convertible preferred stock and the former holder
of Series B convertible preferred stock at any time after the closing of this
offering and to the former holders of Series C convertible preferred stock and
Series E convertible preferred stock at any time after the first anniversary of
the closing of this offering. Finally, the former holders of not less than 25%
of the Series C convertible preferred stock and Series E convertible preferred
stock may at any time after the completion of this offering require us to file
a registration statement under the Securities Act on Form S-3 with respect to
shares of common stock owned by them having an offering price of at least
$150,000. All of these registration rights are subject to various conditions
and limitations, among them certain rights of the underwriters of an offering
to limit the number of shares included in a registration and our right not to
effect a requested registration within 90 days after the effective date of a
previous registration on a Form S-1 or within 90 days after the effective date
of a registration which included all shares requested by holders of registrable
shares. We will bear all of the expenses incurred in connection with all
exercises of these registration rights.
Delaware Law and Certain Charter and By-law Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law statute. Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the person becomes an interested
stockholder, unless the business combination is approved in a prescribed
manner. A business combination includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an interested stockholder is a person who,
together with affiliates and associates, owns, or within three years did own,
15% or more of the corporation's voting stock.
Our by-laws divide the Board of Directors into three classes with staggered
three-year terms. See "Management." Under the by-laws, any vacancy on our Board
of Directors, including a vacancy resulting from an enlargement of our Board of
Directors, may only be filled by vote of a majority of the directors then in
70
<PAGE>
office. The classification of the Board of Directors and the limitation on
filling of vacancies could make it more difficult for a third party to acquire,
or discourage a third party from acquiring, control of our company.
Our by-laws also provide that after this offering, stockholders can only
take action at an annual meeting or special meeting, and not by written action
in lieu of a meeting. Our by-laws further provide that only stockholders
holding a majority of outstanding shares, our Chairman of the Board, President
or our Board of Directors may call a special meeting of stockholders.
Our stockholders must comply with advance notice and information disclosure
requirements in order for any matter to be considered "properly brought" before
a meeting. Stockholders must deliver written notice to us between 60 and 90
days prior to the meeting. If we give less than 70 days' notice or prior public
disclosure of the meeting date, stockholders must deliver written notice to us
within ten days following the date upon which the notice of the meeting was
mailed or such public disclosure was made, whichever occurs first. If the
matter relates to the election of directors, the notice must set forth specific
information regarding each nominee and the nominating stockholder. For any
other matter, the notice must set forth a brief description of the proposed
matter and certain information regarding the proponent stockholder. These
provisions could delay until the next stockholders' meeting proposed actions
which are favored by the holders of a majority of our outstanding voting
securities. These provisions could also discourage a third party from making a
tender offer for our common stock, because even if it acquired a majority of
the outstanding voting securities, the third party would be able to take action
as a stockholder only at a duly called stockholders' meeting, and not by
written consent.
The Delaware General Corporation Law statute provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Our by-laws require the affirmative vote of
holders of at least 75% of the votes which all the stockholders would be
entitled to cast in any annual election of directors or class of directors to
amend or repeal any of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains certain provisions permitted under
the Delaware General Corporation Law statute relating to the limitation of
liability of directors. These provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the certificate of incorporation contains
provisions to indemnify our directors and officers to the fullest extent
permitted by the Delaware General Corporation Law statute. We believe these
provisions will assist us in attracting and retaining qualified individuals to
serve as our directors.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
71
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our securities.
After completion of this offering there will be shares of common stock
outstanding based upon the number of shares outstanding as of December 31,
1999. Of these shares, the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act
of 1933, except that any shares purchased by our "affiliates," as that term is
defined in Rule 144 under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 described below.
Sales of Restricted Shares
All of the shares offered under this prospectus will be freely tradable in
the open market. The remaining shares of common stock that will be
outstanding after this offering will be considered "restricted securities"
under Rule 144 of the Securities Act. Generally, restricted securities that
have been owned for a period of at least two years may be sold immediately
after the completion of this offering, and restricted securities that have been
owned for at least one year may be sold 90 days after the completion of this
offering. Certain of the restricted securities are subject to lock-up
agreements with the underwriters. Persons subject to lock-up agreements have
agreed not to sell shares of our common stock without the prior permission of
Credit Suisse First Boston Corporation for a period of 180 days after the
completion of this offering. Credit Suisse First Boston Corporation has
indicated that it does not intend to release anyone from the lock-up agreement.
The table below sets forth information regarding potential sales of restricted
securities.
. shares may be sold immediately after completion of this offering; and
. additional shares may be sold upon the expiration of the lock-up
agreements.
Options
Shares of common stock may also be issued and sold upon the exercise of
options. After this offering, we intend to register an aggregate of shares
of common stock, which may be issued under our 1995 Stock Incentive Plan and
our 2000 Employee, Director and Consultant Stock Plan and other stock options
not issued under a plan. Shares issued upon the exercise of stock options after
the effective date of the registration statements on Form S-8 will be eligible
for resale in the public market without restriction, subject to Rule 144
limitations applicable to affiliates and the lock-up agreements noted above, if
applicable. As a result of the exercise of vested options 90 days after the
completion of this offering, additional shares may be sold. Upon the
expiration of the lock-up agreements, an additional shares may be sold as a
result of the exercise of options.
Registration Rights
After this offering, the holders of approximately 24,680,952 shares of
common stock will be entitled to rights with respect to the registration of
those shares under the Securities Act of 1933. Under the terms of the
agreements between us and the holders of those registrable shares, the former
holder of Series A convertible preferred stock, the former holder of Series B
convertible preferred stock and the holders of not less than one-third of the
former holders of Series C convertible preferred stock and Series E convertible
preferred stock may at any time require us to file a registration statement
under the Securities Act with respect to shares of common stock owned by them
and we are required to use our reasonable best efforts to effect that
registration. This right will accrue to the former holder of Series A
convertible preferred stock and the former holder of Series B convertible
preferred stock at any time after the closing of this offering and to the
former holders of Series C convertible preferred stock and Series E convertible
preferred stock at any time after the first anniversary of the closing of this
offering. Also, if we propose to register any of our securities under the
Securities Act, other than in connection with demand registrations,
registrations on Form S-8 or in connection with our initial public offering,
the foregoing holders are entitled to notice of and to include in the
registration shares of common stock owned by them. This right will accrue to
the former holder of Series A convertible preferred stock and the former holder
of Series B convertible preferred stock at any time after the closing of this
offering and to the
72
<PAGE>
former holders of Series C convertible preferred stock and Series E convertible
preferred stock at any time after the first anniversary of the closing of this
offering. Finally, the former holders of not less than 25% of the Series C
convertible preferred stock and Series E convertible preferred stock may at any
time after the completion of this offering require us to file a registration
statement under the Securities Act on Form S-3 with respect to shares of common
stock owned by them having an offering price of at least $150,000. All of these
registration rights are subject to various conditions and limitations, among
them certain rights of the underwriters of an offering to limit the number of
shares included in a registration and our right not to effect a requested
registration within 90 days after the effective date of a previous registration
on a Form S-1 or within 90 days after the effective date of a registration
which included all shares requested by holders of registrable shares. We will
bear all of the expenses incurred in connection with all exercises of these
registration rights.
Effect of Sales of Shares
Prior to this offering, there has been no public market for our common
stock, and we cannot advise you as to the effect, if any, that sales in the
public market of shares of our common stock, or the availability of shares for
sale, will have on the market price of our common stock prevailing from time to
time. Nevertheless, sales of significant numbers of shares of our common stock
in the public market could adversely affect the market price of our common
stock and could impair our ability to raise capital.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, FleetBoston Robertson
Stephens Inc. and Salomon Smith Barney Inc. are acting as representatives, the
following respective numbers of shares of our common stock:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
FleetBoston Robertson Stephens Inc. ...............................
Salomon Smith Barney Inc. .........................................
---
Total............................................................
===
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of our common stock from us at the
initial public offering price less the underwriting discounts and commissions.
The option may be exercised only to cover any over-allotments of the common
stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions
paid by us............. $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the common stock being offered.
We, our directors and officers and the majority of our stockholders agreed
that we will and they will not:
. offer, sell, contract to sell, announce our intention to sell, pledge or
otherwise dispose of, directly or indirectly; or
. file with the Securities and Exchange Commission a registration statement
under the Securities Act relating to;
74
<PAGE>
any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock, without the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus, except in connection with our incentive
stock plan. In addition, we may issue shares of our common stock in connection
with any acquisition of another company if the terms of such issuance provide
that such common stock shall not be resold prior to the expiration of the 180
day period referenced above.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for our employees, directors and
certain other persons associated with us who may wish to purchase common stock
in the offering. The number of shares available for sale to the general public
in the offering will be reduced to the extent these persons purchase these
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933, or to contribute to payments which the underwriters may
be required to make as a result of these liabilities.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "ORCH."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price will be:
. the information presented in this prospectus and otherwise available to
the underwriters;
. the history and the prospects for the industry in which we will compete;
. the ability of our management;
. our prospects for our future earnings;
. the present state of our development and our current financial condition;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the shares of common stock originally sold
by such syndicate member are purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under these securities laws, (2) where
required by law, that the purchaser is purchasing as principal and not as
agent, and (3) the purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from Caliper. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
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<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston,
Massachusetts. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Willkie Farr & Gallagher, New York, New
York. Members of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. own
options to purchase an aggregate of 3,750 shares of common stock.
EXPERTS
The consolidated financial statements of Orchid Biosciences, Inc. and
subsidiaries as of December 31, 1998 and 1999, and for each of the years in the
three-year period ended December 31, 1999, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of GeneScreen, Inc. and subsidiaries
as of December 29, 1999, and for the period from January 1, 1999 to December
29, 1999, have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of GeneScreen, Inc. and subsidiaries
as of December 31, 1998 and for the year then ended have been included herein
and in the registration statement in reliance upon the report of Deloitte &
Touche LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 (including its exhibits
and schedules) with the Securities and Exchange Commission under the Securities
Act with respect to our common stock to be sold in this offering. This
prospectus, which is a part of the registration statement, does not contain all
of the information included in the registration statement. Certain information
is omitted and you should refer to the registration statement and its exhibits.
With respect to references made in this prospectus to any contract, agreement
or other document of Orchid BioSciences, Inc., such references are not
necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract, agreement or other
document. You may review a copy of the registration statement, including
exhibits, at the Securities and Exchange Commission's public reference room at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the SEC located at Seven World Trade Center, 13th
Floor, New York, New York 10048 or at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call 1-800-SEC-0330 for further
information about the operation of the public reference rooms.
After we have filed this registration statement, we will file annual,
quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
The registration statement and our other Securities and Exchange Commission
filings can also be reviewed by accessing the Securities and Exchange
Commission's Internet site at http://www.sec.gov, which contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Securities and Exchange Commission.
77
<PAGE>
ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Orchid BioSciences, Inc. and subsidiaries:
Independent Auditors' Report............................................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1998 and 1999............... F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999.................................................... F-5
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1997, 1998 and 1999....................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999.................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
GeneScreen, Inc. and subsidiaries:
Independent Auditors' Report............................................. F-25
Independent Auditors' Report............................................. F-26
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1998 and December 29, 1999.. F-27
Consolidated Statements of Operations for the year ended December 31,
1998 and the period from January 1, 1999 to December 29, 1999.......... F-28
Consolidated Statements of Stockholders' Equity (Deficit) for the year
ended December 31, 1998 and the period from January 1, 1999 to December
29, 1999............................................................... F-29
Consolidated Statements of Cash Flows for the year ended December 31,
1998 and the period from January 1, 1999 to December 29, 1999.......... F-30
Notes to Consolidated Financial Statements.............................. F-31
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Orchid BioSciences, Inc.:
We have audited the accompanying consolidated balance sheets of Orchid
BioSciences, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orchid
BioSciences, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
Princeton, New Jersey
February 11, 2000
F-2
<PAGE>
ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999
<TABLE>
<CAPTION>
Pro Forma
December 31,
1999
1998 1999 (see note 1)
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............... $ 472,725 $34,203,935 $63,777,499
Short-term investments.................. 7,615,127 -- --
Accounts receivable, net................ -- 2,229,772 2,229,772
Laboratory materials and supplies....... -- 182,532 182,532
Other current assets.................... 307,340 760,409 760,409
----------- ----------- -----------
Total current assets................. 8,395,192 37,376,648 66,950,212
Equipment and leasehold improvements,
net..................................... 1,736,654 9,474,416 9,474,416
Goodwill, net of accumulated amortization
of $2,275 and $10,075 in 1998 and 1999,
respectively............................ 75,725 2,470,133 2,470,133
Other intangibles, net................... 4,840,590 16,518,757 16,518,757
Other assets............................. 551,264 464,815 464,815
----------- ----------- -----------
Total assets......................... $15,599,425 $66,304,769 $95,878,333
=========== =========== ===========
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Note payable--bank...................... $ -- $ 1,000,000 $ 1,000,000
Current portion of long-term debt....... -- 1,141,230 1,141,230
Accounts payable........................ 1,004,860 2,302,123 2,302,123
Accrued expenses........................ 1,008,536 4,877,157 4,877,157
Due to related party.................... 381,033 63,519 63,519
Deferred revenue........................ 250,000 767,550 767,550
----------- ----------- -----------
Total current liabilities............ 2,644,429 10,151,579 10,151,579
Long-term debt, less current portion..... 3,547,821 4,122,357 4,122,357
Manditorily redeemable convertible
preferred stock, $.001 par value
(converts into 17,624,807 shares of
common stock on an unaudited pro forma
basis at December 31, 1999 upon
consummation of the offering
contemplated herein):
Series C, at redemption value,
designated 2,493,692 shares; issued
and outstanding 2,480,176 shares at
December 31, 1998 and 1999 (Aggregate
liquidation value of $27,530,000 at
December 31, 1999) ................... 27,530,000 27,530,000 --
Series E, designated 19,000,000 shares;
issued and outstanding 7,934,960
shares (Aggregate liquidation value of
$35,707,320 at December 31, 1999)..... 39,183,609
Series E to be issued, at redemption
value, (4,951,452 shares, including
518,534 shares subject to repurchase
rights at December 31, 1999)
(Aggregate liquidation value of
$22,281,534 at December 31, 1999)..... -- 22,281,533 --
----------- ----------- -----------
27,530,000 88,995,142 --
----------- ----------- -----------
</TABLE>
F-3
<PAGE>
ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
December 31, 1998 and 1999
<TABLE>
<CAPTION>
Pro
Forma
December 31,
1999
1998 1999 (see note 1)
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Stockholders' equity (deficit):
Preferred stock, $.001 par value.
Authorized 23,400,000 shares; 38,961
shares with no designation; no shares
issued or outstanding................. $ -- $ -- $ --
Convertible preferred stock, $.001 par
value (converts into 1,074,740 shares
of common stock on an unaudited pro
forma basis at December 31, 1999 upon
consummation of the offering
contemplated herein):
Series A, designated 1,200,000 shares;
issued and outstanding 904,200 and
970,900 shares at December 31, 1998
and 1999, respectively (Liquidation
value--see note 13).................. 904 971 --
Series B, designated 300,000 shares;
issued and outstanding 68,640 and
103,840 shares at December 31, 1998
and 1999, respectively (Liquidation
value--see note 13).................. 69 104 --
Series B, to be issued (35,200 shares
at December 31, 1998) (Liquidation
value--see note 13).................. 211,200 -- --
Series D, designated 367,347 shares;
no shares issued or outstanding...... -- -- --
Common stock, $.001 par value.
Authorized 30,000,000 shares; issued
and outstanding 726,751 and 845,450
shares at December 31, 1998 and 1999,
respectively (19,544,997 shares on an
unaudited pro forma basis at December
31, 1999 upon conversion of the
manditorily redeemable convertible
preferred stock and the convertible
preferred stock)...................... 727 845 25,517
Common stock to be issued (5,000 and
10,000 shares at December 31, 1998 and
1999, respectively)................... 17,500 57,500 57,500
Additional paid-in capital............. 4,808,773 16,054,422 134,599,531
Deferred compensation.................. (624,318) (6,437,030) (6,437,030)
Accumulated deficit.................... (22,537,680) (46,641,121) (46,641,121)
----------- ----------- -----------
Total stockholders' equity
(deficit).......................... (18,122,825) (36,964,309) 81,604,397
Commitments and contingencies...........
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficit)................... $15,599,425 $66,304,769 $95,878,333
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Contract revenue from related
party.............................. $ 3,763,000 $ 2,747,800 $ --
Contract revenue from unrelated
party.............................. -- -- 828,000
Grant revenue....................... -- 33,152 810,838
License and other revenue........... -- -- 154,167
----------- ------------ ------------
Total revenues.................... 3,763,000 2,780,952 1,793,005
----------- ------------ ------------
Operating expenses:
General and administrative.......... 2,841,754 5,024,622 8,566,538
Research and development............ 10,812,612 7,574,113 13,412,586
Compensation expense from equity
issuances.......................... 85,697 174,613 646,359
Acquisition of in-process research
and development.................... -- 2,352,838 --
----------- ------------ ------------
Total operating expenses.......... 13,740,063 15,126,186 22,625,483
----------- ------------ ------------
Operating loss.................... (9,977,063) (12,345,234) (20,832,478)
----------- ------------ ------------
Other income (expense):
Interest income..................... 49,303 931,390 202,699
Interest expense.................... -- (65,635) (3,473,662)
----------- ------------ ------------
Total other income (expenses)..... 49,303 865,755 (3,270,963)
----------- ------------ ------------
Net loss.......................... (9,927,760) (11,479,479) (24,103,441)
Beneficial conversion feature of
preferred stock...................... -- -- 44,365,000
----------- ------------ ------------
Net loss allocable to common
stockholders..................... $(9,927,760) $(11,479,479) $(68,468,441)
=========== ============ ============
Basic and diluted net loss per share
allocable to common stockholders
(note 1)............................. $ (27.57) $ (17.09) $ (90.20)
=========== ============ ============
Shares used in computing basic and
diluted net loss per share allocable
to common stockholders (note 1)...... 360,079 671,589 759,078
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Convertible preferred stock
--------------------------------------
Series A Series B
-------------- --------------
Number Number Series B
of of To be
shares Amount shares Amount issued
------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C>
Balance, December
31, 1996......... 670,000 $670 68,640 $ 69 --
Issuance of
common stock.... -- -- -- -- --
Issuance of
restricted
common stock.... -- -- -- -- --
Issuance of
Series A
convertible
preferred stock
for technology
license......... 167,500 168 -- -- --
Deferred
compensation
resulting from
the grant of
options......... -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- --
Exercise of
common stock
options......... -- -- -- -- --
Net loss........ -- -- -- -- --
------- ---- ------- ---- --------
Balance, December
31, 1997......... 837,500 838 68,640 69 --
Exercise of
common stock
options......... -- -- -- -- --
Issuance of
stock for
technology
licenses........ 66,700 67 -- -- --
Series B
convertible
preferred stock
to be issued.... -- -- -- -- 211,200
Deferred
compensation
resulting from
the grant of
options......... -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- --
Issuance of
common stock
options in
connection with
acquisition of
Molecular Tool,
Inc............. -- -- -- -- --
Net loss........ -- -- -- -- --
------- ---- ------- ---- --------
Balance, December
31, 1998......... 904,200 904 68,640 69 211,200
Issuance of
stock for
technology
licenses........ 66,700 67 -- -- --
Series B
convertible
preferred stock
to be issued.... -- -- 35,200 35 (211,200)
Warrants in
connection with
convertible term
loans........... -- -- -- -- --
Warrants in
connection with
draws on line of
credit.......... -- -- -- -- --
Warrants in
connection with
sale of Series E
manditorily
convertible
preferred
stock........... -- -- -- -- --
Deferred
compensation
resulting from
the grant of
options......... -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- --
Exercise of
common stock
options......... -- -- -- -- --
Net loss........ -- -- -- -- --
------- ---- ------- ---- --------
Balance, December
31, 1999......... 970,900 $971 103,840 $104 --
======= ==== ======= ==== ========
<CAPTION>
Common stock
-------------- Total
Number Common stock Additional Deferred stockholders'
of to be paid-in compen- Accumulated equity
shares Amount issued capital sation deficit (deficit)
------- ------ ------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1996......... 330,829 $331 -- 1,317,812 -- (1,130,441) 188,441
Issuance of
common stock.... 157,500 158 -- 354,218 -- -- 354,376
Issuance of
restricted
common stock.... 109,333 109 -- 131,657 (131,766) -- --
Issuance of
Series A
convertible
preferred stock
for technology
license......... -- -- -- 1,289,582 -- -- 1,289,750
Deferred
compensation
resulting from
the grant of
options......... -- -- -- 314,562 (314,562) -- --
Amortization of
deferred
compensation.... -- -- -- -- 85,697 -- 85,697
Exercise of
common stock
options......... 4,117 4 -- -- -- -- 4
Net loss........ -- -- -- -- -- (9,927,760) (9,927,760)
------- ------ ------------ ----------- ----------- ------------ -------------
Balance, December
31, 1997......... 601,799 602 -- 3,407,831 (360,631) (11,058,201) (8,009,492)
Exercise of
common stock
options......... 1,582 2 -- (2) -- -- --
Issuance of
stock for
technology
licenses........ 123,390 123 17,500 762,643 -- -- 780,333
Series B
convertible
preferred stock
to be issued.... -- -- -- -- -- -- 211,200
Deferred
compensation
resulting from
the grant of
options......... -- -- -- 438,300 (438,300) -- --
Amortization of
deferred
compensation.... -- -- -- -- 174,613 -- 174,613
Issuance of
common stock
options in
connection with
acquisition of
Molecular Tool,
Inc............. -- -- -- 200,000 -- -- 200,000
Net loss........ -- -- -- -- -- (11,479,479) (11,479,479)
------- ------ ------------ ----------- ----------- ------------ -------------
Balance, December
31, 1998......... 726,751 727 17,500 4,808,773 (624,318) (22,537,680) (18,122,825)
Issuance of
stock for
technology
licenses........ 83,300 83 40,000 1,333,250 -- -- 1,373,400
Series B
convertible
preferred stock
to be issued.... -- -- -- 211,165 -- -- --
Warrants in
connection with
convertible term
loans........... -- -- -- 2,548,000 -- -- 2,548,000
Warrants in
connection with
draws on line of
credit.......... -- -- -- 76,000 -- -- 76,000
Warrants in
connection with
sale of Series E
manditorily
convertible
preferred
stock........... -- -- -- 604,000 -- -- 604,000
Deferred
compensation
resulting from
the grant of
options......... -- -- -- 6,459,071 (6,459,071) -- --
Amortization of
deferred
compensation.... -- -- -- -- 646,359 -- 646,359
Exercise of
common stock
options......... 35,399 35 -- 14,163 -- -- 14,198
Net loss........ -- -- -- -- -- (24,103,441) (24,103,441)
------- ------ ------------ ----------- ----------- ------------ -------------
Balance, December
31, 1999......... 845,450 $845 57,500 16,054,422 (6,437,030) (46,641,121) (36,964,309)
======= ====== ============ =========== =========== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(9,927,760) $(11,479,479) $(24,103,441)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Noncash research and development
expense............................. 1,644,126 3,115,671 1,373,400
Noncash compensation expense......... 85,697 174,613 646,359
Noncash amortization of debt
issuance costs...................... -- -- 3,228,000
Depreciation and amortization........ 99,235 513,444 1,359,772
Changes in assets and liabilities:
Other current assets................ 279,307 (242,371) (395,326)
Other assets........................ (25,694) (525,570) 86,449
Accounts payable.................... 117,460 627,199 1,089,365
Accrued expenses.................... 481,457 309,352 1,919,487
Due to related party................ (1,469,907) 51,074 (317,514)
Milestone advance................... 1,320,000 (1,320,000) --
Deferred revenue.................... (133,000) 161,000 346,045
Obligation under research and
development contract............... 3,130,000 (3,130,000) --
----------- ------------ ------------
Net cash used in operating
activities........................ (4,399,079) (11,745,067) (14,767,404)
----------- ------------ ------------
Cash flows from investing activities:
Acquisition of certain assets and
liabilities of Molecular Tool,
Inc................................. -- (3,392,293) --
Cash acquired in acquisition of
GeneScreen, Inc. and subsidiaries,
net of costs........................ -- -- 1,064,402
Capital expenditures................. (43,229) (1,691,404) (8,246,338)
Purchase of short-term investments... -- (15,545,308) --
Maturities of short-term
investments......................... -- 7,930,181 7,615,127
----------- ------------ ------------
Net cash used in (provided by)
investing activities.............. (43,229) (12,698,824) 433,191
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of Series B
convertible preferred stock......... -- 211,200 --
Proceeds from issuance of Series C
mandatorily redeemable convertible
preferred stock..................... 9,230,000 18,300,000 --
Net proceeds from issuance of Series
E manditorily redeemable convertible
preferred stock..................... -- -- 33,562,819
Proceeds from convertible term
notes............................... 9,840,000
Proceeds from issuance of debt from
line of credit...................... -- -- 5,036,570
Repayment of debt on line of credit.. -- -- (388,164)
Proceeds from issuance of common
stock/ exercise of options.......... 4 -- 14,198
----------- ------------ ------------
Net cash provided by financing
activities........................ 9,230,004 18,511,200 48,065,423
----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents..................... 4,787,696 (5,932,691) 33,731,210
Cash and cash equivalents at beginning
of year.............................. 1,617,720 6,405,416 472,725
----------- ------------ ------------
Cash and cash equivalents at end of
year................................. $ 6,405,416 $ 472,725 $ 34,203,935
=========== ============ ============
Supplemental disclosure of noncash
financing and investing activities:
Deferred compensation from issuance
of restricted stock, grant of
options and warrants................ $ 446,328 $ 438,300 $ 6,459,071
Issuance of common stock and Series A
convertible preferred stock for
technology licenses................. 1,475,376 762,833 1,333,400
Common stock granted or to be issued
to SB............................... 168,750 17,500 40,000
Series E mandatorily redeemable
convertible preferred stock to be
issued in connection with
acquisition of GeneScreen........... -- -- 17,600,000
Conversion of bridge notes and
accrued interest into Series E
mandatorily redeemable convertible
preferred stock..................... -- -- 10,302,329
Issuance of long-term debt in
connection with acquisition of
Molecular Tool, Inc................. -- 3,547,821 --
Cancellation of long-term debt in
connection with acquisition of
GeneScreen, Inc..................... -- -- (3,547,821)
Issuance of warrants in connection
with borrowings on line of credit... -- -- 76,000
Issuance of common stock options in
connection with acquisition of
Molecular Tool, Inc................. -- 200,000 --
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1999
(1) Summary of Significant Accounting Policies
Organization and Business Activities
Orchid BioSciences, Inc. and subsidiaries (the "Company"), was organized
under the laws of the State of Delaware on March 8, 1995 to develop and
commercialize genetic diversity technologies, products and services using the
Company's proprietary biochemistry for scoring single nucleotide polymorphisms
("SNPs") and microfluidics technologies for applications in drug discovery,
principally in the field of pharmacogenetics and DNA synthesis. The Company was
a wholly-owned subsidiary of Sarnoff Corporation ("Sarnoff") at inception, was
reduced to a majority-owned subsidiary of Sarnoff in 1995 and as a result of
the December 1997 financing, Sarnoff's ownership in the Company was reduced to
less than a majority (see notes 11 and 13).
On December 30, 1999, the Company acquired GeneScreen, Inc. ("GeneScreen"),
a wholly-owned subsidiary of the Company, which operates genetic diversity
testing laboratories in Dallas, Texas; Dayton, Ohio, and Sacramento,
California. GeneScreen performs DNA laboratory analyses for paternity,
transplantation and forensic testing. GeneScreen's primary sources of revenue
represent paternity testing under contracts with several state and county
government agencies and transplantation testing under grants from the National
Marrow Donor Program.
The Company has not yet achieved profitable operations or positive cash flow
from operations. There is no assurance that profitable operations, if ever
achieved, could be sustained on a continuing basis. In addition, development
and commercialization activities will require significant additional financing.
The Company's accumulated deficit aggregated $46,641,121 through December 31,
1999 and it expects to incur substantial losses in future periods.
Consolidated Financial Statements
The accompanying consolidated financial statements include the results of
operations of the Company and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation. As a result of
the acquisition of GeneScreen, Inc. ("GeneScreen") during 1999, the Company is
no longer considered to be in the development stage for financial reporting
purposes as it was in the prior years.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. All
cash and cash equivalents are held in United States financial institutions and
money market funds. To date, the Company has not experienced any losses on its
cash and cash equivalents. The carrying amount of cash and cash equivalents
approximates its fair value due to its short-term and liquid nature.
Short-term Investments
Short-term investments consist of corporate debt securities with original
maturities greater than three months. In accordance with Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities," the Company classifies its short-term
investments as available for sale. Available for sale securities are recorded
at fair value, which approximates costs, of the investments based on quoted
market prices at December 31, 1998. The Company considered all of these
investments to be available for sale.
F-8
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Laboratory Materials and Supplies
Laboratory materials and supplies are stated at the lower of cost or market.
Cost is determined by the first-in, first-out method.
Equipment and Leasehold Improvements
Equipment is carried at cost, less accumulated depreciation, which is
computed on the straight-line basis over the estimated useful lives of the
related assets, which range from two to eight years. Leasehold improvements are
recorded at cost, less accumulated depreciation, which is computed on the
straight-line basis over the shorter of their useful lives or the remaining
lease term. Expenditures for maintenance and repairs are charged to expense as
incurred.
Goodwill and Other Intangibles
Goodwill, which represents the excess purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over its estimated
useful lives, ranging from 10 to 15 years. Other intangibles are being
amortized over their estimated useful lives, ranging from 4 to 15 years.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of", the Company reviews
long-lived assets, certain identifiable intangibles and goodwill for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to the
undiscounted future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to dispose.
Income Taxes
The Company accounts for income taxes in accordance with the asset and
liability method prescribed by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using tax rates in effect for
the years in which the differences are expected to reverse. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance for any
tax benefits which are not expected to be realized. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period
that such tax rate changes are enacted.
Revenue Recognition
Revenue related to research and development contracts and grants is
recognized when the related research expenses are incurred and the Company's
specific performance obligations under the terms of the respective contract are
satisfied. To the extent expended, funding related to research and development
contracts for equipment is deferred and amortized over the shorter of its
useful life or the life of the related contract. Revenue recognized in the
accompanying consolidated financial statements is not subject to repayment.
Payments, if any, received in advance of performance under the contract are
deferred and recognized as revenue when earned. Up-front licensing fees are
deferred and amortized over the estimated performance period.
F-9
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Revenue on laboratory testing is recognized on a percentage-of-completion
basis. Percentage of completion for tests in process is estimated by relating
labor and supplies costs expended to date to expected total labor and supplies
costs. Deferred revenue represents the unearned portion of payments received in
advance related to tests in process. Unbilled receivables represent revenue
which has been earned under the percentage of completion method, but has not
been billed to the customer.
Research and Development
Costs incurred for research and product development, including costs
incurred in obtaining license rights to technology in the development stage are
expensed as incurred. In addition, the Company recognizes research and
development expenses in the period in which it becomes obligated to incur such
costs under terms of contracts.
Stock-based Compensation
The Company accounts for its stock-based compensation to employees and
members of the Board of Directors in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. As such, compensation is
recorded on the date of issuance or grant as the excess of the current
estimated fair value of the underlying stock over the purchase or exercise
price. Any deferred compensation is amortized over the respective vesting
periods of the equity instruments, if any. The Company has adopted the
disclosure provisions of Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation", which permits non-
public entities to provide pro forma net loss and net loss per share
disclosures for stock-based compensation as if the minimum value method defined
in SFAS No. 123 had been applied. As required by SFAS No. 123, transactions
with non-employees, in which goods or services are the consideration received
for the issuance of equity instruments, are accounted for under the fair value
basis in accordance with SFAS 123.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Net Loss Per Share
Net loss per share is computed in accordance with SFAS No. 128, "Earnings
Per Share", by dividing the net loss allocable to common stockholders by the
weighted average number of shares of common stock outstanding. As of December
31, 1999, the Company has certain options, warrants, convertible preferred
stock and mandatorily redeemable convertible preferred stock (see notes 11 and
13), which have not been used in the calculation of diluted net loss per share
because to do so would be anti-dilutive. As such, the numerator and the
denominator used in computing both basic and diluted net loss per share
allocable to common stockholders for each year are equal. The Company has
reflected $44,365,000 as a beneficial conversion feature in the net loss
allocable to common stockholders for the Series E mandatorily redeemable
convertible preferred stock issued or issuable in exchange for cash. The amount
of the beneficial conversion feature was calculated as the difference between
the deemed fair value of the Company's common stock on the commitment date over
the conversion price with a limitation that the beneficial conversion feature
can not exceed the gross proceeds received from the issuance of the stock.
F-10
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Pro Forma Net Loss Per Share (Unaudited)
The following pro forma basic and diluted net loss per share allocable to
common stockholders and shares used in computing pro forma basic and diluted
net loss per share allocable to common stockholders have been presented
reflecting the automatic conversion into shares of common stock of the
convertible preferred stock and mandatorily redeemable convertible preferred
stock upon completion of the offering contemplated herein (see note 13), using
the if converted method from their respective dates of issuance:
<TABLE>
<CAPTION>
Year ended
December 31,
1999
------------
<S> <C>
Pro forma basic and diluted net loss per share allocable to
common stockholders.......................................... $ (10.19)
==========
Shares used in computing pro forma basic and diluted net loss
per share allocable to common stockholders................... 6,718,250
==========
</TABLE>
Pro Forma Balance Sheet (Unaudited)
Upon the closing of the offering contemplated herein, all of the outstanding
shares and shares to be issued of convertible preferred stock and mandatorily
redeemable convertible preferred stock, including 5,971,903 shares of Series E
sold in January 2000, automatically convert into 24,671,450 shares of common
stock (see notes 13 and 16) and the repurchase rights of certain Series E
holders expire (see note 3). The December 31, 1999 unaudited pro forma balance
sheet has been prepared assuming the sale of the Series E for approximately
$29,573,564 in January 2000 and the conversion of the mandatorily redeemable
convertible preferred stock and the convertible preferred stock, including
Series E sold in January 2000, into common stock as of December 31, 1999.
Reclassifications
Certain reclassifications have been made in the 1998 consolidated financial
statements to conform to the 1999 presentation.
(2) Acquisition of Molecular Tool, Inc.
On September 11, 1998, the Company acquired substantially all the assets and
assumed certain liabilities of Molecular Tool, Inc. (MT), a subsidiary of
GeneScreen. The acquisition has been accounted for by the purchase method and,
accordingly, the assets and liabilities acquired have been recorded at their
fair values. The purchase price was approximately $7.1 million of which $3.2
million was paid in cash, $3,548,000 was in the form of a note (see note 7) and
$200,000 represented the fair value of 93,289 Orchid stock options exchanged
for GeneScreen options held by employees of MT and others.
The purchase price, including acquisition costs of approximately $163,000,
was allocated as follows:
<TABLE>
<S> <C>
Patents.......................................................... $1,100,000
Base technology.................................................. 3,635,000
Other intangibles................................................ 240,000
Goodwill......................................................... 78,000
In-process research and development.............................. 2,353,000
Other assets..................................................... 35,000
Liabilities...................................................... (300,000)
----------
$7,141,000
==========
</TABLE>
F-11
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
The results of operations of MT have been included in the Company's
consolidated financial statements from September 11, 1998.
Acquired in this transaction were a variety of intellectual property and
intangible assets including Molecular Tool's patent portfolio, assembled
workforce of research and development staff, and core technology upon which its
research efforts were based.
Molecular Tool was engaged in the development of proprietary technologies
and products for the identification and analysis of DNA sequence variation,
including an approach called Genetic Bit Analysis ("GBA"), an approach to
analyzing large numbers of DNA samples for a given genetic effect, and the use
of genetic variations called single neucleotide polymorphisms ("SNPs").
The charge relating to the acquisition of Molecular Tool consists of
acquired in-process research and development of $2,353,000 which was
immediately charged to expense.
The value of acquired research and development related to this acquisition
represents the computed value of several products and services associated with
the application of SNP and GBA technologies under development by Molecular Tool
as of the closing date of the transaction. These products and services include
SNP Kits, collections of SNPs contained in plates and arrays to facilitate
genetic analysis; SNP Services, the provision of genetic analysis by Molecular
Tool based on the SNP Kits under development; SNP OEM equipment and machinery
designed to perform automated genetic analysis based on the technology and
procedures inherent in the SNP Kits; and GBA Chips, a system permitting genetic
analysis to be performed at the level of a silicon chip in an effort to further
automate genetic analysis.
At the date of acquisition, none of the products or services under
development by Molecular Tool, Inc. had achieved technical feasibility and none
were being sold on the market. There still remained substantial risks and
significant uncertainty concerning the remaining course of technical
development. Key development risks for this product included validation
testing, engineering of stability into the critical reagents to permit their
use in the field, and developing the means of scaling-up manufacturing of the
reagents and other elements of the product for eventual sale. In the case of
the SNP OEM equipment, development of the analysis machine was largely complete
but was still expected to face engineering challenges before ultimate
completion and approval. The GBA Chip was at a somewhat earlier stage of
technical completion, facing a different set of technical challenges. An
overall risk facing these projects was the potential development of competing
technologies to facilitate cost reduction in genetic assays before the
Molecular Tool products would even reach the market.
Because of the great uncertainty associated with these issues, and both the
uncertainty and remaining effort associated with development for these
products, the Molecular Tool development projects had not established
technological feasibility at the acquisition date.
The estimated value of all acquired intangible assets including the acquired
development projects were determined. Other identified intangibles included
patents, the assembled workforce (principally research and development
personnel), and the core technology of Molecular Tool associated with Genetic
Bit Analysis and single neucleotide polymorphisms.
The value of the acquired in-process research and development projects were
determined by projecting expected completion costs for the development projects
as well as projected cash flows resulting from their
F-12
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
commercialization. In the development of projected cash flows a completion
percentage of 60.0% was employed in the calculation of cash flows to be
discounted. The resulting net cash flows implied by this projection were
discounted to present value using an appropriate risk adjusted cost of capital.
This rate was developed by including a risk premium above the return associated
with the valuation of the core technology of Molecular Tool, and above the
observed weighted average costs of capital for comparable companies involved
with the development and sale of similar technologies.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and Molecular Tool as if the
acquisition had occurred as of January 1, 1997, after giving effect to certain
pro forma adjustments, including amortization of goodwill and other
intangibles, increased interest expense from the Company's note payable to
GeneScreen, excluding the related acquired in-process research and development
charge of $2,352,838. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the Company and
Molecular Tool constituted a single entity during this period or the results of
operations which may occur in the future.
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------------
Statement of Operations Data 1997 1998
---------------------------- ----------- -----------
(unaudited)
<S> <C> <C>
Revenues.......................................... $ 4,889,066 $ 3,348,941
Net loss allocable to common stockholders before
non-recurring charge............................. (11,296,644) (10,624,275)
Basic and diluted net loss per share allocable to
common stockholders, before non-recurring
charge........................................... $ (31.37) $ (15.82)
</TABLE>
(3) Acquisition of GeneScreen, Inc.
On December 30, 1999, the Company acquired all of the outstanding shares of
common and preferred stock of GeneScreen in exchange for a stated price of
$18,000,000 which was satisfied by consideration consisting primarily of up to
4,000,000 shares of the Company's Series E with a stated value of $4.50 per
share. The note payable to GeneScreen related to the purchase of the MT assets
in the amount of $3,547,821 (see note 7) and certain other liabilities
totalling $421,000 were also cancelled. The acquisition has been accounted for
by the purchase method and, accordingly, the assets and liabilities acquired
have been recorded at their fair values.
The net purchase price of $14,181,000, including acquisition costs of
approximately $150,000, was allocated as follows:
<TABLE>
<S> <C>
Cash............................................................ $ 1,064,000
Accounts receivable, net........................................ 2,230,000
Other assets.................................................... 624,000
Customer list................................................... 4,210,000
Base technology................................................. 5,580,000
Trademark/tradename............................................. 1,762,000
Other intangibles............................................... 586,000
Goodwill........................................................ 2,402,000
Current debt.................................................... (1,190,000)
Accounts payable and accrued expenses........................... (2,490,000)
Deferred revenue................................................ (172,000)
Long-term debt, less current portion............................ (425,000)
-----------
$14,181,000
===========
</TABLE>
F-13
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
As of December 31, 1999, none of the 4,000,000 shares had been issued. Of
these, shares with a value of $1 million, allocated from the GeneScreen
stockholders on a pro rata basis, will remain in escrow for up to one year to
satisfy any claims by the Company. Also, 518,534 of the 4,000,000 shares, when
issued, will give the holders the rights to force the Company to repurchase
these shares after certain dates falling within one year
from the acquisition date. These repurchase rights expire upon the closing of
an initial public offering of the Company's common stock with gross proceeds of
at least $25 million. Additionally, the Company estimates that approximately
$400,000 will be paid in lieu of issuing Series E shares to satisfy certain
regulatory requirements and to eliminate fractional shares. This equates to
approximately 88,889 shares of Series E, which are not expected to be issued.
At December 31, 1999, 3,911,111 estimated shares remain to be issued which is
recorded as Series E manditorily redeemable convertible preferred stock to be
issued in the consolidated balance sheet.
The results of operations of GeneScreen since its acquisition by the Company
on December 30, 1999 through December 31, 1999 have not been included in the
Company's 1999 consolidated statement of operations as they are not material to
those results of operations. The acquisition of GeneScreen is reflected in the
accompanying consolidated balance sheet as of December 31, 1999.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and GeneScreen as if the
acquisition had occurred as of January 1, 1999, after giving effect to certain
pro forma adjustments, including amortization of goodwill and other
intangibles, decreased interest expense from the cancellation of the Company's
note payable to GeneScreen and elimination of transaction-related costs
incurred by GeneScreen prior to the acquisition. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the Company and GeneScreen constituted a single entity during
this period or the results of operations which may occur in the future.
<TABLE>
<CAPTION>
Year ended
December 31,
1999
------------
(unaudited)
<S> <C>
Revenues........................................................ $ 15,455,515
============
Net loss........................................................ $(25,956,692)
============
Net loss allocable to common stockholders....................... $(70,222,315)
============
Basic and diluted net loss per share allocable to common
stockholders................................................... $ (92.51)
============
</TABLE>
(4) Accounts Receivable and Credit Risks
Accounts receivable are comprised of the following at December 31, 1999:
<TABLE>
<S> <C>
Billed trade receivables......................................... $1,616,533
Unbilled trade receivables....................................... 831,705
----------
2,448,238
Less allowance for doubtful accounts............................. 218,466
----------
Accounts receivable, net......................................... $2,229,772
==========
</TABLE>
Accounts receivable is primarily composed of amounts owed by government
agencies. The Company performs periodic credit evaluations of its customer's
financial condition and generally does not require a deposit from government
agencies or private institutions. The Company believes private pay accounts for
paternity testing represent the most significant credit risk and generally
requires a deposit for all or a portion of the services to be rendered. Credit
losses have consistently been within management's estimates.
F-14
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(5) Equipment and Leasehold Improvements
Equipment and leasehold improvements are comprised of the following at
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Laboratory equipment................................ $1,155,216 $ 4,886,052
Computers........................................... 485,201 721,604
Furniture and fixtures.............................. 229,219 918,378
Leasehold improvements.............................. 299,154 4,271,657
---------- -----------
2,168,790 10,797,691
Less accumulated depreciation....................... (432,136) (1,323,275)
---------- -----------
$1,736,654 $ 9,474,416
========== ===========
</TABLE>
(6) Other Intangibles
Other intangibles are comprised of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Base technology..................................... $3,635,000 $ 9,215,000
Customer list....................................... -- 4,210,000
Trademark/trade name................................ -- 1,762,000
Patents............................................. 1,100,000 1,100,000
Other............................................... 240,000 827,000
---------- -----------
4,975,000 17,114,000
Less accumulated amortization....................... (134,410) (595,243)
---------- -----------
$4,840,590 $16,518,757
========== ===========
</TABLE>
(7) Debt
On September 11, 1998, the Company entered into a subordinated convertible
term note in the amount of $3,547,821 in connection with the MT acquisition.
The note bears interest at 6% per annum and all principal and accrued interest
was due September 11, 2008. On December 30, 1999, the note was cancelled in
connection with the acquisition of GeneScreen, the holder of the note (see
note 3).
In December 1998, the Company entered into a $6,000,000 equipment line of
credit which is secured by the purchased equipment. The funding commitment
terminated in December 1999. All borrowings under the facility are to be
repaid in monthly principal installments plus interest over 48 months from the
date of funding with the final 15% of the original principal amount due in a
balloon payment at the end of loan term. At December 31, 1998 and 1999, $0 and
$4,648,606, respectively, were outstanding under the facility and annual
interest rates on the four draws range from 10.55% to 11.66%. In connection
with this arrangement, 20,894 warrants to purchase common stock were granted
at the time of the borrowings with exercise prices which ranged from $4.50 to
$12.25 per share. The fair value of these warrants of $76,000, as determined
using a Black-Scholes option pricing model, was recorded as debt issuance
costs and is being amortized over the term of the debt.
GeneScreen had outstanding borrowings under a revolving credit agreement of
$1,000,000 at December 31, 1999. On January 20, 2000, the Company repaid the
balance and cancelled the credit facility.
F-15
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Long-term debt is comprised of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Equipment line of credit secured by purchased
equipment........................................... $ -- $4,648,606
Note payable to former employee, due in 16 quarterly
installments of $27,932, commencing January 1, 1999,
and one lump-sum payment of $51,013, due January 1,
1999, net of unamortized discount of $23,030........ -- 312,154
Note payable to employee, due in 12 quarterly
installments of $25,514, commencing January 1, 2000,
net of unamortized discount of $21,037.............. -- 285,131
Convertible note payable to GeneScreen, cancelled in
1999................................................ 3,547,821 --
Other................................................ -- 17,696
---------- ----------
3,547,821 5,263,587
Less current portion................................. -- 1,141,230
---------- ----------
Long-term debt, less current portion................. $3,547,821 $4,122,357
========== ==========
</TABLE>
The scheduled maturities of long-term debt outstanding as of December 31,
1999 are summarized as follows:
<TABLE>
<S> <C>
2000.............................................................. $1,141,230
2001.............................................................. 1,241,000
2002.............................................................. 1,371,000
2003.............................................................. 1,510,357
----------
$5,263,587
==========
</TABLE>
(8) Accrued Liabilities
Accrued liabilities is comprised of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Employee compensation................................ $ 397,066 $1,358,776
Professional fees related to acquisition of
GeneScreen by Orchid................................ -- 679,570
Other professional fees.............................. 98,468 404,107
Employee relocation.................................. 342,901 72,177
Royalties on licensed technology..................... -- 906,107
Other................................................ 170,101 1,456,420
---------- ----------
$1,008,536 $4,877,157
========== ==========
</TABLE>
(9) Income Taxes
No Federal or state taxes are payable as of December 31, 1998 and 1999. As
of December 31, 1999, the Company has approximately $40,000,000 of Federal and
$44,000,000 of state net operating loss ("NOL") carryforwards available to
offset future taxable income. The Federal and state NOL carryforwards will
begin expiring in 2003 if not utilized.
The Tax Reform Act of 1986 ("the Act") provides for a limitation on the
annual use of NOL carryforwards (following certain ownership changes, as
defined by the Act) which could significantly limit the
F-16
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Company's ability to utilize these carryforwards. The Company may have
experienced various ownership changes, as defined by the Act, as a result of
past financings and may experience others in connection with future financings,
including the offering contemplated herein. Accordingly, the Company's ability
to utilize the aforementioned carryforwards may be limited. Additionally,
because U.S. tax laws limit the time during which these carryforwards may be
applied against future taxes, the Company may not be able to take full
advantage of these attributes for Federal income tax purposes.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1999 are presented below:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 6,120,000 $ 16,285,000
Other.............................................. 204,000 1,201,000
----------- ------------
Total gross deferred tax assets.................. 6,324,000 17,486,000
Less valuation allowance........................... (6,289,000) (17,450,000)
----------- ------------
Net deferred tax assets.......................... 35,000 36,000
Deferred tax liabilities:
Depreciation on equipment.......................... 35,000 36,000
----------- ------------
Net deferred taxes............................... $ -- $ --
=========== ============
</TABLE>
At December 31, 1999, a valuation allowance of $17,450,000 has been
recognized to fully offset the net deferred tax assets as realization of these
assets is uncertain. The net change in the valuation allowance for the years
ended December 31, 1998 and 1999 were increases of $1,878,500 and $11,161,000,
respectively, related primarily to additional net operating losses incurred by
the Company.
(10) Segment Information
The Company operates in two segments, each of which are strategic businesses
that are managed separately because each business develops, manufactures and
sells distinct products and services. The segments and a description of their
business are as follows: (i) the Company prior to the acquisition of GeneScreen
("Orchid"), which performs SNP scoring analysis and markets related equipment
and consumables; and (ii) GeneScreen, which performs DNA laboratory analysis
for paternity, transplantation and forensic testing.
The Company evaluates performance of and allocates resources to the
segments. The accounting policies of the segments are substantially the same as
those described in the summary of significant accounting policies, as discussed
in note 1.
Prior to the acquisition of GeneScreen on December 30, 1999, the Company was
operated and managed as one business. Segment assets as of December 31, 1999
for Orchid and GeneScreen amounted to approximately $52,124,000 and
$14,181,000, respectively. No other segment information is presented as the
1999 activity is that of Orchid only.
One related party accounted for 100%, 99% and 0% of total revenue for 1997,
1998 and 1999, respectively.
F-17
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(11) Agreements
In August 1995, the Company entered into an Investment Agreement and a
Development and License Agreement with Sarnoff and SmithKline Beecham ("SB"),
which were amended in 1997 and 1998 (as amended, the "Agreements").
Under the Agreements, Sarnoff granted to the Company a perpetual, royalty-
free, exclusive, worldwide license for certain technology. In addition, Sarnoff
agreed to provide, for a fee, contract research services necessary under the
Agreements to the Company. In consideration for the license, the Company issued
670,000 shares of Series A convertible preferred stock ("Series A") to Sarnoff.
In 1997, 1998 and 1999, Sarnoff provided contract research services of
$5,991,641, $5,186,953 and $930,677, respectively. The Company's office was
also located in the Sarnoff facility until 1998 and Sarnoff provides certain
administrative support, for which the Company paid Sarnoff; expenses related to
these items totalled $114,636, $251,449 and $63,519 in 1997, 1998 and 1999,
respectively. A total of $381,033 and $63,519 is recorded as due to related
party in the accompanying balance sheets at December 31, 1998 and 1999,
respectively, related to these items.
The Company and Sarnoff also issued to SB a license to technology which may
result from this research, subject to certain potential future payments from SB
to allow SB to retain exclusivity. The Company also agreed to sell products
developed under the contract to SB at prices to be determined per the
Agreements. SB also granted to Orchid certain non-exclusive licenses (the
"Licenses") which Orchid may require in conducting research or producing
products developed under the contract.
In accordance with the Agreements, in October 1995, SB purchased 41,667
shares of Series B convertible preferred stock ("Series B") for $800,000. SB
also agreed to provide research and development funding of up to approximately
$16 million for the design and testing of a product for certain applications
and is required to make further payments of up to $8 million upon the
achievement of certain technical milestones. The Company met its first
milestone in 1996 and received a milestone payment of $1.5 million and issued
26,973 shares of Series B to SB. The Company allocated $517,882 of this amount
to the Series B shares, which was the deemed fair value at the time of issuance
and recorded the remaining $982,118 of this milestone payment as contract
revenue. The Company paid $350,000 of this amount to Sarnoff as a milestone
payment. In 1997, SB provided certain advances against the second milestone
payment. Such advances totaled $1,320,000 and was recorded as a milestone
advance at December 31, 1997. In 1998, the Company and SB entered into an
agreement acknowledging that a portion of the second milestone related to this
milestone advance had been accomplished, and was therefore earned and non-
refundable. They also agreed that SB would receive 35,200 shares of Series B,
the number of shares proportionate to the milestone fee earned. Those shares
were issued in 1999. The Company allocated $211,200 of this amount to the
Series B shares, which was the deemed fair value at the time of the agreement
and recorded the remaining $1,108,800 of this milestone payment as contract
revenue. Any future milestone payments are subject to reduction for cost
overruns funded by SB or delays in the timing of the performance of the
milestones and the Company is obligated to pay Sarnoff 10% of any future
milestone payments received. The Company is required to issue a total of up to
96,533 additional shares of Series B for no additional consideration upon the
payment by SB to the Company of these remaining milestones. During 1997, 1998
and 1999 the Company recognized contract revenue from SB of $3,763,000,
$2,747,800 and $0 in the accompanying consolidated statements of operations.
In December 1997, in consideration for an amendment of the Agreements, the
Company issued to SB an additional 75,000 shares of common stock and warrants
to purchase 275,000 shares of common stock at an exercise price of $11.10 per
share. The deemed fair value of the shares of common stock was $168,750, which
was recorded as research and development expense in the accompanying 1997
consolidated statement of
F-18
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
operations. No value was ascribed to the warrants based on the fair value as
determined using a Black-Scholes option pricing model. Warrants to purchase
138,000 shares of common stock became exercisable immediately with the 137,000
remaining warrants vesting upon the payment of the next milestone payment to
the Company. All of these warrants expire in December 2002. Also, the Company
is obligated to issue up to an additional 20,000 shares of common stock to SB
upon the exercise of certain options to acquire additional licenses for
technology under the License and Option Agreement discussed below. As of
December 31, 1998 and 1999, the Company is obligated to issue 5,000 and 10,000
shares (including the 5,000 shares from 1998) of common stock, respectively, to
SB related to the option fields exercised by the Company in 1998 and 1999. The
deemed fair value of these 5,000 shares of common stock in 1998 and 1999 was
$17,500 and $40,000, respectively, and has been recorded as research and
development expense in the accompanying statements of operations. Common stock
to be issued has been recorded in the amounts of $17,500 and $57,000 at
December 31, 1998 and 1999, respectively.
Pursuant to a December 1997 amendment to the Development and License
Agreement, the Company committed to fund $3.5 million of research within the
scope of the original Agreements and $3.0 million outside of the original
scope. Accordingly, as the Company was obligated to incur these costs in
fulfilling the terms of the Agreements without any increase in corresponding
contract revenue, this obligation was recorded as research and development
expense during 1997. The Company fulfilled its obligation and incurred these
costs during 1998.
In December 1997, the Company entered into a License and Option Agreement
("Option Agreement") with Sarnoff under which the Company has options to obtain
exclusive licenses for the use of certain technology in four designated areas.
In addition, the Company obtained non-exclusive and exclusive licenses in a
certain field. In consideration of the licenses obtained under the Option
Agreement, the Company issued to Sarnoff 82,500 shares of common stock, with a
deemed fair value of $185,626 and 167,500 shares of Series A, with a deemed
fair value of $1,289,750, of which both amounts were recorded as research and
development expense in the accompanying 1997 consolidated statement of
operations. The options expire one per year over a four year period with
certain extension provisions as defined in the Option Agreement. Concurrent
with the exercise of each option, the Company is obligated to issue 33,300
shares of common stock and 66,700 shares of Series A to Sarnoff and to fund
research to be performed by Sarnoff at an amount as defined in the contract,
but no less than a total of $5.5 million over 4 years. In both December 1998
and 1999, the Company exercised one of its options under the Option Agreement.
In consideration for the options, the Company issued to Sarnoff 33,300 shares
of common stock in each of 1998 and 1999, with a deemed fair value of $114,885
in 1998 and $266,400 in 1999, and 66,700 shares of Series A in each of 1998 and
1999, with a deemed fair market value of $400,200 in 1998 and $667,000 in 1999,
which amounts were recorded as research and development expense in the
accompanying 1998 and 1999 consolidated statements of operations.
In addition, the Company is obligated to issue an additional 50,000 shares
of common stock to Sarnoff at the end of each year during the term of the
research for each option exercised. Accordingly, the Company issued 50,000
shares of common stock in 1999 to Sarnoff related to the option exercised in
December 1998. The deemed fair value of this stock was $400,000, which was
recorded as research and development expense in the accompanying 1999
consolidated statement of operations. The Company is also required to make
royalty payments as set forth in the Option Agreement on future net sales of
products and services derived from these licenses, if any.
On March 27, 1998, the Company entered into a license agreement with
Motorola, Inc. ("Motorola"). In 1999, Motorola exercised an option to acquire a
license under this agreement, effective January 1, 2000, by making a $100,000
payment. This amount has been recorded as deferred revenue at December 31,
1999. The Company also issued an option to Motorola to purchase up to
$5,000,000 of common stock at a per share
F-19
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
price of the lessor of $33.30 or 110% of the average closing price of the
common stock for the ten days following an initial public offering. No value
was ascribed to the option based on the fair value as determined using a Black-
Scholes option pricing model. The option expired unexercised on December 15,
1999.
On November 11, 1998, the Company entered into a Collaboration Agreement
with Motorola to jointly perform certain research and development activities.
Motorola intended to invest cash or in-kind payments of at least $5 million
over a 30 month period in these activities. Total cash payments of at least
$1.7 million are to be made to the Company for services in support of the
collaboration. Motorola made a payment to the Company in 1998 of $250,000,
which was recorded as deferred revenue as of December 31, 1998 and which was
recognized as revenue in 1999. On October 25, 1999, this agreement was
terminated. In 1999, Motorola made additional payments under this agreement
aggregating $505,000, of which the Company recognized $245,000 as revenue and
$260,000 is recorded as a liability at December 31, 1999 as it relates to work
which will not be performed given the termination of the agreement. The Company
has also accrued approximately $333,000 as a termination fee receivable at
December 31, 1999 and will be reimbursed for certain shutdown costs not to
exceed $178,000. The Company does not expect that shutdown costs will exceed
$178,000.
On April 1, 1998, the Company entered into a license agreement with Dynal
A.S. whereby the Company issued 90,090 shares of common stock for an exclusive
license. The deemed fair value of the stock, $247,748, has been recorded as
research and development expense in the accompanying 1998 consolidated
statement of operations.
In February 1999, the Company and Cytomics, A.S. ("Cytomics") entered into a
Collaborative Research and License Agreement whereby Cytomics will perform
research on the Company's behalf with the Company's financial support and
granted to the Company a non-exclusive, royalty-free, worldwide license for
certain technology. Prior to executing the agreement in February 1999, the
Company made payments to Cytomics of $345,000, for which services were
performed and which was recorded as research and development expense in 1998.
The agreement was terminated, effective June 30, 1999. The Company recorded
research and development expense of $110,000 in 1999.
In September 1998, the Company entered into a Cooperative Agreement with the
National Institute of Standards and Technology ("NIST") to perform certain
research and development. The total amount expected to be provided to the
Company over the three year period of January 1, 1999 through December 31, 2001
is $1,954,000, however no obligation exists for the federal government to
provide any portion of the 2001 funding. Funding in 1999 amounted to $690,000
which was recorded as grant revenue and $602,000 in funding for 2000 has been
approved. The anticipated funding for the year 2001 is $662,000. The award in
1999 was conditional upon the Company's funding of indirect costs aggregating
$319,000 in 1999 which was incurred by the Company. To receive full funding in
2000 and 2001, the Company's funding of indirect costs must aggregate $309,000
and $385,000 in 2000 and 2001, respectively.
On December 31, 1998, the Company entered into a Collaborative Development
and Marketing Agreement with Advanced Bioanalytical Services, Inc. ("ABS"). As
consideration for the research and development to be performed by ABS and the
licensing of certain technology owned by ABS, the Company paid ABS $100,000
upon signing the agreement, which was recorded as research and development
expenses in 1998. In 1999, the Company made payments aggregating $225,000 to
ABS, all of which was recorded as research and development.
In October 1999, the Company entered in a one year license and supply
agreement with a licensee to provide an instrument, consumables and related
support for automated SNP scoring analysis. As consideration for access to
certain technology and an instrument of the Company, the licensee paid
$500,000, which is
F-20
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
refundable on a pro-rata basis upon certain events. The licensee is obligated
to purchase a minimum order of consumables and may elect to purchase the
instrument from the Company. The Company is required to provide technical
support. The licensee may terminate the contract, in which case the Company
would be entitled to a termination fee of $100,000 and to bill the remaining
minimum amount of consumables to the licensee. As of December 31, 1999, the
Company has recognized approximately $104,000 of the license fee and deferred
the remaining $396,000.
On November 5, 1999, the Company entered into a collaboration agreement with
Affymetrix, Inc. ("Affymetrix"), for the Company to develop, manufacture, and
for both parties to market and sell specific products. Each party is
responsible for costs associated with their respective development
responsibilities. The agreement is for an initial term of five years and is
renewable by mutual agreement.
(12) Stock Incentive Plan
During 1995 the Company established the 1995 Stock Incentive Plan (the
"Plan"), which provides for the granting of restricted common stock or
incentive and nonqualified stock options to directors, employees and
consultants. An aggregate of 1,500,000 shares of the Company's common stock is
authorized to be issued under the Plan. The options are exercisable generally
for a period of ten years after the date of grant and generally vest over a
four-year period. The Plan provides that in the event of a "change in control"
as defined, in the beneficial ownership of us, all options may, at the
discretion of the compensation committee become fully vested and exercisable
immediately prior to the change in control. The plan also specifies other terms
such as eligibility and annual limits.
A summary of activity under the Plan is as follows:
<TABLE>
<CAPTION>
Exercise
price
Shares per share
--------- ----------
<S> <C> <C>
Balance at December 31, 1996.......................... 10,292 $ .001
Granted............................................. 211,730 .01--.10
Exercised........................................... (4,117) .001
---------
Balance at December 31, 1997.......................... 217,905 .01--.10
Granted............................................. 418,038 .75--1.25
Exercised........................................... (1,582) 1.25
---------
Balance at December 31, 1998.......................... 634,361 .001--1.25
Granted............................................. 957,529 1.25
Exercised........................................... (35,399) .001--1.25
Cancelled........................................... (93,480) .001--1.25
---------
Balance at December 31, 1999.......................... 1,463,011
=========
</TABLE>
At December 31, 1999, the Plan had the following options outstanding and
exercisable by price range, as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options outstanding Options exercisable
------------------------------------------ ----------------------
<CAPTION>
Weighted Weighted
Weighted average average
average exercise exercise
Range of remaining price Number price
exercise Number contractual (per of per
prices of shares life share) shares share
- -------- --------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$.001-.10 165,980 7.7 years $.013 95,269 $0.01
.75 202,350 8.2 years .75 89,618 .75
1.25 1,094,681 9.6 years 1.25 102,553 1.25
--------- --------- ----- ------- -----
1,463,011 9.2 years 1.04 287,440 .68
========= ========= ===== ======= =====
</TABLE>
F-21
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
The Company applies APB Opinion No. 25 in accounting for its stock option
plan. In 1997, 1998 and 1999, certain employees of the Company were granted
options to acquire 170,130, 322,575 and 870,329 shares of common stock,
respectively. The difference between the deemed fair value for financial
reporting purposes and the respective exercise prices at the grant dates has
been recorded as deferred compensation ($291,700, $308,488 and $4,516,552 for
1997, 1998 and 1999, respectively) which is being amortized to expense over the
respective vesting periods.
Had the Company determined compensation cost for options based on the
minimum value method at the measurement date for its stock options under SFAS
No. 123, the Company's net loss allocable to common stockholders and net loss
per share allocable to common stockholders would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Net loss allocable to common
stockholders:
As reported..................... $(9,927,760) $(11,479,479) $(68,468,441)
=========== ============ ============
Pro forma under SFAS No. 123.... $(9,932,266) $(11,484,871) $(68,682,679)
=========== ============ ============
Basic and diluted net loss per
share allocable to common
stockholders:
As reported..................... $ (27.57) $ (17.09) $ (90.20)
=========== ============ ============
Pro forma under SFAS No. 123.... $ (27.58) $ (17.10) $ (90.48)
=========== ============ ============
</TABLE>
In 1997, 1998 and 1999, the Company granted options to certain non-employees
to purchase 41,600, 95,463 and 87,200 shares of common stock, respectively.
Such options vest over a three or four year period based upon future service
requirements. The Company recorded deferred compensation of $22,862, $129,812
and $1,085,284 for 1997, 1998 and 1999, respectively, based on the fair value
at the grant date as determined using a Black-Scholes option pricing model.
Such deferred compensation is being amortized to expense over the respective
vesting periods. In accordance with EITF Issue 96-18, the amount of
compensation expense to be recorded in future periods related to the 1998 and
1999 grants is subject to change each reporting period based upon changes in
the fair value of the Company's common stock, estimated volatility and risk
free interest rate until the non-employee completes performance under the
option agreement. Additional deferred compensation in the amount of $857,235
was recorded in 1999 related to the remeasurement of the 1998 grants. 146,316
options subject to this treatment remain unvested at December 31, 1999.
The per share weighted-average minimum value of the stock options granted to
employees during 1997, 1998 and 1999 was $1.71, $2.15 and $5.17 per share,
respectively, on the date of grant. The per share weighted-average fair value
of stock options granted to non-employees during 1997, 1998 and 1999 was $.79,
$2.39 and $5.35 per share, respectively, on the date of grant. Such values were
determined using the minimum value method for employees and the Black Scholes
option-pricing model for non-employees with the following weighted-average
assumptions: expected dividend yield 0%; risk free interest rate of 6.5% for
1997, 5.0% for 1998 and 5.0% for 1999; a volatility of 0% for employees and 60%
in 1997, 70% in 1998 and 1999 for non-employees; and an expected option life of
7 years for employees and 10 years for non-employees.
F-22
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(13) Mandatorily Redeemable Convertible Preferred Stock, Convertible Preferred
Stock and Common Stock
On December 24, 1997, the Company completed the sale of 1,101,801 shares of
Series C mandatorily redeemable convertible preferred stock ("Series C"),
through a private placement for $11.10 per share. The Company received cash
proceeds of $9,230,000 in 1997 and recorded a stock subscription receivable of
$3,000,000 at December 31, 1997, which was subsequently received in January
1998. On March 27, 1998, the Company completed the sale of 1,378,375 shares of
Series C, through a private placement, for $11.10 per share.
In May and June 1999, the Company issued an aggregate of $7,590,000 of
convertible subordinated term notes and warrants to purchase 379,500 shares of
the Company's common stock. The note bore interest at prime plus 2%. In
December 1999, the principal plus accrued interest of approximately $436,000
were automatically converted into 1,783,509 shares of Series E. Based upon the
issuance price per share of the Series E and the conversion not occurring until
December 1999, 379,500 additional warrants are to be issued related to these
convertible subordinated term notes. All warrants have an exercise price of
$1.25 per share and are exercisable for five years. The deemed fair value of
the warrants, using a Black Scholes option pricing model, was approximately
$2,548,000 and was recorded as interest expense in 1999.
In November 1999, Affymetrix paid the Company $2,250,000 in consideration
for a convertible promissory note. The note bears interest at the prime rate
plus 2%. In December 1999, on closing of the sale of Series E, the principal
and accrued interest in the amount of $2,276,537 should have automatically
converted into Series E. As the Series E was not issued, the amount is shown as
Series E to be issued at December 31, 1999. In addition, Affymetrix granted the
Company two put options to sell, under certain circumstances, $250,000 of
common stock of the Company at $9.00 per share for each put. In December 1999,
the triggering event for one of the puts occurred, however, the Company has not
exercised its option as of December 31, 1999. These put options expire in
December 2001.
In December 1999, the Company completed the sale of 6,151,451 shares of the
Series E, through a private placement for aggregate net proceeds of
$31,157,818. In connection with this sale, the Company will issue five year
warrants to purchase 83,334 shares of common stock at an exercise price of
$6.00 per share. The Company recorded $604,000 of additional paid-in capital
based on the fair value of these warrants as determined using a Black-Scholes
option pricing model.
The Company has reflected $44,365,000 as a beneficial conversion feature in
the net loss allocable to common stockholders for the Series E mandatorily
redeemable preferred stock issued or issuable in exchange for cash.
The Series A and Series B are not entitled to any dividends. The Series C,
Series D and Series E shall be entitled to receive dividends if and when
declared by the Board of Directors. No dividends were declared in 1997, 1998 or
1999.
On or after December 2002 and 2004, at the request of holders of not less
than 66-2/3 percent of the then outstanding shares of Series C and Series E,
respectively, the Company is required to redeem the outstanding shares of
Series C and Series E of those requesting stockholders at $11.10 and $4.50 per
share, respectively, in three equal annual installments plus any accrued but
unpaid dividends.
The holders of Series A, Series B, Series C, and Series D are entitled to
vote that number of shares of common stock into which each respective share of
preferred stock held by such holder could be converted. Each share of Series A,
Series B, Series C, Series D and Series E is convertible into one share of
common stock, subject to adjustment, (i) at the option of the holder at any
time (prior to any redemption as noted above for the Series C and Series E) or,
(ii) automatically at the closing of a registration statement under the
Securities Act of 1933 for the sale of the Company's common stock with a gross
offering price of at least $15 million for the Series A, Series B and Series D
and for the Series C and Series E both a gross offering price of at least $25
million and a per share price of at least $15, subject to adjustment.
F-23
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Upon liquidation, dissolution or winding up of the Company, the holders of
Series B, Series C and Series E are entitled to liquidation preferences over
all other types of capital stock as follows: $19.20 per share and the Licenses
for the Series B, $11.10 per share plus an amount equal to any declared but
unpaid dividends for the Series C and $4.50 per share plus an amount equal to
any declared but unpaid dividends for the Series E. The Series A stockholder is
entitled to the license originally granted (if Sarnoff continues to own all
Series A), or its fair value in cash as consideration for the Series A shares.
The holders of Series D are entitled to a liquidation preference of $12.25 per
share plus an amount equal to any declared but unpaid dividends, after payment
in full of all amounts required to be distributed to the holders of Series A,
Series B, Series C and Series E. After these liquidation payments, holders of
the common stock and Series C and Series E would share ratably in the remaining
assets of the Company.
In 1997, the Company issued 109,333 shares of restricted common stock to an
executive officer of the Company. The shares vested over a two year period. The
deemed value of this stock was $131,766 which was recorded as deferred
compensation and was amortized to expense over the vesting period.
In 1997 and 1998, the Company issued warrants to purchase 60,000 and 25,000
shares of common stock at $11.10 and $12.25 per share, respectively, to an
executive officer of the Company. The warrants vest based upon specific
performance criteria, which were met for 70,000 warrants by December 31, 1999.
(14) Employee Benefit Plan
Effective January 1, 1999, the Company sponsors a defined contribution
401(k) savings plan (the 401(k) Plan) covering all employees of the Company.
Participants can contribute up to 15% of their pretax annual compensation to
the 401(k) Plan, subject to certain limitations. The Company matches 50% of the
participant's contribution, up to 4% of compensation. For 1999, the Company's
contributions amounted to $119,452 in accordance with the terms of the Plan.
(15) Commitments and Contingencies
The Company leases office and laboratory facilities under noncancellable
operating lease arrangements. Future minimum rental commitments required by
such leases as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000.............................................................. $ 988,000
2001.............................................................. 938,000
2002.............................................................. 783,000
2003.............................................................. 695,000
2004.............................................................. 726,000
2005 and thereafter............................................... 2,904,000
----------
$7,034,000
==========
</TABLE>
Rental expense aggregated $32,518 in 1997, $276,615 in 1998 and $695,115 in
1999.
In certain cases, the Company may be obligated to pay several executives
their salary and benefits for one year after leaving the Company.
Self-Insurance Reserve
GeneScreen is self-insured for the risk of loss relating to certain
litigation claims that might arise from GeneScreen's testing results. However,
due to provisions in certain service contracts, GeneScreen is insured for
claims arising from testing performed under the Texas, Ohio and Arizona
contracts. Insurance coverage began
F-24
<PAGE>
ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
in 1995 for testing under the Texas contract, in 1997 for testing under the
Ohio and Arizona contracts and all other contracts in August 1998. Management
estimates future litigation costs based on historical litigation experience.
The accrued litigation reserve for the self-insured risk at December 31, 1999
was $191,000.
(16) Subsequent Events
Change in Authorized Shares
In January 2000, the Company amended its Certificate of Incorporation to
change the authorized number of shares as follows: Common stock to 30,000,000
shares and Series E convertible preferred stock to 19,000,000 shares.
Sale of Convertible Preferred Stock
In January 2000, the Company completed the sale of 5,971,903 shares of
Series E for net proceeds of $29,573,564. The issuance of these securities will
result in a significant beneficial conversion feature which will increase net
loss per share allocable to common stockholders in the first quarter of 2000.
The Company also issued 1,040,341 shares of Series E related to the conversion
of the Affymetrix convertible promissory note (see note 13) and for cash
received by December 31, 1999 for which shares were not issued, and which was
included in Series E to be issued at December 31, 1999.
Stock Option Grants
On February 2, 2000, the Company granted 1,633,400, 39,750 and 39,750 stock
options under the Plan at exercise prices of $6, $12 and at the per share price
of the offering contemplated herein, respectively, for which a substantial
compensation charge will be recognized over the respective vesting periods of
the options.
Initial Public Offering
On February 11, 2000, the Board of Directors authorized the filing of a
registration statement with the SEC for the sale of shares of common stock. If
the offering is consummated under the terms presently anticipated, all shares
of Series A, B, and E stock outstanding as of the closing date of the Offering
will automatically convert into shares of common stock on a one-for-one basis.
The 2,480,176 shares outstanding of Series C will convert into 4,738,395 shares
of common stock. No dividends will be payable on any of the Series A, B, C, or
E.
Change in Authorized Shares
On February 11, 2000, the Board of Directors approved filing a restated
certificate of incorporation effective upon the closing of the offering
contemplated herein which would increase the authorized shares of common stock
to 50,000,000 shares, all existing preferred stock designations will be revoked
and 5,000,000 shares of preferred stock will be authorized.
2000 Employee, Director and Consultant Stock Incentive Plan
On February 11, 2000, the Board of Directors approved, subject to
stockholder approval, the 2000 Employee, Director and Consultant Stock
Incentive Plan for the issuance of common stock, incentive stock options and
non-qualified stock options to employees, directors and consultants. The Board
of Directors also authorized the granting of up to a total of 5,000,000 options
under this plan and the 1995 Stock Incentive Plan.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GeneScreen, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of GeneScreen,
Inc. and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GeneScreen,
Inc. and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Dallas, Texas
February 19, 1999
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GeneScreen, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of GeneScreen,
Inc. and subsidiaries as of December 29, 1999, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
the period from January 1, 1999 to December 29, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GeneScreen,
Inc. and subsidiaries as of December 29, 1999, and the results of their
operations and their cash flows for the period from January 1, 1999 to December
29, 1999 in conformity with generally accepted accounting principles.
KPMG LLP
Princeton, New Jersey
January 21, 2000
F-27
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and December 29, 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash (including $400,000 of restricted cash at
December 29, 1999)................................ $ 1,873,302 $ 938,411
Accounts receivable, net........................... 3,160,988 2,355,763
Laboratory materials and supplies.................. 413,792 304,938
Escrow receivable.................................. 380,000 --
Prepaid expenses and other current assets.......... 42,221 57,743
----------- -----------
Total current assets............................. 5,870,303 3,656,855
Property and equipment, net.......................... 574,637 382,563
Note receivable...................................... 3,547,821 3,547,821
Other assets......................................... 111,297 47,920
----------- -----------
Total assets..................................... $10,104,058 $ 7,635,159
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Note payable--bank................................. $ 1,130,000 $ 1,000,000
Current portion of long-term debt.................. 1,309,714 190,352
Accounts payable................................... 1,307,540 541,226
Accrued liabilities................................ 1,197,382 1,949,135
Deferred revenue................................... 194,727 171,505
----------- -----------
Total current liabilities........................ 5,139,363 3,852,218
Long-term debt, less current portion................. 328,819 424,628
Deferred gain on sale of Molecular Tool.............. 3,927,821 3,570,646
----------- -----------
Total liabilities................................ 9,396,003 7,847,492
Stockholders' equity (deficit):
Convertible preferred stock, Series A, $.05 par
value; 350,000 shares authorized, issued and
outstanding (liquidation preference of $1,423,443
at December 29, 1999)............................. 17,500 17,500
Convertible preferred stock, Series B, $.05 par
value; 700,000 shares authorized; 691,723 shares
issued and outstanding (liquidation preference of
$2,964,630 at December 29, 1999).................. 34,586 34,586
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,620,493 and 2,804,239 shares issued
and outstanding at December 31, 1998 and December
29, 1999, respectively............................ 26,205 28,042
Additional paid-in capital......................... 7,695,716 8,896,451
Treasury stock--53 common shares, at cost.......... (22) (22)
Notes receivable--stockholders..................... (36,563) --
Accumulated deficit................................ (7,029,367) (9,188,890)
----------- -----------
Total stockholders' equity (deficit)............. 708,055 (212,333)
Commitments and contingencies........................
----------- -----------
Total liabilities and stockholders' equity
(deficit)....................................... $10,104,058 $ 7,635,159
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, 1998 and period
from January 1, 1999 to December 29, 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Revenues:
Laboratory testing.................................. $15,254,566 $13,662,510
----------- -----------
Operating expenses:
Cost of laboratory testing revenue.................. 12,075,396 9,034,730
Compensation expense from equity issuances.......... -- 964,334
General and administrative.......................... 4,953,158 5,922,537
Research and development............................ 84,843 97,909
----------- -----------
Total operating expenses.......................... 17,113,397 16,019,510
----------- -----------
Operating loss.................................... (1,858,831) (2,357,000)
Other expense:
Interest expense.................................... (208,858) (159,698)
----------- -----------
Loss from continuing operations................... (2,067,689) (2,516,698)
----------- -----------
Discontinued operations:
Loss on discontinued operations of Molecular Tool... (939,864) --
Gain on sale of Molecular Tool, net of tax.......... 2,277,476 357,175
----------- -----------
Total discontinued operations..................... 1,337,612 357,175
----------- -----------
Net loss.......................................... $ (730,077) $(2,159,523)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Year ended December 31, 1998 and period
from January 1, 1999 to December 29, 1999
<TABLE>
<CAPTION>
Convertible preferred stock
-------------------------------
Series A Series B Common stock
--------------- --------------- -----------------
Number Number Number Additional Notes
of of of paid-in Treasury receivable - Accumulated
shares Amount shares Amount shares Amount capital stock stockholders deficit Total
------- ------- ------- ------- --------- ------- ---------- -------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1997............ 350,000 $17,500 691,723 $34,586 2,619,497 $26,195 7,695,409 (22) (85,317) (6,299,290) 1,389,061
Exercise of
common stock
options......... -- -- -- -- 996 10 307 -- -- -- 317
Cancellation of
note receivable
from
stockholder..... -- -- -- -- -- -- -- -- 48,754 -- 48,754
Net loss........ -- -- -- -- -- -- -- -- -- (730,077) (730,077)
------- ------- ------- ------- --------- ------- --------- --- ------- ---------- ----------
Balance,
December 31,
1998............ 350,000 $17,500 691,723 $34,586 2,620,493 $26,205 7,695,716 (22) (36,563) (7,029,367) 708,055
Exercise of
common stock
options......... -- -- -- -- 136,736 1,367 40,839 -- -- -- 42,206
Cancellation of
note receivable
from
stockholder..... -- -- -- -- -- -- -- -- 36,563 -- 36,563
Common stock
issued in
exchange for
consulting
services........ -- -- -- -- 47,010 470 195,562 -- -- -- 196,032
Net loss........ -- -- -- -- -- -- -- -- -- (2,159,523) (2,159,523)
Accelerated
vesting and
cashless
exercise of
common stock
options......... -- -- -- -- -- -- 964,334 -- -- -- 964,334
------- ------- ------- ------- --------- ------- --------- --- ------- ---------- ----------
Balance,
December 29,
1999............ 350,000 $17,500 691,723 $34,586 2,804,239 $28,042 8,896,451 (22) -- (9,188,890) (212,333)
======= ======= ======= ======= ========= ======= ========= === ======= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 1998 and period
from January 1, 1999 to December 29, 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (730,077) $(2,159,523)
Adjustments to reconcile net loss to net cash
provided by
(used in) in operating activities:
Gain on sale of Molecular Tool................... (2,277,476) (357,175)
Depreciation and amortization.................... 465,622 384,309
Non-cash employee compensation................... 510,959 327,750
Common stock issued in exchange for consulting
services........................................ -- 196,032
Non-cash compensation on accelerated vesting and
cashless exercise of common stock options....... -- 964,334
Loss on disposal of property and equipment....... -- 59,566
Changes in assets and liabilities:
Accounts receivable............................ (909,975) 805,225
Laboratory materials and supplies.............. (79,162) 108,854
Prepaid expenses and other current assets...... (51,637) 1,247
Accounts payable............................... 102,954 (766,314)
Accrued liabilities............................ 595,848 751,753
Deferred revenue............................... 51,810 (23,222)
Discontinued operations items, net............. 756,969 --
----------- -----------
Net cash provided by (used in) operating
activities.................................. (1,564,165) 292,836
----------- -----------
Cash flows from investing activities:
Additions to property and equipment................ (107,632) (188,424)
Proceeds from sale of Molecular Tool............... 2,506,807 357,175
Advances to Molecular Tool......................... (277,819) --
----------- -----------
Net cash provided by investing activities.... 2,121,356 168,751
----------- -----------
Cash flows from financing activities:
Borrowings (net payments) under line of credit..... 130,000 (130,000)
Borrowings from stockholders....................... 863,526 --
Borrowings from Lifecodes.......................... 300,000 --
Payments on long-term obligations.................. -- (1,308,684)
Exercise of common stock options................... 317 42,206
----------- -----------
Net cash provided by (used in) financing
activities.................................. 1,293,843 (1,396,478)
----------- -----------
Net increase (decrease) in cash...................... 1,851,034 (934,891)
Cash at beginning of year............................ 22,268 1,873,302
----------- -----------
Cash at end of year.................................. $ 1,873,302 $ 938,411
=========== ===========
Supplemental disclosure of cash flow information:
Cash payments during the period for:
Interest......................................... $ 112,389 $ 314,164
Income taxes..................................... 38,821 245,000
=========== ===========
Supplemental disclosure of non-cash financing activi-
ties:
Notes payable issued and notes receivable cancelled
in exchange
for employee severance and settlement agreements.. $ 510,959 $ 327,750
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and December 29, 1999
(1) Summary of Significant Accounting Policies
Organization and Business Activities
GeneScreen, Inc. ("GeneScreen" or the "Company") operates genetic testing
laboratories in Dallas, Texas; Dayton, Ohio (acquired in 1992); and Sacramento,
California (acquired in 1994). GeneScreen performs paternity testing, forensic
identification testing to assist in criminal investigations and medical genetic
testing using technologies developed at the University of Texas Southwestern
Medical Center and other medical research facilities. GeneScreen's primary
sources of revenue represent paternity testing under contracts with several
state government agencies and genetic testing under grants from the National
Marrow Donor Program.
On September 11, 1998, the Company sold the assets of its Molecular Tool
("MTool") division to Orchid BioSciences, Inc. ("Orchid") (see Note 2). Prior
to this sale, MTool performed research and development activities for third
parties under contract and for its own account and developed and patented a
proprietary technology called genetic bit analysis ("GBA(R)") for the analysis
of DNA.
GeneScreen was acquired by Orchid on December 30, 1999 (see Note 11).
Consolidated Financial Statements
The consolidated financial statements include the accounts of GeneScreen and
its wholly owned subsidiaries. Significant intercompany balances and
transactions are eliminated in consolidation.
Use of Estimates
Financial statement preparation requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Laboratory Materials and Supplies
Laboratory materials and supplies are stated at the lower of cost or market.
Cost is determined by the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation on equipment is
calculated on the straight-line method over the estimated useful lives of the
assets, which range from two to seven years. Leasehold improvements are
amortized straight line over the shorter of the lease term or estimated useful
life of the asset.
Financial Instruments
Financial instruments consist of cash, accounts and notes receivable,
payables and notes payable, the carrying value of which approximate their fair
values due to their short maturities or current interest rates.
Revenue Recognition
Revenue is recognized on a percentage-of-completion basis. Percentage of
completion for tests in process is estimated by relating labor and supplies
costs expended to date to expected total labor and supplies costs.
F-32
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and December 29, 1999
Deferred revenue represents the unearned portion of payments received in
advance related to tests in process. Unbilled receivables represent revenue
which has been earned under the percentage of completion method, but has not
been billed to the customer.
Research and Development and Advertising
Costs incurred for research and product development and advertising are
expensed as incurred. The results of operations for the MTool research and
development facility sold during 1998 are reported as discontinued operations
(see note 2). Advertising costs totalled $131,237 and $47,262 in 1998 and 1999,
respectively.
Stock-based Compensation
The Company accounts for its stock-based compensation to employees in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, deferred compensation is recorded on the date of
issuance or grant as the excess of the fair value of the underlying stock over
the purchase or exercise price. Any deferred compensation is amortized over the
respective vesting periods of the equity instruments, if any. The Company has
adopted the disclosure provisions of Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation",
which permits entities to provide pro forma net income (loss) disclosures for
stock-based compensation as if the minimum value method defined in SFAS No. 123
had been applied. As required by SFAS No. 123, transactions with non-employees,
in which goods or services are the consideration received for the issuance of
equity instruments, are accounted for under the fair value based method.
Income Taxes
The Company accounts for income taxes in accordance with the asset and
liability method prescribed by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using tax rates in effect for
the years in which the differences are expected to reverse. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance for any
tax benefits which are not expected to be realized. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period
that such tax rate changes are enacted.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of", the Company reviews
long-lived assets, certain identifiable intangibles and goodwill for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to the
undiscounted future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to dispose.
Reclassifications
Certain reclassifications have been made in the 1998 consolidated financial
statements to conform to the 1999 presentation.
F-33
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and December 29, 1999
(2) Discontinued Operations of Molecular Tool, Inc.
In May 1998, the Board of Directors approved a plan to sell the MTool
assets, except that the Company retained certain rights to the GBA(R)
technology of MTool to permit the Company to continue implementation of the
GBA(R) testing processes.
In September 1998, the MTool assets were acquired by Orchid. GeneScreen
received $2,806,807 in cash and $3,547,821 in a subordinated convertible note
receivable, and $380,000 was placed in escrow.
The escrow was to be released to GeneScreen by Orchid upon approval by
certain Federal regulatory agencies of Orchid as a valid recipient of
outstanding MTool grant funds and totaled $380,000 and $0 at December 31, 1998
and December 29, 1999. The note receivable of $3,547,821, bears interest at 6%
annually, and is due on September 11, 2008. As part of this agreement,
GeneScreen retained a lien on the existing MTool patents until settlement of
this note has occurred. This note was cancelled in the acquisition of
GeneScreen by Orchid (see note 11).
This sale resulted in a gain for the Company of $6,205,297. Of this amount,
$3,927,821, which is equal to the convertible note receivable plus the escrow,
was deferred at December 31, 1998, until the respective settlements of these
items occur. The convertible note receivable was cancelled as part of the
acquisition by Orchid (see note 11) and the escrow funds of $380,000 were
received in 1999 and $357,175 was recorded as a gain, net of tax.
The accompanying consolidated financial statements include the Company's
investment in MTool on the equity basis and MTool's operations as discontinued
operations. The Company's investment, on the equity basis, in the net assets of
MTool at the time of the sale on September 11, 1998 was determined as follows:
<TABLE>
<S> <C>
Current assets..................................................... $156,858
Property and equipment............................................. 69,402
Intangible assets.................................................. 399,919
Liabilities (reduced by $1,335 in cash)............................ (396,848)
--------
Basis in MTool assets.............................................. $229,331
========
</TABLE>
Revenues and expenses for the MTool research and development facility for
the period from January 1, 1998 to September 11, 1998, are as follows:
<TABLE>
<S> <C>
Research and development revenue................................ $ 567,989
Operating expenses:
Cost of revenue............................................... 666,174
General and administrative.................................... 490,539
Patent legal fees............................................. 218,572
Depreciation and amortization................................. 199,421
----------
Total operating expenses...................................... 1,574,706
Other income.................................................... 66,853
----------
Net loss...................................................... $ (939,864)
==========
</TABLE>
Interest expense was not allocated to these discontinued operations.
F-34
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and December 29, 1999
(3) Accounts Receivable and Credit Risks
Accounts receivable at December 31, 1998 and December 29, 1999, consist of
the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Billed trade receivables.............................. $2,351,255 $1,742,524
Unbilled receivables on tests completed............... 743,608 742,663
Unbilled receivables on tests in process.............. 171,318 89,042
---------- ----------
3,266,181 2,574,229
Less allowance for doubtful accounts.................. 105,193 218,466
---------- ----------
Accounts receivable, net............................ $3,160,988 $2,355,763
========== ==========
</TABLE>
GeneScreen's accounts receivable is primarily composed of amounts owed by
government agencies. GeneScreen performs periodic credit evaluations of its
customer's financial condition and generally does not require a deposit from
government agencies or private institutions. GeneScreen believes private pay
accounts for paternity testing represent the most significant credit risk and
generally requires a deposit for all or a portion of the services to be
rendered. Credit losses have consistently been within management's estimates.
(4) Property and Equipment
Property and equipment at December 31, 1998 and December 29, 1999 consist of
the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Laboratory and office equipment....................... $1,972,554 $1,950,268
Leasehold improvements................................ 151,955 151,955
---------- ----------
2,124,509 2,102,223
Less accumulated depreciation and amortization........ 1,549,872 1,719,660
---------- ----------
$ 574,637 $ 382,563
========== ==========
</TABLE>
(5) Credit Facility and Debt
On November 30, 1999, the Company amended its revolving credit agreement.
Borrowings are available under this agreement for up to $1,000,000. The note
bears interest at prime plus 2% (10.5% at December 29, 1999) payable monthly,
and is collateralized by $400,000 of pledged cash and cash equivalents on
deposit at the financial institution. The note is also secured by the tangible
and intangible assets of the Company. The Company had outstanding borrowings
under its revolving credit agreement of $1,130,000 and $1,000,000 at December
31, 1998 and December 29, 1999, respectively. On January 20, 2000, the
$1,000,000 was repaid.
F-35
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and December 29, 1999
Long-term debt at December 31, 1998 and December 29, 1999, consist of the
following:
<TABLE>
<CAPTION>
1998 1999
--------- --------
<S> <C> <C>
Note payable to former employee, due in 16 quarterly
installments of $27,932, commencing January 1, 1999,
and one lump-sum payment of $51,013, due January 1,
1999, net of unamortized discount of $39,583 and
$23,030 at December 31, 1998 and December 29, 1999,
respectively.......................................... $ 458,342 $312,154
Note payable to employee, due in 12 quarterly
installments of $25,514, commencing January 1, 2000,
net of unamortized discount of $21,037 at December 29,
1999.................................................. -- 285,131
Note payable to stockholders due April 30, 1999,
bearing interest at 18%............................... 863,526 --
Note payable to Lifecodes Corporation, due February 28,
1999, bearing interest at prime rate.................. 300,000 --
Other.................................................. 16,665 17,695
--------- --------
1,638,533 614,980
Less current portion................................... 1,309,714 190,352
--------- --------
Long-term debt, less current portion................. $ 328,819 $424,628
========= ========
</TABLE>
(6) Accrued Liabilities
Accrued liabilities at December 31, 1998 and December 29, 1999 consist of
the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Employee compensation................................. $ 239,597 $ 42,913
Professional fees for transaction with Orchid......... -- 529,375
Self-insurance reserve................................ 125,211 191,000
Royalties on licensed technology...................... 114,769 906,107
State income taxes payable............................ 300,000 30,226
Other................................................. 417,805 249,514
---------- ----------
$1,197,382 $1,949,135
========== ==========
</TABLE>
(7) Income Taxes
As of December 29, 1999, the Company has approximately $5,074,000 of Federal
and $2,261,000 of state net operating loss ("NOL") carryforwards available to
offset future taxable income. The Federal and state NOL carryforwards will
begin expiring in 2003 and 2002, respectively, if not utilized.
The Tax Reform Act of 1986 ("the Act") provides for a limitation on the
annual use of NOL carryforwards (following certain ownership changes, as
defined by the Act) which could significantly limit the Company's ability to
utilize these carryforwards. The Company has experienced various ownership
changes, as defined by the Act, as a result of past financings and the
acquisition by Orchid (see note 11). Accordingly, the Company's ability to
utilize the aforementioned carryforwards may be limited. Additionally, because
U.S. tax laws limit the time during which these carryforwards may be applied
against future taxes, the Company may not be able to take full advantage of
these attributes for Federal income tax purposes.
F-36
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and December 29, 1999
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities, consist of the following
at December 31, 1998 and December 29, 1999:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Current:
Allowances and accruals, not currently
deductible.................................... $ 190,884 $ 165,862
Less valuation allowance....................... (190,884) (165,862)
----------- -----------
$ -- $ --
=========== ===========
Long-term:
Net operating loss carryforward................ 899,251 2,033,358
Depreciation and amortization, not currently
deductible.................................... 384,967 164,254
Allowances and accruals, not currently
deductible.................................... 10,888 199,511
Deferred gain on sale of MTool, currently
taxable....................................... 847,695 434,353
Other.......................................... (29,093) (13,991)
----------- -----------
2,113,708 2,817,485
Less valuation allowance....................... (2,113,708) (2,817,485)
----------- -----------
Net deferred taxes........................... $ -- $ --
=========== ===========
</TABLE>
At December 29, 1999, a valuation of allowance of $2,983,347 has been
recognized to fully offset the deferred tax assets as it is more likely than
not that these assets will not be realized. The change in the valuation
allowance in 1998 and 1999 were increases of $504,253 and $678,755,
respectively, related primarily to additional net operating losses incurred by
the Company.
(8) Stockholders' Equity (Deficit)
Preferred Stock
The Company is authorized to issue a total of 5,000,000 shares of various
series of preferred stock. The Series A and Series B preferred stocks are
convertible into common stock on a 1-for-1 basis, subject to adjustment for
dilution, are entitled to vote with common stock on the basis of common shares
into which they are convertible, and provide for noncumulative annual dividends
at rates of $.20 and $.26 per share, respectively, when and if declared.
The Series A and Series B preferred stocks may be redeemed in whole or in
part, at the Company's option, at any time beginning after March 31, 1999 and
January 31, 2003, respectively. The per share redemption price for Series A is
$2.50 plus approximately $.20 for each year outstanding since February 1992.
The per share redemption price for Series B is $3.28 plus approximately $.02
for each month outstanding since February 1996. For both series, the
liquidation value is computed in the same manner as the redemption price. The
Series A and Series B preferred stocks have a liquidation preference over
common stock.
All shares of the Series A and Series B preferred stocks will automatically
convert to common stock upon the sale of the Company's common stock in a public
offering, subject to certain offering criteria. At December 29, 1999, the
Company has reserved approximately 1,050,000 shares of common stock for
issuance upon conversion of all preferred stock (see note 11).
F-37
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and December 29, 1999
Common Stock
During 1999, a member of GeneScreen's Board of Directors provided
consulting services to the Company in exchange for total consideration of
$289,277, consisting of $93,245 in cash and 47,010 shares of common stock
valued at $196,032.
Notes Receivable from Stockholders
Warrants to purchase 50,000 shares of common stock at $2.50 per share were
exercised by two employees in 1996 in exchange for notes receivables totaling
$125,000, which were shown as a reduction of stockholders' equity. During
1997, the Company received payments of $39,683. In 1998, $48,754 was canceled
pursuant to the severance agreement with one of the employees. During 1999,
the remaining outstanding balance of $36,563 was cancelled pursuant to the
settlement agreement with the other employee (see note 10).
(9) Stock Option Plan
Under the Stock Option Plan (the "Plan"), options to purchase up to 686,667
shares of common stock may be granted to certain key employees and officers of
the Company. Options are exercisable immediately and expire no later than ten
years from the date of grant. The Board may determine the individuals to whom
and the time at which options shall be granted and the number of shares of
common stock covered by each option. The exercise price per share will be
determined by the Board but may not be less than 85% of the fair value of the
common stock on the date of grant. Common stock issued related to the options
is subject to repurchase by GeneScreen upon termination of employment. The
percentage of stock eligible for repurchase will decrease ratably over a
period varying from three to five years from the date of grant. Options for
stock no longer eligible for repurchase are considered fully vested (see note
11).
The following is a summary of the Plan's activity for the periods shown:
<TABLE>
<CAPTION>
Weighted average
exercise price
Number of shares per share
-------------------- -----------------
1998 1999 1998 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Options outstanding, beginning of
period........................... 577,677 511,079 $ .45 $ .41
Granted......................... 40,000 172,500 .80 .80
Exercised....................... (996) (136,736) .32 .31
Terminated...................... (105,602) (22,396) .79 .59
--------- ---------
Options outstanding, end of
period........................... 511,079 524,447 .41 .55
========= =========
</TABLE>
The following table summarizes information for options outstanding and
vested at December 29, 1999:
<TABLE>
<CAPTION>
Options outstanding Options vested
---------------------------------------- ------------------------
Weighted
average Weighted Weighted
Range of remaining average average
exercise Number of contractual exercise Number of exercise
prices shares life price shares price
-------- --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$.12 167,747 1.7 $.12 167,747 $.12
.25 20,000 2.5 .25 20,000 .25
.50 14,600 4.0 .50 14,600 .50
.80 322,100 7.9 .80 107,075 .80
------- -------
524,447 5.6 .55 309,422 .38
======= =======
</TABLE>
F-38
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and December 29, 1999
Immediately prior to Orchid's acquisition of the Company, all unvested stock
options were subject to accelerated vesting and all outstanding options were
exercised (on a cashless basis) for shares of GeneScreen common stock,
resulting in compensation expense of $964,334, which is reflected in the
consolidated statements of operations for 1999.
The Company applies the provisions of APB No. 25 and related interpretations
in accounting for its stock option plan. No compensation cost has been
recognized for its stock option plan, since the fair market value of the common
stock at the date of grant was not in excess of the option exercise price. Had
compensation cost for the Company's stock option plan been determined based on
the minimum value of the options at the grant dates consistent with the method
prescribed by SFAS No. 123, the Company's pro forma net loss would have been
$733,000 and $2,199,198 in 1998 and 1999, respectively.
In the pro forma calculations, the weighted average minimum value of options
granted in 1998 and 1999 was estimated at $.21 and $.23, respectively. The
minimum value of each option grant is estimated on the date of grant using the
minimum value method with the following weighted average assumptions used for
grants in 1998 and 1999: risk free interest rate of 5.1% and 5.6% in 1998 and
1999, respectively; expected lives of six years; no dividend yield; and no
expected volatility (because the Company's stock is not publicly traded).
(10) Commitments and Contingencies
Leases
The Company leases its facilities under noncancellable operating leases with
options to renew. Future minimum rental payments as of December 29, 1999, are
as follows:
<TABLE>
<S> <C>
2000................................................................ $292,527
2001................................................................ 242,984
2002................................................................ 87,861
--------
$623,372
========
</TABLE>
Rent expense in 1998 and 1999 was $295,258 and $322,270, respectively.
Self-Insurance Reserve
The Company is self-insured for the risk of loss relating to certain
litigation claims that might arise from the Company's testing results. However,
due to provisions in certain service contracts, the Company is insured for
claims arising from testing performed under the Texas, Ohio and Arizona
contracts. Insurance coverage began in 1995 for testing under the Texas
contract, in 1997 for testing under the Ohio and Arizona contracts and all
other contracts in August 1998. Management estimates future litigation costs
based on historical litigation experience. The accrued litigation reserve for
the self-insured risk at December 31, 1998 and December 29, 1999 was $125,211
and $191,000, respectively.
Employment Contracts
Under a 1992 employment contract, the Company was contingently liable to one
individual through December 31, 2001, for minimum payments in the event of
involuntary termination or death of this individual. In 1999, the Company
agreed to a settlement agreement with the employee with a net cost of $327,750,
which
F-39
<PAGE>
GENESCREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and December 29, 1999
includes cancellation of a note receivable from the employee for $36,563 plus
accrued interest of $6,056 (see note 8). The settlement is payable in quarterly
installments over three years, the total of which has been recorded at a
discounted amount of $285,131 plus interest of $21,037 (see note 5).
Until 1998, the Company was contingently liable to another employee under
similar contract conditions. This employee retired effective December 31, 1998,
and the Company agreed to a total severance cost of $550,542, which is payable
as follows: cancellation of a note receivable due from the employee for $48,754
plus accrued interest of $3,863 (see note 8) and payment of the balance of his
contract in quarterly installments over four years, the total of which has been
recorded at a discounted amount of $458,342 plus interest of $39,583 (see note
5).
(11) Acquisition of GeneScreen by Orchid
On December 30, 1999, Orchid acquired all of the outstanding shares of
common and preferred stock of GeneScreen in exchange for a stated price of
$18,000,000 which was satisfied by consideration consisting primarily of Orchid
Series E convertible preferred stock ("Series E") with a stated value of $4.50
per share (see note 9). The Company estimates that approximately $400,000 will
be paid in lieu of issuing Series E shares to satisfy certain regulatory
requirements and eliminate fractional shares. This equates to approximately
88,889 shares of Series E, which are not expected to be issued. Also, as part
of the acquisition, the note receivable from Orchid of $3,547,821 was
cancelled. GeneScreen incurred costs totaling $902,490 for fees to outside
advisors related to this transaction which are included in general and
administrative expenses in the 1999 consolidated statements of operations.
Amounts included in the accompanying consolidated financial statements are
stated on a historical cost basis and do not reflect any fair value adjustments
which might result from the application of purchase accounting as a result of
the acquisition of the Company by Orchid.
F-40
<PAGE>
[Description of our objective and the four major strategies of it as discussed
in the "Business and Commercialization Strategy".]
<PAGE>
[corporate logo]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the estimated underwriting discounts
and commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee................................................. $
NASD filing fee......................................................
Nasdaq National Market listing fee...................................
Blue Sky fees and expenses...........................................
Transfer Agent and Registrar fees....................................
Accounting fees and expenses.........................................
Legal fees and expenses..............................................
Printing and mailing expenses........................................
Miscellaneous........................................................
---
Total.............................................................. $
===
</TABLE>
Item 14. Indemnification of Directors and Officers
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
II-1
<PAGE>
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive,
and provides that in the event that the Delaware General Corporation Law is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the fullest extent permitted by such
law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1 hereto.
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order is information regarding shares of common
stock issued, options granted and warrants granted by the Registrant in the
three years preceding the filing of this Registration Statement. Further
included is the consideration, if any, received by the Registrant for such
shares and options and information relating to the section of the Securities
Act of 1933, as amended (the "Securities Act"), or rule of the Securities and
Exchange Commission under which exemption from registration was claimed.
A. Certain Stock Option Grants
The Registrant from time to time has granted stock options to employees and
consultants in reliance upon exemption from registration pursuant to either (1)
Section 4(2) of the Securities Act of 1933 or (2) Rule 701 promulgated under
the Securities Act of 1933. The following table sets forth certain information
regarding such grants:
<TABLE>
<CAPTION>
Average
Number Weighted
of Exercise
Shares Price
------- --------
<S> <C> <C>
February 1, 1997 to January 31, 1998........................... 211,730 $.001
February 1, 1998 to January 31, 1999........................... 418,038 $ .92
February 1, 1999 to January 31, 2000........................... 957,529 $1.25
</TABLE>
B. Issuances of capital stock
1. In December 1997, we entered into a License and Option Agreement with
Sarnoff Corporation, a five percent beneficial stockholder, under which we
received a license under certain technology to research, develop and sell
products and services in the field of combinatorial chemistry and in vitro
diagnostics and options to obtain exclusive licenses for the use of technology
in four designated areas of microfluidics. In consideration of grant of those
licenses, we issued Sarnoff 82,500 shares of our common stock and 167,500
shares of our Series A convertible preferred stock. Concurrent with the
exercise of each option, we are obligated to issue Sarnoff 33,300 shares of our
common stock and 66,700 shares of our Series A convertible preferred stock and
to fund research to be performed by Sarnoff in an amount as defined in the
agreement, but no less than $5.5 million in the aggregate. We exercised one
option in each of December 1998 and 1999. In consideration of the exercise of
each option, we issued Sarnoff 33,300 shares of our common stock and 66,700
shares of our Series A convertible preferred stock in 1998 and in 1999. In
connection with this agreement we also issued SmithKline Beecham an aggregate
of 75,000 shares of our common stock.
II-2
<PAGE>
2. From December 23, 1997 through March 27, 1998, we sold approximately
2,480,176 shares of our Series C convertible preferred stock in a private
placement to sixteen accredited investors for an aggregate purchase price of
$27,500,000.
3. On April 1, 1998, in connection with the consummation of a License
Agreement with Dynal A.S., we issued 90,090 shares of our common stock to Dynal
at an aggregate purchase price of $1,000,000.
4. On December 10, 1998, in connection with the exercise of options under
our License and Option Agreement with Sarnoff Corporation, we issued Sarnoff an
aggregate of 33,300 shares of our common stock and 66,700 shares of our Series
A convertible preferred stock. In connection with the exercise of one of the
options under this agreement, we also issued SmithKline Beecham an aggregate of
35,200 shares of our Series B convertible preferred stock.
5. In June 1999, we consummated a bridge financing in which we issued
subordinated convertible term notes in the aggregate principal amount of
$7,590,000 and warrants to purchase 379,500 shares of our common stock to
twelve accredited investors. The aggregate principal amount of these notes, and
all accrued interest thereon, automatically converted into 1,916,849 shares of
our Series E convertible preferred stock in December 1999.
6. On November 5, 1999, we consummated a bridge financing in which we issued
a senior convertible promissory note in the original principal amount of
$2,250,000 to Affymetrix, Inc. The aggregate principal amount of this note, and
all accrued interest thereon, was automatically converted into 505,897 shares
of our Series E convertible preferred stock in January 2000. In connection with
the closing of this bridge financing, Affymetrix granted us two put options to
require Affymetrix to purchase an aggregate of approximately 55,555 shares of
common stock at a purchase price of $9.00 per share. The put options are
exercisable by us upon the occurrence of certain triggering events and expire,
if not exercised, on the second anniversary of their issuance.
7. On December 10, 1999, in connection with the exercise of certain options
under our License and Option Agreement with Sarnoff Corporation, we issued
Sarnoff an aggregate of 83,300 shares of our common stock and 66,700 shares of
our Series A convertible preferred stock. In connection with the agreement, we
also issued SmithKline Beecham an aggregate of 35,200 shares of our Series B
convertible preferred stock.
8. On December 22, 1999, in connection with the consummation of the Series E
private placement and pursuant to the terms of the June 1999 bridge financing,
we issued the investors in the bridge financing additional warrants to purchase
382,410 shares of our common stock.
9. From December 22, 1999 through January 27, 2000, we sold an aggregate of
19,000,000 shares of our Series E convertible preferred stock in a private
placement to 147 investors at an aggregate purchase price of $85,500,000.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from the Securities Act registration
requirements set forth in Sections 3(b) and 4(2) of the Securities Act, or any
regulations promulgated thereunder, relating to sales by an issuer not
involving any public offering, or (ii) in the case of certain options to
purchase shares of common stock and shares of common stock issued upon the
exercise of such options, such offers and sales were made in reliance upon an
exemption from registration under Rule 701 of the Securities Act. No
underwriters were involved in the foregoing sales of securities.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
* 1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
* 3.2 Restated Certificate of Incorporation of the Registrant, to be
effective immediately prior to the closing of this offering
3.3 Bylaws of the Registrant
* 3.4 Restated Bylaws of the Registrant, to be effective immediately
after the closing of this offering
* 4.1 Specimen certificate for shares of common stock
* 5 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.
10.1 1995 Stock Incentive Plan, as amended, including form of stock
option certificate for incentive and non-statutory stock options
*10.2 2000 Employee, Director, Consultant Stock Plan, including form of
stock option certificate for incentive and non-statutory stock
options
*10.3 Executive Benefit Program
10.4 Lease Agreement between College Road Associates, Limited
Partnership and the Registrant, dated March 6, 1998
+10.5 Collaboration Agreement, by and between the Registrant and
Affymetrix, Inc., dated
November 5, 1999, as amended by Amendment No. 1 dated November 12,
1999
+10.6 License and Option Agreement, dated December 10, 1997, between
Sarnoff Corporation and the Registrant
10.7 Employment Agreement, dated November 1, 1996, by and between the
Registrant and Dale R. Pfost, Ph.D.
*10.8 Employment Agreement, dated June 1, 1998, by and between the
Registrant and Donald R. Marvin
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2 Consent of KPMG LLP
23.3 Consent of Deloitte & Touche LLP
*23.4 Consent of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.
(included in Exhibit 5)
24 Power of Attorney (see page II-6)
27 Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment
+ Portions of this Exhibit were omitted and have been filed separately with
the Secretary of the Commission pursuant to the Registrant's application
requesting confidential treatment under Rule 406 of the Act, filed on
February 18, 2000
(b) Financial Statement Schedules
All schedules are omitted because they are not required, are not
applicable or the information is included in financial statements or
notes thereto.
II-4
<PAGE>
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Princeton, New Jersey, on this 18th
day of February, 2000.
Orchid BioSciences, Inc.
/s/ Dale R. Pfost
By:__________________________________
Dale R. Pfost,
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Orchid BioSciences, Inc.,
hereby severally constitute and appoint Dale R. Pfost, Donald R. Marvin and
Joseph E. Mullaney III Esq., John J. Cheney III Esq. and each of them singly
(with full power to each of them to act alone), our true and lawful attorneys-
in-fact and agents, with full power of substitution and resubstitution in each
of them for him and in his name, place and stead, and in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement (or any other Registration Statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as full to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them or their or his substitute or substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities held on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dale R. Pfost, Ph.D. President, Chief Executive February 18, 2000
______________________________________ Officer and Director
Dale R. Pfost, Ph.D. (principal executive
officer)
/s/ Donald R. Marvin Senior Vice President, February 18, 2000
______________________________________ Chief Operating Officer
Donald R. Marvin and Chief Financial
Officer (principal
financial and accounting
officer)
/s/ Sidney M. Hecht, Ph.D. Director February 18, 2000
______________________________________
Sidney M. Hecht, Ph.D.
/s/ Samuel D. Isaly Director February 18, 2000
______________________________________
Samuel D. Isaly
/s/ Jeremy M. Levin, D. Phil., Director February 18, 2000
MB.BChir.
______________________________________
Jeremy M. Levin, D.Phil., MB.BChir.
/s/ Anne M. VanLent Director February 18, 2000
______________________________________
Anne M. VanLent
/s/ Robert M. Tien, M.D., M.P.H. Director February 18, 2000
______________________________________
Robert M. Tien, M.D., M.P.H.
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
* 1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
* 3.2 Restated Certificate of Incorporation of the Registrant, to be
effective immediately prior to the closing of this offering
3.3 Bylaws of the Registrant
* 3.4 Restated Bylaws of the Registrant, to be effective immediately
after the closing of this offering
* 4.1 Specimen certificate for shares of common stock
* 5 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.
10.1 1995 Stock Incentive Plan, as amended, including form of stock
option certificate for incentive and non-statutory stock options
*10.2 2000 Employee, Director, Consultant Stock Plan, including form of
stock option agreement for incentive and non-statutory stock
options
*10.3 Executive Benefit Program
10.4 Lease Agreement between College Road Associates, Limited
Partnership and the Registrant, dated March 6, 1998
+10.5 Collaboration Agreement, by and between the Registrant and
Affymetrix, Inc., dated
November 5, 1999, as amended by Amendment No. 1 dated November 12,
1999.
+10.6 License and Option Agreement, dated December 10, 1997, between
Sarnoff Corporation and the Registrant
10.7 Employment Agreement, dated November 1, 1996, by and between the
Registrant and Dale R. Pfost, Ph.D
*10.8 Employment Agreement, dated June 1, 1998, by and between the
Registrant and Donald R. Marvin
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP
23.2 Consent of KPMG LLP
23.3 Consent of Deloitte & Touche LLP
*23.4 Consent of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.
(included in Exhibit 5)
24 Power of Attorney (see page II-6)
27 Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
+ Portions of this Exhibit were omitted and have been filed separately with
the Secretary of the Commission pursuant to the Registrant's application
requesting confidential treatment under Rule 406 of the Act, filed on
February 18, 2000.
<PAGE>
Exhibit 3.1
Certificate of Incorporation
of
Sarnoff Sub Eight, Inc.
* * * * *
1. The name of the corporation is: Sarnoff Sub Eight, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is
The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issues is One Thousand (1,000) shares, common stock; all of
such shares shall be without par value.
5. The name and mailing address of each incorporator is as follows:
M. A. Brzoska 1209 Orange Street
Wilmington, DE
The name and address of each person who is to serve as director until the
first annual meeting of the shareholders or until a successor is elected and
qualified, is as follows:
Name Mailing Address
---- ---------------
James E. Carnes 201 Washington Road
Princeton, NJ 08543-5300
David J. Warnock 201 Washington Road
Princeton, NJ 08543-5300
<PAGE>
William J. Burke 201 Washington Road
Princeton, NJ 08543-5300
Donald M. Olender 201 Washington Road
Princeton, NJ 08543-5300
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by statute,
the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. The by-laws may provide that in the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors,
or in the by-laws of the corporation, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all
<PAGE>
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or by-laws expressly so provide, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock.
When and as authorized by the stockholders in accordance with law, to sell,
lease or exchange all or substantially all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may consist in whole or
in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as its board of directors
shall deem expedient and for the best interests of the corporation.
8. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
9. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability
<PAGE>
(i) for any breach of the directors' duty of loyalty to the corporation or
its stockholders, (ii) for acts or omission not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit.
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying that this is our act and deed and the facts herein stated are true,
and accordingly have hereunto set our hands this 8th day of March, 1995.
/s/ M. A. Brzoska
----------------------------
M.A. Brzoska
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
Sarnoff Sub Eight, Inc. a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the unanimous
written consent of its members, filed with the minutes of the Board, adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of Sarnoff Sub
Eight, Inc., be amended by changing the First Article thereof
so that, as amended, said Article shall be and read as follows:
"1. The name of the corporation is: Orchid Biocomputer, Inc."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
<PAGE>
THIRD: That the aforesaid amendment was duly adopted In accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said Sarnoff Sub Eight, Inc., has caused this
certificate to be signed by William J. Burke, its Secretary duly authorized,
this 15th day of June, 1995.
Sarnoff Sub Eight, Inc.
by /s/ William J. Burke
--------------------------
William J. Burke
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
Orchid Biocomputer, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by the unanimous
written consent of its members, filed with the minutes of the Board, adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of the Corporation:
RESOLVED, that the Certificate of Incorporation of the Corporation, be
amended by changing the Fourth Article thereof so that, as amended, said Article
shall be and read as follows:
4. A. Classes and Number of Shares.
The total number of shares of all classes of capital stock that the
Corporation shall have authority to issue is Three Million Five Hundred Thousand
(3,500,000) shares, consisting of (i) One Million Five Hundred Thousand
(1,500,000) shares of preferred stock, par value $0.001 per share (she
"Preferred Stock"), and (ii) Two Million (2,000,000) shares of common stock, par
value $0.001 per share (the "Common Stock").
B. Preferred Stock.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized to provide for the issuance of
shares of Preferred Stock in series and, by filing a certificate pursuant to the
applicable law of the State of Delaware (hereinafter referred to as a "Preferred
Stock Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. The authority of the Board of Directors
with respect to each series shall include, but not be limited to, determination
of the following:
<PAGE>
(i) The designation of the series, which may be by distinguishing
number, letter or title;
(ii) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred Stock
Designation) increase or decrease (but not below the number of shares thereof
then outstanding);
(iii) Whether dividends, if any, shall be cumulative or noncumulative
and the dividend rate of the series;
(iv) dates at which dividends, if any, shall be payable;
(v) The redemption rights and price or prices, if any, for shares
of the series;
(vi) The terms and amounts of any sinking fund provided for the
purchase or redemption of shares of the series;
(vii) The amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation;
(viii) Whether the shares of the series shall be convertible into
shares of any other class or series, or any other security, of the Corporation
or any other corporation, and, if so, the specification of such other class or
series of such other security, the conversion price or prices or rate or rates,
any adjustments thereof, the date or dates on which such shares shall be
convertible and all other terms and conditions upon which such conversion may be
made;
(ix) Restrictions on the issuance of shares of the same series or of
any other class or series; and
(x) The voting rights, if any, of the holders of shares of the
series.
C. Common Stock.
(1) Common Stock Subject to Terms of Preferred Stock. The Common
Stock shall be subject to the express terms of the Preferred Stock and any
series thereof.
(2) Dividend Rights. The holders of shares of Common Stock shall be
entitled to receive such dividends as may be declared by the Board of Directors
of the Corporation out of funds legally available therefor.
<PAGE>
(3) Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Corporation, each holder of shares of Common Stock shall be
entitled to receive, ratably with each other holder of shares of Common Stock,
that portion of the assets of the Corporation available for distribution to the
holders of its Common Stock, as the number of shares of the Common Stock held by
such holder bears to the total number of shares of Common Stock then
outstanding.
(4) Voting Rights. Except as may be provided in this Certificate of
Incorporation, as may be amended from time to time, the holders of shares of
Common Stock shall have the exclusive right to vote on all matters (for which a
common stockholder shall be entitled to vote thereon) at all meetings of the
stockholders of the Corporation, and shall be entitled to one vote for each
share of Common Stock entitled to vote at such meeting.
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said Orchid Biocomputer, Inc., has caused this
certificate to be signed by William J. Burke, its Secretary duly authorized,
this 28th day of August, 1995.
Orchid Biocomputer, Inc.
By: /s/ William J. Burke
-------------------------
William J. Burke
Secretary
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
ORCHID BIOCOMPUTER, INC.
ORCHID BIOCOMPUTER, INC., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article 4 of its
Certificate of Incorporation, as amended, and in accordance with the provisions
of Section 151 of the General Corporation Law of the State of Delaware, its
Board of Directors has adopted the following resolution creating a series of its
Preferred Stock designated as the Series A Convertible Preferred Stock:
"RESOLVED, that one series of the class of authorized Preferred Stock
of the Corporation be hereby created, and that the designation and the
amount thereof and the voting power, preferences and relative,
participating, optional and other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof
are as set forth on Exhibit A attached hereto.
IN WITNESS WHEREOF, Orchid Biocomputer, Inc. has caused its corporate seal
to be hereunto affixed and this certificate to be signed by William J. Burke,
its Secretary, duly authorized this 30th day of August, 1995.
ORCHID BIOCOMPUTER, INC.
By: /s/ William J. Burke
____________________________
William J. Burke
Title: Secretary
<PAGE>
Exhibit A
---------
DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
ORCHID BIOCOMPUTER, INC.
SECTION 1. Designation and Amount.
----------------------
The shares of one series of Preferred Stock created hereunder shall be
designated "Series A Convertible Preferred Stock" (herein referred to as the
("Series A Preferred Stock"), and the number of shares constituting such series
initially shall be 700,000.
SECTION 2. Dividends.
---------
The Series A Preferred Stock shall not be entitled to any dividends.
SECTION 3. Liquidation.
-----------
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, the holders of the Series A Preferred Stock shall be entitled
to receive out of the assets of the Corporation available for distribution to
stockholders (whether from capital, surplus or earnings), before any
distribution or payment is made upon any Junior Securities, the aggregate
Liquidation Value (as hereinafter defined) of all Series A Preferred Stock
outstanding, and the holders of the Series A Preferred Stock shall not be
entitled to any further distribution. If, upon any such liquidation, dissolution
or winding up of the Corporation, the assets of the Corporation to be
distributed among the holders of the Series A Preferred Stock are insufficient
to permit distribution to such holders of the aggregate amount to which they are
entitled, then the entire assets of the Corporation to be distributed to such
holders shall be distributed ratably among such holders based upon the aggregate
Liquidation Value of the Series A Preferred Stock held by each such holder. The
Corporation shall mail written notice of such liquidation, dissolution or
winding up, not less than 30 days prior to the distribution date stated therein,
to each record holder of Series A Preferred Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or corporations,
nor the sale or transfer by the Corporation of all or any part of its assets,
nor the reduction of the capital stock of the Corporation, shall be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this Section 3.
SECTION 4. Voting Rights.
-------------
The outstanding shares of Series A Preferred Stock shall at all times be
entitled to a number of votes on any matter put before the stockholders of the
Corporation equal to the number of shares of Common Stock into which such shares
of Series A Preferred Stock are convertible on the record date for determination
of stockholders eligible to vote on such matter,
<PAGE>
or if no such record is established, at the date such vote is taken or any
written consent of stockholders is solicited, and shall vote together with the
holders of Common Stock as a single class.
The outstanding shares of Series A Preferred Stock shall have all other
voting rights required by law and shall have the following additional rights:
(a) No amendment, modification or waiver shall be binding or effective with
respect to any provision of this Designation unless approved by the affirmative
vote of the holders of at least a majority of the outstanding shares of Series A
Preferred Stock voting together as a separate class.
(b) In addition to any other vote or consent of stockholders required by
the Certificate of Incorporation, as amended, or the Bylaws of the Corporation
or by law, the affirmative vote of all the holders of the outstanding shares of
Series A Preferred Stock, voting together as a separate class, shall be
necessary to change the Conversion Rate, or the amount or priority of any
distributions upon liquidation of the Corporation with respect to, shares of
Series A Preferred Stock or to amend this Section 4.
(c) The affirmative vote of the holders of at least a majority of the
outstanding shares of Series A Preferred Stock voting together as a separate
class shall be necessary to increase the number of authorized shares of
preferred stock or authorize or issue any additional shares of any series of
preferred stock or any shares of capital stock of the Corporation of any class,
or any security or obligations convertible into any capital stock of the
Corporation of any class, in each case ranking on a parity with or senior to the
Series A Preferred Stock as to distribution of assets in liquidation or in right
of payment of dividends.
SECTION 5. Conversion of the Series A Preferred Stock.
-------------------------------------------
The Series A Preferred Stock shall, be convertible into Common Stock as
follows:
(a) Optional Conversion. Subject to and upon compliance with the provisions
-------------------
of this Section 5, each holder of shares of Series A Preferred Stock shall have
the right, at such holders option, at any time or from time to time, to convert
any of such shares of Series A Preferred Stock into fully paid and nonassessable
shares of Common Stock upon the terms hereinafter set forth. Each share of
Series A Preferred Stock shall be converted into fully paid and nonassessable
shares (calculated to the nearest 1/100 of a share)of Common Stock at the
Conversion Rate in effect on the Conversion Date.
(b) Automatic Conversion. In the event that, at any time while any of the
--------------------
Series A Preferred Stock shall be outstanding, the Corporation shall consummate
an underwritten public offering on a firm commitment basis pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock providing aggregate net proceeds to
the Corporation equal to at least $15,000,000 (a "Qualifying Public Offering"),
then all outstanding shares of Series A Preferred Stock shall, automatically and
without further action on the part of the holders of the Series A Preferred
Stock, be converted
<PAGE>
into shares of Common Stock with the same effect as if the certificates
evidencing such shares had been surrendered for conversion, such conversion to
be effective simultaneously with the closing of such public offering; provided,
however, that certificates evidencing the shares of Common Stock issuable upon
such conversion shall not be issued except on surrender of the certificates for
the shares of the Series A Preferred Stock so converted. Each share of Series A
Preferred Stock shall be converted into fully paid and nonassessable shares
(calculated to the nearest 1/100 of a share) of Common Stock at the Conversion
Rate in effect on the Conversion Date.
(c) Exercise of Right to Convert. To exercise the conversion right
----------------------------
provided in Section 5(a), a holder of Series A Preferred Stock shall give
written notice to the Corporation that such holder elects to convert some or all
of its shares. Such notice shall state the name or names (with address or
addresses) in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued. If less than all Series A
Preferred Stock owned by a holder is to be converted, the notice shall also
specify the number of shares and the certificate numbers thereof which are to be
converted.
(d) Effectiveness of Conversion; Surrender of Shares. Any conversion of the
------------------------------------------------
Series A Preferred Stock into shares of Common Stock shall be deemed to have
been effected at the close of business on the Conversion Date with respect to
such conversion, and at such time, the rights of the holder of the converted
shares of Series A Preferred Stock shall cease and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such Conversion shall be deemed to have become the holder
or holders of record of the shares of Common Stock represented thereby. As
promptly as practicable after the Conversion Date and upon receipt of (i) the
certificate or certificates representing the shares to be converted and (ii)
transfer instruments(s) satisfactory to the Corporation and sufficient to
transfer such shares of Series A Preferred Stock to the Corporation free of any
adverse interest, the Corporation shall issue and deliver to the holder of the
shares of Series A Preferred Stock being converted, or on its written order, a
certificate or certificates as it may request for the number of shares of Common
Stock issuable upon the conversion of such shares of Series A Preferred Stock.
(e) Certificates. In the event that some but not all of the shares of
------------
Series A Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to, or on the order of, such holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series A Preferred Stock which
were not converted.
(f) Payment of Taxes. The Corporation shall pay all documentary, stamp,
----------------
transfer and other taxes (other than taxes on income of the holders of shares of
Series A Preferred Stock) and other governmental charges attributable to the
issuance or delivery of shares of Series A Preferred Stock or of shares of
Common Stock upon conversion of shares of Series A Preferred Stock; provided,
however, that the Corporation shall not be required to pay any taxes payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
A Preferred Stock in respect of which such shares are being issued.
<PAGE>
(g) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued upon conversion of shares of Series A Preferred Stock. If more
than one share of Series A Preferred Stock shall be surrendered for conversion
at any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series A Preferred Stock so surrendered. Instead of any
fractional shares of Common Stock that would otherwise be issuable upon
conversion of any shares of Series A Preferred Stock, the Corporation shall pay
a cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the Current Market Price on the Conversion Date.
SECTION 6. Conversion Price Adjustments. The Conversion Rate shall be subject
----------------------------
to adjustment from time to time as follows:
(a) Common Stock Dividends; Stock Splits, etc. If the Corporation shall
-----------------------------------------
at any time pay a dividend on its Common Stock in Common Stock, subdivide its
outstanding shares of Common Stock into a larger number of shares or combine its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Rate in effect immediately prior thereto shall be adjusted such that
each share of Series A Preferred Stock shall thereafter be convertible into the
number of shares of Common Stock which the holder of a share of Series A
Preferred Stock would have been entitled to receive after the occurrence of any
of the events described above had such share been converted immediately prior to
the occurrence of such event. An adjustment made pursuant to this Section 6(a)
shall become effective retroactively to the Determination Date in the case of a
dividend and shall become effective on the effective date in the case of a
subdivision or combination.
(b) Rights. If the Corporation shall issue rights or warrants to all
------
holders of shares of Common Stock for the purpose of entitling them (for a
period not exceeding forty-five (45) days from the date of issuance) to
subscribe for or purchase shares of Common Stock at a price per share less than
the Current Market Price per share of the Common Stock on the Determination Date
for the determination of the stockholders entitled to receive such rights or
warrants, then in each such case unless the holders of shares of the Series A
Preferred Stock shall be permitted to subscribe for or purchase shares of Common
stock on the same basis as though such shares of Series A Preferred Stock had
been converted into shares of Common Stock immediately prior to such
Determination Date, the Conversion Rate in effect immediately prior thereto
shall be adjusted such that the number of shares of Common Stock into which each
share of Series A Preferred Stock shall thereafter be convertible shall be
determined by multiplying the number of shares of Common Stock into which each
share of Series A Preferred Stock was convertible on the date immediately
preceding such Determination Date by a fraction, (A) the numerator of which
shall be the sum of (x) the number of shares of Common Stock outstanding on such
Determination Date and (y) the number of additional shares of Common Stock so
offered for subscription or purchase, and (B) the denominator of which shall be
the sum of (x) the number of shares of Common Stock outstanding on such
Determination Date and (y) the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered would purchase
at such Current Market Price.
<PAGE>
(c) Other Distributions. If the Corporation shall fix a Determination Date
-------------------
with respect to the making of a dividend or other distribution on its Common
Stock (including any such dividend or distribution made in connection with a
consolidation or merger in which the Corporation is the continuing corporation,
but excluding a dividend or distribution (A) referred to in subsection 6(a) or
6(b) hereof, or (B) in connection with a liquidation) consisting of securities
other than Common Stock, evidences of its indebtedness, or assets (excluding any
regular cash dividends paid out of surplus or net profits legally available for
the payment of dividends, but including all other cash dividends and
distributions) (any of the foregoing being hereinafter referred to as "Assets"),
then, in each such case, the Conversion Rate shall be adjusted such that the
number of shares of Common Stock into which each share of Series A Preferred
Stock shall thereafter be convertible shall be determined by multiplying the
number of shares of Common Stock into which each share of Series A Preferred
Stock was theretofore convertible on the date immediately preceding the
Determination Date for the determination of the stockholders entitled to receive
such distribution by a fraction, (A) the numerator of which shall be the Current
Market Price per share of the Common Stock on such Determination Date and (B)
the denominator of which shall be such Current Market Price per share less the
then fair market value (as determined by the Board of Directors of the
Corporation in good faith) of the portion of the cash or other assets, rights,
warrants, evidences of indebtedness or other securities so distributed
applicable to one share of Common Stock. Such adjustment shall become effective
retroactively to immediately after the Determination Date. The reclassification
(including any reclassification upon a merger in which the Corporation is the
continuing corporation) of Common Stock into securities which include both
Common Stock and other securities shall be deemed to involve (i) a distribution
of such securities other than Common Stock to all holders of Common Stock (and
the effective date of such reclassification shall be deemed to be the
"Determination Date" above); and (ii) a subdivision or combination, as the case
may be, of the number of shares of Common Stock outstanding immediately prior to
such reclassification into the number of shares of Common Stock outstanding
immediately thereafter. If such dividend or distribution is not so paid or made,
the Conversion Rate shall again be adjusted to be the Conversion Rate that would
then be in effect if such Determination Date had not been fixed.
(d) Common Stock Issued at Less Than Current Market Price. If the
-----------------------------------------------------
Corporation shall issue any Common Stock (or securities convertible into or
exercisable for, Common Stock) for a consideration per share less than the
Current Market Price per share of Common Stock on the date of such issuance
(which consideration shall include any compensation received for the issuance of
any securities convertible into or exercisable for such Common Stock), the
Conversion Rate in effect immediately prior to each such issuance shall
immediately (except as provided below) be adjusted such that the number of
shares of Common Stock into which each share of Series A Preferred Stock shall
thereafter be convertible shall be determined by multiplying the number of
shares of Common Stock into which each share of Series A Preferred Stock was
convertible on the date immediately preceding such issue or sale by a fraction,
(A) the denominator of which shall be the sum of (x) the number of shares of
Common Stock outstanding immediately prior to such issue or sale multiplied by
the Current Market Price at the time of such issue or sale plus (y) the
consideration received by the Corporation upon such issue or sale, and (B) the
numerator of which shall be the product derived by multiplying the Current
Market Price at the time of such issue or sale by the number of shares of Common
Stock
<PAGE>
outstanding immediately after such issue or sale; provided, that this subsection
(d) shall not apply to:
(i) any transaction or distribution for which an adjustment has been made
pursuant to any other subsection of this Section 6,
(ii) the conversion or exchange of securities convertible or exchangeable
for Common Stock or the exercise of rights or warrants issued to the holders of
Common Stock, in each case only if an adjustment was made (or specifically not
required to be made) in connection with the issuance of such securities, rights
or warrants pursuant to any subsection of this Section 6,
(iii) the conversion of shares of Series A Preferred Stock or Series B
Preferred Stock, and
(iv) Common Stock or options to purchase Common Stock issued to directors,
officers or employees of the Corporation and its subsidiaries under bona fide
benefit plans adopted by the Board of Directors and approved by the holders of
Common Stock when required by law.
(e) Superseding Adjustment. If, at any time after any adjustment of the
----------------------
Conversion Rate shall have been made pursuant to Section 6(b) or Section 6(d) as
the result of any issuance of warrants, options, rights or convertible
securities,
(A) such warrants, options or rights, or the right of conversion or
exchange of such convertible securities, shall expire, and all or a portion of
such warrants, options or rights, or the right of conversion or exchange with
respect to all or a portion of such other convertible securities, as the case
may be, shall not have been exercised, or
(B) the consideration per share for which shares of Common Stock are
issuable pursuant to such warrants, options or rights, or the terms of such
convertible securities, shall be increased solely by virtue or provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event,
then such previous adjustment shall be rescinded and annulled and the additional
shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such warrants, options
or rights or convertible securities on the basis of:
(i) treating the number of additional shares of Common Stock or other
property, if any, theretofore actually issued or issuable pursuant to the
previous exercise of any such warrants, options or rights or any such right of
conversion or exchange, as having been issued on the date or dates of any such
exercise and for the consideration actually received and receivable therefor,
and
(ii) treating any such warrants, options or rights or any such convertible
securities which then remain outstanding as having been granted or issued
immediately after the time of
<PAGE>
such increase of the consideration per share for which shares of Common Stock or
other property are issuable under such warrants, options or rights or other
convertible securities;
whereupon a new adjustment of the Conversion Rate shall be made, which new
adjustment shall supersede the previous adjustment so rescinded and annulled.
(f) Reorganization, Reclassification, Merger Consolidation or Disposition
---------------------------------------------------------------------
of Assets. In case the Corporation shall reorganize its capital, reclassify its
- ---------
capital stock, consolidate or merge with or into another corporation (where
there is a change in or distribution with respect to the Common Stock of the
Corporation other than a subdivision, combination or exchange otherwise provided
for herein), or sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or acquiring
corporation (herein referred to as "Other Property"), are to be received by or
distributed to the holders of Common Stock of the Corporation, then each holder
of Series A Preferred Stock shall have the right thereafter to receive, upon
conversion of such Series A Preferred Stock, the number of shares of common
stock of the successor or acquiring corporation or of the Corporation, if it is
the surviving corporation, and Other Property receivable upon or as a result of
such reorganization, reclassification, merger, consolidation or disposition of
assets by a holder of the number of shares of Common Stock for which such Series
A Preferred Stock is convertible immediately prior to such event. In case of any
such reorganization reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Corporation)
shall expressly assume the due and punctual observance and performance of each
and every term and condition of the Series A Preferred Stock to be performed and
observed by the Corporation and all the obligations and liabilities hereof,
subject to such modifications as may be deemed appropriate (as determined in
good faith by resolution of the Board of Directors of the Corporation) in order
to provide for adjustments of shares of the Common Stock for which Series A
Preferred Stock is convertible which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 6. For purposes of
this Section 6(f) "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event, and any warrants, options
or other rights to subscribe for or purchase any such stock. The foregoing
provisions of this Section 6(t) shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or dispositions of
assets.
(g) Rounding of Calculations; Minimum Adjustment. All calculations under
--------------------------------------------
this Section 6 shall be made to the nearest one hundredth (1/100th) of a share.
Any provision hereof to the contrary notwithstanding, no adjustment in the
Conversion Rate shall be made if the amount of such adjustment would require an
increase or decrease of less than 1.0% in the Conversion Rate, but any such
amount shall be carried forward and an adjustment with respect
<PAGE>
thereto shall be made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so carried
forward, shall require an increase or decrease of at least 1.0% in the
Conversion Rate.
(h) Timing of Issuance of Additional Common Stock Upon Certain Adjustments.
----------------------------------------------------------------------
If the provisions of this Section 6 shall require that an adjustment shall
become effective immediately after a Determination Date for an event, and prior
to the occurrence of such event conversion rights under Section 5(a) are
exercised, any shares of Common Stock issuable upon exercise by reason of
adjustment shall be deemed the last shares of Common Stock for which such Series
A Preferred Stock is exercised (notwithstanding any provision to the contrary
herein) and such shares or other property shall be held in escrow for the holder
of the Series A Preferred Stock by the Corporation to be issued to such holder
conditioned upon and to the extent that the event actually takes place.
Notwithstanding any other provision to the contrary herein, if the event for
which such record was taken fails to occur or is rescinded, then such escrowed
shares shall be canceled by the Corporation and escrowed property returned.
(i) Other Action Affecting Common Stock. In case at any time or from time
-----------------------------------
to time the Corporation shall take any action in respect of its Common Stock,
other than action described in this Section 6, then, unless such action will not
have a material adverse effect upon the rights of the holders of Series A
Preferred Stock, the Conversion Rate or number of shares of other stock for
which Series A~ Preferred Stock is convertible shall be adjusted in such manner
as may be equitable in the circumstances.
(j) Taking of Record: Stock Transfer Books. In the case of all dividends or
--------------------------------------
other distributions by the Corporation to the holders of its Common Stock with
respect to which any provision of Section 6 refers to the taking of a record of
such holders, the Corporation will in each such case take such a record and will
take such record as of the close of business on a business day. The Corporation
will not at any time, except upon dissolution, liquidation or winding up of the
Corporation, close its Common Stock transfer books or Series A Preferred Stock
transfer books so as to result in preventing or delaying the conversion or
transfer of any Series A Preferred Stock.
SECTION 7. Notice.
------
Upon the occurrence of any event which requires an adjustment pursuant to
Section 6, the Corporation shall forthwith prepare a certificate to be executed
by the chief financial officer of the Corporation setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and specifying the Conversion
Rate after giving effect to such adjustment. The Corporation shall promptly
cause a signed copy of such certificate to be delivered to each holder of Series
A Preferred Stock. The Corporation shall keep at its principal executive office
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by any holder of Series A
Preferred Stock or any prospective purchaser of Series A Preferred Stock
designated by any such holder. In addition, holders of Series A Preferred Stock
shall be entitled to the same rights to receive notice of corporate action as
any holder of Common Stock.
<PAGE>
SECTION 8. Reservation of Shares: Valid Issuance; Approvals.
------------------------------------------------
The Corporation shall (A) reserve at all times so long as any shares of
Series A Preferred Stock remain outstanding, free from preemptive rights, out of
its treasury stock (if applicable) or its authorized but unissued shares of
Common Stock, or both, solely for the purpose of effecting the conversion of the
shares of Series A Preferred Stock, sufficient shares of Common Stock to provide
for the conversion of all outstanding shares of Series A Preferred Stock, (B)
take all necessary action so that all shares of Common Stock that are issued
upon conversion of the shares of the Series A Preferred Stock shall, upon
issuance, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issuance thereof, and (C) take
no action which will cause a contrary result.
The Corporation shall use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Corporation to perform
its obligations under these resolutions; provided, however that nothing in this
-------- -------
Section 8 shall require the Corporation to register any class of equity
securities under the Securities Exchange Act of 1934 as amended, or to file any
registration statement under the Securities Act of 1933, as amended, or to
qualify any securities with any state or local governmental authorities in any
jurisdiction. If, and so long as, any Common Stock into which the shares of
Series A Preferred Stock are then convertible is listed on any national
securities exchange, the Corporation shall, if permitted by the rules of such
exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon conversion.
SECTION 9. No Reissuance of Series A Preferred Stock.
-----------------------------------------
No Series A Preferred Stock acquired by the Corporation by reason of
repurchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the class of Series A Preferred Stock
and shall resume the status of authorized and unissued shares of Preferred
Stock, $.001 par value, as described in the Corporation's Certificate of
Incorporation, as amended.
SECTION 10. Definitions.
-----------
For purposes of this Designation the following terms shall have the
following meanings:
"Common Stock" shall mean all shares now or hereafter authorized of any
------------
class of common stock of the Corporation and any other stock of the Corporation,
howsoever designated, authorized after the Issue Date, which has the right
(subject always to prior rights of any class or series of preferred stock) to
participate in the distribution of the assets and earnings of the Corporation
without limit as to per share amount.
"Conversion Date" shall mean, in the case of the automatic conversion of
---------------
the Series A Preferred Stock into Common Stock, the closing date of a Qualifying
Public Offering, and in the case of the conversion of any shares of Series A
Preferred Stock into Common Stock at the
<PAGE>
option of the holder thereof, the date that notice of conversion from such
holder and certificates for shares of Series A Preferred Stock so to be
converted is received by the Corporation.
"Conversion Rate" shall initially mean the rate of one share of Common
stock for each share of Series A Preferred Stock preferred stock, Common Stock
or convertible securities were exercised pursuant to their terms.
"Determination Date" shall mean with respect to any dividend or other
------------------
distribution, the date fixed for the determination of the holders of shares of
Common Stock entitled to receive such dividend or distribution, or if a dividend
or distribution is paid or made without fixing such a date, the date of such
dividend or distribution.
"Issue Date" shall mean the date that shares of Series A Preferred Stock
----------
are first issued by the Corporation.
"Junior Security" means Common Stock and any other equity security (other
---------------
than the Series B Preferred Stock) of any kind which the Corporation at any time
issues or is authorized to issue.
"Liquidation Value" of any share of Series A Preferred Stock as of any
-----------------
particular date will be equal to an amount in cash equal to the fair value of
the Sarnoff License upon voluntary or involuntary liquidation, dissolution or
winding-up, as applicable ("Sarnoff License Fair Value"), divided by the number
of outstanding shares of Series A Preferred Stock; provided, however, that to
-------- -------
the extent that Sarnoff owns all of the issued and outstanding shares of Series
A Preferred Stock, Sarnoff shall be entitled to receive, in lieu of the
foregoing the Sarnoff License. For purposes of this Designation, the Sarnoff
License Fair Value shall be equal to, as of the date specified, the fair market
value of the Sarnoff License as mutually agreed upon by the Corporation and the
holders of a majority of the outstanding shares of Series A Preferred Stock (the
"Majority Holders"). If no agreement is reached by such parties described in the
immediately preceding sentence within 10 business days, the determination of
value shall be made by an independent firm of investment bankers of recognized
national standing mutually acceptable to the Majority Holders and the
Corporation.
"Qualifying Public Offering" shall have the meaning set forth in Section
--------------------------
5(b).
"Research Agreement" shall mean the Development and License Agreement,
------------------
dated on or about August 30, 1995, by and among the Corporation, SB and Sarnoff.
"Sarnoff" shall mean David Sarnoff Research Center, Inc., a Delaware
-------
corporation.
"Sarnoff License" shall mean the licenses granted by Sarnoff to the
---------------
Corporation as licensee and Sarnoff as licensor under the Research Agreement.
"Series B Preferred Stock" shall mean the Series B Convertible Preferred
------------------------
Stock, par value $.001 per share, of the Corporation.
<PAGE>
"SB" shall mean SmithKline Beecham plc, an English public limited company,
and SmithKline Beecham Corporation, a Pennsylvania corporation.
SECTION 11. Ranking.
-------
The Series A Preferred Stock shall rank senior to Junior Securities as to
the distribution of assets on liquidation, dissolution and winding up of the
Corporation. The Series A Preferred Stock shall rank on a parity with any other
series of the Corporation's Preferred Stock, par value $.001 per share,
including the Series B Preferred Stock (except as otherwise provided in the
Certificate of Designation relating to the Series B Preferred Stock), as to the
distribution of assets on liquidation, dissolution or winding up.
SECTION 12. Notices.
-------
All notices referred to herein, except as otherwise expressly provided,
will be made by registered or certified mail, return receipt requested, postage
prepaid and will be deemed to have been given when so mailed.
SECTION 13. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office (or such other place as
the Corporation designates) a register for the registration of shares of Series
A Preferred Stock of the Corporation. Upon the surrender of any certificate
representing shares of Series A Preferred Stock at such place, the Corporation
shall, at the request of the registered holder of such certificate, execute and
deliver a new certificate or certificates in exchange therefor representing in
the aggregate the number of shares of Series A Preferred Stock represented by
the surrendered certificate (and the Corporation forthwith shall cancel such
surrendered certificate), subject to the requirements of applicable securities
laws and to any restrictions on transfer (including without limitation, those
referred to in any legend on the certificate so surrendered). Each such new
certificate shall be registered in such name and shall represent such number of
shares of Series A Preferred Stock as is requested by the holder of the
surrendered certificate and shall be substantially identical in form to the
surrendered certificate. The issuance of new certificates shall be made without
charge to the holders of the surrendered certificates for any issuance tax in
respect thereof or other cost incurred by the Corporation in connection with
such issuance; provided however, that the Corporation shall not be required to
-------- -------
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the holder
of the surrendered certificate.
SECTION 14. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing one or
more shares of Series A Preferred Stock and, in the case of any such loss, theft
or destruction, upon receipt of an unsecured indemnity agreement satisfactory to
the Corporation or, in the case of any such mutilation, upon surrender of such
certificate, the Corporation shall execute and deliver in lieu of such
certificate a new certificate
<PAGE>
of like kind representing the number of shares of Series A Preferred Stock
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
SECTION 15. Restrictive Legend.
------------------
The Series A Preferred Stock, and all shares of Common Stock issued upon
conversion hereof, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HALVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH
SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER MAY NOT BE
SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
SECTION 16. Exclusion of Other Rights.
-------------------------
Except as may otherwise be required by law, the shares of Series A
Preferred Stock shall not have any preferences or relative, participating,
optional or other special rights, other than those specifically set forth herein
and in the Corporation's Certificate of Incorporation. The shares of Series A
Preferred Stock shall have no preemptive or subscription rights.
SECTION 17. Headings of Subdivisions.
------------------------
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
SECTION 18. Severability.
------------
If any right, preference or limitation of the Series A Preferred Stock set
forth herein (as so amended) is invalid, unlawful or incapable of being enforced
by reason of any rule of law or public policy, all other rights, preferences and
limitations set forth herein (as so amended) which can be given effect without
the invalid, unlawful or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation unless so expressed herein.
* * * *
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
ORCHID BIOCOMPUTER, INC.
ORCHID BIOCOMPUTER, INC., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article 4 of its
Certificate of Incorporation, as amended, and in accordance with the provisions
of Section 151 of the General Corporation Law of the State of Delaware, its
Board of Directors has adopted the following resolution creating a series of its
Preferred Stock designated as the Series B Convertible Preferred Stock:
"RESOLVED, that one series of the class of authorized Preferred
Stock of the Corporation be hereby created, and that the designation and
the amount hereof and the voting power, preferences and relative,
participating, optional and other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof are
as set forth on Exhibit A attached hereto.
IN WITNESS WHEREOF, Orchid Biocomputer, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by William J.
Burke, its Secretary, duly authorized this 30th day of August 1995.
ORCHID BIOCOMPUTER, INC.
BY: /s/ William J. Burke
-----------------------
Name: William J. Burke
Title: Secretary
<PAGE>
DESIGNATION
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
ORCHID BIOCOMPUTER, INC.
SECTION 1. Designation and Amount.
----------------------
The shares of one series of Preferred Stock created hereunder shall
be designated "Series B Convertible Preferred Stock" (herein referred to as the
"Series B Preferred Stock"), and the number of shares constituting such series
initially shall be 300,000.
SECTION 2. Dividends.
---------
The Series B Preferred Stock shall not be entitled to any dividends.
SECTION 3. Liquidation.
-----------
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the holders of the Series B Preferred Stock shall be
entitled to receive out of the assets of the Corporation available for
distribution to stockholders (whether from capital, surplus or earnings), before
any distribution or payment is made upon any Junior Securities, the aggregate
Liquidation Value (as hereinafter defined) of all Series B Preferred Stock
outstanding, and the holders of the Series B Preferred Stock shall not be
entitled to any further distribution. If, upon any such liquidation, dissolution
or winding up of the Corporation, the assets of the Corporation to be
distributed among the holders of the Series B Preferred Stock are insufficient
to permit distribution to such holders of the aggregate amount to which they are
entitled, then the entire assets of the Corporation to be distributed to such
holders shall be distributed ratably among such holders based upon the aggregate
Liquidation Value of the Series B Preferred Stock held by each such holder. The
F Corporation shall mail written notice of such liquidation, dissolution or
winding up, not less than 30 days prior to the distribution date stated therein,
to each record holder of Series B Preferred Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or corporations,
nor the sale or transfer by the Corporation of all or any part of its assets,
nor the reduction of the capital stock of the Corporation, shall be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this Section 3.
SECTION 4. Voting Rights.
-------------
The outstanding shares of Series B Preferred Stock shall at all times
be entitled to a number of votes on any matter put before the stockholders of
the Corporation equal to the number of shares of Common Stock into which such
shares of Series B Preferred Stock are convertible on the record date for
determination of stockholders eligible to vote on such matter, or if no such
record is established, at the date such vote is taken or any written consent of
stockholders is solicited, and shall vote together with the holders of Common
Stock as a single class.
<PAGE>
The outstanding shares of Series B Preferred Stock shall have all
other voting rights required by law and shall have the following additional
rights:
(a) No amendment, modification or waiver shall be binding or effective
with respect to any provision of this Designation unless approved by the
affirmative vote of the holders of at least a majority of the outstanding shares
of Series B Preferred Stock voting together as a separate class.
(b) In addition to any other vote or consent of stockholders 'required
by the Certificate of Incorporation, as amended, or the Bylaws of the
Corporation or by law, the affirmative vote of all the holders of the
outstanding shares of Series B Preferred Stock, voting together as a separate
class, shall be necessary to change the Conversion Rate, or the amount or
priority of any distributions upon liquidation of the Corporation with respect
to, shares of Series B Preferred Stock or to amend this Section 4.
(c) The affirmative vote of the holders of at least a majority of the
outstanding shares of Series B Preferred Stock voting together as a separate
class shall be necessary to increase the number of authorized shares of
preferred stock or authorize or issue any additional shares of any series of
preferred stock or any shares of capital stock of the Corporation of any class,
or any security or obligations convertible into any capital stock of the
Corporation of any class, in each case ranking on a parity with or senior to the
Series B Preferred Stock as to distribution of assets in liquidation or in right
of payment of dividends.
SECTION 5. Conversion of the series B Preferred Stock.
------------------------------------------
The Series B Preferred Stock shall be convertible into Common Stock as
follows:
(a) Optional Conversion. Subject to and upon compliance with the
-------------------
provisions of this Section 5, each holder of shares of Series B Preferred Stock
shall have the right, at such holder's option, at any time or from time to time,
to convert any of such shares of Series B Preferred Stock into fully paid and
nonassessable shares of Common Stock upon the terms hereinafter set forth. Each
share of Series B Preferred Stock shall be converted into fully paid and
nonassessable shares (calculated to the nearest 1/100 of a share)of Common Stock
at the Conversion Rate in effect on the Conversion Date.
(b) Automatic Conversion. in the event that, at any time while any of
--------------------
the Series B Preferred Stock shall be outstanding, the Corporation shall
consummate an underwritten public offering on a firm commitment basis pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock providing aggregate net
proceeds to the Corporation equal to at least $15,000,000 (a "Qualifying Public
Offering"), then all outstanding shares of Series B Preferred Stock shall,
automatically and without further action on the part of the holders of the
Series B Preferred Stock, be converted into shares of Common Stock with the same
effect as if the certificates evidencing such shares had been surrendered for
conversion, such conversion to be effective simultaneously with the closing of
such public offering; provided, however, that certificates evidencing the shares
of Common Stock issuable upon such conversion shall not be issued except on
surrender of the certificates for the shares of the Series B Preferred Stock so
converted. Each share of Series B
<PAGE>
Preferred Stock shall be converted into fully paid and nonassessable shares
(calculated to the nearest 1/100 of a share) of Common Stock at the Conversion
Rate in effect on the Conversion Date.
(c) Exercise of Right to Convert. To exercise the conversion right
----------------------------
provided in Section 5(a), a holder of Series B Preferred Stock shall give
written notice to the Corporation that such holder elects to convert some or all
of its shares. Such notice shall state the name or names (with address or
addresses) in. which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued. If less than all Series B
Preferred Stock owned by a holder is to be converted, the notice shall also
specify the number of shares and the certificate numbers thereof which are to be
converted.
(d) Effectiveness of Conversion: Surrender of Shares. Any conversion
------------------------------------------------
of the Series B Preferred Stock into shares of 4 Common Stock shall be deemed to
have been effected at the close of business on the Conversion Date with respect
to such conversion, and at such time, the rights of the holder of the converted
shares of Series B Preferred Stock shall cease and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares of Common Stock represented thereby. As
promptly as practicable after the Conversion Date and upon receipt of (i) the
certificate or certificates - - representing the shares to be converted and (ii)
transfer instruments(s) satisfactory to the Corporation and sufficient to
transfer such shares of Series B Preferred Stock to the Corporation free of any
adverse interest, the Corporation shall issue and deliver to the holder of the
shares of Series B Preferred Stock being converted, or on its written order, a
certificate or certificates as it may request for the number of shares of Common
Stock issuable upon the conversion of such shares of Series B Preferred Stock.
(e) Certificates. In the event that some but not all of the shares of
------------
Series B Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to, or on the order of, such holder \\1\\ at the expense of the Corporation, a
new certificate representing the number of shares of Series B Preferred Stock
which were not converted.
(f) Payment of Taxes. The Corporation shall pay all documentary,
----------------
stamp, transfer and other taxes (other than taxes on income of the holders of
shares of Series B Preferred Stock) and other governmental charges attributable
to the issuance or delivery of shares of Series B Preferred Stock or of shares
of Common Stock upon conversion of shares of Series B Preferred Stock; provided,
however, that the Corporation shall not be required to pay any taxes payable in
respect of any transfer involved in the issuance or delivery of any certificate
f or such shares in a name other than that of the holder of the shares of Series
B Preferred Stock in respect of which such shares are being issued.
(g) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued upon conversion of shares of Series B Preferred Stock. If more
than one share of Series B Preferred Stock shall be surrendered for conversion
at any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series B Preferred Stock so surrendered. Instead
<PAGE>
of any fractional shares of Common Stock that would otherwise be issuable upon
conversion of any shares of Series B Preferred Stock, the Corporation shall pay
a cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the Current Market Price on the Conversion Date.
SECTION 6. Conversion Price Adjustments. The Conversion Rate shall be subject
----------------------------
to adjustment from time to time as follows:
(a) Common Stock Dividends; Stock Splits, etc. If the Corporation
------------------------------------------
shall at any time pay a dividend on its Common Stock in Common Stock, subdivide
its outstanding shares of Common Stock into a larger number of shares or combine
its outstanding shares of Common Stock into a smaller number of shares, the
Conversion Rate in effect immediately prior thereto shall be adjusted such K
that each share of Series B Preferred Stock shall thereafter be convertible into
the number of shares of Common Stock which the holder of a share of Series B
Preferred Stock would have been entitled to receive after the occurrence of any
of the events described above had such share been converted immediately prior to
the occurrence of such event. An adjustment made pursuant to this Section 6(a)
shall become effective retroactively to the Determination Date in the case of a
dividend and shall become effective on the effective date in the case of a
Subdivision or combination.
(b) Rights. If the Corporation shall issue rights or warrants to all
------
holders of shares of Common Stock for the purpose of entitling them (for a
period not exceeding forty-five (45) days from the date of issuance) to
subscribe for or purchase shares of Common Stock at a price per share less than
the Current Market Price per share of the Common Stock on the Determination Date
for the determination of the stockholders entitled to receive such rights or
warrants, then in each such case unless the holders of shares of the Series B
Preferred Stock shall be permitted to subscribe for or purchase shares of Common
stock on the same basis as though such shares of Series B Preferred Stock had
been converted into shares of Common Stock immediately prior to such
Determination Date, the Conversion Rate in effect immediately prior thereto
shall be adjusted such that the number of shares of Common Stock into which each
share of Series B Preferred Stock shall thereafter be convertible shall be
determined by multiplying the number of shares of Common Stock into which each
share of Series B Preferred Stock was convertible on the date immediately
preceding such Determination Date by a fraction, (A) the numerator of which
shall be the sum of (x) the number of shares of Common Stock outstanding on such
Determination Date and (y) the number of additional shares of Common Stock so
offered for Subscription or purchase, and (B) the denominator of which shall be
the sum of (x) the number of shares of Common Stock outstanding on such
Determination Date and (y) the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered would purchase
at such Current Market Price.
(c) Other Distributions. If the Corporation shall fix a Determination
-------------------
Date with respect to the making of a dividend or other distribution on its
Common Stock (including any such dividend or distribution made in connection
with a consolidation or merger in which the Corporation is the continuing
corporation, but excluding a dividend or distribution (A) referred to in
subsection 6(a) or 6(b) hereof, or (B) in connection with a liquidation)
consisting of securities other than Common Stock, evidences of its indebtedness,
or assets (excluding any regular cash dividends paid out of surplus or net
profits legally available for the payment of dividends, but
<PAGE>
including all other cash dividends and distributions) (any of the foregoing
being hereinafter referred to as "Assets") then, in each such case, the
Conversion Rate shall be adjusted such that the number of shares of Common Stock
into which each share of Series B Preferred Stock shall thereafter be
convertible shall be determined by multiplying the number of shares of Common
Stock into which each share of Series 3 Preferred Stock was theretofore
convertible on the date immediately preceding the Determination Date for the
determination of the stockholders entitled to receive such distribution by a
fraction, (A) the numerator of which shall be the Current Market Price per share
of the Common Stock on such Determination Date and (B) the denominator of which
shall be such Current Market Price per share less the then fair market value (as
determined by the Board of Directors of the Corporation in good faith) of the
portion of the cash or other assets, rights, warrants, evidences of indebtedness
or other securities so distributed applicable to one share of Common Stock. Such
adjustment shall become effective retroactively to immediately after the
Determination Date. The reclassification (including any reclassification upon a
merger in which the Corporation is the continuing corporation) of Common Stock
into securities which include both Common Stock and other securities shall be
deemed to involve a distribution of such securities other than Common Stock to
all holders of Common Stock (and the effective date of such reclassification
shall be deemed to be the "Determination Date" above); and (ii) a subdivision or
combination, as the case may be, of the number of shares of Common Stock
outstanding immediately prior to such reclassification into the number of shares
of Common Stock outstanding immediately thereafter. If such dividend or
distribution is not so paid or made, the Conversion Rate shall again be adjusted
to be the Conversion Rate that would then be in effect if such Determination
Date had not been fixed.
(d) Common Stock Issued at Less Than Current Market. If the
-----------------------------------------------
Corporation shall issue any Common Stock (or securities convertible into or
exercisable for, Common Stock) for a consideration per share less than the
Current Market Price per share of Common Stock on the date of such issuance
(which consideration shall include any compensation received for the issuance of
any securities convertible into or exercisable for such Common Stock), the
Conversion Rate in effect immediately prior to each such issuance shall
immediately (except as provided below) be adjusted such that the number of
shares of Common Stock into which each share of Series B Preferred Stock shall
thereafter be convertible shall be determined by multiplying the number of
shares of Common Stock into which each share of Series B Preferred Stock was
convertible on the date immediately F preceding such issue or sale by a
fraction, (A) the denominator of which shall be the sum of (x) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Current Market Price at the time of such issue or sale plus
(y) the consideration received by the Corporation upon such issue or sale, and
(B) the numerator of which shall be the product derived by multiplying the
Current Market Price at the tame of such issue or sale by the number of shares
of Common Stock outstanding immediately after such issue or sale; provided, that
this subsection (d) shall not apply to:
(i) any transaction or distribution for which an adjustment has been
made pursuant to any other subsection of this Section 6,
(ii) the conversion or exchange of securities convertible or
exchangeable for Common Stock or the exercise of rights or
warrants issued to the holders of Common Stock, in each case
only if an adjustment was made (or
<PAGE>
specifically not required to be made) in connection with the
issuance of such securities, rights or warrants pursuant to any
subsection of this Section 6,
(iii) the conversion of shares of Series A Preferred Stock or Series B
Preferred Stock, and
(iv) Common Stock or options to purchase Common Stock issued to
directors, officers or employees of the Corporation and its
subsidiaries under bona fide benefit plans adopted by the Board
of Directors and approved by the holders of Common Stock when
required by law.
(e) Superseding Adjustment. If, at any time after any adjustment of
----------------------
the Conversion Rate shall have been made pursuant to Section 6(b) or Section
6(d) as the result of any issuance of warrants, options, rights or convertible
securities,
(A) such warrants, options or rights, or the right of conversion or
exchange of such convertible securities, shall expire, and all
or a portion of such warrants, options or rights, or the right
of conversion or exchange with respect to all or a portion of
such other convertible securities, as the case may be, shall not
have been exercised, or
(B) the consideration per share for which shares of common Stock are
issuable pursuant to such warrants, options or rights, or the
terms of such convertible securities, shall be increased solely
by virtue or provisions therein contained for an automatic
increase in such consideration per share upon the occurrence of
a specified date or event,
then such previous adjustment shall be rescinded and annulled and the additional
shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such warrants, options
or rights or convertible securities on the basis of:
(i) treating the number of additional shares of Common Stock or
other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants, options
or rights or any such right of conversion or exchange, as having
been issued on the date or dates of any such exercise and for
the consideration actually received and receivable therefor, and
(ii) treating any such warrants, options or rights or any such
convertible securities which then remain outstanding as having
been granted or issued immediately after the time of such
increase of the consideration per share for which shares of
Common Stock or other property are issuable under such warrants,
options or rights or other convertible securities;
<PAGE>
whereupon a new adjustment of the Conversion Rate shall be made, which new
adjustment shall supersede the previous adjustment so rescinded and annulled.
(f) Reorganization, Reclassification, Merger. Consolidation or
----------------------------------------------------------
Disposition of Assets. In case the Corporation shall reorganize its capital,
- ---------------------
reclassify its capital stock, consolidate or merge with or into another
corporation (where there is a change in or distribution with respect to the
Common Stock of the Corporation other than a subdivision, combination or
exchange otherwise provided for herein), or sell, transfer or otherwise dispose
of all or substantially all its property, assets or business to another
Corporation and, pursuant to the terms of such reorganization, reclassification,
merger, consolidation or disposition of assets, shares of common stock of the
successor or acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common stock of
the successor or acquiring corporation (herein referred to as "Other Property"),
are to be received by or distributed to the holders of Common Stock of the
Corporation, then each holder of Series B Preferred Stock shall have the right
thereafter to receive, upon conversion of such Series B Preferred Stock, the
number of shares of common stock of the successor or acquiring corporation or of
the Corporation, if it is the surviving corporation, and Other Property
receivable upon or as a result of such reorganization, reclassification \\1\\
merger, consolidation or disposition of assets by a holder of the number of
shares of Common Stock for which such Series B Preferred Stock is convertible
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Corporation) shall expressly assume
the due and punctual observance and performance of each and every term and
condition of the Series B Preferred Stock to be performed and observed by the
Corporation and all the obligations and liabilities hereof, subject to such
modifications as may be deemed appropriate (as determined in good faith by
resolution of the Board of Directors of the Corporation) in order to provide for
adjustments of shares of the Common Stock for which Series B Preferred Stock is
convertible which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 6. For purposes of this Section 6(f)
"common stock of the successor or acquiring corporation" shall include stock of
such corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or the
happening of a specified event, and any warrants, options or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this
Section 6(f) shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or dispositions of assets.
(g) Rounding of Calculations: Minimum Adjustment. All calculations
--------------------------------------------
under this Section 6 shall be made to the nearest one hundredth (1/100th) of a
share. Any provision hereof to the contrary notwithstanding, no adjustment in
the Conversion Rate shall be made if the amount of such adjustment would require
an increase or decrease of less than 1.0% in the Conversion Rate, but any such
amount shall be carried forward and an adjustment with respect thereto shall be
made at the time of and together with any subsequent adjustment which, together
with such amount and any other amount or amounts so carried forward, shall
require an increase or decrease of at least 1.0% in the Conversion Rate.
<PAGE>
(h) Timing of Issuance of Additional Common Stock Upon Certain
----------------------------------------------------------
Adjustments. If the provisions of this Section 6 shall require that an
- -----------
adjustment shall become effective immediately after a Determination Date for an
event, and prior to the occurrence of such event conversion rights under Section
5(a) are exercised, any shares of Common Stock issuable upon exercise by reason
of adjustment shall be deemed the last shares of Common Stock for which such
Series B Preferred Stock is exercised 4 F (notwithstanding any provision to the
contrary herein) and such shares or other property shall be held in escrow for
the holder of the Series B Preferred Stock by the Corporation to be issued to
such holder conditioned upon and to the extent that the event actually takes
place. Notwithstanding any other provision to the contrary herein, if the event
for which such record was taken fails to occur or is rescinded, then such
escrowed shares shall be canceled by the Corporation and escrowed property
returned.
(i) Other Action Affecting Common Stock. In case at any time or from
-----------------------------------
time to time the Corporation shall take any action in respect of its Common
Stock, other than action described in this Section 6, then, unless such action
will not have a material adverse effect upon the rights of the holders of Series
B Preferred Stock, the Conversion Rate or number of shares of other stock for
which Series B Preferred Stock is convertible shall be adjusted in such manner
as may be equitable in the circumstances.
(j) Taking of Record; Stock Transfer Books. In the case of all
--------------------------------------
dividends or other distributions by the Corporation to the holders of its Common
Stock with respect to which any provision of Section 6 refers to the taking of a
record of such holders, the Corporation will in each such case take such a
record arid will take such record as of the close of business on a business day.
The Corporation will not at any time, except upon dissolution, liquidation or
winding up of the Corporation, close its Common Stock transfer books or Series B
Preferred Stock transfer books so as to result in preventing or delaying the
conversion or transfer of any Series B Preferred Stock.
SECTION 7. Notice.
------
Upon the occurrence of any event which requires an adjustment pursuant
to Section 6, the Corporation shall forthwith prepare a certificate to be
executed by the chief financial officer of the Corporation setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and specifying
the Conversion Rate after giving effect to such adjustment. The Corporation
shall promptly cause a signed copy of such certificate to be delivered to each
holder of Series B Preferred Stock. The Corporation shall keep at its principal
executive office copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by any
holder of Series B Preferred Stock or any prospective purchaser of Series B
Preferred Stock designated by any such holder. In addition, holders of Series B
Preferred Stock shall be entitled to the same rights to receive notice of
corporate action as any holder of Common Stock.
SECTION 8. Reservation of Shares; Valid Issuance; Approvals.
------------------------------------------------
The Corporation shall (A) reserve at all times so long as any shares
of Series B Preferred Stock remain outstanding, free from preemptive rights, out
of its treasury stock (if
<PAGE>
applicable) or its authorized but unissued shares of Common Stock, or both,
solely for the purpose of effecting the conversion of the shares of Series B
Preferred Stock, sufficient shares of Common Stock to provide for the conversion
of all outstanding shares of Series B Preferred Stock, (B) take all necessary
action so that all shares of Common Stock that are issued upon conversion of the
shares of the Series B Preferred Stock shall, upon issuance, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof, and (C) take no action which will cause a
contrary result.
The Corporation shall use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Corporation to perform
its obligations under these resolutions; provided, however, that nothing in this
-------- -------
Section 8 shall require the Corporation to register any class of equity
securities under the Securities Exchange Act of 1934, as amended, or to file any
registration statement under the Securities Act of 1933, as amended, or to
qualify any securities with any state or local governmental authorities in any
jurisdiction. If, and so long as, any Common Stock into which the shares of
Series B Preferred Stock are then convertible is listed on any national
securities exchange, the Corporation shall, if permitted by the rules of such
exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon conversion.
SECTION 9. No Reissuance of Series B Preferred Stock.
-----------------------------------------
No Series B Preferred Stock acquired by the Corporation by reason of
repurchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the class of Series B Preferred Stock
and shall resume the status of authorized and unissued shares of Preferred
Stock, $.001 par value, as described in the Corporation's Certificate of
Incorporation, as amended.
SECTION 10. Definitions.
-----------
For purposes of this Designation the following terms shall have the
following meanings:
"Common Stock" shall mean all shares now or hereafter authorized of
------------
any class of common stock of the Corporation and any other stock of the
Corporation, howsoever designated, authorized after the Issue Date, which has
the right (subject always to prior rights of any class or series of preferred
stock) to participate in the distribution of the assets and earnings of the
Corporation without limit as to per share amount.
"Conversion Date" shall mean, in the case of the automatic conversion
---------------
of the Series B Preferred Stock into Common Stock, the closing date of a
Qualifying Public Offering, and in the case of the conversion of any shares of
Series B Preferred Stock into Common Stock at the option of the holder thereof,
the date that notice of conversion from such holder and certificates for shares
of Series B Preferred Stock so to be converted is received by the Corporation.
"Conversion Rate" shall initially mean the rate of one share of Common
---------------
stock for each share of Series B Preferred Stock unless and until such
Conversion sate may be adjusted in
<PAGE>
accordance with the provisions of Section 6, and thereafter shall mean the
Conversion Rate from time to time as so adjusted. All adjustments in the
Conversion Rate shall be rounded to the nearest 1/100 of a share.
"Current Market Price" shall mean, in respect of any share of Common
---------------------
Stock on any date herein specified,
(a) in case there is no public market for the Common Stock, the fair
saleable value of such shares as of the last day of the most
recent fiscal month prior to such date specified, as mutually
agreed upon by the Corporation and the holders of a majority of
the outstanding shares of Series B Preferred Stock (the "Majority
Holders"). If no agreement is reached by such parties described
in the immediately preceding sentence within 10 business days,
the determination of value shall be made by an independent firm
of investment bankers of recognized national standing mutually
acceptable to the Majority Holders and the Corporation. The
Corporation shall pay all costs and fees associated with any
appraisal of value; or
(b) it there shall then be a public market for the Common Stock and
daily market prices can be determined in accordance with (i),
(ii) or (iii) below, the average of the daily market prices for
the 10 consecutive trading days immediately before such date. The
daily market price for each such trading day shall be (i) the
last sale price on such day on the principal stock exchange on
which such Common Stock is then listed or admitted to trading,
(ii) if no sale takes place on such day on any such exchange, the
average of the last reported closing bid and asked prices on such
day as officially quoted on any such exchange, or (iii) if the
Common Stock is not then listed or admitted to trading on any
stock exchange, the average of the last reported closing bid and
asked prices on such day in the over-the-counter market, as
furnished by the National Association of Securities Dealers
Automatic Quotation System.
If Current Market Price is being determined pursuant to clause (a)
above, the Current Market Price as of any date shall be determined on the basis
of the value of the Corporation as a going concern, based on such valuation
criteria as the Board of Directors or investment bankers selected pursuant to
clause (a) above, as applicable, shall determine. The determination further
shall be based on the assumption that immediately prior to such determination
all warrants, rights and options to purchase preferred stock, Common Stock or
convertible securities were exercised pursuant to their terms.
"Determination Date" shall mean with respect to any dividend or other
------------------
distribution, the date fixed for the determination of the holders of shares of
Common Stock entitled to receive such dividend or distribution, or if a dividend
or distribution is paid or made without fixing such a date, the date of such
dividend or distribution.
"Investment Agreement" shall mean the Investment Agreement, dated on
--------------------
or about August 30, 1995, by and among the Corporation, Sarnoff and SB.
<PAGE>
"Issue Date" shall mean the date that shares of Series B Preferred
----------
Stock are first issued by the Corporation.
"Junior Security" means Common Stock and any other equity security
---------------
(other than the Series A Preferred Stock) of any kind which the Corporation at
any time issues or is authorized to issue.
"Liquidation Value" of any share of Series B Preferred Stock as of any
-----------------
particular date will be equal to an amount in cash equal to the sum of, (i) (A)
in the case of a First Option Share (as defined in the Investment Agreement) or
a Second Option Share (as defined in the Investment Agreement; collectively,
First Option Shares and Second Option Shares are referred to herein as the
"Option Shares"), the exercise price paid by SB to the Corporation in respect of
such share pursuant to the Investment Agreement, or (B) in the case of any share
of Series B Preferred Stock other than an Option Share, $19.20 per share, and
(ii) the fair value of the SB License upon voluntary or, involuntary
liquidation, dissolution or winding-up, as applicable ("SB License Fair Value"),
divided by the number of outstanding shares of Series B Preferred Stock;
provided, however, that to the extent that SB owns all of the issued and
- -------- -------
outstanding shares of Series B Preferred Stock, SB shall be entitled to receive,
in lieu of the foregoing, (i) an amount in cash equal to, (A) with respect to
the Option Shares, the exercise price paid by SB to the Corporation in respect
of such shares pursuant to the Investment Agreement, and, (B) with respect to
all shares of Series B Preferred Stock other than the Option Shares $19.20 per
share, and (ii) the SB License. For purposes of this ~ Designation, the SB
License Fair Value shall be equal to, as of the date specified, the fair market
value of the SB License as mutually agreed upon by the Corporation and the
holders of a majority of the outstanding shares of Series B Preferred Stock (the
"Majority Holders"). If no agreement is reached by such parties described in the
immediately preceding sentence within 10 business days, the determination of
value shall be made by an independent firm of investment bankers of recognized
national standing mutually acceptable to the Majority Holders and the
Corporation.
"Qualifying Public Offering" shall have the meaning set forth in
--------------------------
Section 5(b).
"Research Agreement" shall mean the Development and License Agreement,
------------------
dated on or about August 30, 1995, by and among the Corporation, SB and Sarnoff.
"Sarnoff" shall mean David Sarnoff Research Center, Inc., a Delaware
-------
corporation.
"Series A Preferred Stock" shall mean the Series A Convertible
------------------------
Preferred Stock, par value $.00l per share, of the Corporation.
"SB" shall mean SmithKline Beecham plc, an English public limited
--
company, and SmithKline Beecham Corporation, a Pennsylvania corporation.
"SB License" shall mean certain licenses granted by SB to the
----------
Corporation as licensee and SB as licensor under the Research Agreement.
SECTION 11. Ranking.
-------
<PAGE>
The Series B Preferred Stock shall rank senior to Junior Securities as
to the distribution of assets on liquidation, dissolution and winding up of the
Corporation. The Series B Preferred Stock shall rank on a parity with any other
series of the Corporation' s Preferred Stock, par value $.001 per share,
including the Series A Preferred Stock (except as otherwise provided in the
Certificate of Designation relating to the Series A Preferred Stock), as to the
distribution of assets on liquidation, dissolution or winding up.
SECTION 12. Notices.
-------
All notices referred to herein, except as otherwise expressly
provided, will be made by registered or certified mail, return receipt
requested, postage prepaid and will be deemed to have been given when so mailed.
SECTION 13. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office (or such other
place as the Corporation designates) a register for the registration of shares
of Series B Preferred Stock of the Corporation. Upon the surrender of any
certificate representing shares of Series B Preferred Stock at such place, the
Corporation shall, at the request of the registered holder of such certificate,
execute and deliver a new certificate or certificates in exchange therefor
representing in the aggregate the number of shares of Series B Preferred Stock
represented by the surrendered certificate (and the Corporation forthwith shall
cancel such surrendered certificate), subject to the requirements of applicable
securities laws and to any restrictions on transfer (including without
limitation, those referred to in any legend on the certificate so surrendered).
Each such new certificate shall be registered in such name and shall represent
such number of shares of Series B Preferred Stock as is requested by the holder
of the surrendered certificate and shall be substantially identical in form to
the surrendered certificate. The issuance of new certificates shall be made
without charge to the holders of the surrendered certificates f or any issuance
tax in respect thereof or other cost incurred by the Corporation in connection
with such issuance; provided, however, that the Corporation shall not be
--------- -------
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
holder of the surrendered certificate.
SECTION 14. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing one
or more shares of Series B Preferred Stock and, in the case of any such loss,
theft or destruction, upon receipt of an unsecured indemnity agreement
satisfactory to the Corporation or, in the case of any such mutilation, upon
surrender of such certificate, the Corporation shall execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of Series B Preferred Stock represented by such lost, stolen, destroyed
or mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.
<PAGE>
SECTION 15. Restrictive Legend.
------------------
The Series B Preferred Stock, and all shares of Common Stock issued
upon conversion hereof, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH
SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER MAY NOT
BE SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
SECTION 16. Exclusion Of Other Rights.
-------------------------
Except as may otherwise be required by law, the shares of Series B
Preferred Stock shall not have any preferences or relative, participating,
optional or other special rights, other than those specifically set forth herein
and in the Corporation's Certificate of Incorporation. The shares of Series B
Preferred Stock shall have no preemptive or subscription rights.
SECTION 17. Headings of Subdivisions.
------------------------
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
SECTION 18. Severability.
------------
If any right, preference or limitation of the Series B Preferred Stock
set forth herein (as so amended) is invalid, unlawful or incapable of being
enforced by reason of any rule of law or public policy, all other rights,
preferences and limitations set forth herein (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
* * * *
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
ORCHID BIOCOMPUTER, INC.
Orchid Biocomputer, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify:
FIRST: That at a meeting of the Board of Directors of said corporation
held on December 10, 1997, resolutions were adopted proposing and declaring
advisable the following amendments to the Certificate of Incorporation of said
corporation:
RESOLVED: That ARTICLE FOURTH of the Corporation's Certificate of
Incorporation, as amended, be further amended by
deleting the first paragraph thereof in its entirety
and inserting in lieu thereof the following:
"4. A. Classes and Number of Shares.
The total number of shares of all classes of capital
stock that the Corporation shall have authority to
issue is Fourteen Million (14,000,000) shares,
consisting of (i) Four Million (4,000,000) shares of
preferred stock, par value $.001 per share (the
"Preferred Stock"), and (ii) Ten Million (10,000,000)
shares of common stock, par value $.001 per share (the
"Common Stock")."
RESOLVED: That ARTICLE FOURTH of the Certificate of Incorporation
of the Corporation be further amended by amending the
Certificate of Designation of the Series A Convertible
Preferred Stock of the Corporation dated August 30,
1995 by deleting the reference to "700,000" in Section
1 thereof and replacing it with "1,600,000".
RESOLVED: That ARTICLE FOURTH of the Certificate of Incorporation
of the Corporation be further amended by amending the
Certificate of Designation of the Series B Convertible
Preferred Stock of the Corporation dated August 30,
1995 by (i) deleting in its entirety Section 6(d)
thereof and replacing it with "[Intentionally
Omitted]"; (ii) deleting the phrase "or Section 6(d)"
in the first sentence of Section 6(e) thereof; and
(iii) inserting the phrase "or issuance of Common Stock
for a consideration per share less than the Current
Market Price per share of Common Stock on the date of
such issuance" in
<PAGE>
Section 6(i) thereof between the phrase "...described
in this Section 6" and the immediately following comma.
SECOND: That in lieu of a meeting and vote of the stockholders,
stockholders representing a majority of the shares of stock entitled to vote
have consented to said amendments in accordance with the provisions of Section
228(a) and 242 of the General Corporation Law of the State of Delaware, and
written notice of the adoption of the amendments has been given as provided in
Section 228 of the General Corporation Law of the State of Delaware to every
stockholder entitled to such notice, or notice thereof has been waived pursuant
to Section 229 of the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendments were duly adopted in
accordance with the applicable provisions of Section 242, 141(f) and
228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Orchid Biocomputer, Inc. has caused this
Certificate of Amendment to be signed by Dale R. Pfost, its President, and
attested by Donald R. Marvin, its Secretary, dated as of the 22nd day of
December, 1997.
ORCHID BIOCOMPUTER, INC.
By: /s/ Dale R. Pfost, Ph.D.
------------------------
Dale R. Pfost, Ph.D.
Its President
ATTEST:
/s/ Donald R. Marvin
- -------------------------
Donald R. Marvin
Its Secretary
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
ORCHID BIOCOMPUTER, INC.
ORCHID BIOCOMPUTER, INC., a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority
contained in Article 4 of its Certificate of Incorporation, as
amended, and in accordance with the provisions of Section 151 of
the General Corporation Law of the State of Delaware, its Board
of Directors has adopted the following resolution creating a
series of its Preferred Stock designated as Series C Convertible
Preferred Stock:
"RESOLVED, that one additional series of the class of
authorized Preferred stock of the Corporation be hereby
created, to be designated Series C Convertible Preferred
Stock consisting of 1,801,802 shares, which number of shares
may be decreased (but not below the number of shares then
outstanding) from time to time by the Board of Directors of
the Corporation, and that the designation, preferences and
other special or relative rights of the shares of Series C
Convertible Preferred Stock shall be as set forth in
Exhibit A attached hereto.
IN WITNESS WHEREOF, Orchid Biocomputer, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Donald Marvin,
its Secretary, duly authorized this 23rd day of December 1997.
ORCHID BIOCOMPUTER, INC.
By: /s/ Donald R. Marvin
_________________________
Name: Donald R. Marvin
Title: Secretary
<PAGE>
EXHIBIT A
DESIGNATION
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
ORCHID BIOCOMPUTER, INC.
Orchid Biocomputer. Inc., (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law"), hereby certifies as follows:
ARTICLE 1
---------
Series C Convertible Preferred Stock
------------------------------------
Section A.1 Designation and Amount. The designation of this series of
----------------------
capital stock shall be "Series C Convertible Preferred stock," par value $.001
per share (the "Series C Stock"). The number of shares, powers, terms,
conditions, designations, preferences, and privilege, relative, participating,
optional and other special rights, and qualifications, limitations and
restrictions, if any, of the Series C Stock shall be as set forth herein. The
number of authorized shares of the Series C Stock is 1,801,802.
Section A.2 Ranking. The Corporation's Series C Stock shall rank, as to
-------
dividends and upon Liquidation (as defined in Section A.4(b) hereof), equally
with each other and with each other holder of shares of Series A Convertible
Preferred Stock (the "Series A Stock") and Series B Convertible Preferred Stock
(the "Series B Stock"), previously issued by the Corporation and senior and
prior to the Corporation's Common Stock and to all other classes or series of
stock issued by the Corporation, except as otherwise approved by the affirmative
vote or consent of the holders of shares of Series C Stock pursuant to Section
A.6(c) hereof.
Section A.3 Dividend Provisions.
-------------------
A.3(a) The holders of shares of Series C Stock shall be entitled to
receive, when, as and if declared or paid by the Board of Directors on any
shares of Series C Stock, out of funds legally available for that purpose,
dividends and distributions (whether in cash, property or securities of the
Corporation, including subscription or other rights to acquire securities of the
Corporation). Whenever any dividend may be declared or paid on any shares of
Series C Stock, the Board of Directors shall also declare and pay a dividend on
the same terms, at the same rate and in like kind upon each other share of the
Series C Stock then outstanding, so that all outstanding shares of Series C
Stock will participate equally with each other ratably per share (calculated as
provided in Section A.3(b) hereof).
<PAGE>
A.3(b) In connection with any dividend declared or paid hereunder,
each share of Series C Stock shall be deemed to be that number of shares
(including fractional shares) of Common Stock into which it is then convertible,
rounded up to the nearest one-tenth of a share. No fractional shares of capital
stock shall be issued as a dividend hereunder. The Corporation shall pay a cash
adjustment for any such fractional interest in an amount equal to the fair
market value thereof on the last Business Day (as defined in Section A.8 hereof)
immediately preceding the date for payment of dividends, as determined by the
Board of Directors in good faith.
Section A.4 Liquidation Rights.
------------------
A.4(a) With respect to rights on Liquidation (as defined in Section
A.4(b) hereof), the Series C Stock shall rank equally with each other and with
each other holder of shares of Series A Stock and of shares of Series B Stock
and senior and prior to the Corporation's Common Stock and to all other classes
or series of stock issued by the Corporation, except as otherwise approved by
the affirmative vote or consent of the holders of Series C Stock pursuant to
Section A.6(c) hereof.
A.4(b) Subject to Section A.4(a) above, in the event of any
liquidation, dissolution or winding-up of the affairs of the Corporation
(collectively, a "Liquidation"), the holders of shares of Series C Stock then
outstanding (the "Series C Stockholders") shall be entitled to receive out of
the assets of the Corporation legally available for distribution to its
stockholders, whether from capital, surplus or earnings before any payment shall
be made to the holders of Common Stock or any other class or series of stock
ranking on Liquidation junior to such Series C Stock, an amount per share equal
to the Original Purchase Price (as defined in Section A.8 hereof), plus, in each
case, an amount equal to any accrued and declared but unpaid dividends thereon
pursuant to Section A.3(a) hereof.
A.4(c) Subject to Section A.4(a) above, if, upon any Liquidation, the
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the Series C Stockholders the full amount as to which
each of them shall be entitled pursuant to Section A.4(b), then the Series C
Stockholders shall first share ratably in any distribution of assets according
to the respective amounts which would be payable to them in respect of the
shares held upon such distribution if all amounts payable on or with respect to
such shares were paid in full. For purposes of calculating the amount of any
payment to be paid upon any such Liquidation, each share of Series C Stock shall
be deemed to be that number of shares (including fractional shares) of Common
Stock into which it is then convertible, rounded to the nearest one-tenth of a
share.
A.4(d) In the event of any Liquidation, after payment shall have been
made to the Series C Stockholders of the full amount to which they shall be
entitled pursuant to Section A.4(b), with respect to each other class or series
of capital stock (other than Common Stock) ranking on Liquidation junior to such
Series C Stock (in descending order of seniority), the Series C Stockholders,
as a class, shall be entitled to receive an amount equal (and in like kind) to
the aggregate preferential amount fixed for each such junior class or series of
capital stock, which amount shall be distributed among the Series C Stockholders
in an equal amount per share of the Series C Stock then outstanding. If, upon
any Liquidation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the Series C Stockholders
<PAGE>
and a class or series of capital stock (other than the Common Stock) junior to
the Series C Stock the full amounts to which they shall be entitled pursuant to
the next preceding sentence, the holders of the Series C Stock and such other
class or series of capital stock shall share ratably in any distribution of
assets according to the respective preferential amounts fixed for the Series C
Stock (pursuant to Section A.4(b)) and such junior class or series of capital
stock which would be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
A.4(e) In the event of any Liquidation, after payment shall have
been made to the Series C Stockholders of the full amount to which they shall be
entitled as aforesaid, with respect to the Common Stock the Series C
Stockholders as a class shall be entitled to share ratably (calculated with
respect to such Series C Stock as provided in the next sentence) with the Common
Stockholders in all remaining assets of the Corporation available for
distribution to its stockholders. For purposes of calculating the amount of any
payment to be paid upon any such Liquidation, each share of such Series C Stock
shall be deemed to be that number of shares (including fractional shares) of
Common Stock into which it is then convertible, rounded to the nearest one-tenth
of a share.
A.4(f)(i) In the event of and simultaneously with the closing of an
Event of Sale (as hereinafter defined), the Corporation shall (unless waived
pursuant to Section A.4(f)(v) or otherwise prevented by law) redeem all of the
shares of Series C Stock then outstanding for a cash amount per share determined
as set forth herein (the "Special Liquidation Price," said redemption being
referred to herein as a "Special Liquidation"). For all purposes of this Section
A.4(f), the Special Liquidation Price shall be equal to that amount per share
which would be received by each Series C Stockholder if, in connection with an
Event of Sale, all consideration paid in exchange for the assets or the shares
of capital stock (as the case may be) of the Corporation were actually paid to
and received by the Corporation and the Corporation were immediately thereafter
liquidated and its assets distributed pursuant to Section A.4(a) through (e)
hereof. To the extent that one or more redemptions (as described in Section A.5
hereof) and/or Special Liquidations are occurring concurrently, the Special
Liquidation under this Section A.4(f) shall be deemed to occur first. The date
upon which the Special Liquidation shall occur is sometimes referred to herein
as the "Special Liquidation Date".
A.4(f)(ii) At any time on or after the Special Liquidation Date, a
Series C Stockholder shall be entitled to receive the Special Liquidation Price
for each such share of Series C Stock owned by such holder. Subject to the
provisions of Section A.4(f)(iii) hereof, payment of the Special Liquidation
Price will be made upon actual delivery to the Corporation or its transfer agent
of the certificate representing such shares of Series C Stock.
A.4(f)(iii) If on the Special Liquidation Date less than all the
shares of Series C Stock then outstanding may be legally redeemed by the
Corporation, the Special Liquidation shall be pro rata with respect to such
--- ----
Series C Stock based upon the number of outstanding shares of Series C Stock
then owned by each holder thereof.
A.4(f)(iv) On and after any Special Liquidation rate, all rights in
respect of the shares of Series C Stock to be redeemed shall cease and terminate
except the right to receive the applicable Special Liquidation Price as provided
herein, and such shares of Series C Stock shall
<PAGE>
no longer be deemed to be outstanding, whether or not the certificates
representing such shares of Series C Stock have been received by the
Corporation; provided, however, that, if the Corporation defaults in the payment
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of the Special Liquidation Price with respect to any Series C Stock, the rights
of the holder(s) thereof with respect to such shares of Series C Stock shall
continue until the Corporation cures such default.
A.4(f)(v) Anything contained herein to the contrary notwithstanding,
the provisions of this Section A.4(f) may be waived by the holders of 66 2/3% in
voting power of the share of Series C Stock then outstanding, by delivery of
written notice of waiver to the Corporation prior to the closing of any Event of
Sale, in which event the Corporation shall not redeem any shares of Series C
Stock pursuant to this Section A.4(f).
A.4(f)(vi) Any notice required to he given to the holders of shares
of Series C Stock pursuant to Section A.7(f) hereof in connection with an Event
of Sale shall include a statement by the Corporation of (A) the Special
Liquidation Price which each Series C Stockholder shall be entitled to receive
upon the occurrence of a Special Liquidation under this Section A.4(f) and (B)
the extent to which the Corporation will, if at all, be legally prohibited from
paying each holder of Series C Stock the Special Liquidation Price.
A.4(f)(vii) For purposes of this Section A.4(f), an "Event of Sale"
shall mean (A) the merger or consolidation of the Corporation into or with
another corporation, partnership, joint venture, trust or other entity, or the
merger or consolidation of any corporation into or with the Corporation (in
which consolidation or merger the stockholders of the Corporation receive
distributions of cash or securities as a result of such consolidation or merger
in complete exchange for their shares of capital stock of the Corporation), or
(B) the sale or other disposition of all or substantially all the assets of the
Corporation, unless, upon consummation of such merger, consolidation or sale of
assets, the holders of voting securities of the Corporation immediately prior to
such transaction continue to own directly or indirectly not less than a majority
of the voting power of the surviving corporation.
Section A.5 Redemption.
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A.5(a)(i) Subject to Section A.5(a)(v) of this Section A.5, on or after
December ____, 2002, the Corporation shall (unless otherwise prevented by law)
at the request of holders of not less than 66 2/3% in voting power of the then
outstanding shares of Series C Stock (each, a "Requesting Preferred Stockholder"
and collectively, the "Requesting Preferred Stockholders") redeem all (but not
less than all) of the outstanding Series C Stock owned by such Requesting
Preferred Stockholders. The redemption price per share (the "Redemption
Payment") shall be equal to the Original Purchase Price for each Series C Stock,
which amounts shall be paid by the Corporation in three equal annual
installments, each of which redemption payment installments shall be increased
by an amount equal to any accrued but unpaid dividends thereon to the respective
date of such redemption installment payment (each hereinafter referred to as a
"Redemption Date"), with the first such redemption to be upon not less than 40
days prior written notice to the Corporation in accordance with Section A.5(a)
of this Article.
<PAGE>
A.5(a)(iii) On and after the respective Redemption Date all rights of any
Requesting Preferred Stockholder with respect to the Series C Stock to be
redeemed on such date as applicable, owned by such Requesting Preferred
Stockholder, except the right to receive the Redemption Payment as provided
herein, shall cease, and such shares shall no longer be deemed to be
outstanding, whether or not the Corporation has received the certificates
representing such shares; provided, however, that if the Corporation defaults in
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the payment of the Redemption Payment the rights of the Requesting Preferred
Stockholder shall continue until the Corporation cures such default.
A.5(a)(iii) Any Requesting Preferred Stockholder shall send notice of its
redemption request (the "Redemption Notices) pursuant to this Section A.5(a), by
first-class, certified mail, return receipt requested, postage prepaid to the
Corporation at its principal place of business. At any time on or after a
Redemption Date, the Requesting Preferred Stockholders, with respect to the
shares of Series C Stock requested by such Requesting Preferred Stockholders to
be redeemed on a Redemption Date in accordance with this Section A.5(a) shall be
entitled to receive the Redemption Payment in three equal installments, the
first of which installments shall be made upon actual delivery to the
Corporation or its transfer agent of the certificate or certificates
representing the shares of Series C Stock to be redeemed.
A.5(a)(iv) If the assets of the Corporation available for any redemption
pursuant to this Section A.5(a) shall be insufficient to pay, or if the
Corporation upon any redemption shall be prevented by law from paying, the
aggregate of the Redemption Payments owing on such Redemption Date, then (i) the
Requesting Preferred Stockholders shall share ratably in any such redemption
according to the respective amounts which would be payable in respect of such
shares if the Redemption Payment installments then payable with respect to the
Requesting Preferred Stockholders were paid in full, and any such Redemption
Payment installment with respect to the Requesting Preferred Stockholders shall
be made in full before any payment shall be made to the holders of any stock
ranking on redemption junior to the Series C Stock (with respect to rights to
redemption, the Series C Stock shall be pari passu and shall rank prior to the
---- -----
Common Stock). At any time thereafter when additional funds of the Corporation
are legally available for the redemption of any Series C Stock of the Requesting
Preferred Stockholders not redeemed on the Redemption Date, such funds will
immediately be used to redeem the balance of the Series C Stock of the
Requesting Preferred Stockholders which the Corporation became obligated to
redeem on such Redemption Date, but which it has not so redeemed, prior to the
redemption of any other shares of Preferred Stock of the Corporation.
A.5(a)(v) Anything contained in this Section A.5(a) to the contrary
notwithstanding, the holders of Series C Stock shall have the right, exercisable
at any time up to the fifth Business Day prior to the close of business on a
Redemption Date (unless the Corporation shall default in, or be legally
prohibited from, paying the installment payment of the Redemption Price as
herein provided, in which event such right shall be exercisable until such
default is cured), to convert all or any part of such shares requested by such
holder to be redeemed as herein provided into shares of Common Stock pursuant to
Section A.7 of this Article. If, and to the extent, any Series C Stock so
entitled to redemption are converted into shares of Common Stock by the holders
thereof prior to the close of business on such Redemption Date, the total number
of Series C Stock otherwise to be redeemed on such Redemption Date shall be
reduced by the number of Series C Stock so converted.
<PAGE>
A.5(a)(vi) Shares of Series C Stock are not subject to or entitled to the
benefit of a sinking fund.
Section A.6 Voting.
------
A.6(a) In addition to any other rights provided for herein or by
law, the Series C Stockholders shall be entitled to vote on all matters as to
which Common Stockholders shall be entitled to vote, in the same manner and with
the same effect as such Common Stockholders. In any such vote, each share of
Series C Stock shall entitle the holder thereof to the number of votes per share
that equals the number of shares of Common Stock (including fractional shares)
into which each such share of Series C Stock is then convertible, rounded up to
the nearest one-tenth of a share.
A.6(b)(i) In addition to the rights specified in Section A.6(a), the
holders of a majority in voting power of the Series C Stock, voting as a
separate class, shall have the exclusive right to elect two directors to the
board of Directors of the Corporation (the "Series C Preferred Directors"). In
any election of Series C Preferred Directors pursuant to this Section A.6(b),
each Series C Stockholder shall be entitled to one vote for each share of the
Series C Stock held, and no Series C Stockholder shall be entitled to cumulate
its votes by giving one candidate more than one vote per share. The exclusive
voting right of the Series C Stockholders, contained in this Section A.6(b), may
be exercised at a special meeting of the Series C Stockholders called as
provided in accordance with the By-laws of the Corporation, at any annual or
special meeting of the stockholders of the Corporation, or by written consent
of such Series C Stockholders in lieu of a meeting. The Series C Preferred
Directors elected pursuant to this Section A.6(b) shall serve from the date of
their election and qualification until their successors have been duly elected
and qualified.
A.6(b)(ii) A vacancy in the directorships to be elected by the Series
C Stockholders (including any vacancy created on account of an increase in the
number of directors on the Board of Directors), pursuant to Section A.6(b)(i),
may be failed only by a vote at a meeting called in accordance with the By-laws
of the Corporation or written consent in lieu of such meeting of (A) the holders
of at least a majority in voting power of such Series C Stock or (B) the
remaining director(s) elected by the Series C Stockholders.
A.6(c) The Corporation shall not, without the affirmative approval
of the holders of shares representing at least sixty-six and two-thirds percent
(66 2/3%) of the voting power of the Series C Stock then outstanding (determined
as set forth in the second sentence of Section A6(a) hereof), acting separately
from the holders of Common Stock or any other securities of the Corporation
given by written consent in lieu of a meeting or by vote at a meeting called for
such purpose, for which meeting or approval by written consent timely and
specific notice (a "Notice") shall have been given to each holder of such Series
C Stock, in the manner provided in the By-laws of the Corporation: (i) sell,
abandon, transfer, lease or otherwise dispose of all or substantially all of its
properties or assets or assets or properties in a single or series of related
transactions in excess of 10% of the then net worth of the Corporation, (ii)
except as otherwise required by this Certificate of Designation, declare or pay
any dividend or make any distribution with respect to shares of its capital
stock (whether in cash, shares of capital stock or other securities or
property); (iii) except as otherwise required by this Certificate of Designation
or in
<PAGE>
any agreement approved by the Board of Directors with an officer, director,
employee or consultant providing for the repurchase of any of its capital stock
owned by such officer, director, employee or consultant at the option of the
Corporation, make any payment on account of the purchase, redemption or other
retirement of any share of capital stock of the Corporation, or distribute to
Common Stockholders shares of the Corporation's capital stock (other than Common
Stock) or other securities of other entities, evidences of indebtedness issued
by the Corporation or other entities, or other assets or options or rights; (iv)
merge or consolidate with or into, or permit any subsidiary to merge or
consolidate with or into, any other corporation, corporations or other entity or
entities; (v) voluntarily dissolve, liquidate or wind-up or carry out any
partial liquidation or distribution or transaction in the nature of a partial
liquidation or distribution; (vi) in any manner alter or change the
designations, powers, preferences, rights, qualifications, limitations or
restrictions or the Series C Stock; (vii) take any action to cause any
amendment, alteration or repeal of any of the provisions of Certificate of
Designation or the By-laws of the Corporation, which amendment, alteration or
repeal adversely affects the powers, preferences or rights pertaining to the
Series C Stock; (viii) authorize, designate, create, issue or agree to issue any
shares of Preferred Stock or other capital stock of the Corporation (including,
without limitation, additional shares of Series C Stock) ranking senior to or
pari passu with the Series C Stock with respect to dividends or liquidation; or
(ix) amend or modify any stock option plan of the Corporation or any stock
option agreement or restricted stock purchase agreement or stock restriction
agreement entered into between the Corporation and its employees, officers,
directors, consultants, contractors and/or any other signatory thereto
(including, without limitation, to accelerate the vesting schedule or exercise
date or dates of any such option or in any stock option agreement or waive or
modify the Corporation's repurchase rights with respect to any shares of the
Corporation's stock issuable pursuant to any restricted stock purchase agreement
or stock restriction agreement) except for immaterial changes either made
thereto from time to time by officers of the Corporation or approved in writing
by both of the Series C Preferred Directors.
Section A.7 Conversion.
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Section A.7(a)(i) Any Series C Stockholder shall have the right, at
any time or from time to time, to convert any or all of its Series C Stock into
that number of fully paid and nonassessable shares of Common Stock for each
share of Series C Stock so converted equal to the quotient of the Original
Purchase Price for such share divided by the Conversion Price for such share (as
defined in Section A.7(d) hereof), as last adjusted and then in effect, rounded
up to the nearest one-tenth of a share; provided, however, that cash shall be
-------- -------
paid in lieu of the issuance of fractional shares of Common Stock, as provided
in Section A.7(c)(ii) hereof.
A.7(a)(ii) Any Series C Stockholder who exercises the right to convert
shares of Series C Stock into shares of Common Stock, pursuant to this Section
A.7. shall be entitled to payment of all declared but unpaid dividends payable
with respect to such Series C Stock pursuant to Section A.3(a) herein, up to and
including the Conversion Date (as defined in Section A.7(b)(ii) hereof).
A.7(b)(i) Any Series C Stockholder may exercise the right to convert
such shares into Common Stock pursuant to this Section A.7 by delivering to the
Corporation during regular business hours, at the office of the Corporation or
any transfer agent of the Corporation or at
<PAGE>
such other place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted (the "Series C Preferred
Certificate"), duly endorsed or assigned in blank to the Corporation (if
required by it).
A.7(b)(ii) Each Series C Preferred Certificate shall be accompanied
by written notice stating that such holder elects to convert such shares and
stating the name or names (with address) in which the certificate or
certificates for the shares of Common Stock (the "Common Certificate") are to be
issued. Such conversion shall be deemed to have been effected on the date when
such delivery is made, and such date is referred to herein as "Conversion Date".
A.7(b)(iii) As promptly as practicable thereafter, the Corporation
shall issue and deliver to or upon the written order of such holder, at the
place designated by such holder, a certificate or certificates for the number
of full shares of Common Stock to which such holder is entitled and a check or
cash in respect of any fractional interest in any shares of Common Stock, as
provided in Section A.7(c)(ii) hereof, payable with respect to the shares so
converted up to and including the Conversion Date.
A.7(b)(iv) The person in whose name the certificate or certificates
for Common Stock are to be issued shall be deemed to have become a holder of
record of Common Stock on the applicable Conversion Date, unless the transfer
books of the Corporation are closed on such Conversion Date, in which event the
holder shall be deemed to have become the stockholder of record on the next
succeeding date on which the transfer books are open, provided that the
Conversion Price shall be that Conversion Price in effect on the Conversion
Date.
A.7(b)(v) Upon conversion of only a portion of the number of shares
covered by a Series C Preferred Certificate, the Corporation shall issue and
deliver to or upon the written order of the holder of such Series C Preferred
Certificate, at the expense of the Corporation, a new certificate covering the
number of shares of the Series C Stock representing the unconverted portion of
the Series C Preferred Certificate, which new certificate shall entitle the
holder thereof to all the rights, powers and privileges of a holder of such
shares.
A.7(c)(i) If a Series C Stockholder shall surrender more than one
share of Series C Stock for conversion at any one time, then the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of Series C Stock so surrendered.
A.7(c)(ii) No fractional shares of Common Stock shall be issued upon
conversion of Series C Stock. The Corporation shall pay a cash adjustment for
any such fractional interest in an amount equal to the Current Market Price
thereof on the Conversion Date, as determined in accordance with Section
A.7(d)(vii) hereof.
A.7(d) For all purposes of this Part A, the "Conversion Price"
with respect to the Series C Stock shall be equal to the Original Purchase Price
(as hereinafter defined) with respect to each such share of Series C Stock,
subject to adjustment from time to time as follows:
A.7(d)(i) If the Corporation shall, at any time or from
time to time after the Original Issuance Date, issue any shares of Common Stock
or other securities convertible into, or exchangeable or exercisable for, shares
of Common Stock (including, but not limited to,
<PAGE>
Series C Stock), in each case other than Excluded Stock (as hereinafter
defined), for a consideration per share less than the applicable Conversion
Price in effect immediately prior to the issuance of such Common Stock, or
other securities, the Conversion Price for Series C Stock in effect immediately
prior to each such issuance shall automatically (except as otherwise provided in
this Section A.7(d)(i) be lowered to an amount determined as follows:
First: multiply total number of shares of Common Stock outstanding
--------
(including any shares of Common Stock deemed to have been issued pursuant
to subdivision (A.7(a)(i) of this clause (iv)) immediately prior to such
issuance (it being understood that the shares of Common Stock issuable upon
conversion of Series C Stock shall be deemed to be outstanding for all
purposes of the computation required in this clause A.7(d)(i)) by the
Conversion Price to be adjusted (as in effect immediately prior to such
issuance);
Second: add the consideration received by the Corporation upon such
---
issuance to the product determined in clause "First": and
Third: divide the sum determined in clause "Second" by the total
------
number of shares of Common Stock outstanding (including any shares of
Common Stock deemed to have been issued pursuant to subdivision A.7(a)(i)
immediately after the issuance of such Common Stock (it being understood
that the shares of Common Stock issuable upon conversion of the Series C
Stock shall be deemed to be outstanding for all purposes of the computation
required in this Clause A.7(a)(i)).
For the purposes of any adjustment of the Conversion Price pursuant to this
Section A.7(d)(i), the following provisions shall be applicable:
A.7(d)(i)(A) In the case of the issuance of Common Stock in
whole or in part for cash, the consideration shall be deemed to be the amount of
cash paid therefor after deducting therefrom any discounts, commissions or other
expenses allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof, plus the value of
any property other than cash received by the Corporation, determined as provided
in Section A.7(d)(i)(13) hereof.
A.7(d)(i)(B) In the case of the issuance of Common Stock for
a consideration in whole or in part in property other than cash, the value of
such property or consideration other than cash shall be deemed to be the fair
market value of such property as determined in good faith by the Board of
Directors, irrespective of any accounting treatment: provided, however, that
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such fair market value as determined by the Board of Directors shall not exceed
the aggregate Current Market Price (as defined in Section A. 7(d)(vii) hereof)
of the shares of Common Stock being issued, less any cash consideration paid for
such shares, determined as provided in Section A.7(d)(i)(A) hereof.
A.7(d)(i)(C) In the ease of the issuance of Common Stock for
consideration in whole or in part other than cash or property, the value of such
consideration shall be deemed to be the aggregate par value of such Common Stock
(or the aggregate stated
<PAGE>
value if such Common Stock, has no par value), less the value of any other
consideration received by the Corporation, determined as provided in Sections
A..7(d)(i)(A) and (B) hereof.
A. 7(d)(i)(D) In the case of the issuance of options or other
rights to purchase or subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
other rights to subscribe for such convertible or exchangeable securities
(collectively, the "Convertible Securities"):
A.7(d)(i)(D)(l) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Section A.7(d)(i)(A), (B) and (C) hereof),
if any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby (the consideration in each case to be determined in
the manner provided in Sections A.7(d)(i)(A), (B) and (C) hereof);
A.7(d)(i)(D)(2) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of, or in exchange for, any such convertible
or exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration received by the Corporation for any
such securities and related options or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
Sections A.7(d)(i)(A), (B) and (C) hereof);
A.7(d)(i)(D)(3) if there is any change in the exercise price of,
or number of shares deliverable upon exercise of, any such option or rights or
upon the conversion or exchange of any such convertible or exchangeable
securities (other than a change resulting from the antidilution provisions
thereof), then the Conversion Price shall automatically be readjusted in
proportion to such change; no further adjustments in the Conversion Price for
the Series C Stock shall be made upon the subsequent issuance of Convertible
Securities or shares of Common Stock upon the exercise of the Convertible
Securities; and
A.7(d)(i)(D)(4) upon the expiration without being exercised of
any such options or rights or the termination of any such rights to convert or
exchange such convertible or exchangeable securities, the Conversion Price shall
be automatically readjusted to the Conversion Price that would have obtained had
such unexercised options, rights or convertible or exchangeable securities not
been issued.
A.7(d)(ii) "Excluded Stock" shall mean:
A.7(d)(ii)(A) Shares of Common Stock issued upon
conversion of any shares of Series C Stock;
<PAGE>
A.7(d)(ii)(B) 750,000 shares of Common Stock issued or issuable
to officers, directors, employees or independent contractors of or consultants
to the Corporation, pursuant to any agreement, plan or arrangement approved by
the Board of Directors and the options exercisable for the foregoing shares;
A.7(d)(ii)(C) Common Stock issued as a stock dividend payable
in shares of Common Stock, or capital stock of any class issuable upon any
subdivision, recombination, split-up or reverse stock split of all the
outstanding shares of such class of capital stock;
A.7(d)(ii)(D) Common Stock issued upon a conversion of any
Series A Stock or Series B Stock;
A.7(d)(ii)(E) Any securities issued pursuant to the acquisition
by the Corporation or by a corporation, all of the capital stock of which is
owned by the Corporation (the "Subsidiary"), of any other corporation,
partnership, joint venture, trust or other entity by any merger, stock
acquisition, reorganization, purchase of substantially all assets or otherwise
in which the Corporation or the subsidiary, or the stockholders of record of the
Corporation or the Subsidiary immediately prior to the effective date of such
transaction, directly or indirectly, own at least a majority of the voting power
of the acquired entity or the resulting entity after such transaction.
A.7(d)(ii)(F) securities sold by the Corporation in a bona
fide, firmly underwritten public offering of shares of Common Stock, registered
under the Act pursuant to a registration statement on Form S-1.
A.7(d)(ii)(G) 335,000 shares of Common Stock issuable upon
the exercise of warrants issued or to be issued.
A.7(d)(iii) If the number of shares of Common Stock outstanding
at any time after the Original Issuance Date (as hereinafter defined) is
increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, following the record
date fixed for the determination of holders of Common Stock entitled to receive
such stock dividend, subdivision or split-up the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Series C Stock shall be increased in proportion to
such increase in outstanding shares.
A.7(d)(iv) 1f, at any time after the Original Issuance Date,
the number of shares of Common Stock outstanding is decreased by a combination
of the outstanding shares of Common Stock, then, following the record date for
such combination, the Conversion Price shall be appropriately increased so that
the number of shares of Common Stock issuable on conversion of each share of
Series C Stock shall be decreased in proportion to such decrease in outstanding
shares.
A.7(d)(v) In the event, at any time after the Original
Issuance Date, of any capital reorganization, or any reclassification of the
capital stock of the Corporation (other than a change in par value or from par
value to no par value or from no par value to par value or
<PAGE>
as a result of a stock dividend or subdivision, split-up or combination of
shares), or the consolidation or merger of the Corporation with or into another
person (other than consolidation or merger in which the Corporation is the
continuing corporation and which does not result in any change in the powers,
designations, preferences and rights, or the qualifications, limitations or
restrictions, if any, of the capital stock of the Corporation) or of the sale or
other disposition of all or substantially all the properties and assets of the
Corporation as an entirety to any other person (any such transaction, an
"Extraordinary Transaction"), then the Corporation shall provide appropriate
adjustment to the Conversion Price with respect to each share of Series C Stock
outstanding after the effectiveness of such Extraordinary Transaction (and
excluding any Series C Stock redeemed pursuant to Section A.4(f) hereof in
connection therewith) such that each share of Series C Stock outstanding
immediately prior to the effectiveness of the extraordinary Transaction (other
than the shares redeemed pursuant to Section A.4(f) hereof) shall be convertible
into the kind and number of shares of stock or other securities or property of
the Corporation, or of the corporation resulting from or surviving such
Extraordinary Transaction, that a holder of the number of shares of Common Stock
deliverable (immediately prior to the effectiveness of the Extraordinary
Transaction) upon conversion of such share of Series C Stock would have been
entitled to receive upon such Extraordinary Transaction. The provisions of this
Section A.7(d)(v) shall similarly apply to successive Extraordinary
Transactions.
A.7(d)(vi) All calculations under this Section A.7(d) shall
be made to the nearest one-tenth of a cent ($.00l) or to the nearest one-tenth
of a share, as the case may be.
A.7(d)(vii) For the purpose of any computation pursuant to
Section A.7(c) hereof or this Section A.7(d), the Current Market Price at any
date of one share of Common Stock shall be deemed to be the average of the daily
closing prices for the 30 consecutive business days ending on the fifth (5th)
business day before the day in question (as adjusted for any stock dividend,
split-up, combination or reclassification that took effect during such
30-business-day period) as follows:
A.7(d)(vii)(A) If the Common Stock is listed or admitted for
trading on a national securities exchange, then the closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sales took place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading.
A.7(d)(vii)(B) If the Common Stock is not at the time listed or
admitted for trading on any such exchange, then such price as shall be equal to
the last reported sales price, or if there is no such sale price, the average of
the last reported bid anti asked prices, as reported by the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") on such day.
A.7(d)(vii)(C) If the Common Stock is not at the time quoted on
the NASDAQ, then such price shall be equal to the last reported bid and asked
prices on such day as reported by the National Quotation Bureau, Inc., or any
similar reputable quotation and reporting service, if such quotation is not
reported by the National Quotation Bureau, Inc.
<PAGE>
A.7(d)(vii)(D) If the Common Stock is not traded in such manner
that the quotations referred to in this Section A.7(d)(vii) are available for
the period required hereunder, then the Current Market Price shall be the fair
market value of such share, as determined in good faith by a majority of the
entire Board of Directors.
A.7(d)(viii) In any case in which the provisions of this
Section A.7(d) shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may defer until
the occurrence of such event (A) issuing to the holder of any shares of Series C
Stock converted after such record date and before the occurrence of such event
the additional shares of capital stock issuable upon such conversion by reason
of the adjustment required by such event over and above the shares of capital
stock issuable upon such conversion before giving effect to such adjustment, and
(B) paying to such holder any cash amounts in lieu of fractional shares pursuant
to Section A.7(c)(ii) hereof; provided, however, that the Corporation shall
-------- -------
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares, and such cash, upon the
occurrence of the event requiring such adjustment.
A.7(d)(ix) If a state of facts shall occur that, without being
specifically controlled by the provisions of this Section A.7, would not fairly
protect the conversion rights of the holders of the Series C Stock in accordance
with the essential intern and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
conversion rights.
A.7(e) Whenever the Conversion Price shall be adjusted as
provided in Section A.7(d) hereof, the Corporation shall forthwith file and keep
on record at the office of the Secretary of the Corporation and at the office of
the transfer agent for the Series C Stock or at such other place as may be
designated by the Corporation, a statement, signed by its President or Chief
Executive Officer and by its Treasurer or Chief Financial Officer, showing in
detail the facts requiring such adjustment and the Conversion Price that shall
be in effect after such adjustment. The corporation shall also cause a copy of
such statement to be sent by first-class, certified mail, return receipt
requested, postage prepaid, to each Series C Stockholder at such holder's
address appearing on the Corporation's records. Where appropriate, such copy
shall be given in advance of any such adjustment and shall be included as part
of a notice required to be mailed under the provisions of Section A.7(t) hereof.
A.7(f) In the event the Corporation shall propose to take any
action of the types described in Section A.7(d)(i), (iii), (iv) or (v) hereof,
or any other Event of Sale, the Corporation shall give notice to each Series C
Stockholder in the manner set forth in Section A.7(e) hereof, which notice shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Conversion Price with respect to the Series C Stock, and the number, kind
or class of shares or other securities or property which shall be deliverable or
purchasable upon each conversion of Series C Stock. In the case of any action
that would require the fixing of a record date, such notice shall be given at
least 20 days prior to
<PAGE>
the record date so fixed, and in the case of any other action, such notice shall
be given at least 30 days prior to the taking of such proposed action.
A.7(g) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Series C
Stock: provided, however that the Corporation shall not be required to pay any
-------- -------
taxes which may be payable in respect of any transfer involved in the issuance
or delivery of any certificate for such shares in a name other than that of the
Series C Stockholder in respect of which such shares of Series C Stock are being
issued.
A.7(h) The Corporation shall reserve out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the Series C Stock sufficient shares of Common Stock to provide
for the conversion of all outstanding shares of Series C Stock.
A.7(i) All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance
by the Corporation, be validly issued, fully paid and nonassessable, not subject
to any preemptive or similar rights and free from all taxes, liens or charges
with respect thereto created or imposed by the Corporation.
A.7(j) in the event that, at any time while any of the Series C
Preferred Stock shall be outstanding, the Corporation shall consummate an
underwritten public offering on a firm commitment basis pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock providing aggregate net proceeds to the
Corporation equal to at least $25,000,000 having a per share offering price of
at least $15.00 as presently constituted (a "Qualifying Public Offering"), then
all outstanding shares of Series C Preferred Stock shall, automatically and
without further action on the part of the holders of the Series C Preferred
Stock, be converted into shares of Common Stock with the same effect as if the
certificates evidencing such shares had been surrendered for conversion, such
conversion to be effective simultaneously with the closing of such public
offering; provided, however, that certificates evidencing the shares of Common
Stock issuable upon such conversion shall not be issued except on surrender of
the certificates for the shares of the Series C Preferred Stock so converted.
Each share of Series C Preferred Stock shall be converted into fully paid and
nonassessable shares (calculated to the nearest 1/100 of a share) of Common
Stock at the Conversion Price in effect on the Conversion Date.
Section A.8 Definitions. As used in Section A of this Certificate of
-----------
Designation, the following terms shall have the corresponding meanings:
"Business Day" shall mean any day other than a Saturday, Sunday
or public holiday in the state where the principal executive office of the
Corporation is located.
"Original issuance Date" with respect to any share of Series C
Stock shall mean the dare of first issuance of such share.
<PAGE>
"Original Purchase Price" shall mean, with respect to the
Series C Stock, $11.10 per share, subject, for all purposes other than
Section A.7 hereof (which provisions shall be applied in accordance with
their own terms), to Proportional Adjustment.
"Proportional Adjustment" shall mean an adjustment made to the
price of the Series C Stock upon the occurrence of a stock split, reverse
stock split, stock dividend, stuck combination, reclassification or other
similar change with respect to such security, such that the price of one
share of the Series C Stock before the occurrence of any such change shall
equal the aggregate price of the share (or shares or fractional share) of
such security (or any other security) received by the holder of the
Series C Stock with respect thereto upon the effectiveness of such change.
ARTICLE II
Notices
-------
All notices referred to herein, except as otherwise expressly provided,
will be made by registered or certified mail, return receipt requested, postage
prepaid and will be deemed to have been given when so mailed.
Headings of Subdivisions
------------------------
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
Severability
------------
If any right, preference or limitation of the Series C Stock set forth
herein is invalid, unlawful or incapable of being enforced by reason of any
rule of law or public policy, all other rights, preferences and limitations set
forth herein which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall, nevertheless, remain in
full force and effect, and no right, preference or limitation herein set forth
shall be deemed dependent upon any other such rights, preference or limitation
unless so expressed herein.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Designation to be duly executed on behalf of the Corporation as of December 23,
1997.
By: /s/ Dale R. Pfost
--------------------------
Dale R. Pfost, President
ATTEST: /s/ Donald R. Marvin
------------------------
Donald R. Marvin
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
ORCHID BIOCOMPUTER, INC.
It is hereby certified that:
FIRST: The name of the corporation is Orchid Biocomputer, Inc., (the
- -----
"Corporation").
SECOND: That Article FOURTH of the Corporation's Certificate of Incorporation,
- ------
as amended, be further amended by deleting the first paragraph thereof
in its entirety and inserting in lieu thereof the following:
"4. A. Classes and Number of Shares.
The total number of shares of all classes of capital stock that
the Corporation shall have authority to issue is Fourteen Million,
Four Hundred Thousand (14,400,000) shares, consisting of (i) Four
Million, Four Hundred Thousand (4,400,000) shares of preferred stock,
par value $.001 per share (the "Preferred Stock"), and (ii) Ten
Million (10,000,000) shares of common stock, par value $.001 per share
(the "Common Stock")."
THIRD: That Article FOURTH of the Certificate of Incorporation be further
- -----
revised by amending the Certificate of Designation of the Series A
Convertible Preferred Stock of the Corporation, dated August 30, 1995
(the "Series A Certificate of Designation") by deleting Section
6(d)(iii) thereof and by inserting in lieu thereof the following:
"(iii) the conversion of shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock; and"
<PAGE>
FOURTH: That Article FOURTH of the Certificate of Incorporation be further
- ------
revised by amending the Series A Certificate of Designation by
deleting the definition of "Junior Security" located in Section 10,
paragraph 6 and by inserting in lieu thereof the following:
"Junior Security" means Common Stock and any other equity
---------------
security (other than the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock) of any kind
which the corporation at any time issues or is authorized to
issue."
FIFTH: That Article FOURTH of the Certificate of Incorporation be further
- -----
revised by amending the Series A Certificate of Designation by
deleting Section 11 in its entirety and by inserting in lieu thereof,
the following:
"The Series A Preferred Stock shall rank senior to
Junior Securities as to the distribution of assets on
liquidation, dissolution and winding up of the
Corporation. The Series A Preferred Stock shall rank on
a parity with any other series of the Corporation's
Preferred Stock, par value $.001 per share (except as
otherwise provided in the Certificate of Designation
relating to such series of Preferred Stock), as to the
distribution of assets on liquidation, dissolution or
winding up."
SIXTH: That Article FOURTH of the Certificate of Incorporation be further
- -----
revised by amending the Certificate of Designation of the Series B
Convertible Preferred Stock of the Corporation dated August 30, 1995
(the "Series B Certificate of Designation") by deleting Section
6(d)(iii) thereof and by inserting in lieu thereof the following:
"(iii) the conversion of shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock; and"
SEVENTH: That Article FOURTH of the Certificate of Incorporation be further
- -------
revised by amending the Series B Certificate of Designation by
deleting the definition of Junior Security located in Section 10,
paragraph 8, and by inserting in lieu thereof the following:
"Junior Security" means Common Stock and any other equity
---------------
security (other than the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred
Stock) of any kind which the corporation at any time
issues or is authorized to issue."
<PAGE>
EIGHTH: That Article FOURTH of the Certificate of Incorporation be further
- ------
revised by amending the Series B Certificate of Designation by
deleting Section 11 in its entirety and by inserting in lieu thereof,
the following:
"The Series B Preferred Stock shall rank senior to
Junior Securities as to the distribution of assets on
liquidation, dissolution and winding up of the
Corporation. The Series B Preferred Stock shall rank on
a parity with any other series of the Corporation's
Preferred Stock, par value $.001 per share (except as
otherwise provided in the Certificate of Designation
relating to such series of Preferred Stock), as to the
distribution of assets on liquidation, dissolution or
winding up."
NINTH: That Article FOURTH of the Certificate of Incorporation be further
- -----
revised by amending the Certificate of Designation of the Series C
Convertible Preferred Stock of the Corporation dated December 24, 1997
(the "Series C Certificate of Designation") by deleting in its
entirety the last sentence of Section A.1 of Article and inserting in
lieu thereof the following:
"The number of authorized shares of the Series C Stock
is Two Million, Four Hundred Ninety-Three Thousand, Six
Hundred Ninety-Two".
TENTH: That Article FOURTH of the Certificate of Incorporation be further
- -----
revised by amending the definition of "Excluded Stock" set forth in
Section A.7(d)(ii) of the Series C Certificate of Designation by
adding immediately after Section A.7(d)(ii)(G) the following:
"Section A.7(d)(ii)(H) shares of Common Stock
issuable upon exercise of (i) that certain stock
option issued by the Corporation in favor of
Motorola Corporation and (ii) that certain stock
option issued by the Corporation in favor of
SmithKline Beecham.
Section A.7(d)(ii)(I) 90,090 shares of Common
Stock issued or issuable to Dynal A.S."
In lieu of a meeting and vote of the stockholders, stockholders
representing a majority of the shares of stock entitled to vote have consented
to said amendments in accordance with the provisions of Section 228(a) and 242
of the General Corporation Law of the State of Delaware, and written notice of
the adoption of the amendments has been given as provided in Section 228 of the
General Corporation Law of the State of Delaware to every stockholder entitled
to such notice, or notice thereof has been waived pursuant to Section 229 of the
General Corporation Law of the State of Delaware.
<PAGE>
The aforesaid amendments of the Certificate of Incorporation, as amended,
have been duly adopted in accordance with the applicable provisions of Section
242, 141(f) and 228 of the General Corporation Law of the State of Delaware.
EXECUTED, effective as of the 24/th/ day of March 1998.
ORCHID BIOCOMPUTER, INC.
By: /s/ Donald R. Marvin
---------------------------
Donald R. Marvin, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
DESIGNATION OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
ORCHID BIOCOMPUTER, INC.
It is hereby certified that:
1. The name of the corporation is Orchid Biocomputer, Inc. (the
"Corporation").
The Certificate of Designation of the Corporation is hereby amended by
deleting Section 1 in its entirety, and by inserting in lieu thereof the
following:
"SECTION 1. The shares of one series of Preferred Stock
created hereunder shall be designated "Series A Convertible
Preferred Stock" (herein referred to as the "Series A
Preferred Stock"), and the number of shares constituting
such series shall be one million, two hundred thousand
(1,200,000)."
3. The amendment of this Certificate of Designation herein certified has been
duly adopted in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware.
EXECUTED, effective as of the 8/th/ day of September, 1998.
By: /s/ Donald R. Marvin
-------------------------
Donald R. Marvin
Vice President
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES,
AND RIGHTS OF
SERIES D CONVERTIBLE PREFERRED STOCK
OF
ORCHID BIOCOMPUTER, INC.
ORCHID BIOCOMPUTER, INC., a Delaware corporation (the "Corporation"), does
hereby certify that, pursuant to authority conferred on the Board of Directors
of the Corporation by the Certificate of Incorporation of the Corporation, as
amended, and pursuant to the provisions of Section 151 of Title 8 of the
Delaware General Corporation Law, the Board of Directors, by telephonic meeting
on September 4, 1998, adopted resolutions providing for the designation,
preferences and relative, participating, optional or other rights, and
qualifications, limitations or restrictions thereof, of Three Hundred Sixty-
Seven Thousand Three Hundred Forty-Seven (367,347) shares of the Corporation's
Preferred Stock, par value $.001 per share, which resolutions are as follows:
RESOLVED: That pursuant to the authority expressly vested in the Board of
- --------
Directors of the Corporation by Article Fourth of the Certificate of
Incorporation of the Corporation, as amended, the Board of Directors
does hereby adopt a resolution, providing for the issuance of a new
series of Preferred Stock, $.001 par value per share, of the
Corporation, to be designated "Series D Preferred Stock" (the "Series
------
D Preferred Stock") consisting of three hundred sixty-seven thousand,
-----------------
three hundred forty-seven (367,347) shares, which number of shares may
be decreased (but not below the number of shares then outstanding)
from time to time by the Board of Directors of the Corporation; and
herein states and expresses that the designation, preferences and
other special or relative rights of the shares of Series D Preferred
Stock shall be as set forth in the form of Term Sheet (the "Term
----
Sheet"), a copy of which has been presented to and reviewed by this
-----
Board of Directors; and further
RESOLVED: That the President and Chief Executive Officer, any Vice President and
- --------
the Secretary of this Corporation be, and each of them acting singly
hereby is, authorized, empowered and directed in the name and on
behalf of this Corporation, to prepare, execute, deliver and file a
Certificate of Designation (the "Certificate of Designation")
--------------------------
establishing the Series D Preferred Stock and accomplish the intents
and purposes of these resolutions, such officer's execution thereof to
be conclusive evidence of such approval and of the authorization
thereof by this Board of Directors.
<PAGE>
Series D Convertible Preferred Stock. The preferences, privileges and
------------------------------------
restrictions granted to or imposed upon the Corporation's Series D Convertible
Preferred Stock, par value $.001 per share, or the holders thereof, are as
follows:
1. Designation and Amount. The shares of such series shall be designated
----------------------
as "Series D Convertible Preferred Stock" (the "Series D Preferred"), and the
number of shares constituting the Series D Preferred shall be [Three Hundred
Sixty Seven Thousand, Three Hundred Forty Seven (367,347)]. Such number of
shares may be increased or decreased by resolution of the Board of Directors,
provided, however, that no decrease shall reduce the number of shares of Series
- -------- -------
D Preferred to a number less than the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon the conversion of any outstanding securities issued
by the Corporation and convertible into Series D Preferred.
2. Liquidation Rights.
------------------
(a) Treatment at Liquidation, Dissolution or Winding Up.
---------------------------------------------------
(i) Except as otherwise provided in Section 2(b) below, in the event
of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of Series D
Preferred shall be entitled to be paid out of the assets of the Corporation
available for distribution to holders of the Corporation's capital stock of
all classes, after and subject to the payment in full of all amounts
required to be distributed to the holders of Series A Preferred Stock,
$.001 par value per share (the "Series A Preferred"), the holders of the
Series B Preferred Stock, $.001 par value per share (the "Series B
Preferred"), the holders of Series C Preferred Stock, $.001 par value per
share (the "Series C Preferred") pursuant to Section A.4(b) of the
Certificate of Designation for such Series C Preferred, and the holders of
any other class or series of stock of the Corporation on liquidation prior
and in preference to the Series D Preferred, but before payment or
distribution of any of such assets to the holders of any other class or
series of the Corporation's capital stock designated to be junior to the
Series D Preferred, on a pro rata basis together with the holders of the
Series C Preferred, an amount equal to $12.25 per share of Series D
Preferred (which amount shall be subject to equitable adjustment whenever
there shall occur a stock dividend, distribution, combination of shares,
reclassification or other similar event with respect to Series D Preferred
and, as so adjusted from time to time, is hereinafter referred to as the
"Base Liquidation Price") and Series C Preferred then outstanding, plus all
dividends accrued or declared but unpaid, to and including the date full
payment shall be tendered to the holders of Series D Preferred with respect
to such liquidation, dissolution or winding up.
(ii) Following payment in full to the holders of Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred of all
amounts distributable to them under Section 2(a)(i) hereof, the remaining
assets of the Corporation available for distribution to holders of the
Corporation's capital stock shall be distributed on a pro rata basis among
the holders of the Common Stock and the Series C Preferred.
<PAGE>
(iii) If the assets of the Corporation shall be insufficient to
permit the payment in full to the holders of Series D Preferred and the
Series C Preferred of all amounts distributable to them under Section
2(a)(i) hereof, then the entire assets of the Corporation available for
such distribution shall be distributed ratably among the holders of the
Series D Preferred and the Series C Preferred.
(b) Treatment of Reorganizations, Consolidations, Mergers and Sales of
------------------------------------------------------------------
Assets. Except as otherwise provided in Subsection 3(d)(vii) hereof, a
- ------
Reorganization (as defined in Subsection 3(d)(vii) hereof) shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation
within the meaning of this Section 2, provided, however, that the holders of at
-------- -------
least a majority of the outstanding shares of the Series D Preferred upon the
occurrence of a Reorganization shall have the option to elect the benefits of
Subsection 3(d)(vii) hereof for the Series D Preferred in lieu of receiving
payment in liquidation, dissolution or winding up of the Corporation pursuant to
this Section 2. The provisions of this Subsection 2(b) shall not apply to any
reorganization, merger or consolidation involving (1) only a change in the state
of incorporation of the Corporation, (2) a merger of the Corporation with or
into a wholly-owned subsidiary of the Corporation which is incorporated in the
United States of America, or (3) an acquisition by merger, reorganization or
consolidation, in which the Corporation is substantively the surviving
corporation and operates as a going concern, of another corporation which is
incorporated in the United States of America and which is engaged in a business
similar to or related to the business of the Corporation and which does not
involve a change in the terms of the Series D Preferred or of the Common Stock.
(c) Distributions other than Cash. Whenever the distribution provided for
-----------------------------
in this Section 2 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property as determined
in good faith by the Board of Directors of the Corporation.
3. Conversion. The holders of Series D Preferred shall have conversion
----------
rights as follows (the "Conversion Rights"):
(a) Right to Convert; Conversion Price. Each share of Series D Preferred
----------------------------------
shall be convertible, without the payment of any additional consideration by the
holder thereof and at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any transfer
agent for the Series D Preferred, into such number of fully paid and non-
assessable shares of Common Stock as is determined by dividing $12.25 by the
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion. The Conversion Price for purposes of calculating the number of
shares of Common Stock deliverable upon conversion without the payment of any
additional consideration by the holder of Series D Preferred (the "Conversion
Price") shall initially be $12.25. Such initial Conversion Price shall be
subject to adjustment, in order to adjust the number of shares of Common Stock
into which Series D Preferred is convertible, as hereinafter provided.
(b) Mechanics of Conversion. Before any holder of Series D Preferred
-----------------------
shall be entitled to convert the same into full shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for the
<PAGE>
Series D Preferred, and shall give written notice to the Corporation at such
office that such holder elects to convert the same and shall state therein the
name of such holder or the name or names of the nominees of such holder in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. No fractional shares of Common Stock shall be issued upon conversion
of any shares of Series D Preferred. In lieu of any fractional shares of Common
Stock to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the then effective Conversion Price.
The Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series D Preferred, or to such holder's nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid, together with cash in lieu
of any fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series D Preferred to be converted, and the person or persons entitled
to receive the shares of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on such date.
(c) Automatic Conversion.
--------------------
(i) Each share of Series D Preferred shall automatically be converted
into shares of Common Stock at the then effective Conversion Price upon the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation to the public with net proceeds to the Corporation of not less
than $15,000,000 (a "Qualified Initial Public Offering").
(ii) Upon the occurrence of an event specified in Section 3(c)(i)
hereof, all shares of Series D Preferred shall be converted automatically
without any further action by any holder of such shares and whether or not
the certificate or certificates representing such shares are surrendered to
the Corporation or the transfer agent for the Series D Preferred, provided,
however, that the Corporation shall not be obligated to issue a certificate
or certificates evidencing the shares of Common Stock into which such
shares of Series D Preferred were convertible unless the certificate or
certificates representing such shares of Series D Preferred being converted
are either delivered to the Corporation or the transfer agent of the Series
D Preferred, or the holder notifies the Corporation or such transfer agent
that such certificate or certificates have been lost, stolen, or destroyed
and executes and delivers an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection
therewith and, if the Corporation so elects, provides an appropriate
indemnity.
(iii) Upon the automatic conversion of Series D Preferred, each
holder of Series D Preferred shall surrender the certificate or
certificates representing such holder's shares of Series D Preferred at the
office of the Corporation or of the transfer agent for the Series D
Preferred. Thereupon, there shall be issued and delivered to such holder,
promptly at such office and in such holder's name as shown on such
surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series D
Preferred surrendered were convertible on the date on which such automatic
conversion occurred. No fractional shares of Common Stock shall be issued
upon the
<PAGE>
automatic conversion of Series D Preferred. In lieu of any fractional
shares of Common Stock to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(d) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this Section 3(d), the
-------------------
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe
------
for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(B) "Original Issue Date" shall mean the date on which shares of
-------------------
Series D Preferred were first issued.
(C) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares (other than Common Stock, Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred) or
other securities directly or indirectly convertible into or
exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued (or, pursuant to Section 3(d)(iii), deemed to be
issued) by the Corporation after the Original Issue Date, other than
the following (collectively, "Excluded Shares"):
---------------
(I) shares of Common Stock issued or issuable upon
conversion of shares of Series A Preferred, Series B Preferred,
Series C Preferred or Series D Preferred;
(II) shares of Common Stock issued or issuable as a stock
dividend payable in shares of Common Stock, or shares of capital
stock of any class issuable upon any subdivision, recombination,
split-up, or reverse stock split of all the outstanding shares of
such class of capital stock;
(III) any securities, including, without limitation,
Options, issued pursuant to the acquisition by the Corporation or
by a corporation of all of the capital stock of which is owned by
the Corporation (the "Subsidiary"), of any other corporation,
partnership, joint venture, trust or other entity by any merger,
stock acquisition, reorganization, purchase of substantially all
assets or otherwise in which the Corporation or the subsidiary,
or the stockholders of record of the Corporation or the
Subsidiary immediately prior to the effective date of such
transaction, directly or indirectly, own at least a majority of
the voting power of the acquired entity or the resulting entity
after such transaction;
<PAGE>
(IV) securities sold by the Corporation in a bona fide,
firmly underwritten public offering of shares of Common Stock,
registered under the Act pursuant to a registration statement
on Form S-1;
(V) 335,000 shares of Common Stock issuable upon the
exercise of warrants issued or to be issued;
(VI) shares of Common Stock or options to purchase
shares of Common Stock issued or issuable to officers,
employees, directors or independent contractors of, or
consultants to, the Corporation pursuant to any agreement, plan
or arrangement approved by the Board of Directors; or
(VII) shares of Common Stock issued or issuable upon the
exercise of the Options referred to in the foregoing clauses
(III) and (VI).
(ii) No Adjustment of Conversion Price. No adjustment in the number
---------------------------------
of shares of Common Stock into which a share of Series D Preferred is
convertible shall be made by adjustment in the Conversion Price in respect
of the issuance of Additional Shares of Common Stock or otherwise unless
(i) the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the current
market price per share of the Common Stock, as determined by the Board of
Directors (the "Current Market Price"), on the date of the issue of such
Additional Shares of Common Stock and, (ii) prior to such issuance, the
Corporation fails to receive written notice from the holders of at least a
majority of the then outstanding shares of Series D Preferred agreeing that
no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
---------------------------------------------------------------
Stock.
-----
(A) Options and Convertible Securities. In the event
----------------------------------
the Corporation at any time after the Original Issue Date shall issue
any Options or Convertible Securities (other than the Excluded Shares)
or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such
number) of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed
to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that Additional Shares
of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 3(d)(v)
hereof) of such Additional Shares of Common Stock would be less than
the Current Market Price per share of Common Stock on the date of such
issue, or such record date, as the case may be, and provided further
that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
<PAGE>
(I) No further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(II) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable upon
the exercise, conversion or exchange thereof, the Conversion
Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or
the rights of conversion or exchange under such Convertible
Securities;
(III) Upon the expiration of any such options or any rights
of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed upon
the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:
(a) In the case of Convertible Securities or Options
for Common Stock the only Additional Shares of Common Stock
issued were the shares of Common Stock, if any, actually
issued upon the exercise of such Options or the conversion
or exchange of such Convertible Securities and the
consideration received therefor was the consideration
actually received by the Corporation for the issue of all
such Options, whether or not exercised, plus the
consideration actually received by the Corporation upon such
exercise, or for the issue of all such Convertible
Securities which were actually converted or exchanged, plus
the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange; and
(b) In the case of Options for Convertible
Securities only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of
issue of such Options, and the consideration received by the
Corporation for the Additional Shares of Common Stock deemed
to have been then issued was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration
deemed to have been received by the Corporation (determined
pursuant to Section 3(d)(v)) upon the issue of the
Convertible
<PAGE>
Securities with respect to which such Options were actually
exercised;
(IV) No readjustment pursuant to clause (II) or (III)
above shall have the effect of increasing the Conversion Price to
an amount which exceeds the lower of (a) the Conversion Price on
the original adjustment date, or (b) the Conversion Price that
would have resulted from any issuance of Additional Shares of
Common Stock between the original adjustment date and such
readjustment date;
(V) In the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no
adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(III) above; and
(VI) If such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date
fixed therefor, the adjustment previously made in the Conversion
Price which became effective on such record date shall be
canceled as of the close of business on such record date, and
thereafter the Conversion Price shall be adjusted pursuant to
this Section 3(d)(iii) as of the actual date of their issuance.
(B) Stock Dividends, Stock Distributions and Subdivisions. In
-----------------------------------------------------
the event the Corporation at any time or from time to time after the
Original Issue Date shall declare or pay any dividend or make any
other distribution on the Common Stock payable in Common Stock or
effect a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common
Stock), then and in any such event, Additional Shares of Common Stock
shall be deemed to have been issued:
(I) In the case of any such dividend or distribution,
immediately after the close of business on the record date for
the determination of holders of any class of securities entitled
to receive such dividend or distribution, or
(II) In the case of any such subdivision, at the close of
business on the date immediately prior to the date upon which
corporate action becomes effective.
If such record date shall have been fixed and no part of such
dividend shall have been paid on the date fixed therefor, the
adjustment previously made for the Conversion Price which became
effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Price
shall be adjusted pursuant to this Section 3(d)(iii) as to the time of
actual payment of such dividend.
<PAGE>
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares
-----------------------------------------------------------------
of Common Stock.
---------------
(A) In the event the Corporation shall issue Additional
Shares of Common Stock (including, without limitation, Additional
Shares of Common Stock deemed to be issued pursuant to Section
3(d)(iii) but excluding Additional Shares of Common Stock deemed to be
issued pursuant to Section 3(d)(iii)(B), which event is dealt with in
Section 3(d)(vi) hereof), without consideration or for a consideration
per share less than the Current Market Price per share of Common Stock
on the date of such issue, then and in such event, such Conversion
Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be (I)
the number of shares of Common Stock outstanding immediately prior to
such issue plus (II) the number of shares of Common Stock which the
aggregate consideration received or deemed to have been received by
the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price, and the
denominator of which shall be (I) the number of shares of Common Stock
outstanding immediately prior to such issue plus (II) the number of
Additional Shares of Common Stock so issued or deemed to be issued.
(B) For the purposes of Section 3(d)(iv)(A) hereof, (i) all
shares of Common Stock issuable upon conversion of shares of Series D
Preferred, and upon exercise of options or conversion or exchange of
Convertible Securities which are part of the Excluded Shares,
outstanding immediately prior to any issue of Additional Shares of
Common Stock, or any event with respect to which Additional Shares of
Common Stock shall be deemed to be issued, shall be deemed to be
outstanding and (ii) immediately after any Additional Shares of Common
Stock are deemed issued pursuant to Section 3(d)(iii), such Additional
Shares of Common Stock shall be deemed to be outstanding.
(C) Notwithstanding anything to the contrary contained
herein, the applicable Conversion Price in effect at the time
Additional Shares of Common Stock are issued or deemed to be issued
shall not be reduced pursuant to Section 3(d)(iv)(A) hereof at such
time if the amount of such reduction would be an amount less than
$0.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent
reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $0.05 or more.
(v) Determination of Consideration. For purposes of this Section
------------------------------
3(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
<PAGE>
(A) Cash and Property. Such consideration shall:
-----------------
(I) Insofar as it consists of cash, be computed at
the aggregate amounts of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued
dividends;
(II) Insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of
such issue, as determined in good faith by the Board of
Directors; and
(III) In the event that Additional Shares of Common
Stock are issued together with other shares or securities or
other assets of the Corporation for consideration which covers
both, be the proportion of such consideration so received,
computed as provided in clauses (I) and (II) above, as determined
in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration
----------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 3(d)(iii)(A), relating to
Options and Convertible Securities, shall be determined by dividing (I) the
total amount, if any, received or receivable by the Corporation as
consideration for the issue of such Options or Convertible Securities, plus
the minimum aggregate amount of additional consideration (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration) payable to the
Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (II) the maximum
number of shares of Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
(vi) Adjustment for Dividends, Distributions, Subdivisions, Combinations or
----------------------------------------------------------------------
Consolidations of Common Stock.
- ------------------------------
(A) Stock Dividends, Distributions or Subdivisions. In the
----------------------------------------------
event the Corporation shall issue Additional Shares of Common Stock
pursuant to Section 3(d)(iii)(B) in a stock dividend, stock distribution or
subdivision, the Conversion Price in effect immediately prior to such stock
dividend, stock distribution or subdivision shall, concurrently with the
effectiveness of such stock dividend, stock distribution or subdivision, be
proportionately decreased.
<PAGE>
(B) Combinations or Consolidations. In the event the
------------------------------
outstanding shares of Common Stock shall be combined or consolidated,
by reclassification or otherwise, into a lesser number of shares of
Common Stock, the Conversion Price in effect immediately prior to such
combination or consolidation shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
increased.
(vii) Capital Reorganization, Merger or Sale of Assets. If at any
------------------------------------------------
time or from time to time there shall be a capital reorganization of the
Common Stock (other than a subdivision, combination, recapitalization,
reclassification or exchange of shares provided for elsewhere in this
Section 3) or a consolidation or merger of the Corporation, or a sale of
all or substantially all of the assets of the Corporation, other than a
merger, consolidation or sale of all or substantially all of the assets of
the Corporation in a transaction in which the shareholders of the
Corporation immediately prior to the transaction possess more than 50% of
the voting securities of the surviving entity (or parent, if any)
immediately after the transaction (a "Reorganization"), then, as a part of
and as a condition to such Reorganization, provision shall be made so that
the holders of shares of the Series D Preferred shall thereafter be
entitled to receive upon conversion of the shares of the Series D Preferred
the same kind and amount of stock or other securities or property
(including cash) of the Corporation, or of the successor corporation
resulting from such Reorganization, to which such holder would have been
entitled if such holder had converted its shares of the Series D Preferred
immediately prior to the effective time of such Reorganization. In any such
case, appropriate adjustment shall be made in the application of the
provisions of this Section 3 to the end that the provisions of this Section
3 (including adjustment of the Conversion Price then in effect and the
number of shares of Common Stock or other securities issuable upon
conversion of the shares of the Series D Preferred) shall be applicable
after such Reorganization in as nearly equivalent manner as may be
reasonably practicable.
In the case of a transaction to which both this Subsection 3(d)(vii)
and Subsection 2(b) hereof apply, the holders of at least a majority of the
outstanding shares of the Series D Preferred upon the occurrence of a
Reorganization shall have the option to elect treatment either under this
Subsection 3(d)(vii) or under Subsection 2(b) hereof, notice of which
election shall be given in writing to the Corporation not less than five
(5) business days prior to the effective date of such Reorganization. If no
such election is timely made, the provisions of Subsection 2(b) and not of
this Subsection 3(d)(vii) shall apply.
The provisions of this Subsection 3(d)(vii) shall not apply to any
reorganization, merger or consolidation involving (1) only a change in the
state of incorporation of the Corporation, (2) a merger of the Corporation
with or into a wholly-owned subsidiary of the Corporation which is
incorporated in the United States of America, or (3) an acquisition by
merger, reorganization or consolidation, in which the Corporation is
substantively the surviving corporation and operates as a going concern, of
another corporation which is incorporated in the United States of America
and which is engaged in a business similar to or related to the business of
the Corporation and which does not involve a change in the terms of the
Series D Preferred or of the Common Stock.
<PAGE>
(e) No Impairment. The Corporation shall not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series D
Preferred against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each adjustment
-----------------------------
or readjustment of the Conversion Price or Conversion Ratio pursuant to this
Section 3, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each affected
holder of Series D Preferred, a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any affected holder of Series D Preferred furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price or Conversion Ratio at the time in effect, and (iii) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon conversion of each share of Series D Preferred.
(g) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the Corporation shall mail to each
holder of Series D Preferred at least ten (10) days prior to such record date a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
(h) Common Stock Reserved. The Corporation shall reserve and keep
---------------------
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series D Preferred.
(i) Certain Taxes. The Corporation shall pay any issue or transfer taxes
-------------
payable in connection with the conversion of any shares of Series D Preferred,
provided, however, that the Corporation shall not be required to pay any tax
- -------- -------
which may be payable in respect of any transfer to a name other than that of the
holder of such Series D Preferred.
(j) Closing of Books. The corporation shall not close its transfer books
----------------
against the transfer of any Series D Preferred, or of any shares of Common Stock
issued or issuable upon the conversion of any shares of Series D Preferred in
any manner which interferes with the timely conversion or transfer of such
Series D Preferred, unless, at the request of the Company or an underwriter, the
holders of the Series D Preferred shall have agreed not to sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such holders during a period not to exceed one hundred and eighty (180)
days following the effective date of a registration statement of the Company
filed under the Securities Act, in which case the Company may impose stop-
transfer instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of said period.
<PAGE>
4. Voting Rights.
-------------
(a) Except as otherwise required by law or this Certificate of
Incorporation, or as provided in Section 6 hereof, the holders of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Common
Stock shall be entitled to notice of any stockholders' meeting and to vote
together as a single class upon any matter submitted to the stockholders for a
vote, on the following basis:
(i) Holders of Common Stock shall have one vote per share of Common
Stock held by them; and
(ii) Holders of Series D Preferred shall have that number of votes
per share of Series D Preferred as is equal to the number of shares of
Common Stock into which each such share of Series D Preferred held by such
holder could be converted on the date for determination of stockholders
entitled to vote at the meeting.
(b) Notwithstanding the foregoing, the holders of Series D Preferred shall
vote as a separate class on any matters as to which a separate class vote is
required by law, Section 6 of this Certificate of Designation or the Certificate
of Incorporation.
5. Dividend Rights.
---------------
(a) The holders of shares of Series D Preferred shall be entitled to
receive, when, as and if declared or paid by the Board of Directors on any
shares of Series D Preferred, out of funds legally available for that purpose,
dividends and distributions (whether in cash, property or securities of the
Corporation, including subscription or other rights to acquire securities of the
Corporation). Whenever any dividend may be declared or paid on any shares of
Series D Preferred, the Board of Directors shall also declare and pay a dividend
on the same terms, at the same rate and in like kind upon each other share of
the Series D Preferred then outstanding, so that all outstanding shares of
Series D Preferred will participate equally with each other ratably per share
(calculated as provided in Section 5(b) hereof).
(b) In connection with any dividend declared or paid hereunder, each share
of Series D Preferred shall be deemed to be that number of shares of Common
Stock into which it is then convertible, rounded up to the nearest one-tenth of
a share. No fractional shares of capital stock shall be issued as a dividend
hereunder. The Corporation shall pay a cash adjustment for any such fractional
interest in an amount equal to the fair market value thereof on the last
business day immediately preceding the date for payment of dividends, as
determined by the Board of Directors in good faith.
(c) Notwithstanding the foregoing provisions of this Section 5: (i) upon
any conversion of the Series D Preferred pursuant to Section 3 above, all
accrued and unpaid dividends on such shares of Series D Preferred to and until
the date of such conversion shall be forfeited and shall not be due and payable;
and (ii) the payment of all or any portion of accrued and unpaid dividends on
<PAGE>
Series D Preferred may be waived by the affirmative vote of holders of not less
than a majority in interest of the Series D Preferred, voting as a separate
class.
6. Covenants. So long as ten percent (10%) of the originally issued
---------
shares of Series D Preferred remain outstanding, unless there is given the
written consent of at least a majority of the Series D Preferred outstanding not
beneficially owned by any record holder of Series A Preferred, Series B
Preferred or Series C Preferred voting as a class, the Corporation shall not
undertake any amendment of this Certificate of Designation or the Certificate of
Incorporation if such amendment would alter or change the preferences, voting
power, qualifications or special or relative rights or privileges of the Series
D Preferred so as to affect the holders thereof in a materially adverse manner;
provided that the designation and issuance of any additional class or classes of
- --------
Preferred Stock expressly shall not be deemed to be materially adverse to the
holders of the Series D Preferred. The holders of at least a majority of the
aggregate number of shares of Series D Preferred outstanding may, by affirmative
vote or consent as aforesaid, agree to a change or alteration by the Corporation
in the preferences, voting powers, qualifications and special or relative rights
and privileges of the Series D Preferred, or may waive the application thereof
in any particular instance.
7. Ranking. The Series D Preferred shall rank, as to dividends and upon
-------
Liquidation (as defined in Section 2 hereof), equally with each other but junior
to the Series A Preferred, Series B Preferred and Series C Preferred, and senior
and prior to the Corporation's Common Stock, except as otherwise approved by the
affirmative vote or consent of the holders of the Series D Preferred pursuant to
Section 6 hereof.
8. No Reissuance of Series D Preferred. No share or shares of Series D
-----------------------------------
Preferred acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the corporation shall be
authorized to issue.
9. Residual Rights. All rights accruing to the outstanding shares of the
---------------
Corporation not expressly provided for in the terms of the Series A preferred,
Series B Preferred, Series C Preferred and Series D Preferred shall be vested in
the Common Stock.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officer this 11/th/ day of
September 1998.
ORCHID BIOCOMPUTER, INC.
By: /s/ Donald R. Marvin
------------------------------
Donald R. Marvin
Vice President
<PAGE>
CERTIFICATE OF AMENDMENT
of the
CERTIFICATE OF INCORPORATION
of
ORCHID BIOCOMPUTER, INC.
It is hereby certified that:
FIRST: The name of the corporation is Orchid Biocomputer, Inc. (the
- -----
"Corporation").
SECOND: The Certificate of Incorporation of the Corporation is hereby amended
- ------
by striking out the first paragraph of Article Fourth in its entirety
and by substituting in lieu of the following:
"FOURTH:
The total number of shares of all classes of
stock which the Corporation shall have authority to
issue is Thirty-One Million, Four Hundred Thousand
(31,400,000), consisting of Ten Million (10,000,000)
shares of Common Stock, Zero Dollars and One-Tenth of
One Cent ($0.001) par value per share (the "Common
Stock"), and Twenty-One Million, Four Hundred Thousand
(21,400,000)shares of Preferred Stock, Zero Dollars and
One-Tenth of One Cent ($0.001) par value per share (the
"Preferred Stock"), of which 1,200,000 shares are
designated as Series A Convertible Preferred Stock (the
"Series A Preferred Stock"), 300,000 shares are
designated as Series B Convertible Preferred Stock (the
"Series B Preferred Stock"), 2,493,692 shares are
designated as Series C Convertible Preferred Stock (the
"Series C Preferred Stock"), 367,347 shares are
designated as Series D Convertible Preferred Stock (the
"Series D Preferred Stock").
THIRD: That Article FOURTH of the Certificate of Incorporation be revised by
- -----
amending the Certificate of Designation of the Series A Convertible
Preferred Stock of the Corporation dated August 30, 1995, as amended
on March 24, 1998 (the "Series A Certificate of Designation") by
deleting Section 6(d)(iii) thereof and by inserting in lieu thereof
the following:
"(iii) the conversion of shares of Series A
Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock; and"
<PAGE>
FOURTH: That Article FOURTH of the Certificate of Incorporation be further
- ------
revised by amending the Series A Certificate of Designation by
deleting the definition of "Junior Security" located in Section 10,
paragraph 6 and by inserting in lieu thereof the following:
"'Junior Security' means Common Stock and
---------------
any other equity security (other than the Series A
Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock) of any
kind which the corporation at any time issues or
is authorized to issue."
FIFTH: That Article FOURTH of the Certificate of Incorporation be further
- -----
revised by amending the Certificate of Designation of the Series B
Convertible Preferred Stock of the Corporation dated August 30, 1995,
as amended on March 24, 1998 (the "Series B Certificate of
Designation") by deleting Section 6(d)(iii) thereof and by inserting
in lieu thereof the following:
"(iii) the conversion of shares of Series A
Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock; and"
SIXTH: That Article FOURTH of the Certificate of Incorporation be further
- -----
revised by amending the Series B Certificate of Designation by
deleting the definition of Junior Security located in Section 10,
paragraph 8, and by inserting in lieu thereof the following:
"'Junior Security' means Common Stock and any
---------------
other equity security (other than the Series A
Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock) of any
kind which the corporation at any time issues or
is authorized to issue."
SEVENTH: That Article FOURTH of the Certificate of Incorporation be further
- -------
revised by amending the Certificate of Designation of the Series C
Convertible Preferred Stock of the Corporation dated December 24,
1997, as amended March 24, 1998 (the "Series C Certificate of
Designation") by deleting Section A.2 in its entirety, and by
inserting in lieu thereof the following:
<PAGE>
"SECTION A.2. Ranking.
-------
The Corporation's Series C Stock shall rank, as to
dividends and upon Liquidation (as defined in Section
A.4(b) hereof), equally with each other and with each
other holder of shares of Series A Convertible
Preferred Stock (the "Series A Stock"), the Series B
Convertible Preferred Stock (the "Series B Preferred
Stock") and the Series E Convertible Preferred Stock
(the "Series E Preferred Stock") as issued by the
Corporation (collectively, the "Parity Securities"),
and senior and prior to the Corporation's Common Stock
and to all other classes or series of stock issued by
the Corporation, except as otherwise approved by the
affirmative vote or consent of the holders of shares of
Series C Stock pursuant to Section A.6(c) hereof."
EIGHTH: That Article FOURTH of the Certificate of Incorporation be further
- ------
revised by amending the Series C Certificate of Designation by
deleting Section A.4 in its entirety, and by inserting in lieu thereof
the following:
"Section A.4 Liquidation Rights.
------------------
A.4(a) With respect to rights on Liquidation (as defined in
Section A.4(b) hereof), the Series C Stock shall rank
equally with each other and with each other holder of shares
of Series A Stock, Series B Stock and Series E Stock, and
senior and prior to the Corporation's Common Stock and to
all other classes or series of stock issued by the
Corporation, except as otherwise approved by the affirmative
vote or consent of the holders of Series C Stock pursuant to
Section A.6(c) hereof.
A.4(b) Subject to Section A.4(a) above, in the event of any
liquidation, dissolution or winding-up of the affairs of the
Corporation (collectively, a "Liquidation"), the holders of
shares of Series C Stock then outstanding (the "Series C
Stockholders") shall be entitled to receive out of the
assets of the Corporation legally available for distribution
to its stockholders, whether from capital, surplus or
earnings, pari passu with the holders of
<PAGE>
Parity Securities, but before any payment shall be made to
the holders of Common Stock or any other class or series of
stock ranking on Liquidation junior to such Series C Stock,
an amount per share equal to the Original Purchase Price (as
defined in Section A.8 hereof), plus, in each case, an
amount equal to any accrued and declared but unpaid
dividends thereon pursuant to Section A.3(a) hereof.
A.4(c) Subject to Section A.4(a) above, if, upon any
Liquidation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the
Series C Stockholders and all other holders of Parity Securities
the full amount as to which each of them shall be entitled
pursuant to Section A.4(b), then the Series C Stockholders and
all other holders of Parity Securities shall first share ratably
in any distribution of assets according to the respective amounts
which would be payable to them in respect of the shares held upon
such distribution if all amounts payable on or with respect to
such shares were paid in full. For purposes of calculating the
amount of any payment to be paid upon any such Liquidation, each
share of Series C Stock shall be deemed to be that number of
shares (including fractional shares) of Common Stock into which
it is then convertible, rounded to the nearest one-tenth of a
share.
A.4(d) In the event of any Liquidation, after payment
shall have been made to the Series C Stockholders and all other
holders of Parity Securities of the full amount to which they
shall be entitled pursuant to Section A.4(b), with respect to
each other class or series of capital stock (other than Common
Stock) ranking on Liquidation junior to such Series C Stock (in
descending order of seniority ), the Series C Stockholders and
Series E Stockholders, as a class, shall be entitled to receive
an amount equal and in like kind) to the aggregate preferential
amount fixed for each such junior class or series of capital
stock, which amount shall be distributed among the Series C
Stockholders and Series E Stockholders in an equal amount per
share of the Series C Stock and Series E Stock, respectively then
outstanding. If, upon any Liquidation, the assets of the
Corporation available for distribution to its stockholders shall
be insufficient to pay the Series C Stockholders and Series E
Stockholders and a class or series of capital stock (other than
the Common Stock) junior to the Series C Stock and Series E Stock
the full amounts to which they shall be entitled pursuant to the
next preceding sentence, the holders of the Series C Stock,
Series E Stock and such other class or series of capital stock
shall share ratably in any distribution of assets according to
the respective preferential amounts fixed for the Series C Stock
and Series E Stock (pursuant to Section A.4(b)) and such junior
class or series of
<PAGE>
capital stock which would be payable in respect of the shares
held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
A.4(e) In the event of any Liquidation, after payment
shall have been made to the Series C Stockholders and Series E
Stockholders of the full amount to which they shall be entitled
as aforesaid, with respect to the Common Stock, the Series C
Stockholders and Series E Stockholders as a class shall be
entitled to share ratably (calculated with respect to such Series
C Stock or Series E Stock as provided in the next sentence) with
the Common Stockholders in all remaining assets of the
Corporation available for distribution to its stockholders. For
purposes of calculating the amount of any payment to be paid upon
any such Liquidation, each share of such Series C Stock or Series
E Stock shall be deemed to be that number of shares (including
fractional shares) of Common Stock into which it is then
convertible, rounded to the nearest one-tenth of a share.
A.4(f)(i) In the event of and simultaneously with the
closing of an Event of Sale (as hereinafter defined), the
Corporation shall (unless waived pursuant to Section A.4(f)(v) or
otherwise prevented by law) redeem all of the shares of Series C
Stock and Series E Stock then outstanding for a cash amount per
share determined as set forth herein (the "Special Liquidation
Price," said redemption being referred to herein as a "Special
Liquidation"). For all purposes of this Section A.4(f), the
Special Liquidation Price shall be equal to that amount per share
which would be received by each Series C Stockholder and Series E
Stockholder if, in connection with an Event of Sale, all
consideration paid in exchange for the assets or the shares of
capital stock (as the case may be) of the Corporation were
actually paid to and received by the Corporation and the
Corporation were immediately thereafter liquidated and its assets
distributed pursuant to Section A.4(a) through (e) hereof. To the
extent that one or more redemptions (as described in Section A.5
hereof) and/or Special Liquidations are occurring concurrently,
the Special Liquidation under this Section A.4(f) shall be deemed
to occur first. The date upon which the Special Liquidation shall
occur is sometimes referred to herein as the "Special Liquidation
Date".
A.4(f)(ii) At any time on or after the Special
Liquidation Date, a Series C Stockholder and Series E Stockholder
shall be entitled to receive the Special Liquidation Price for
each such share of Series C Stock and Series E Stock owned by
such holder. Subject to the provisions of Section A.4(f)(iii)
hereof, payment of the Special Liquidation Price will be made
upon actual delivery to the Corporation or its transfer agent of
the certificate representing such shares of Series C Stock or
Series E Stock, respectively.
<PAGE>
A.4(f)(iii) If on the Special Liquidation Date less
than all the shares of Series C Stock and Series E Stock then
outstanding may be legally redeemed by the Corporation, the
Special Liquidation shall be pro rata with respect to such
--- ----
Series C Stock and Series E Stock based upon the number of
outstanding shares of Series C Stock or Series E Stock then owned
by each holder thereof.
A.4(f)(iv) On and after any Special Liquidation Date,
all rights in respect of the shares of Series C Stock and Series
E Stock to be redeemed shall cease and terminate except the right
to receive the applicable Special Liquidation Price as provided
herein, and such shares of Series C Stock and Series E Stock
shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares of Series C Stock and/or
Series E Stock have been received by the Corporation; provided,
--------
however, that, if the Corporation defaults in the payment of the
-------
Special Liquidation Price with respect to any Series C Stock or
Series E Stock, the rights of the holder(s) thereof with respect
to such shares of Series C Stock and Series E Stock shall
continue until the Corporation cures such default.
A.4(f)(v) Anything contained herein to the contrary
notwithstanding, the provisions of this Section A.4(f) may be
waived by the holders of 66 2/3% in voting power of the share of
Series C Stock and Series E Stock then outstanding, voting
together as a class, by delivery of written notice of waiver to
the Corporation prior to the closing of any Event of Sale, in
which event the Corporation shall not redeem any shares of Series
C Stock or Series E Stock pursuant to this Section A.4(f).
A.4(t)(vi) Any notice required to he given to the
holders of shares of Series C Stock pursuant to Section A.7(f)
hereof in connection with an Event of Sale shall include a
statement by the Corporation of (A) the Special Liquidation Price
which each Series C Stockholder shall be entitled to receive upon
the occurrence of a Special Liquidation under this Section A.4(f)
and (B) the extent to which the Corporation will, if at all, be
legally prohibited from paying each holder of Series C Stock the
Special Liquidation Price.
A.4(f)(vii) For purposes of this Section A.4(f), an
"Event of Sale" shall mean (A) the merger or consolidation of the
Corporation into or with another corporation, partnership, joint
venture, trust or other entity, or the merger or consolidation of
any corporation into or with the Corporation (in which
consolidation or merger the stockholders of the Corporation
receive distributions of cash or securities as a result of such
consolidation or merger in complete exchange for their shares of
capital stock of the Corporation), or (B) the sale or other
disposition of all or substantially all the assets of the
Corporation, unless, upon consummation of such merger,
consolidation or sale of assets, the holders of voting
<PAGE>
securities of the Corporation immediately prior to such
transaction continue to own directly or indirectly not less than
a majority of the voting power of the surviving corporation."
NINTH: That Article FOURTH of the Certificate of Incorporation be further
- -----
revised by amending the Series C Certificate of Designation by
deleting Section A.7(d)(ii)(B) in its entirety, and by inserting in
lieu thereof the following:
"A.7(d)(ii)(B) 2,500,000 shares of Common Stock issued or issuable to
officers, directors, employees or independent contractors of or
consultants to the Corporation, pursuant to any agreement, plan or
arrangement approved by the Board of Directors and the options
exercisable for the foregoing shares;"
TENTH: That Article FOURTH of the Certificate of Incorporation be further
- -----
revised by amending the Series C Certificate of Designation by
deleting Section A.7(d)(ii)(G) in its entirety, and by inserting in
lieu thereof the following:
"A.7(d)(ii)(G) 1,137,592 shares of Common Stock issuable
upon the exercise of warrants issued or to be issued;"
In lieu of a meeting and vote of the stockholders, stockholders
representing a majority of the shares of stock entitled to vote have consented
to said amendments in accordance with the provisions of Section 228(a) and 242
of the General Corporation Law of the State of Delaware, and written notice of
the adoption of the amendments has been given as provided in Section 228 of the
General Corporation Law of the State of Delaware to every stockholder entitled
to such notice, or notice thereof has been waived pursuant to Section 229 of the
General Corporation Law of the State of Delaware.
The aforesaid amendments of the Certificate of Incorporation, as amended,
have been duly adopted in accordance with the applicable provisions of Section
242, 141(f) and 228 of the General Corporation Law of the State of Delaware.
[Remainder of page intentionally left blank.]
<PAGE>
EXECUTED, effective as of this 22nd day of December 1999.
ORCHID BIOCOMPUTER, INC.
By: /s/ Donald R. Marvin
---------------------------
Donald R. Marvin, Secretary
<PAGE>
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF
SERIES E CONVERTIBLE PREFERRED STOCK
OF
ORCHID BIOCOMPUTER, INC.
It is hereby certified that:
1. The name of the corporation is Orchid Biocomputer Inc., (the
"Corporation"). The date of filing of the original Certificate of
Incorporation of the Corporation with the Secretary of State of the State
of Delaware was March 8, 1995, and the date of filing of the original
Certificate of Designation, Preferences, and rights of Series E Convertible
Preferred Stock (the "Certificate of Designation") was December 30, 1999.
2. The Certificate of Designation of the Corporation, which was filed with the
Secretary of State of Delaware on December 30, 1999, is hereby corrected.
3. The inaccuracy to be corrected in Article Fourth, Section 8 of said
instrument is as follows:
"8. Protective Covenants. The Corporation shall not, without
--------------------
first having obtained the affirmative vote or written consent of the
holders of not less than two-thirds of the outstanding shares of
Series E Stock (except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required
by law or by this Certificate of Incorporation) (i) sell, abandon,
transfer, lease or otherwise dispose of all or substantially all of
its properties or assets or assets or properties in a single or series
of related transactions in excess of 10% of the then net worth of the
Corporation, (ii) except as otherwise required by this Certificate of
Designation, declare or pay any dividend or make any distribution with
respect to shares of its capital stock (whether in cash, shares of
capital stock or other securities or property); (iii) except as
otherwise required by this Certificate of Designation or in any
agreement approved by the Board of Directors with an officer,
director, employee or consultant providing for the repurchase of any
of its capital stock owned by such officer, director, employee or
consultant at the option of the Corporation, make any payment on
account of the purchase, redemption or other retirement of any share
of capital stock of the Corporation, or distribute to holders of
Common Stock shares of the Corporation's capital stock (other than
Common Stock) or other securities of other entities, evidences of
indebtedness
<PAGE>
issued by the Corporation or other entities, or other assets or
options or rights; (iv) merge or consolidate with or into, or permit
any subsidiary to merge or consolidate with or into, any other
corporation, corporations or other entity or entities; (v) voluntarily
dissolve, liquidate or wind-up or carry out any partial liquidation or
distribution or transaction in the nature of a partial liquidation or
distribution; (vi) in any manner alter or change the designations,
powers, preferences, rights, qualifications, limitations or
restrictions of the Series E Stock; (vii) take any action to cause any
amendment, alteration or repeal of any of the provisions of this
Certificate of Designation or the By-laws of the Corporation, which
amendment, alteration or repeal adversely affects the powers,
preferences or rights pertaining to the Series E Stock; (viii) amend
or modify any stock option plan of the Corporation or any stock option
agreement or restricted stock purchase agreement or stock restriction
agreement entered into between the Corporation and its employees,
officers, directors, consultants, contractors and/or any other
signatory thereto (including, without limitation, to accelerate the
vesting schedule or exercise date or dates of any such option or in
any stock option agreement or waive or modify the Corporation's
repurchase rights with respect to any shares of the Corporation's
stock issuable pursuant to any restricted stock purchase agreement or
stock restriction agreement) except for immaterial changes either made
thereto form time to time by officers of the Corporation or approved
in writing by both of the Series E Preferred Directors."
4. The portion of the instrument in corrected form is as follows:
"8. Protective Covenants. The Corporation shall not, without first
--------------------
having obtained the affirmative vote or written consent of the holders of
not less than two-thirds of the outstanding shares of Series E Stock
(except where the vote or written consent of the holders of a greater
number of shares of the Corporation is required by law or by this
Certificate of Incorporation) (i) sell, abandon, transfer, lease or
otherwise dispose of all or substantially all of its properties or assets
or assets or properties in a single or series of related transactions in
excess of 10% of the then net worth of the Corporation, (ii) except as
otherwise required by this Certificate of Designation, declare or pay any
dividend or make any distribution with respect to shares of its capital
stock (whether in cash, shares of capital stock or other securities or
property); (iii) except as otherwise required by this Certificate of
Designation or in any agreement approved by the Board of Directors with an
officer, director, employee or consultant providing for the repurchase of
any of its capital stock owned by such officer, director, employee or
consultant at the option of the Corporation, make any payment on account of
the purchase, redemption or other retirement of any share of capital stock
of the Corporation, or distribute to holders of Common Stock shares of the
Corporation's capital stock (other than Common Stock) or other securities
of other entities, evidences of indebtedness issued by the Corporation or
other entities, or other assets or options or rights; (iv) merge or
consolidate with or into, or permit any subsidiary to merge or consolidate
with or into, any other corporation, corporations or other entity or
entities; (v) voluntarily dissolve, liquidate or wind-up or carry out any
partial
<PAGE>
liquidation or distribution or transaction in the nature of a partial
liquidation or distribution; (vi) in any manner alter or change the
designations, powers, preferences, rights, qualifications, limitations
or restrictions of the Series E Stock; (vii) take any action to cause
any amendment, alteration or repeal of any of the provisions of the
Certificate of Incorporation or the By-laws of the Corporation, which
amendment, alteration or repeal adversely affects the powers,
preferences or rights pertaining to the Series E Stock; (viii)
authorize, designate, create, issue or agree to issue any shares of
Preferred Stock or other capital stock of the Corporation (including,
without limitation, additional shares of Series E Stock) ranking
senior to or pari passu with the Series E Stock with respect to
dividends or liquidation; or (ix) amend or modify any stock option
plan of the Corporation or any stock option agreement or restricted
stock purchase agreement or stock restriction agreement entered into
between the Corporation and its employees, officers, directors,
consultants, contractors and/or any other signatory thereto
(including, without limitation, to accelerate the vesting schedule or
exercise date or dates of any such option or in any stock option
agreement or waive or modify the Corporation's repurchase rights with
respect to any shares of the Corporation's stock issuable pursuant to
any restricted stock purchase agreement or stock restriction
agreement) except for immaterial changes either made thereto from time
to time by officers of the Corporation or approved in writing by both
of the Series E Preferred Directors."
5. The inaccuracy to be corrected in Article Fourth, Section 7 of said
instrument is as follows:
"7. Redemption.
----------
(a) Redemption. The Corporation shall, upon the request of the
----------
holders of at least 66-2/3% of the then outstanding shares of Series E
Stock given at any time after December 22, 2004 and on each of the first
and second anniversaries thereof (each such date being referred to
hereinafter as a "Redemption Date"), (i) provide notice to each Series E
Stockholder of such request for redemption ("Redemption Notice") and (ii)
redeem from each Series E Stockholder requesting such redemption within 20
days of such Redemption Notice, at a price equal to the original purchase
price per share plus full cumulative dividends (whether or not earned or
declared) accrued and unpaid thereon, subject to appropriate adjustment in
the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares (the "Redemption Price"), the
following respective portions of the number of shares of Series E Stock
held by such requesting holder on the applicable Redemption Date:
<PAGE>
Portion of Shares of
Redemption Date Series E
--------------- Stock To Be
-----------
Redeemed
--------
December 22, 2004 33-1/3%
December 22, 2005 66-2/3%
December 22, 2006 100%"
6. The portion of the instrument in corrected form is as follows:
"7. Redemption.
-----------
(a) Redemption. (i) The Corporation shall, upon the request of the
----------
holders of at least 66-2/3% of the then outstanding shares of Series E
Stock given at any time after December 22, 2004 (such date being referred
to hereinafter as a "Redemption Date"), (A) provide notice to each Series E
Stockholder of such request for redemption ("Redemption Notice") and (B)
redeem from each Series E Stockholder requesting such redemption within 20
days of such Redemption Notice all (but not less than all) of the number of
shares of Series E Stock held by such requesting holder on the Redemption
Date. The redemption price per share (the "Redemption Payment") shall be
equal to the original purchase price for each Series E Stock, which amounts
shall be paid by the Corporation in three equal annual installments, each
of which redemption payment installments shall be increased by an amount
equal to any accrued but unpaid dividends thereon to the respective date of
such redemption installment payment (each hereinafter referred to as a
"Redemption Date"), with the first such payment to occur not less than 40
days from the date of the Redemption Notice. On and after the respective
Redemption Date all rights of any Requesting Preferred Stockholder with
respect to the Series E Stock to be redeemed on such date as applicable,
owned by such Requesting Preferred Stockholder, except the right to receive
the Redemption Payment as provided herein, shall cease, and such shares
shall no longer be deemed to be outstanding, whether or not the Corporation
has received the certificates representing such shares; provided; however,
-------- -------
that if the Corporation defaults in the payment of the Redemption Payment,
the rights of the Requesting Preferred Stockholder shall continue until the
Corporation cures such default. Any Requesting Preferred Stockholder shall
send the Redemption Notice pursuant to this Section 7(a) by first-class,
certified mail, return receipt requested, postage prepaid to the
Corporation at its principal place of business. At any time on or after a
Redemption Date, the Requesting Preferred Stockholders, with respect to the
shares of Series E Stock requested by such Requesting Preferred
Stockholders to be redeemed on a Redemption Date in accordance with this
Section 7(a), shall be entitled to receive the Redemption Payment in three
equal installments, the first of which installments shall be made upon
actual delivery to the Corporation or its transfer agent of the certificate
or certificates representing the shares of Series E Stock to be redeemed.
(ii) Anything contained in this Section 7(a) to the contrary
notwithstanding, the holders of Series E Stock shall have the right,
exercisable at any time up to the fifth
<PAGE>
business day prior to the close of business on a Redemption Date (unless
the Corporation shall default in, or be legally prohibited from, paying the
installment payment of the Redemption Price as herein provided, in which
event such right shall be exercisable until such default is cured), to
convert all or any part of such shares requested by such holder to be
redeemed as herein provided into shares of Common Stock pursuant to Section
4 of this Article. If, and to the extent, any Series E Stock so entitled to
redemption are converted into shares of Common Stock by the holders thereof
prior to the close of business on such Redemption Date, the total number of
Series E Stock otherwise to be redeemed on such Redemption Date shall be
reduced by the number of Series E Stock so converted."
[Remainder of page intentionally left blank.]
<PAGE>
EXECUTED effective as of January 13, 2000.
Orchid Biocomputer, Inc.
By: /s/ Donald R. Marvin
-----------------------------
Donald R. Marvin
Senior Vice President &
Chief Operating Officer
<PAGE>
CERTIFICATE OF AMENDMENT
of the
CERTIFICATE OF INCORPORATION
of
ORCHID BIOCOMPUTER, INC.
(pursuant to Section 242)
It is hereby certified that:
FIRST: The name of the corporation is Orchid Biocomputer, Inc. (the
- -----
"Corporation").
SECOND: The Certificate of Incorporation of the Corporation is hereby amended
- ------
by striking out the first paragraph of Article Fourth in its entirety
and by substituting in lieu of the following:
"FOURTH:
The total number of shares of all classes of
stock which the Corporation shall have authority to
issue is Fifty-One Million, Four Hundred Thousand
(51,400,000), consisting of Thirty Million (30,000,000)
shares of Common Stock, Zero Dollars and One-Tenth of
One Cent ($0.001) par value per share (the "Common
Stock"), and Twenty-One Million, Four Hundred Thousand
(21,400,000)shares of Preferred Stock, Zero Dollars and
One-Tenth of One Cent ($0.001) par value per share (the
"Preferred Stock"), of which 1,200,000 shares are
designated as Series A Convertible Preferred Stock (the
"Series A Preferred Stock"), 300,000 shares are
designated as Series B Convertible Preferred Stock (the
"Series B Preferred Stock"), 2,493,692 shares are
designated as Series C Convertible Preferred Stock (the
"Series C Preferred Stock"), 367,347 shares are
designated as Series D Convertible Preferred Stock (the
"Series D Preferred Stock") and 17,000,000 shares are
designated as Series E Convertible Preferred Stock (the
"Series E Preferred Stock").
EXECUTED, effective as of this 18th day of January 2000.
ORCHID BIOCOMPUTER, INC.
By: /s/ Donald R. Marvin
---------------------------
Donald R. Marvin, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
of the
CERTIFICATE OF INCORPORATION
of
ORCHID BIOCOMPUTER, INC.
It is hereby certified that:
FIRST: The name of the corporation is Orchid Biocomputer, Inc. (the
- -----
"Corporation").
SECOND: The Certificate of Incorporation of the Corporation is hereby amended
- ------
by striking out the first paragraph of Article Fourth in its entirety
and by substituting in lieu of the following:
"FOURTH:
The total number of shares of all classes of
stock which the Corporation shall have authority to
issue is Fifty-Three Million, Four Hundred Thousand
(53,400,000), consisting of Thirty Million (30,000,000)
shares of Common Stock, Zero Dollars and One-Tenth of
One Cent ($0.001) par value per share (the "Common
Stock"), and Twenty-Three Million, Four Hundred
Thousand (23,400,000) shares of Preferred Stock, Zero
Dollars and One-Tenth of One Cent ($0.001) par value
per share (the "Preferred Stock"), of which 1,200,000
shares are designated as Series A Convertible Preferred
Stock (the "Series A Preferred Stock"), 300,000 shares
are designated as Series B Convertible Preferred Stock
(the "Series B Preferred Stock"), 2,493,692 shares are
designated as Series C Convertible Preferred Stock (the
"Series C Preferred Stock"), 367,347 shares are
designated as Series D Convertible Preferred Stock (the
"Series D Preferred Stock") and 19,000,000 shares are
designated as Series E Convertible Preferred Stock (the
"Series E Preferred Stock").
EXECUTED, effective as of this 26th day of January, 2000.
ORCHID BIOCOMPUTER, INC.
By: /s/ Donald R. Marvin
----------------------------
Donald R. Marvin, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ORCHID BIOCOMPUTER, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Orchid Biocomputer, Inc.
2. The Certificate of Incorporation of the Corporation as amended to
date is hereby amended by striking out Article FIRST in its entirety and by
substituting in lieu thereof the following:
"FIRST: The name of the corporation (hereinafter called the
_____ "Corporation") is Orchid BioSciences, Inc."
3. The amendment of the Certificate of Incorporation herein certified
has been duly adopted in accordance with the provisions of Section 228 of
the General Corporation Law of the State of Delaware and Section 242 of the
General Corporation Law of the State of Delaware.
Signed this 16th day of February, 2000.
/s/ Donald R. Marvin
-------------------------------------
Donald R. Marvin
Senior Vice President, Chief Operating
Officer, Chief Financial Officer &
Secretary
91
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES,
AND RIGHTS OF
SERIES E CONVERTIBLE PREFERRED STOCK
OF
ORCHID BIOCOMPUTER, INC.
Orchid Biocomputer Inc., a Delaware corporation (the "Corporation"), does
hereby certify that, pursuant to authority conferred on the Board of Directors
of the Corporation (the "Board of Directors") by the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), and pursuant to the provisions of Section 151 of Title 8 of the
General Corporation Law of the State of Delaware (the "Delaware Code"), the
Board of Directors, by unanimous written consent dated December 10, 1999,
adopted a resolution providing for the designation, preferences and relative,
participating, optional or other rights, and qualifications, limitations or
restrictions thereof, of seventeen million (17,000,000) shares of the
Corporation's Preferred Stock, par value $.001 per share, which resolution is as
follows:
RESOLVED: That pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article Fourth of the Certificate of
Incorporation of the Corporation, the Board of Directors does hereby
adopt a resolution, providing for the issuance of a new series of
Preferred Stock, $.001 par value per share, of the Corporation, to be
designated "Series E Convertible Preferred Stock" (the "Series E
Stock") consisting of seventeen million (17,000,000) shares, which
number of shares may be decreased (but not below the number of shares
then outstanding) from time to time by the Board of Directors of the
Corporation; and herein states and expresses that the designation,
preferences and other special or relative rights of the shares of
Series E Stock shall be as set forth in the Certificate of
Designation, Preferences, and Rights of Series E Convertible Preferred
Stock (the "Certificate of Designation"), a copy of which has been
presented to, reviewed and adopted by this Board of Directors.
Series E Convertible Preferred Stock. The preferences, privileges and
restrictions granted to or imposed upon the Corporation's Series E Convertible
Preferred Stock, par value $.001 per share, or the holders thereof, are as
follows:
1. Designation and Amount. The shares of such series shall be designated as
"Series E Convertible Preferred Stock" (the "Series E Stock"), and the number of
shares constituting the Series E Preferred shall be seventeen million
(17,000,000). Such number of shares may be increased (but not in excess of the
total number of authorized shares of preferred stock) or decreased by resolution
of the Board of Directors; provided, however, that no decrease shall reduce the
number of shares of Series E Stock to a number less than the number of Series E
Stock then outstanding plus the number of shares
<PAGE>
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation and convertible into Series E Stock.
2. Rank. With respect to dividend rights and rights upon a Liquidation
Event (as defined below), the Series E Stock shall rank (a) senior to (i) the
Common Stock of the Corporation, par value $.001 per share (the "Common Stock"),
and (ii) each other class of capital stock or class or series of preferred stock
issued by the Corporation after the date hereof, the terms of which specifically
provide that such class or series shall rank junior to Series E Stock as to
dividend distributions or distributions upon a Liquidation Event (each of the
securities in clauses (a) (i) and (a) (ii) collectively referred to as "Junior
Securities"), (b) on a parity with (i) the Series A Convertible Preferred Stock
("Series A Stock"), Series B Convertible Preferred Stock ("Series B Stock") and
Series C Convertible Preferred Stock ("Series C Stock") and (ii) each other
class of capital stock or class or series of preferred stock issued by the
Corporation after the date hereof, the terms of which do not specifically
provide that they will be Junior Securities, each of the securities in clauses
(b) (i) and (b) (ii) (collectively referred to as "Parity Securities"), and (c)
junior to each other class of capital stock or other class or series of
preferred stock issued by the Corporation after the date hereof, the terms of
which specifically provide that such class or series shall rank senior to Series
E Stock as to dividend distributions or distributions upon a Liquidation Event
("Senior Securities").
3. Liquidation Rights.
(a) Treatment at Liquidation, Dissolution or Winding Up.
(i) Except as otherwise provided in Section 3(b) below, in the
event of any liquidation, dissolution or winding up of the affairs of
the Corporation, whether voluntary or involuntary (each, a
"Liquidation Event"), the holders of Series E Stock then outstanding
(the "Series E Stockholders") shall be entitled to be paid first out
of the assets of the Corporation available for distribution to holders
of the Corporation's capital stock of all classes, after and subject
to the payment in full of all amounts required to be distributed to
Senior Securities, but before payment or distribution of any of such
assets to the Junior Securities and pari passu with the holders of all
other Parity Securities in accordance with their respective
liquidation preferences, an amount in cash equal to $4.50 per share
(the "Original Series Issue Price") of such Series E Stock (which
amount shall be subject to equitable adjustment whenever there shall
occur a stock dividend, distribution, combination of shares,
reclassification or other similar event with respect to the Series E
Stock and, as so adjusted from time to time, is hereinafter referred
to as the "Series E Base Liquidation Price") plus a cash amount equal
to dividends earned, declared and accrued but unpaid thereon, to and
including the date full payment shall be tendered to the Series E
Stockholders with respect to such liquidation, dissolution or winding
up.
(ii) If the assets of the Corporation shall be insufficient to
permit the payment in full to the Series E Stockholders and holders of
all other Parity Securities of all amounts distributable to them under
Section 3(a)(i) hereof and under the Certificate of Incorporation,
then the entire assets of the Corporation available for such
distribution shall be distributed ratably in proportion to the full
liquidation preference to
2
<PAGE>
which each is entitled among Series E Stockholders and the holders of
all such other Parity Securities. For purposes of calculating the
amount of any payment to be paid upon any such Liquidation Event, each
share of such Series E Stock shall be deemed to be that number of
shares (including fractional shares) of Common Stock into which it is
then convertible, rounded to the nearest one- tenth of a share.
(iii) After payment shall have been made to the Series E
Stockholders and all such other Parity Securities of the full amount
to which they shall be entitled pursuant to (3)(a)(i) above and in the
Certificate of Incorporation, the holders of Series C Stock then
outstanding (the "Series C Stockholders") and Series E Stockholders,
as a class, shall be entitled to receive an amount equal (and in like
kind) to the aggregate preferential amount, if any, fixed for any
class or series of Junior Securities (other than Common Stock) in
descending order of priority, which amount shall be distributed among
the Series C Stockholders and Series E Stockholders in an equal amount
per share of the Series C Stock and Series E Stock then outstanding,
pro rata with the holders of such Junior Securities. If, upon any
Liquidation Event, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the
Series C Stockholders, Series E Stockholders and Junior Securities
(other than the Common Stock) the full amounts to which they shall be
entitled pursuant to the next preceding sentence, the Series C
Stockholders and Series E Stockholders and such other class or series
of Junior Securities shall share ratably in any distribution of assets
according to the respective preferential amounts fixed for the Series
C Stock and Series E Stock (pursuant to Section 2(a)(i)) and such
Junior Securities which would be payable in respect of the shares held
by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(iv) After payment shall have been made to the Series C
Stockholders and Series E Stockholders of the full amount to which
they shall be entitled as aforesaid, the Series C Stockholders and the
Series E Stockholders as a class shall be entitled to share ratably
(calculated with respect to such Series C Stock and Series E Stock as
provided in the next sentence) with the Common Stockholders in all
remaining assets of the Corporation available for distribution to its
stockholders. For purposes of calculating the amount of any payment to
be paid upon any such Liquidation Event, each share of such Series C
Stock and Series E Stock shall be deemed to be that number of shares
(including fractional shares) of Common Stock into which it is then
convertible, rounded to the nearest one-tenth of a share.
(v) (A) In the event of and simultaneously with the closing of an
Event of Sale (as hereinafter defined), the Corporation shall (unless
waived pursuant to Section (v)(E) or otherwise prevented by law)
redeem all of the shares of Series C Stock and Series E Stock then
outstanding for a cash amount per share determined as set forth herein
(the "Special Liquidation Price," said redemption being referred to
herein as a "Special Liquidation"). For all purposes of this Section
3(a)(v), the
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Special Liquidation Price shall be equal to that amount per share
which would be received by each holder of Series E Stock and Series C
Stock if, in connection with an Event of Sale, all consideration paid
in exchange for the assets or the shares of capital stock (as the case
may be) of the Corporation were actually paid to and received by the
Corporation and the Corporation were immediately thereafter liquidated
and its assets distributed pursuant to Section 3(a)(i) through (iv)
hereof. To the extent that one or more redemptions (as described in
Section 7 hereof) and/or Special Liquidations are occurring
concurrently, the Special Liquidation under this Section 3(v)(A) shall
be deemed to occur first. The date upon which the Special Liquidation
shall occur is sometimes referred to herein as the "Special
Liquidation Date."
(B) At any time on or after the Special Liquidation Date, each
holder of Series E Stock and Series C Stock shall be entitled to
receive the Special Liquidation Price for each such share of Series E
Stock and Series C Stock owned by such holder. Subject to the
provisions of Section 3(a)(v)(B) hereof, payment of the Special
Liquidation Price will be made upon actual delivery to the Corporation
or its transfer agent of the certificate representing such shares of
Series E Stock and Series C Stock.
(C) If on the Special Liquidation Date less than all the shares
of Series E Stock and Series C Stock then outstanding may be legally
redeemed by the Corporation, the Special Liquidation shall be pro rata
with respect to such Series E Stock and Series C Stock based upon the
number of outstanding shares of Series E Stock and Series C Stock then
owned by each holder thereof.
(D) On and after any Special Liquidation Date, all rights in
respect of the shares of Series E Stock and Series C Stock to be
redeemed shall cease and terminate except the right to receive the
applicable Special Liquidation Price a provided herein, and such
shares of Series E Stock and Series C Stock shall no longer be deemed
to be outstanding, whether or not the certificates representing such
shares of Series E Stock and Series C Stock have been received by the
Corporation; provided, however, that, if the Corporation defaults in
the payment of the Special Liquidation Price with respect to any
Series E Stock and Series C Stock, the rights of the holder(s) thereof
with respect to such shares of Series E Stock and Series C Stock shall
continue until the Corporation cures such default.
(E) Anything contained herein to the contrary notwithstanding,
the provisions of this Section 3(a)(v) may be waived by the holders of
66-2/3% in voting power of the shares of Series C Stock and Series E
Stock then outstanding, voting together as a class, by delivery of
written notice of waiver to the Corporation prior to the closing of
any Event of Sale, in which event the Corporation shall not redeem any
shares of Series C Stock or Series E Stock pursuant to this Section
3(a)(v).
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(F) Any notice required to be given to the Series C Stockholders
and Series E Stockholders pursuant to Section 3(a)(v) hereon in
connection with an Event of Sale shall include a statement by the
Corporation of (1) the Special Liquidation Price which each holder of
Series C Stock and Series E Stock shall be entitled to receive upon
the occurrence of a Special Liquidation under this Section 3(a)(v) and
(2) the extent to which the Corporation will, if at all, be legally
prohibited from paying each Series C Stockholder and Series E
Stockholder the Special Liquidation Price.
(G) For purposes of this Section 2(a)(v), an "Event of Sale"
shall mean (A) the merger or consolidation of the Corporation into or
with another corporation, partnership, joint venture, trust or other
entity, or the merger or consolidation of any corporation into or with
the Corporation (in which consolidation or merger the stockholders of
the Corporation receive distributions of cash or securities as a
result of such consolidation or merger in complete exchange for their
shares of capital stock of the Corporation), or (B) the sale or other
disposition of all or substantially all the assets of the Corporation,
unless, upon consummation of such merger, consolidation or sale of
assets, the holders of voting securities of the Corporation
immediately prior to such transaction continue to own directly or
indirectly not less than a majority of the voting power of the
surviving corporation. An "Event of Sale" shall not include any
reorganization, merger or consolidation involving (1) only a change in
the state of incorporation of the Corporation, (2) a merger of the
Corporation with or into a wholly-owned subsidiary of the Corporation
which is incorporated in the United States of America, or (3) an
acquisition by merger, reorganization or consolidation, in which the
Corporation is substantively the surviving corporation and operates as
a going concern, of another corporation which is incorporated in the
United States of America and which is engaged in a business similar to
or related to the business of the Corporation and which does not
involve a change in the terms of the Preferred Stock or of the Common
Stock.
4. Conversion. The Series E Stockholders shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert; Conversion Price. Subject to Section 4(b), each
share of Series E Stock shall be convertible, without the payment of any
additional consideration by the holder thereof and at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the Corporation or any transfer agent for the Series E Stock, into such number
of fully paid and non-assessable shares of Common Stock as is determined by
dividing the Original Series Issue Price by the Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. As used herein, the
term "Conversion Price" shall initially mean $4.50 per share. Such initial
Conversion Price shall be subject to adjustment, in order to adjust the number
of shares of Common Stock into which the Series E Stock is convertible, as
hereinafter provided.
Any Series E Stockholder who exercises the right to convert shares of
Series E Stock into shares of Common Stock, pursuant to this Section 4 shall be
entitled to payment of all
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declared but unpaid dividends payable with respect to such Series E Stock
pursuant to Section 6 herein, up to an including the date of conversion.
(b) Mechanics of Conversion. Before any Series E Stockholder shall be
entitled to convert the same into full shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Series E Stock, and shall
give written notice to the Corporation at such office that such holder elects to
convert the same and shall state therein (i) the name of such holder or the name
or names of the nominees of such holder in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued and (ii) the
number of such shares to be converted into Common Stock. No fractional shares of
Common Stock shall be issued upon conversion of any shares of Series E Stock. In
lieu of any fractional shares of Common Stock to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the then effective Conversion Price. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such Series
E Stockholder, or to such holder's nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid, together with cash in lieu of any fraction of a share.
Upon conversion of only a portion of the number of shares covered by a Series E
Stock certificate, the Corporation shall issue and deliver to or upon written
order of the holder of such Series E Stock Certificate, at the expense of the
Corporation, a new certificate covering the number of shares of the Series E
Stock representing the unconverted portion of the Series E Stock certificate,
which new certificate shall entitle the holder thereof to all the rights, power
and privileges of a holder of such shares. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series E Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
(c) Automatic Conversion.
(i) Each share of Series E Stock shall automatically be converted
into shares of Common Stock at the then effective Conversion Price
upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Corporation to the public with a public
offering price of not less than $15.00 per share (as adjusted) and
which results in an aggregate price to the public of not less than
$25,000,000 (a "Qualified Initial Public Offering").
(ii) Upon the occurrence of a Qualified Initial Public Offering,
all shares of Series E Stock shall be converted automatically into
shares of Common Stock without any further action by any holder of
such shares and whether or not the certificate or certificates
representing such shares are surrendered to the Corporation or the
transfer agent for the Series E Stock; provided, however, that the
Corporation shall not be obligated to issue a certificate or
certificates evidencing the shares of Common Stock into which such
shares of Series E Stock were converted unless the certificate or
certificates representing such shares of Series E Stock being
converted are either delivered to the Corporation or the transfer
agent of the Series E Stock, or the holder
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notifies the Corporation or such transfer agent that such certificate
or certificates have been lost, stolen, or destroyed and executes and
delivers an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection therewith and,
if the Corporation so elects, provides an appropriate indemnity.
(iii) Upon the automatic conversion of Series E Stock, each
Series E Stockholder shall surrender the certificate or certificates
representing such holder's shares of Series E Stock at the office of
the Corporation or of the transfer agent for the Series E Stock.
Thereupon, there shall be issued and delivered to such holder,
promptly at such office and in such holder's name as shown on such
surrendered certificate or certificates, a certificate or certificates
for the number of shares of Common Stock into which the shares of
Series E Stock surrendered were convertible on the date on which such
automatic conversion occurred. No fractional shares of Common Stock
shall be issued upon the automatic conversion of Series E Stock. In
lieu of any fractional shares of Common Stock to which the holder
would otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by the then effective Conversion Price.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Section 4(d), the
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities.
(B) "Original Issue Date" shall mean, with respect to the
Series E Stock, the date on which the first share of such series
of Series E Stock was issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Series E Stock) or other
securities directly or indirectly convertible into or
exchangeable for Common Stock.
(D) "Current Market Price" shall mean the Current Market
Price at any date of one share of Common Stock shall be deemed to
be the average of the daily closing prices for the 30 consecutive
business days ending on the fifth (5th) business day before the
day in question (as adjusted for any stock dividend, split-up,
combination or reclassification that took effect during such 30-
business-day period) as follows:
(I) If the Common Stock is listed or admitted for
trading on a national securities exchange, then the closing
price for each day shall be the last reported sales price
regular way or,
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in case no reported sales took place on such day, the
average of the last reported bid and asked prices regular
way, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading.
(II) If the Common Stock is not at the time listed or
admitted for trading on any such exchange, then such price
as shall be equal to the last reported sales price, or if
there is no such sales price, the average of the last
reported bid and asked prices, as reported by the National
Association of Securities Dealers Automated Quotation System
("Nasdaq") on such day.
(III) If the Common Stock is not at the time quoted on
the Nasdaq, then such price shall be equal to the last
reported bid and asked prices on such day as reported by the
National Quotation Bureau, Inc., or any similar reputable
quotation and reporting service, if such quotation is not
reported by the National Quotation Bureau, Inc.
(IV) If the Common Stock is not traded in such manner
that the quotations referred to in this definition are
available for the period required hereunder, then the
Current Market Price shall be the fair market value of such
share, as determined in good faith by a majority of the
entire Board of Directors.
(E) "Additional Shares" shall mean all shares of Common
Stock issued (or, pursuant to Section 4(d)(iii), deemed to be
issued) by the Corporation after the Original Issue Date, other
than the following (collectively, "Excluded Shares"):
(I) shares of Common Stock issued or issuable upon
conversion of the Series E Stock;
(II) shares of Common Stock issued upon a conversion of
any Series A Stock, Series B Stock or Series C Stock;
(III) shares of Common Stock issued or issuable as a
dividend on the Series E Stock;
(IV) by reason of a dividend, stock split or other
distribution on shares of Common Stock;
(V) up to an aggregate of 2,500,000 shares and/or
options to purchase shares of Common Stock issued or
issuable to officers, employees or directors of, or
consultants to, the
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<PAGE>
Corporation pursuant to any stock option plan approved by
the Board of Directors;
(VI) shares of Common Stock issued or issuable upon the
exercise of the Options referred to in the foregoing clause
(IV);
(VII) securities issued in connection with the
acquisition by the Corporation (or by a wholly-owned
subsidiary of the Corporation) of any other corporation,
partnership, joint venture, trust or other entity by merger,
stock acquisition, reorganization, purchase of substantially
all of the assets or otherwise in which the Corporation or
such subsidiary or the stockholders of record of the
Corporation or such subsidiary immediately prior to the
effective date of such transaction, directly or indirectly,
own at least a majority of the voting power of the acquired
entity or the resulting entity after such transaction;
(VIII) securities sold by the Corporation in a
bona-fide, firmly underwritten public offering of shares of
Common Stock, registered under the Securities Act pursuant
to a registration statement on Form S-1;
(IX) 1,137,592 shares of Common Stock issuable upon the
exercise of warrants issued or to be issued; or
(X) 90,090 shares of Common Stock issued to Dynal A.S.
(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which a share of Series E Stock
is convertible shall be made by adjustment in the Conversion Price in
respect of the issuance of Additional Shares of Common Stock or
otherwise unless (i) the consideration per share for an Additional
Share of Common Stock issued or deemed to be issued by the Corporation
is less than the Conversion Price in effect on the date of, and
immediately prior to, the issue of such Additional Shares of Common
Stock and (ii) prior to such issuance, the Corporation fails to
receive written notice from the holders of at least a majority of the
then outstanding shares of Series E Stock agreeing that no such
adjustment shall be made as the result of the issuance of Additional
Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares.
(A) Options and Convertible Securities. In the event the
Corporation at any time after the Original Issue Date shall issue
any Options or Convertible Securities or shall fix a record date
for the
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determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable
upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be Additional
Shares issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares shall not be
deemed to have been issued unless the consideration per share
(determined pursuant to Section 4(d)(v) hereof) of such
Additional Shares would be less than the Conversion Price in
effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided, further, that
in any such case in which Additional Shares are deemed to be
issued:
(I) No further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(II) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable upon
the exercise, conversion or exchange thereof, the Conversion
Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or
the rights of conversion or exchange under such Convertible
Securities;
(III) Upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed upon
the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:
(a) In the case of Convertible Securities or Options
for Common Stock, the only Additional Shares issued were the
shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of
such Convertible Securities and the consideration received
therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or
not exercised, plus the consideration actually received by
the Corporation upon such
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exercise, or for the issue of all such Convertible
Securities which were actually converted or exchanged, plus
the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange; and
(b) In the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue
of such Options, and the consideration received by the
Corporation for the Additional Shares of Common Stock deemed
to have been then issued was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration
deemed to have been received by the Corporation (determined
pursuant to Section 4(d)(v)) upon the issue of the
Convertible Securities with respect to which such Options
were actually exercised;
(IV) No readjustment pursuant to clause (II) or (III) above shall
have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (a) the Conversion Price immediately prior to the
original adjustment, or (b) the Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock
between the original adjustment date and such readjustment date;
(V) In the case of any Options which expire by their terms not
more than 30 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of
all such Options, whereupon such adjustment shall be made in the same
manner provided in clause (III) above; and
(VI) If such record date shall have been fixed and such Options
or Convertible Securities are not issued on the date fixed therefor
(the "Option Issue Date"), the adjustment previously made in the
Conversion Price which became effective on such record date shall be
canceled as of the close of business on the Option Issue Date, and
thereafter the Conversion Price shall be adjusted pursuant to this
Section 4(d)(iii) as of the actual date of their issuance.
(B) Stock Dividends, Stock Distributions and Subdivisions. In the
event the Corporation at any time or from time to time after the Original
Issue Date shall declare or pay any dividend or make any other distribution
on the Common Stock payable in Common Stock or effect a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in Common Stock), then and in any such event,
Additional Shares shall be deemed to have been issued:
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(I) In the case of any such dividend or distribution, immediately
after the close of business on the record date for the determination
of holders of any class of securities entitled to receive such
dividend or distribution, or
(II) In the case of any such subdivision, at the close of
business on the date immediately prior to the date upon which
corporate action becomes effective.
If such record date shall have been fixed and no part of such dividend
shall have been paid on the date fixed therefor ("Dividend Payment Date"),
the adjustment previously made for the Conversion Price which became
effective on such record date shall be canceled as of the close of business
on such Dividend Payment Date, and thereafter the Conversion Price shall be
adjusted pursuant to this Section 4(d)(iii) as to the time of actual
payment of such dividend.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
Shares.
(A) In the event the Corporation shall issue Additional Shares
(including, without limitation, Additional Shares deemed to be issued
pursuant to Section 4(d)(iii) but excluding Additional Shares deemed to be
issued pursuant to Section 4(d)(iii)(B), which event is dealt with in
Section 4(d)(vi) hereof), without consideration or for a consideration per
share less than the applicable Conversion Price in effect on the date of
and immediately prior to such issue, then and in such event, such
Conversion Price shall be reduced, concurrently with such issue in order to
increase the number of shares of Common Stock into which the Series E Stock
is convertible, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, the numerator of which
shall be (I) the number of shares of Common Stock outstanding immediately
prior to such issue (including shares of Common Stock exercise or
conversion of any outstanding Option or Convertible Securities) plus (II)
the number of shares of Common Stock which the aggregate consideration
received or deemed to have been received by the Corporation for the total
number of Additional Shares so issued would purchase at such Conversion
Price, and the denominator of which shall be (I) the number of shares
outstanding immediately prior to such issue (including shares of Common
Stock exercise or conversion of any outstanding Option or Convertible
Securities) plus (II) the number of Additional Shares so issued or deemed
to be issued.
(B) Notwithstanding anything to the contrary contained herein, the
applicable Conversion Price in effect at the time Additional Shares are
issued or deemed to be issued shall not be reduced pursuant to
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Section 4(d)(iv)(A) hereof at such time if the amount of such reduction
would be an amount less than $0.001, but any such amount shall be carried
forward and reduction with respect thereto made at the time of and together
with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.001 or more.
(v) Determination of Consideration. For purposes of this Section 4(d), the
consideration received by the Corporation for the issue of any Additional Shares
shall be computed as follows:
(A) Cash and Property. Such consideration shall:
(I) Insofar as it consists of cash, be computed at the aggregate
amounts of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(II) Insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue,
as determined in good faith by the Board of Directors; provided,
however, that such fair market value shall not exceed the aggregate
Current Market Price of the Additional Shares being issued, less any
cash consideration paid for such Shares; and
(III) In the event that Additional Shares are issued together
with other shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and
(II) above, as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per share
received by the Corporation for Additional Shares deemed to have been
issued pursuant to Section 4(d)(iii)(A), relating to Options and
Convertible Securities, shall be determined by dividing (I) the total
amount, if any, received or receivable by the Corporation as consideration
for the issue of such Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration) payable to the
Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (II) the maximum
number of shares of Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
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(vi) Adjustment for Dividends, Distributions, Subdivisions,
Combinations or Consolidations of Common Stock.
(A) Stock Dividends, Distributions or Subdivisions. In the event
the Corporation shall issue Additional Shares pursuant to Section
4(d)(iii)(B) in a stock dividend, stock distribution or subdivision,
the Conversion Price in effect immediately prior to such stock
dividend, stock distribution or subdivision shall, concurrently with
the effectiveness of such stock dividend, stock distribution or
subdivision, be proportionately decreased.
(B) Combinations or Consolidations. In the event the outstanding
shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of
Common Stock, the Conversion Price in effect immediately prior to such
combination or consolidation shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
increased.
(vii) Capital Reorganization, Merger or Sale of Assets. If at any time
or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, recapitalization,
reclassification or exchange of shares provided for elsewhere in this
Section 4) or a consolidation or merger of the Corporation, or a sale of
all or substantially all of the assets of the Corporation, (other than a
merger, consolidation or sale of all or substantially all of the assets of
the Corporation in a transaction in which the shareholders of the
Corporation immediately prior to the transaction possess more than 50% of
the voting securities of the surviving entity (or parent, if any)
immediately after the transaction), then, as a part of and as a condition
to such transaction, provision shall be made so that the holders of shares
of the Series E Stock shall thereafter be entitled to receive upon
conversion of the shares of the Series E Stock the same kind and amount of
stock or other securities or property (including cash) of the Corporation,
or of the successor corporation resulting from such transaction, to which
such holder would have been entitled if such holder had converted its
shares of the Series E Stock immediately prior to the effective time of
such transaction. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 4 to the end that the
provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares of Common Stock or other securities
issuable upon conversion of the shares of the Series E Stock) shall be
applicable after such transaction in as nearly equivalent manner as may be
reasonably practicable.
In the case of a transaction to which both this Subsection 4(d)(vii) and
Subsection 3(a)(v) hereof apply, the holders of at least 66-2/3% of the
outstanding shares of the Series E Stock and Series C Stock, voting together as
a class, upon the occurrence of a transaction shall have the option to elect
treatment either under this Subsection 4(d)(vii) or under Subsection 3(a)(v)
hereof, notice of which election shall be given in writing to the Corporation
not less than five (5) business days prior to the
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effective date of such transaction. If no such election is timely made, the
provisions of Subsection 3(b) and not of this Subsection 4(d)(vii) shall apply.
The provisions of this Subsection 4(d)(vii) shall not apply to any
reorganization, merger or consolidation involving (1) only a change in the state
of incorporation of the Corporation, (2) a merger of the Corporation with or
into a wholly-owned subsidiary of the Corporation which is incorporated in the
United States of America, or (3) an acquisition by merger, reorganization or
consolidation, in which the Corporation is substantively the surviving
corporation and operates as a going concern, of another corporation which is
incorporated in the United States of America and which is engaged in a business
similar to or related to the business of the Corporation and which does not
involve a change in the terms of the Series E Stock or of the Common Stock.
(viii) In any case in which the provisions of this Section 4(d) shall
require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of
such event (A) issuing to the holder of any shares of Series E Stock
converted after such record date and before the occurrence of such event
the additional shares of capital stock issuable upon such conversion by
reason of the adjustment required by such event over and above the shares
of capital stock issuable upon such conversion before giving effect to such
adjustment, and (B) paying to such holder any cash amounts in lieu of
fractional shares pursuant to Section 4(c)(iii) hereof; provided, however,
that the Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such
additional shares, and such cash, upon the occurrence of the event
requiring such adjustment.
(e) No Impairment. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series E
against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Conversion Price pursuant to this Section 4, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each affected
Stockholder, a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any affected
Series E Stockholder furnish to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Conversion Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon conversion of each
share of Series E Stock.
(g) Notices of Record Date. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who
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are entitled to receive any dividend (other than a cash dividend which is the
same as cash dividends paid in previous quarters) or other distribution, the
Corporation shall mail to each Series E Stockholder at least twenty (20) days
prior to such record date a notice specifying the date on which any such record
is to be taken for the purpose of such dividend or distribution.
(h) Common Stock Reserved. The Corporation shall reserve and keep available
out of its authorized but unissued Common Stock such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series E Stock.
(i) Status of Common Stock. All shares of Common Stock which may be issued
in connection with the conversion provisions set forth herein will, upon
issuance by the Corporation, by validly issued, fully paid and nonassessable,
not subject to any preemptive or similar rights and free from all taxes, liens
or charges with respect thereto created or imposed by the Corporation.
(j) Special Notice. In the event the Corporation shall propose to take any
action of the types described in Section 3(a)(v)(F), 4(d)(iv)(A), 4(d)(vi)(A) or
4(d)(vii) hereof, or any other Event of Sale, the Corporation shall give notice
to each Series E Stockholder in the manner set forth in Section 4(f) hereof,
which notice shall specify the record date, of any, with respect to any such
action and the date on which such action is to take place. Such notice shall
also set forth such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Conversion Price with respect to the Series E
Stock, and the number, kind or class of shares of other securities or property
which shall be deliverable or purchasable upon each conversion of Series E
Stock. In the case of any action that would require the fixing of a record date,
such notice shall be given at least 20 days prior to the record date so fixed,
and in the case of any other action, such notice shall be given at least 30 days
prior to the taking of such proposed action.
(k) Certain Taxes. The Corporation shall pay any issue or transfer taxes
payable in connection with the conversion of any shares of Series E Stock,
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer to a name other than that of the
holder of such Series E Stock.
(l) Closing of Books. The Corporation shall at no time close its transfer
books against the transfer of any Series E Stock, or of any shares of Common
Stock issued or issuable upon the conversion of any shares of Series E Stock in
any manner which interferes with the timely conversion or transfer of such
Series E Stock, unless, at the request of the Company or an underwriter, the
holders of the Series E Stock shall have agreed not to sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such holders during a period not to exceed one hundred and eighty (180)
days following the effective date of a registration statement of the Company
filed under the Securities Act, in which case the Company may impose stop-
transfer instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of said period.
(m) Miscellaneous. If a state of facts shall occur that, without being
specifically controlled by the provisions of this Section 4, would not fairly
protect the conversion rights of the holders of the Series E Stock in accordance
with the essential intent and principles of such provisions,
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then the Board of Directors shall make up an adjustment in the application of
such provisions, in accordance with such essential intent and principles, so as
to protect such conversion rights.
5. Voting Rights.
(a) In addition to any other rights provided herein or by law, the Series E
Stockholders shall be entitled to vote on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as such Common Stockholders. In any such vote, each share of Series E
Stock shall entitle the holder thereof to the number of votes per share that
equals the number of shares of Common Stock (including fractional shares) into
which each such share of Series E Stock is then convertible, rounded up to the
nearest one-tenth of a share.
(b)(i) In addition to the rights specified in Section 5(a), the holders of
a majority in voting power of the Series E Stock, voting as a separate class,
shall have the exclusive right to elect two directors to the Board of Directors
of the Corporation (the "Series E Preferred Directors"). In any election of
Series E Preferred Directors pursuant to this Section 5(b), each Series E
Stockholder shall be entitled to one vote for each share of the Series E Stock
held, and no Series E Stockholder shall be entitled to cumulate its votes by
giving one candidate more than one vote per share. The exclusive voting right of
the Series E Stockholders, contained in this Section 5(b), may be exercised at a
special meeting of the Series E Stockholders called as provided in accordance
with the By-laws of the Corporation, at any annual or special meeting of the
stockholders in lieu of a meeting. The Series E Preferred Directors elected
pursuant to this Section 5(b) shall serve from the date of their election and
qualification until their successors have been duly elected and qualified.
(ii) A vacancy in the directorships to be elected by the Series E
Stockholders (including any vacancy created on account of an increase in the
number of directors on the Board of Directors), pursuant to Section 5(b)(i), may
be filled only by a vote at a meeting called in accordance with the By-laws of
the Corporation or written consent in lieu of such meeting of (A) the holders of
at least a majority in voting power of such Series E Stock or (B) the remaining
director(s) elected by the Series E Stockholders.
6. Dividend Rights.
(a) The holders of Series E Stock shall be entitled to receive dividends,
if and when declared by the Board of Directors, out of funds legally available
for that purpose. The right to such dividend shall not be cumulative and no
right shall accrue on each share from the date of the original issuance of such
share, by reason of default that dividends on such shares are not declared or
paid in any prior years.
(b) If, with the consent of the holders of at least a majority of the
outstanding Series E Stock, the Board of Directors shall declare a dividend
payable upon the then outstanding shares of Common Stock (other than a dividend
payable entirely in shares of the Common Stock of the Corporation), then the
Board of Directors shall declare at the same time a dividend upon the then
outstanding shares of Series E Stock payable at the same time as the dividend
paid on the Common Stock, in an amount equal to the amount of dividends per
share of Series E Stock as would have been payable on the largest number of
whole shares of Common Stock which each share of Series E Stock
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held by each holder thereof would have received if such Series E Stock had been
converted to Common Stock pursuant to the provisions of Section 3 hereof as of
the record date for the determination of holders of Common Stock entitled to
receive such dividends.
(c) In the event the Board of Directors shall declare a dividend payable
upon any class or series of capital stock of the Corporation other than Common
Stock, the Board of Directors shall declare at the same time a dividend upon the
then outstanding shares of Series E Stock, payable at the same time as such
dividend on such other class or series of capital stock in an amount equal to
(i) in the case of any series or class convertible into Common Stock, that
dividend per share of Series E Stock as would equal the dividend payable on such
other class or series determined as if all such shares of such class or series
had been converted to Common Stock and all shares of Series E Stock have been
converted to Common Stock on the record date for the determination of holders
entitled to receive such dividend or (ii) if such class or series of capital
stock is not convertible into Common Stock, at a rate per share of Series E
Stock determined by dividing the amount of the dividend payable on each share of
such class or series of capital stock by the original issuance price of such
class or series of capital stock and multiplying such fraction by the Base
Liquidation Price then in effect.
(d) Upon any liquidation, dissolution or winding up of the Corporation
(within the meaning of Section 3), or redemption (within the meaning of Section
7) or conversion (within the meaning of Section 4) all declared, accrued but
unpaid dividends, to and until the date of such liquidation, dissolution,
winding up, redemption or conversion shall be paid in full in accordance with
Section 3, Section 4 or Section 7 hereof.
(e) In connection with any dividend declared or paid hereunder, each share
of Series E Stock shall be deemed to be that number of shares (including
fractional shares) of Common Stock into which it is then convertible, rounded up
to the nearest one-tenth of a share. No fractional shares of capital stock shall
be issued as a dividend hereunder. The Corporation shall pay a cash adjustment
for any such fractional interest in an amount equal to the fair market value
thereof on the last Business Day immediately preceding the date for payment of
dividends, as determined by the Board of Directors in good faith. "Business Day"
means any date other than a Saturday, Sunday or public holiday in the state
where the principal executive officer of the Corporation is located.
7. Redemption.
(a) Redemption. The Corporation shall, upon the request of the holders of
at least 66-2/3% of the then outstanding shares of Series E Stock given at any
time after December 22, 2004 and on each of the first and second anniversaries
thereof (each such date being referred to hereinafter as a "Redemption Date"),
(i) provide notice to each Series E Stockholder of such request for redemption
("Redemption Notice") and (ii) redeem from each Series E Stockholder requesting
such redemption within 20 days of such Redemption Notice, at a price equal to
the original purchase price per share plus full cumulative dividends (whether or
not earned or declared) accrued and unpaid thereon, subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares (the "Redemption Price"), the
following respective portions of the number of shares of Series E Stock held by
such requesting holder on the applicable Redemption Date:
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Portion of Shares of Series E
Redemption Date Stock To Be Redeemed
--------------- ---------------------
December 22, 2004 33-1/3%
December 22, 2005 66-2/3%
December 22, 2006 100%
(b) Insufficient Funds. If the funds of the Corporation legally
available for redemption of Series E Stock on any Redemption Date are
insufficient to redeem the number of shares of Series E Stock required under
this Section 7 to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares of
Series E Stock ratably on the basis of the number of shares of Series E Stock
which would be redeemed on such date if the funds of the Corporation legally
available therefor had been sufficient to redeem all shares of Series E Stock
required to be redeemed on such date. At any time thereafter when additional
funds of the Corporation become legally available for the redemption of Series E
Stock, such funds will be used, at the end of the next succeeding fiscal
quarter, to redeem the balance of the shares which the Corporation was
theretofore obligated to redeem, ratably on the basis set forth in the preceding
sentence.
(c) Redemption Request. Subject to Section 7(a) above, on each
Redemption Date each Series E Stockholder requesting redemption shall provide
the Corporation with a written request setting forth its desire to redeem shares
of Series E Stock. Upon receipt of any such redemption request, the Corporation
will become obligated to redeem at the time of redemption specified therein all
shares of Series E Stock specified therein (other than such shares of Series E
Stock as are duly converted pursuant to Section 4 prior to the close of business
on the fifth full day preceding the Redemption Date). In case less than all
Series E Stock represented by any certificate is redeemed in any redemption
pursuant to this Section 7, a new certificate will be issued representing the
unredeemed Series E Stock without cost to the holder thereof.
(d) Dividends on Redeemed Shares. No share of Series E Stock shall be
entitled to any dividends declared after its Redemption Date, and on such
Redemption Date all rights of the holder of such share as a stockholder of the
Corporation by reason of the ownership of such share will cease, except the
right to receive the Redemption Price of such share, without interest, upon
presentation and surrender of the certificate representing such share, and such
share will not from and after such Redemption Date be deemed to be outstanding;
provided, however, that in the event that there is a default in payment of the
Redemption Price for any shares of Series E Stock (by reason of Section 7(b) or
otherwise), such shares shall continue to accrue dividends until such time as
the Redemption Price is paid in full.
(e) Status of Redeemed Shares. Any shares of Series E Stock redeemed
pursuant to this Section 7 will be canceled and will not under any circumstances
be reissued, sold or transferred and the Corporation may take appropriate action
from time to time as may be necessary to reduce the authorized Series E Stock
accordingly.
8. Protective Covenants. The Corporation shall not, without first having
obtained the affirmative vote or written consent of the holders of not less than
two-thirds of the outstanding shares
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of Series E Stock (except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by this
Certificate of Incorporation) (i) sell, abandon, transfer, lease or otherwise
dispose of all or substantially all of its properties or assets or assets or
properties in a single or series of related transactions in excess of 10% of the
then net worth of the Corporation, (ii) except as otherwise required by this
Certificate of Designation, declare or pay any dividend or make any distribution
with respect to shares of its capital stock (whether in cash, shares of capital
stock or other securities or property); (iii) except as otherwise required by
this Certificate of Designation or in any agreement approved by the Board of
Directors with an officer, director, employee or consultant providing for the
repurchase of any of its capital stock owned by such officer, director, employee
or consultant at the option of the Corporation, make any payment on account of
the purchase, redemption or other retirement of any share of capital stock of
the Corporation, or distribute to holders of Common Stock shares of the
Corporation's capital stock (other than Common Stock) or other securities of
other entities, evidences of indebtedness issued by the Corporation or other
entities, or other assets or options or rights; (iv) merge or consolidate with
or into, or permit any subsidiary to merge or consolidate with or into, any
other corporation, corporations or other entity or entities; (v) voluntarily
dissolve, liquidate or wind-up or carry out any partial liquidation or
distribution or transaction in the nature of a partial liquidation or
distribution; (vi) in any manner alter or change the designations, powers,
preferences, rights, qualifications, limitations or restrictions of the Series E
Stock; (vii) take any action to cause any amendment, alteration or repeal of any
of the provisions of this Certificate of Designation or the By-laws of the
Corporation, which amendment, alteration or repeal adversely affects the powers,
preferences or rights pertaining to the Series E Stock; (viii) amend or modify
any stock option plan of the Corporation or any stock option agreement or
restricted stock purchase agreement or stock restriction agreement entered into
between the Corporation and its employees, officers, directors, consultants,
contractors and/or any other signatory thereto (including, without limitation,
to accelerate the vesting schedule or exercise date or dates of any such option
or in any stock option agreement or waive or modify the Corporation's repurchase
rights with respect to any shares of the Corporation's stock issuable pursuant
to any restricted stock purchase agreement or stock restriction agreement)
except for immaterial changes either made thereto form time to time by officers
of the Corporation or approved in writing by both of the Series E Preferred
Directors.
9. No Reissuance of Preferred Stock. No share or shares of Series E Stock
acquired by the Corporation by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the corporation shall be authorized to issue.
10. Residual Rights. All rights accruing to the outstanding shares of the
Corporation not expressly provided for in the terms of the Series E Stock shall
be vested in the Common Stock or such other class or series of stock as may be
provided in the Certificate of Incorporation.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officer this 22nd day of
December, 1999.
ORCHID BIOCOMPUTER, INC.
By: /s/ Donald R. Marvin
______________________________
Name: Donald R. Marvin
Title: Chief Operating Officer
and Senior Vice President
<PAGE>
Exhibit 3.3
BYLAWS OF
ORCHID BIOCOMPUTER, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES
SECTION 1.1. OFFICES. The Corporation shall have and maintain in the State
of Delaware a registered office and a registered agent. The Corporation may also
have such other offices at such other places, within or without the State of
Delaware, as the Board of Directors may from time to time designate or the
business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and the transaction of any other business shall be held at
such date, time and place, either within or without the State of Delaware, as
may be designated by the Board of Directors, and set forth in the notice of such
meeting. At the annual meeting any business may be transacted and any corporate
action may be taken, whether stated in the notice of meeting or not, except as
otherwise expressly provided by statute or the Certificate of Incorporation.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose may be called at any time by the Board of Directors, or by the
President, and shall be called by the President at the request of the holders of
a majority of the outstanding shares of capital stock entitled to vote. Special
meetings shall be held at such place or places within or without the State of
Delaware as shall from time to time be designated by the Board of Directors and
stated in the notice of such meeting. At a special meeting no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting.
SECTION 2.3. NOTICE OF MEETINGS. Written notice of the time and place of
any stockholder's meeting, whether annual or special, shall be given to each
stockholder entitled to vote thereat, by personal delivery or by mailing the
same to him at his address as the same appears upon the records of the
Corporation at least ten (10) days but not more than sixty (60) days before the
day of the meeting. Notice of any adjourned meeting need not be given other than
by announcement at the meeting so adjourned, unless otherwise ordered in
connection with such
<PAGE>
adjournment. Such further notice, if any, shall be given as may be required by
law.
SECTION 2.4. QUORUM. Any number of stockholders, together holding at least
a majority of the capital stock of the Corporation issued and outstanding and
entitled to vote, who shall be present in person or represented by proxy at any
meeting duly called, shall constitute a quorum for the transaction of all
business, except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws.
SECTION 2.5. ADJOURNMENT OF MEETINGS. If less than a quorum shall attend at
the time for which a meeting shall have been called, the meeting may adjourn
from time to time by a majority vote of the stockholders present or represented
by proxy and entitled to vote without notice other than by announcement at the
meeting until a quorum shall attend. Any meeting at which a quorum is present
may also be adjourned in like manner and for such time or upon such call as may
be determined by a majority vote of the stockholders present or represented by
proxy and entitled to vote. At any adjourned meeting at which a quorum shall be
present, any business may be transacted and any corporate action may be taken
which might have been transacted at the meeting as originally called.
SECTION 2.6. VOTING LIST. The Secretary shall prepare and make, at least
ten (10) days before every election of directors, a complete list of the
stockholders entitled to vote, arranged in alphabetical order and showing the
address of each stockholder and the number of shares of each stockholder. Such
list shall be open at the place where the election is to be held for said ten
(10) days, to the examination of any stockholder, and shall be produced and kept
at the time and place of election during the whole time thereof, and subject to
the inspection of any stockholder who may be present.
SECTION 2.7. VOTING. Each stockholder entitled to vote at any meeting may
vote either in person or by proxy, but no proxy shall be voted on or after three
years from its date, unless said proxy provides for a longer period. Each
stockholder entitled to vote shall at every meeting of the stockholders be
entitled to one vote for each share of stock registered in his name on the
record of stockholders. At all meetings of stockholders all matters, except as
otherwise provided by statute, shall be determined by the affirmative vote of
the majority of shares present in person or by proxy and entitled to vote on the
subject matter. Voting at meetings of stockholders need not be by written
ballot.
SECTION 2.8. RECORD DATE OF STOCKHOLDERS. The Board of Directors is
authorized to fix in advance a date not exceeding sixty (60) days nor less than
ten (10) days preceding the date of any meeting of stockholders, or the date for
the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining the consent of stockholders for
any purposes, as
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a record date for the determination of the stockholders entitled to notice of,
and to vote at, any such meeting, and any adjournment thereof, or entitled to
receive payment of any such dividend, or to any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, or to give such consent, and, in such case, such stockholders and
only such stockholders as shall be stockholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting, and any
adjournment thereof, or to receive payment of such dividend, or to receive such
allotment of rights, or to exercise such rights, or to give such consent, as the
case may be, notwithstanding any transfer of any stock on the books of the
Corporation, after such record date fixed as aforesaid.
SECTION 2.9. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any annual or special meeting of the stockholders may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 3.1. NUMBER AND QUALIFICATIONS. The board of directors shall
consist of such number as may be fixed from time to time by resolution of the
Board. The directors need not be stockholders.
SECTION 3.2. ELECTION OF DIRECTORS. The directors shall be elected by the
stockholders at the annual meeting of stockholders.
SECTION 3.3. DURATION OF OFFICE. The directors chosen at any annual meeting
shall, except as hereinafter provided, hold office until the next annual
election and until their successors are elected and qualify.
SECTION 3.4. REMOVAL AND RESIGNATION OF DIRECTORS. Any director may be
removed from the Board of Directors, with or without cause, by the holders of a
majority of the shares of capital stock entitled to vote, either by written
consent or at any special meeting of the stockholders called for that purpose,
and the office of such director shall forthwith become vacant.
Any director may resign at any time. Such resignation shall take effect at
the time specified therein, and if no time be specified, at the time of its
receipt by the President or Secretary. The acceptance of a resignation shall not
be necessary to make it effective, unless so specified therein.
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SECTION 3.5. FILLING OF VACANCIES. Any vacancy among the directors,
occurring from any cause whatsoever, may be filled by a majority of the
remaining directors, though less than a quorum, provided however, that the
stockholders removing any director may at the same meeting fill the vacancy
caused by such removal, and provided further, that if the directors fail to fill
any such vacancy, the stockholders may at any special meeting called for that
purpose fill such vacancy. In case of any increase in the number of directors,
the additional directors may be elected by the directors in office prior to such
increase.
Any person elected to fill a vacancy shall hold office, subject to right of
removal as hereinbefore provided, until the next annual election and until his
successor is elected and qualifies.
SECTION 3.6. REGULAR MEETINGS. The Board of Directors shall hold an annual
meeting for the purpose of organization and the transaction of any business
immediately after the annual meeting of the stockholders, provided a quorum is
present. Other regular meetings may be held at such times as may be determined
from time to time by resolution of the Board of Directors.
SECTION 3.7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board of Directors or by the President.
SECTION 3.8. NOTICE AND PLACE OF MEETINGS. Meetings of the Board of
Directors may be held at the principal office of the Corporation, or at such
place as shall be determined in the notice of such meeting. Notice of any
special meeting, and, except as the Board of Directors may otherwise determine
by resolution, notice of any regular meeting also, shall be mailed to each
director addressed to him at his residence or usual place of business at least
two days before the day on which the meeting is to be held, or if sent to him at
such place by telegraph or cable, or delivered personally or by telephone, not
later than the day before the day on which the meeting is to be held. No notice
of the annual meeting of the Board of Directors shall be required if it is held
immediately after the annual meeting of the stockholders and if a quorum is
present.
SECTION 3.9. BUSINESS TRANSACTED AT MEETINGS, ETC. Any business may be
transacted and any corporate action may be taken at any regular or special
meeting of the Board of Directors at which a quorum shall be present, whether
such business or proposed action be stated in the notice of such meeting or not,
unless special notice of such business or proposed action shall be required by
statute.
SECTION 3.10. QUORUM. A majority of the Board of Directors at any time in
office shall constitute a quorum. At any meeting at which a quorum is present,
the vote of a majority of the members present shall be the act of the Board of
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Directors unless the act of a greater number is specifically required by law or
by the Certificate of Incorporation or these Bylaws.
SECTION 3.11. COMPENSATION. The directors shall not receive any stated
salary for their services as directors, but by resolution of the Board of
Directors a fixed fee and expenses of attendance may be allowed for attendance
at each meeting. Nothing herein contained shall preclude any director from
serving the Corporation in any other capacity, as an officer, agent or
otherwise, and receiving compensation therefor.
SECTION 3.12. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of the proceedings of the Board or committee.
SECTION 3.13. MEETINGS THROUGH USE OF COMMUNICATIONS EQUIPMENT. Members of
the Board of Directors, or any committee designated by the Board of Directors,
shall, except as otherwise provided by law, the Certificate of Incorporation or
these Bylaws, have the power to participate in a meeting of the Board of
Directors, or any committee, by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at the meeting.
ARTICLE IV
COMMITTEES
SECTION 4.1. EXECUTIVE COMMITTEE. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate two or more of their number
to constitute an Executive Committee to hold office at the pleasure of the
Board, which Committee shall, during the intervals between meetings of the Board
of Directors, have and exercise all of the powers of the Board of Directors in
the management of the business and affairs of the Corporation, subject only to
such restrictions or limitations as the Board of Directors may from time to time
specify, or as limited by the Delaware Corporation Law, and shall have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it.
Any member of the Executive Committee may be removed at any time, with or
without cause, by a resolution of a majority of the whole Board of Directors.
Any person ceasing to be a director shall ipso facto cease to be a member
of the Executive Committee.
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Any vacancy in the Executive Committee occurring from any cause whatsoever
may be filled from among the directors by a resolution of a majority of the
whole Board of Directors.
SECTION 4.2. OTHER COMMITTEES. Other committees, whose members need not be
directors, may be appointed by the Board of Directors or the Executive
Committee, which committees shall hold office for such time and have such powers
and perform such duties as may from time to time be assigned to them by the
Board of Directors or the Executive Committee.
Any member of such a committee may be removed at any time, with or without
cause, by the Board of Directors or the Executive Committee. Any vacancy in a
committee occurring from any cause whatsoever may be filled by the Board of
Directors or the Executive Committee.
SECTION 4.3. RESIGNATION. Any member of a committee may resign at any time.
Such resignation shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective unless so specified therein.
SECTION 4.4. QUORUM. A majority of the members of a committee shall
constitute a quorum. The act of a majority of the members of a committee present
at any meeting at which a quorum is present shall be the act of such committee.
The members of a committee shall act only as a committee, and the individual
members thereof shall have no powers as such.
SECTION 4.5. RECORD OF PROCEEDINGS, ETC. Each committee shall keep a record
of its acts and proceedings, and shall report the same to the Board of Directors
when and as required by the Board of Directors.
SECTION 4.6. ORGANIZATION, MEETINGS, NOTICES, ETC. A committee may hold its
meetings at the principal office of the Corporation, or at any other place which
a majority of the committee may at any time agree upon. Each committee may make
such rules as it may deem expedient for the regulation and carrying on of its
meetings and proceedings. Unless otherwise ordered by the Executive Committee,
any notice of a meeting of such Committee may be given by the Secretary or by
the chairman of the Committee and shall be sufficiently given if mailed to each
member at his residence or usual place of business at least two days before the
day on which the meeting is to be held, or if sent to him at such place by
telegraph or cable, or delivered personally or by telephone not later than 24
hours prior to the time at which the meeting is to be held.
SECTION 4.7. COMPENSATION. The members of any committee shall be entitled
to such compensation as may be allowed them by resolution of the Board of
Directors.
6
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ARTICLE V
OFFICERS
SECTION 5.1. NUMBER. The officers of the Corporation shall be a President,
a Secretary, a Treasurer, and such other officers. as may be appointed in
accordance with the provisions of Section 5.3 of this Article V. The Board of
Directors in its discretion may also elect a Chairman of the Board of Directors.
SECTION 5.2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers,
except as provided in Section 5.3 of this Article V, shall be chosen annually by
the Board of Directors. Each such officer shall, except as herein otherwise
provided, hold office until his successor shall have been chosen and shall
qualify. The Chairman of the Board of Directors, if any, and the President shall
be directors of the Corporation, and should any one of them cease to be a
director, he shall ipso facto cease to be such officer. Except as otherwise
provided by law, any number of offices may be held by the same person.
SECTION 5.3. OTHER OFFICERS. Other officers, including one or more vice-
presidents, assistant secretaries or assistant treasurers, may from time to time
be appointed by the Board of Directors, which other officers shall have such
powers and perform such duties as may be assigned to them by the Board of
Directors or the officer or committee appointing them.
SECTION 5.4. REMOVAL OF OFFICERS. Any officer of the Corporation may be
removed from office, with or without cause, by a vote of a majority of the Board
of Directors.
SECTION 5.5. RESIGNATION. Any officer of the Corporation may resign at any
time. Such resignation shall be in writing and shall take effect at the time
specified therein, and if no time be specified at the time of its receipt by the
President or Secretary. The acceptance of a resignation shall not be necessary
in order to make it effective, unless so specified therein.
SECTION 5.6. FILLING OF VACANCIES. A vacancy in any office shall be filled
by the Board of Directors or by the authority appointing the predecessor in such
office.
SECTION 5.7. COMPENSATION. The compensation of the officers shall be fixed
by the Board of Directors, or by any committee upon whom power in that regard
may be conferred by the Board of Directors.
SECTION 5.8. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors shall be a director and shall preside at all meetings of the Board
of Directors at which he shall be present, and shall have such power and perform
such duties as may from time to time be assigned to him by the Board of
Directors.
7
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SECTION 5.9. PRESIDENT. The President shall, when present, preside at all
meetings of the stockholders, and, in the absence of the Chairman of the Board
of Directors, at meetings of the Board of Directors. He shall have power to call
special meetings of the stockholders or of the Board of Directors or of the
Executive Committee at any time. He shall be the chief executive officer of the
Corporation, and shall have the general direction of the business, affairs and
property of the Corporation, and of its several officers, and shall have and
exercise all such powers and discharge such duties as usually pertain to the
office of President.
SECTION 5.10. VICE-PRESIDENTS. The Vice-Presidents, if any, or any of them,
shall, subject to the direction of the Board of Directors, at the request of the
President or in his absence, or in case of his inability to perform his duties
from any cause, perform the duties of the President, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the President.
The Vice-Presidents shall also perform such other duties as may be assigned to
them by the Board of Directors, and the Board of Directors may determine the
order of priority among them.
SECTION 5.11. SECRETARY. The Secretary shall perform such duties as are
incident to the office of Secretary, or as may from time to time be assigned to
him by the Board of Directors, or as are prescribed by these Bylaws.
SECTION 5.12. TREASURER. The Treasurer shall Perform such duties and have
powers as are usually incident to the office of Treasurer or which may be
assigned to him by the Board of Directors.
ARTICLE VI
CAPITAL STOCK
SECTION 6.1. ISSUE OF CERTIFICATES OF STOCK. Certificates of capital stock
shall be in such form as shall be approved by the Board of Directors. They shall
be numbered in the order of their issue and shall be signed by the President or
a Vice-President, and the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and the seal of the Corporation or a facsimile
thereof shall be impressed or affixed or reproduced thereon, provided, however,
that where such certificates are signed by a transfer agent or an assistant
transfer agent or by a transfer clerk acting on behalf of the Corporation and a
registrar, the signature of any such President, Vice-President, Secretary,
Assistant Secretary, Treasurer or Assistant Treasurer may be facsimile. In case
any officer or officers who shall have signed, or whose facsimile signature or
signatures shall have been used on any such certificate or certificates shall
cease to be such officer or officers of the Corporation, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered as though
the person or persons who signed such certificate
8
<PAGE>
or certificates, or whose facsimile signature or signatures shall have been used
thereon have not ceased to be such officer or officers of the Corporation.
SECTION 6.2. REGISTRATION AND TRANSFER OF SHARES. The name of each person
owning a share of the capital stock of the Corporation shall be entered on the
books of the Corporation together with the number of shares held by him, the
numbers of the certificates covering such shares and the dates of issue of such
certificates. The shares of stock of the Corporation shall be transferable on
the books of the Corporation by the holders thereof in person or by their duly
authorized attorneys or legal representatives, on surrender and cancellation of
certificates for a like number of shares, accompanied by an assignment or Power
of transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require. A record shall be made of each transfer.
The Board of Directors may make other and further rules and regulations
concerning the transfer and registration of certificates for stock and may
appoint a transfer agent or registrar or both and may require all certificates
of stock to bear the signature of either or both.
SECTION 6.3. LOST, DESTROYED AND MUTILATED CERTIFICATES. The holder of any
stock of the Corporation shall immediately notify the Corporation of any loss,
theft, destruction or mutilation of the certificates therefor. The Corporation
may issue a new certificate of stock in the place of any certificate theretofore
issued by it alleged to have been lost, stolen or destroyed, and the Board of
Directors may, in its discretion, require the owner of the lost, stolen or
destroyed certificate, or his legal representatives, to give the Corporation a
bond, in such sum not exceeding double the value of the stock and with such
surety or sureties as they may require, to indemnify it against any claim that
may be made against it by reason of the issue of such new certificate and
against all other liability in the premises, or may remit such owner to such
remedy or remedies as he may have under the laws of the State of Delaware.
ARTICLE VII
DIVIDENDS, SURPLUS, ETC.
SECTION 7.1. GENERAL DISCRETION OF DIRECTORS. The Board of Directors shall
have power to fix and vary the amount to be set aside or reserved as working
capital of the Corporation, or as reserves, or for other proper purposes of the
Corporation, and, subject to the requirements of the Certificate of
Incorporation, to determine whether any, if any, part of the surplus or net
profits of the Corporation shall be declared as dividends and paid to the
stockholders, and to fix the date or dates for the payment of dividends.
9
<PAGE>
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1. FISCAL YEAR. The fiscal year of the Corporation shall commence
on the first day of January and end on the last day of December.
SECTION 8.2. CORPORATE SEAL. The corporate seal shall be in such form as
approved by the Board of Directors and may be altered at their pleasure. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or reproduced or otherwise.
SECTION 8.3. NOTICES. Except as otherwise expressly provided, any notice
required by these Bylaws to be given shall be sufficient if given by depositing
the same in a post office or letter box in a sealed postpaid wrapper addressed
to the person entitled thereto at his address, as the same appears upon the
books of the Corporation, or by telegraphing or cabling the same to such person
at such addresses; and such notice shall be deemed to be given at the time it is
mailed, telegraphed or cabled.
SECTION 8.4. WAIVER OF NOTICE. Any stockholder or director may at any time,
by writing or by telegraph or by cable, waive any notice required to be given
under these Bylaws, and if any stockholder or director shall be present at any
meeting his presence shall constitute a waiver of such notice.
SECTION 8.5. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation, and in such manner, as shall from time to time be
designated by resolution of the Board of Directors.
SECTION 8.6. DEPOSITS. All funds of the Corporation shall be deposited from
time to time to the credit of the Corporation in such bank or banks, trust
companies or other depositories as the Board of Directors may select, and, for
the purpose of such deposit, checks, drafts, warrants and other orders for the
payment of money which are payable to the order of the Corporation, may be
endorsed for deposit, assigned and delivered by any officer of the Corporation,
or by such agents of the Corporation as the Board of Directors or the President
may authorize for that purpose.
SECTION 8.7. VOTING STOCK OF OTHER CORPORATIONS. Except as otherwise
ordered by the Board of Directors or the Executive Committee, the President or
the Treasurer shall have full power and authority on behalf of the Corporation
to attend and to act and to vote at any meeting of the stockholders of any
corporation of which the Corporation is a stockholder and to execute a proxy to
any other person to represent the Corporation at any such meeting, and at any
such meeting the President or the Treasurer or the holder of any such proxy, as
the case may be, shall possess and may exercise any and all rights and powers
incident to ownership of such stock and which, as owner thereof, the Corporation
might have possessed and exercised if present. The Board of Directors or the
Executive Committee
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may from time to time confer like powers upon any other person or persons.
SECTION 8.8. INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Corporation
shall indemnify any and all of its directors or officers, including former
directors or officers, and any employee, who shall serve as an officer or
director of any corporation at the request of this Corporation, to the fullest
extent permitted under and in accordance with the laws of the State of Delaware.
ARTICLE IX
AMENDMENTS
SECTION 9.1. AMENDMENTS. The Board of Directors shall have the power to
make, rescind, alter, amend and repeal these Bylaws, provided, however, that the
stockholders shall have power to rescind, alter, amend or repeal any bylaws made
by the Board of Directors, and to enact bylaws which if so expressed shall not
be rescinded, altered, amended or repealed by the Board of Directors. No change
of the time or place for the annual meeting of the stockholders for the election
of directors shall be made except in accordance with the laws of the State of
Delaware.
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Exhibit 10.1
ORCHID BIOCOMPUTER, INC.
1995 STOCK INCENTIVE PLAN
-------------------------
SECTION 1
Purpose
-------
This Orchid Biocomputer, Inc. 1995 Stock Incentive Plan (the "Plan")
is intended to provide a means whereby Orchid Biocomputer, Inc. (the "Company")
may, through (i) the grant of incentive stock options and nonqualified stock
options (collectively, the "Options") to Employees (as defined in Section 3),
(ii) the grant of nonqualified stock options to Non-Employee Directors and
Consultants (as defined in Section 3), and (iii) the grant of stock subject to
restrictions ("Restricted Stock Awards") to Employees, Non-Employee Directors
and Consultants, attract and retain such individuals and motivate them to
exercise their best efforts on behalf of the Company and of any Related
Corporation (as defined below).
For purposes of the Plan, a Related Corporation shall mean either a
subsidiary corporation of the Company, as defined in section 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code"), or the parent
corporation of the Company, as defined in section 424(e) of the Code. Further,
as used in the Plan, (i) the term incentive stock option ("ISO") shall mean an
Option which, at the time such option is granted under the Plan, qualifies as an
ISO within the meaning of section 422 of the Code and is designated as an ISO in
the Option Agreement (as defined in Section 6(c)); and (ii) the term
nonqualified stock option ("NQSO") shall mean an option which, at the time such
option is granted, does not qualify as an ISO, and is designated as an NQSO in
the Option Agreement.
SECTION 2
Administration
--------------
(a) The Plan shall be administered (i) by the Company's Compensation
Committee, which shall consist of not less than three directors of the Company
who shall be appointed by, and shall serve at the pleasure of, the Company's
Board of Directors (the "Board"), or (ii) in the event a Compensation Committee
has not been established, by the entire Board, (the "Committee"). Each member
of the Committee, while serving as such, shall be deemed to be acting in his
capacity as a director of the Company.
(b) On and after the date the Company first registers equity
securities under section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act") (the "Registration Date"), the Board shall change the membership
of the Committee, to the extent necessary, and the Committee shall thereafter be
composed, such that the Plan complies with the provisions of Rule 16b-3 under
the Exchange Act or any successor provisions thereto.
(c) At such time as the Committee reasonably determines that
remuneration payable pursuant to any Award under the Plan qualifies as
applicable employee remuneration (as defined in section 162(m) of the Code and
regulations thereunder), the Board shall change the
<PAGE>
membership of the Committee, to the extent necessary, and the Committee shall
thereafter be composed, such that each member of the Committee shall be an
outside director (as defined in regulations or rules under section 162 (m) of
the Code).
(d) The Committee shall have full authority, subject to the terms of
the Plan, to select the Employees, Non-Employee Directors and Consultants to be
granted Restricted Stock Awards and Options ("Awards") under the Plan, to grant
Awards on behalf of the Company, and to set the date of grant and the other
terms of such Awards; provided, however, that a grant of an Award to a member of
the Committee made pursuant to the terms of the Plan shall be made by (and the
terms of such Award shall be set by) a majority of the members of the Board
excluding such Committee member; and provided further, however, that action by
the Committee when not properly composed as set forth in Section 2(a), (b) or
(c) above shall be null, void and of no effect.
(e) The Committee may correct any defect, supply any omission and
reconcile any inconsistency in the Plan and in any Award granted hereunder to
the extent it shall deem desirable. The Committee also shall have the authority
to establish such rules and regulations, not inconsistent with the provisions of
the Plan, for the proper administration of the Plan, and to amend, modify, or
rescind any such rules and regulations, and to make such determinations, and
interpretations under, or in connection with, the Plan, as it deems necessary or
advisable. All such rules, regulations, determinations, and interpretations
shall be binding and conclusive upon the Company, its stockholders and all
employees, and upon their respective legal representatives, beneficiaries,
successors, and assigns and upon all other persons claiming under or through any
of them.
(f) No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any Award
granted under it.
SECTION 3
Eligibility
-----------
The following individuals shall be eligible to receive Awards under
the Plan:
(a) Employees. Officers and other employees (including any directors
---------
who are also employees) of the Company and Related Corporations ("Employees")
shall be eligible to receive ISOs, NQSOs and Restricted Stock Awards under the
Plan.
(b) Non-Employee Directors and Consultants. Directors of the Company
--------------------------------------
who are not officers or employees ("Non-Employee Directors") and independent
consultants or advisors hired by the Company to render bona fide services to the
---------
Company or a Related Corporation ("Consultants") shall be eligible to receive
NQSOs and Restricted Stock Awards, but not ISOs, under the Plan.
2
<PAGE>
More than one Award may be granted to an Employee, Non-Employee
Director or Consultant ("Eligible Individual") under the Plan. Eligible
Individuals who have been granted an Award under the Plan shall be referred to
as "Grantees."
SECTION 4
Stock
-----
The number of common shares of the Company, par value $0.00l per share
("Common Shares"), that may be subject to Awards under the Plan shall be
3,500,000 Shares, subject to adjustment as hereinafter provided. Shares issuable
under the Plan may be authorized but unissued shares or reacquired share, and
the Company may purchase shares required for this purpose, from time to time, if
it deems such purchase to be advisable.
Any Common Shares subject to an Option which expires or otherwise
terminates for any reason whatever (including, without limitation, the Grantee's
surrender thereof) without having been exercised, and any shares of Restricted
Stock which are forfeited, shall continue to be available for the granting of
Awards under the Plan; provided, however, that (i) if an Option is cancelled,
the Common Shares covered by the cancelled Option shall be counted against the
maximum number of shares for which Options may be granted to an Employee, and
(ii) if the Option price is reduced after the date of grant, the transaction
shall be treated as a cancellation of an Option and the grant of a new Option
for purposes of counting the maximum number of shares for which Options may be
granted to an Employee.
SECTION 5
Annual Limit
------------
(a) ISOs. The aggregate Fair Market Value (as defined in Section 6(b)
----
(2)) as of the date the ISO is granted of the Common Shares with respect to
which ISOs are exercisable for the first time by an Employee during any calendar
year (under this Plan and any other ISO plan of the Company or a Related
Corporation) shall not exceed $100,000. To the extent the aggregate Fair Market
Value of the Common Shares for which ISOs are exercisable for the first time by
any Employee during any calendar year exceeds $100,000, such excess ISOs shall
be treated as NQSOs.
(b) NQSOs and Restricted Stock Awards. The annual limits set forth
---------------------------------
above for ISOs shall not apply to NQSOs and Restricted Stock Awards.
SECTION 6
Options
-------
(a) Granting of Options. From time to time until the expiration or
-------------------
earlier suspension or discontinuance of the Plan, the Committee may, on behalf
of the Company, grant to Eligible Individuals under the Plan such Options as it
determines are warranted; provided, however, that grants of ISOs and NQSOs shall
be separate and not in tandem; and further provided that Non-Employee Directors
and Consultants shall not be eligible to receive ISOs. In making any
determination as to whether an Eligible Individual shall be granted an Option
and as
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<PAGE>
to the number of shares to be covered by such Option, the Committee shall take
into account the duties of the Eligible Individual, his present and potential
contributions to the success of the Company or a Related Corporation, the tax
implications to the Company and the Eligible Individual of any Options granted,
and such other factors as the Committee shall deem relevant in accomplishing the
purposes of the Plan. Moreover, the Committee may provide in the Option
Agreement that said Option may be exercised only if certain conditions, as
determined by the Committee, are fulfilled.
(b) Terms and Conditions of Options. The Options granted to Employees
-------------------------------
pursuant to the Plan shall expressly specify whether they are ISOs or NQSOs.
The Options granted to Non-Employee Directors and Consultants pursuant to the
Plan shall expressly specify that they are NQSOs. In addition, the Options
granted pursuant to the Plan shall include expressly or by reference the
following terms and conditions, as well as such other provisions not
inconsistent with the provisions of this Plan and, for ISOs granted under this
Plan, the provisions of section 422(b) of the Code, as the Committee shall deem
desirable:
(1) Number of Shares. The Option shall state the number of
----------------
shares to which the Option pertains.
(2) Price. The Option shall state the Option exercise price
-----
which shall be determined and fixed by the Committee in its discretion at
the time of grant but, in the case of an ISO, shall not be less than the
higher of 100 percent (110 percent in the case of a grant to a more-than10-
percent stockholder, as discussed in Section 6(b) (8)) of the Fair Market
Value of the optioned Common Shares, or the par value thereof, on the date
the ISO is granted and, in the case of an NQSO, shall not be less than the
higher of 100 percent of the Fair Market Value of the optioned Common
Shares, or the par value thereof, on the date the NQSO is granted.
The Fair Market Value of the optioned Common Shares on a given date
means (i) if the Common Shares are listed on a national securities exchange, the
mean between the highest and lowest sale prices reported as having occurred on
the primary exchange with which the Common Shares are listed and traded on the
date prior to such date, or if there is no such sale on that date, then on the
last preceding date on which such sale was reported; (ii) if the Common Shares
are not listed on any national securities exchange but are quoted on the
National Market System of the National Association of Securities Dealers
Automated Quotation System on a last sale basis, the average between the high
bid price and low ask price reported on the date prior to such date, or, if
there is no such sale on that date, then on the last preceding date on which a
sale was reported; or (iii) if the Common Shares are not listed on a national
securities exchange nor quoted on the National Market System of the National
Association of Securities Dealers Automated Quotation System on a last sale
basis, the amount determined by the Committee to be the fair market value based
upon a good faith attempt to value the Common Shares accurately and computed in
accordance with the applicable regulations of the Internal Revenue Service.
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<PAGE>
(3) Term.
----
(A) ISOs. Subject to earlier termination as provided in
----
Sections 6(b)(5), (6) and (7) and in Section 8 hereof, the term of
each ISO shall be not more than 10 years (five years in the case of an
ISO granted to a more-than-10-percent stockholder, as discussed in
Section (6) (b) (8)) from the date of grant.
(B) NQSOs. Subject to earlier termination as provided in
-----
Sections 6(b)(5), (6) and (7) and in Section 8 hereof, the term of
each NQSO shall be not more than 10 years from the date of grant.
(4) Exercise. Options shall be exercisable in such installments
--------
and on such dates, not less than 6 months after the date of grant as the
Committee may specify; provided that (i) in the case of new Options granted
to an Eligible Individual in replacement for options (whether granted under
the Plan or otherwise) held by the Eligible Individual, the new Options may
be made exercisable at the earliest date the replaced options were
exercisable, but not earlier than 3 months after the date of grant of the
new Options, and (ii) the Committee may accelerate the exercise date of any
outstanding Options (including, without limitation, the 3 and 6-month
exercise dates referred to above), in its discretion, if it deems such
acceleration to be desirable.
Any Common Shares, the right to the purchase of which has accrued, may
be purchased at any time up to the expiration or termination of the Option.
Exercisable Options may be exercised, in whole or in part, from time to time by
giving written notice of exercise to the Company at its principal office,
specifying the number of Common Shares to be purchased and accompanied by
payment in full of the aggregate Option exercise price for such Shares. Only
full Shares shall be issued under the Plan, and any fractional Share which might
otherwise be issuable upon exercise of an Option granted hereunder shall be
forfeited.
The Option price shall be payable --
(A) in cash or its equivalent;
(B) in the discretion of the Committee, in Common Shares
previously acquired by the Grantee; provided that (i) if such Common Shares
were acquired through the exercise of an ISO and are used to pay the Option
price for ISOs, such shares have been held by the Employee for a period of
not less than the holding period described in section 422(a) (1) of the
Code on the date of exercise, or if (ii) such Common Shares were acquired
through the exercise of an NQSO or the vesting of a Restricted Stock Award
and are used to pay the Option price of an ISO, or if such Common Shares
were acquired through the exercise of an ISO, an NQSO or the vesting of a
Restricted Stock Award and are used to pay the Option price of an NQSO,
such shares have been held by the Grantee for a period of more than one
year on the date of exercise;
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<PAGE>
(C) in the discretion of the Committee, in Common Shares newly
acquired by the Grantee upon exercise of such Option (which shall
constitute a disqualifying disposition in the case of an Option which is an
ISO);
(D) in the discretion of the Committee, in any combination of
subparagraphs (A), (B) and (C) above; or
(E) in the discretion of the Committee, by delivering a properly
executed notice of exercise of the Option to the Company and a broker, with
irrevocable instructions to the broker promptly to deliver to the Company
the amount of sale or loan proceeds necessary to pay the exercise price of
the Option.
In the event the Option price is paid, in whole or in part, with
Common Shares, the portion of the Option price so paid shall be equal to the
Fair Market Value on the date of exercise of the Option of the Common Shares so
surrendered in payment of the Option price.
(5) Termination of Employment, Consulting Services or Board
-------------------------------------------------------
Membership. If a Grantee's employment relationship, consulting
----------
relationship or directorship with the Company (and Related Corporations, as
the case may be) is terminated by either party prior to the expiration date
fixed for his Option for any reason other than death, disability or Cause,
such Option may be exercised, to the extent of the number of Common Shares
with respect to which the Grantee could have exercised it on the date of
such termination, or to any greater extent permitted by the Committee, by
the Grantee at any time prior to the earlier of (i) the expiration date
specified in such Option, or (ii) that date which is three months after the
Grantee's termination of employment, consulting relationship or
directorship, as the case may be.
(6) Exercise upon Disability of Grantee. If a Grantee's
-----------------------------------
employment relationship, consulting relationship or directorship with the
Company (and Related Corporations, as the case may be) is terminated as a
consequence of Grantee's becoming disabled (within the meaning of section
22(e) (3) of the Code) during his employment by the Company (and Related
Corporations), his provision of consulting services to the Company (and
Related Corporations), his membership on the Board or during the three
month period after termination of such relationship with the Company as
provided for in Section 6(b) (5) above, and prior to the expiration date
fixed for his Option, such Option may be exercised, to the extent of the
number of shares with respect to which the Grantee could have exercised it
on the date of such termination, or to any greater extent permitted by the
Committee, by the Grantee at any time prior to the earlier of (i) the
expiration date specified in such Option, or (ii) that date which is six
months after the Grantee's termination of employment, engagement or
membership, as the case may be. In the event of the Grantee's legal
disability, such Option may be so exercised by the Grantee's legal
representative.
(7) Exercise upon Death of Grantee. If a Grantee's employment
------------------------------
relationship, consulting relationship or directorship with the Company (and
Related Corporations, as the case may be) is terminated as a consequence of
Grantee's death
6
<PAGE>
during his employment by the Company (and Related Corporations), his
provision of consulting services to the Company (and Related Corporations),
his membership on the Board or during the three or six month period after
termination of such relationship with the Company as provided for in
Section 6(b) (5) or (6) above, and prior to the expiration date fixed for
his Option, such Option may be exercised, to the extent of the number of
Common Shares with respect to which the Grantee could have exercised it on
the date of his death, or to any greater extent permitted by the Committee,
by the Grantee's estate, personal representative or beneficiary who
acquired the right to exercise such Option by bequest or inheritance or by
reason of the death of the Grantee. Such post-death exercise may occur at
any time prior to the earlier of (i) the expiration date specified in such
Option or (ii) that date which is one year after the Grantee's date of
death.
(8) Ten Percent Stockholder. If the Employee owns more than 10
-----------------------
percent of the total combined voting power of all shares of stock of the
Company or of a Related Corporation at the time an ISO is granted to him,
the Option price for the ISO shall be not less than 110 percent of the Fair
Market Value of the optioned Common Shares on the date the ISO is granted,
and such ISO, by its terms, shall not be exercisable after the expiration
of five years from the date the ISO is granted. The conditions set forth
in this paragraph shall not apply to NQSOs.
(9) Expiration upon Termination for Cause. If a Grantee's
-------------------------------------
employment relationship, consulting relationship or directorship with the
Company (or any Related Corporation, as the case may be) is terminated by
the Company (or any Related Corporation, as the case may be) for Cause, all
of his unexercised Options shall immediately expire and any and all rights
thereunder shall be forfeited. The Company (or any Related Corporation, as
the case may be) shall have Cause to terminate a Grantee's employment or
consulting relationship with the Company (or any Related Corporation, as
the case may be) if the Company (or any Related Corporation, as the case
may be) has Cause pursuant to any existing employment, consulting or any
other agreement between the Grantee and the Company (or any Related
Corporation, as the case may be), or, in the absence of such an employment,
consulting or any other agreement, upon (i) the determination by the
Committee that Grantee has ceased to perform his duties to the Company (or
any Related Corporation, as the case may be) (other than as a result of his
incapacity due to physical or mental injury), which failure amounts to an
intentional and extended neglect of his duties to such party, (ii) the
Committee's determination that the Grantee has engaged or is about to
engage in conduct materially injurious to the Company (or any Related
Corporation, as the case may be) or (iii) the Grantee having been convicted
of a felony.
7
<PAGE>
(c) Option Agreements. Options granted under the Plan shall be
-----------------
evidenced by written documents ("Option Agreements") in such form as the
Committee shall from time to time approve, and containing such provisions not
inconsistent with the provisions of the Plan (and, for ISOs, not inconsistent
with section 422 of the Code), as the Committee shall deem advisable. The Option
Agreements shall specify whether the Option is an ISO or NQSO. Each Grantee
shall enter into, and be bound by, such an Option Agreement, as soon as
practicable after the grant of an Option.
SECTION 7
Restricted Stock Awards
-----------------------
From time to time until the expiration or earlier termination of the
Plan, the Committee may, on behalf of the Company, make such Restricted Stock
Awards under the Plan to Eligible Individuals as it determines are warranted.
Restricted Stock Awards shall be subject to the following terms and conditions,
as well as such other terms and conditions as the Committee may prescribe:
(a) Vesting Period; Conditions. At the time of granting a Restricted
--------------------------
Stock Award, the Committee may establish one or more vesting periods ("Vesting
Periods") with respect to the Common Shares covered by the Award; provided that
no more than 20% of the Common Shares covered by an Award or Awards to a Grantee
may have an initial stated Vesting Period of less than six months. The length of
any such Vesting Period(s) applicable to a Restricted Stock Award shall be
within the discretion of the Committee. At the time of grant, the Committee also
may establish such additional conditions to the payment of a Restricted Stock
Award ("Conditions") as it may deem advisable in its sole discretion, such as
the achievement of corporate or individual goals. Subject to the provisions of
this Section 7 and any other Conditions prescribed by the Committee, shares
subject to a Restricted Stock Award shall vest in the Grantee upon the
expiration of the Vesting Period with respect to such shares. Notwithstanding
any provision herein to the contrary, the Committee may accelerate the vesting
date of any uninvested shares subject to a Restricted Stock Award in its
discretion, if it deems such acceleration of vesting to be desirable.
(b) Issuance and Delivery of Certificates. Upon the granting of a
-------------------------------------
Restricted Stock Award, (i) the Company may, if so determined by the Committee
at the time of the grant, issue certificates in the name of the Grantee
representing the Common Shares subject to the Restricted Stock Award which are
subject to Vesting Periods and/or Conditions, and (ii) the Company shall issue
certificates in the name of the Grantee representing the Common Shares subject
to the Award which are not subject to Vesting Periods or Conditions. Any such
shares subject to Vesting Periods and/or Conditions shall bear a legend
indicating that they are subject to the terms of the Plan and the Restricted
Stock Award Agreement (as defined in Section 7(f)) and that they may not be
sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of
except in accordance with the terms of the Plan and the Restricted Stock Award
Agreement. Upon issuance of such legended certificates, the Grantee shall
immediately execute a stock power or other instrument of transfer, appropriately
endorsed in blank, to be held by the Company pursuant to the terms of the Plan
and the Restricted Stock Award Agreement. Only full shares
8
<PAGE>
shall be issued, and any fractional shares which might otherwise be issuable
pursuant to a Restricted Stock Award shall be forfeited.
(c) Rights as a Shareholder. If the Company issues certificates
-----------------------
representing the shares subject to a Restricted Stock Award prior to the
expiration of the Vesting Period for the shares subject to such Award or prior
to the satisfaction of the Conditions, if any, pertaining to such Award, the
Grantee shall be entitled to receive dividends paid on such shares, shall have
the right to vote such shares, and shall have all other shareholder's rights
with respect to such shares, except that (i) the Grantee will not be entitled to
delivery of the stock certificate, (ii) the Company will retain custody of the
Common Shares, and (iii) the shares subject to the Restricted Stock Award will
revert to the Company to the extent all Vesting Periods and Conditions
applicable to such Award are not satisfied.
(d) Termination of Employment, Consulting Services or Board
-------------------------------------------------------
Membership. At the time of granting a Restricted Stock Award, the Committee
- ----------
shall specify in the Restricted Stock Award Agreement, the manner of determining
the number, if any, of unvested shares subject to the Award which shall become
vested in the Grantee, or in his beneficiary or estate, if employment by the
Company and Related Corporations (where the Grantee is an Employee), engagement
by the Company and Related Corporations (where the Grantee is a Consultant), or
Board membership (where the Grantee is a Non-Employee Director) is terminated
prior to the later of the expiration of the Vesting Period or the satisfaction
of all of the Conditions with respect to such shares. Any Restricted Stock
Award Agreement may provide different vesting provisions upon a Grantee's
termination due to death or disability. Any remaining shares covered by the
Grantee's Restricted Stock Award not vested pursuant to the terms of the
Restricted Stock Award Agreement shall immediately be forfeited upon termination
of employment, consulting arrangement or Board membership, as applicable, except
that the Committee, if it determines that the circumstances warrant, may direct
that all or a portion of such remaining unvested shares also be vested in the
Grantee, or in his beneficiary or estate, subject to such further terms and
conditions, if any, as the Committee may determine.
(e) Payment for Restricted Stock. The Committee may, on behalf of the
----------------------------
Company, grant Restricted Stock Awards under which the Grantee shall not be
required to make any payment for the Common Shares upon satisfaction of
applicable Vesting Periods and Conditions or, in the alternative, under which
the Grantee, as a condition to the Restricted Stock Award, shall pay all (or any
lesser amount than all) of the Fair Market Value of the Common Shares,
determined as of the date the Restricted Stock Award is made. If the latter,
such purchase price shall be paid as provided in the Restricted Stock Award
Agreement.
(f) Restricted Stock Award Agreement. Restricted Stock Awards under
--------------------------------
the Plan shall be evidenced by written documents ("Restricted Stock Award
Agreements") in such form as the Committee shall, from time to time, approve,
which Restricted Stock Award Agreements shall contain such provisions, not
inconsistent with the provisions of the Plan, as the Committee shall deem
advisable. Each Grantee shall enter into, and be bound by the terms of, the
Restricted Stock Award Agreement.
9
<PAGE>
SECTION 8
Capital Adjustments
-------------------
The number of shares which may be issued under the Plan, the maximum
number of shares with respect to which Options may be granted to any Employee
under the Plan, both as stated in Section 4 hereof, the number of shares
issuable upon exercise of outstanding Options under the Plan (as well as the
Option price per share under such outstanding Options), and the number of Shares
issuable upon the vesting of outstanding Restricted Stock Awards (as well as the
purchase price, if any, for such Shares) shall, subject to the provisions of
section 424(a) of the Code, be adjusted, as may be deemed appropriate by the
Committee, to reflect any stock dividend, stock split, share combination, or
similar change in the capitalization of the Company.
In the event of a corporate transaction (as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), each outstanding Award shall be
assumed by the surviving or successor corporation; provided, however, that, in
the event of a proposed corporate transaction, the Committee may terminate all
or a portion of the outstanding Options if it determines that such termination
is in the best interests of the Company. If the Committee decides to terminate
outstanding Options, the Committee shall give each Employee holding an Option to
be terminated not less than seven days' notice prior to any such termination by
reason of such a corporate transaction, and any such Option which is to be so
terminated may be exercised (if and only to the extent that it is then
exercisable) up to, and including the date immediately preceding such
termination. Further, as provided in Section 6(b) (4) and Section 7(a) hereof
the Committee, in its discretion, may accelerate, in whole or in part, the date
on which any or all Options become exercisable, and the vesting date of unvested
shares subject to a Restricted Stock Award, respectively.
The Committee also may, in its discretion, change the terms of any
outstanding Award to reflect any such corporate transaction, provided that, in
the case of ISOs, such change is excluded from the definition of a
"modification" under section 424(h) of the Code.
SECTION 9
Change in Control
-----------------
Unless otherwise determined by the Committee before or after the
granting of an Option or Award, but before the occurrence of a Change in Control
of the Company, all Options may, in the discretion of the Committee, become
fully vested and exercisable, and all Vesting Periods and Conditions for
Restricted Stock Awards may be deemed to have been satisfied, upon a Change in
Control of the Company. "Change in Control" shall mean the point in time when
(i) any person (as such term is used in section 13 of the Exchange Act and the
rules and regulations thereunder and including any Affiliate or Associate of
such person, as defined in Rule 12b-2 under the Exchange Act, and any person
acting in concert with such person) directly or indirectly acquires or otherwise
becomes entitled to vote more than 50 percent of the voting power entitled to be
cast at elections for directors of the Company, (ii) during any period of two
consecutive
10
<PAGE>
years after the Registration Date, individuals who constitute the Board at the
beginning of such period cease for any reason to constitute at least a majority
thereof, unless the election or nomination for the election by the Company's
shareholders of each new director was approved by a vote of at least three-
quarters of the directors then still in office who were directors at the
beginning of the period or (iii) the Company undergoes a liquidation or
dissolution or a sale of all or substantially all of the assets of the Company.
Neither the initial offering of Common Shares to the public through an effective
registration statement nor any merger, consolidation or corporate reorganization
in which the owners of the combined voting power of the Company's then
outstanding voting securities entitled to vote generally prior to said
combination own 50% or more of the resulting entities' outstanding voting
securities shall, by itself, be considered a Change in Control.
SECTION 10
Amendment or Discontinuance of the Plan
---------------------------------------
At any time and from time to time, the Board may suspend or terminate
the Plan or amend it, and the Committee may amend any outstanding Awards, in any
respect whatsoever, except that the following amendments shall require the
approval of shareholders (given in the manner set forth in Section 12):
(a) With respect to ISOs, any amendment which would:
(1) Change the class of employees eligible to participate
in the Plan;
(2) Except as permitted under Section 8 hereof, increase
the maximum number of Common Shares with respect to which ISOs
may be granted under the Plan; or
(3) Extend the duration of the Plan under Section 11 hereof
with respect to any ISOs granted hereunder.
(b) On and after the Registration Date, any amendment which
would:
(1) Materially increase the benefits accruing to directors
and officers, within the meaning of Rule 16a-l(f) under the
Exchange Act (hereinafter referred to as "Officers"), under the
Plan;
(2) Materially increase the number of Common Shares which
may be issued to directors and Officers under the Plan; or
(3) Materially modify the requirements as to eligibility
for directors and Officers to participate in the Plan.
11
<PAGE>
(c) On and after such date as the Committee reasonably
determines that remuneration payable pursuant to any Award under the
Plan qualifies as applicable employee remuneration (as defined in
section 162 (m) of the Code), any amendment which would require
shareholder approval pursuant to section 162(m) of the Code and rules
and regulations issued thereunder.
Notwithstanding the foregoing, no such suspension, discontinuance or
amendment shall materially impair the rights of any holder of an outstanding
Award without the consent of such holder.
SECTION 11
Termination of Plan
-------------------
Unless earlier terminated as provided in the Plan, the Plan and all
authority granted hereunder shall terminate absolutely at 12:00 midnight on
November 28, 2005, which date is within 10 years after the date the Plan was
adopted by the Board, and no Awards hereunder shall be granted thereafter.
Nothing contained in this Section 11, however, shall terminate or affect the
continued existence of rights created under Awards issued hereunder and
outstanding on November 28, 2005 which by their terms extend beyond such date.
SECTION 12
Shareholder Approval
--------------------
This Plan shall become effective on November 29, 1995 (the date the
Plan was adopted by the Board); provided, however, that if the Plan is not
approved (i) by the written consent of the holders of at least a majority of the
shares of the Company entitled to vote, or (ii) by the affirmative vote of the
holders of at least a majority of the shares present, or represented, and
entitled to vote at a duly held meeting of the shareholders of the Company,
within 12 months after said date, the Plan and all Awards granted hereunder
shall be null and void and no additional Awards shall be granted hereunder.
SECTION 13
Miscellaneous
-------------
(a) Governing Law. The Plan, and the Option Agreements and Restricted
-------------
Stock Award Agreements (collectively the "Award Agreements") entered into, and
the Awards granted thereunder, shall be governed by the Code provisions to the
extent applicable. Otherwise, the operation of, and the rights of Eligible
Individuals under, the Plan, the Award Agreements, and the Awards shall be
governed by applicable federal law and otherwise by the laws of the State of New
York.
(b) Rights. Neither the adoption of the Plan nor any action of the
------
Board or the Committee shall be deemed to give any individual any right to be
granted an Award, or any other right hereunder, unless and until the Committee
shall have granted such individual an Award, and then his rights shall be only
such as are provided by the Plan and the Award Agreement.
12
<PAGE>
Any Option under the Plan shall not entitle the holder thereof to any
rights as a shareholder of the Company prior to the exercise of such Option and
the issuance of the shares pursuant thereto. Further, notwithstanding any
provisions of the Plan or any Award Agreement with a Grantee, but subject to any
employment agreement or consulting agreement, the Company shall have the right,
in its discretion, to retire an Employee at any time pursuant to its retirement
rules or otherwise to terminate his employment or a Consultant's consulting
services at any time for any reason whatsoever.
(c) No Obligation to Exercise Option. The granting of an Option shall
--------------------------------
impose no obligation upon a Grantee to exercise such Option.
(d) Non-Transferability. Except as otherwise provided in any Award
-------------------
Agreement, no Award shall be assignable or transferable by the Grantee otherwise
than by will or by the laws of descent and distribution, and during the lifetime
of the Grantee, any Options shall be exercisable only by him or by his guardian
or legal representative. If a Grantee is married at the time of exercise of an
Option and if the Grantee so requests at the time of exercise, the certificate
or certificates issued shall be registered in the name of the Grantee and the
Grantee's spouse, jointly, with right of survivorship.
(e) Listing and Registration of Shares. Each Award shall be subject
----------------------------------
to the requirement that, if at any time the Committee shall determine, in its
discretion, that the listing, registration, or qualification of the Common
Shares covered thereby upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such Award or the purchase or vesting of Common Shares thereunder, or that
action by the Company or by the Grantee should be taken in order to obtain an
exemption from any such requirement, no such Option may be exercised, in whole
or in part, and no Common Shares shall be received pursuant to a Restricted
Stock Award, unless and until such listing, registration, qualification,
consent, approval, or action shall have been effected, obtained, or taken under
conditions acceptable to the Committee. Without limiting the generality of the
foregoing, each Grantee or his legal representative or beneficiary may also be
required to give satisfactory assurance that shares purchased upon exercise of
an Option or received pursuant to a Restricted Stock Award are being purchased
for investment and not with a view to distribution, and certificates
representing such shares may be legended accordingly.
(f) Withholding and Use of Shares to Satisfy Tax Obligations. The
--------------------------------------------------------
obligation of the Company to deliver Common Shares pursuant to any Award (or
cash in lieu thereof) shall be subject to any applicable federal, state or local
tax withholding requirements.
In connection with an Award in the form of Common Shares subject to
the withholding requirements of applicable federal tax law, the Committee, in
its discretion (and subject to any withholding rules adopted by the Committee),
may permit the Employee to satisfy the minimum required federal, state and local
withholding tax, in whole or in part, by electing to have the Company withhold
Common Shares subject to the exercise (or by returning previously acquired
Common Shares to the Company). Common Shares shall be
13
<PAGE>
valued, for purposes of this paragraph, at their Fair Market Value on the date
the amount attributable to the Restricted Stock Award, or the exercise of the
Option, is includable in income by the Grantee under section 83 of the Code (the
"Determination Date").
If Common Shares acquired by the exercise of an ISO are used to
satisfy the withholding requirement described above, such Common Shares must
have been held by the Employee for a period of not less than the holding period
described in section 422(a) (1) of the Code as of the Determination Date. If
Common Shares acquired by the exercise of an NQSO or of an option under a
similar plan are used to satisfy such withholding requirement with regard to an
Officer or a director of the Company, such option must have been granted to the
Officer or director at least 6 months prior to the Determination Date.
The Committee shall adopt such withholding rules as it deems necessary
to carry out the provisions of this paragraph.
(g) Indemnification of Board and Committee. Without limiting any
--------------------------------------
other rights of indemnification which they may have from the Company and any
Related Corporation, the members of the Board and the members of the Committee
shall be indemnified by the Company against all costs and expenses reasonably
incurred by them in connection with any claim, action, suit, or proceeding to
which they or any of them may be a party by reason of any action taken or
failure to act under, or in connection with, the Plan, or any Award granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit, or proceeding,
except a judgment based upon a finding of willful misconduct or recklessness on
their part. Upon the making or institution of any such claim, action, suit, or
proceeding, the Board or Committee member shall notify the Company in writing,
giving the Company an opportunity, at its own expense, to handle and defend the
same before such Board or Committee member undertakes to handle it on his own
behalf.
(h) Application of Funds. The proceeds received by the Company from
--------------------
the sale of Common Shares pursuant to Awards granted under the Plan shall be
used for general corporate purposes. Any cash received in payment for shares
upon exercise of an Option to purchase Common Shares or vesting of a Restricted
Stock Award shall be added to the general funds of the Company and shall be used
for its corporate purposes. Any Common Shares received in payment for shares
upon exercise of an Option or vesting of a Restricted Stock Award shall become
treasury stock.
14
<PAGE>
ISO-000 Shares
ORCHID BIOCOMPUTER, INC.
1995 Stock Incentive Plan
Incentive Stock Option Certificate
Orchid Biocomputer, Inc. (the "Company"), a Delaware corporation,
hereby grants to the person named below an option to purchase shares of Common
Stock, $0.001 par value, of the Company (the "Option") under and subject to the
Company's 1995 Stock Incentive Plan (the "Plan") exercisable on the following
terms and conditions and those set forth on the reverse side of this
certificate:
Name of Optionholder:
Address:
Number of Shares:
Exercise Price per Share:
Date of Grant:
Vesting Schedule: The shares subject to this option certificate shall
vest monthly on the last day of each month in forty-
eight (48) equal installments of 2.083% per month over
a period of four (4) years from the effective date of
this certificate, with the first such vesting to occur
on _______________________.
Expiration Date:
This Option is intended to be treated as an Incentive Stock Option
under section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
By acceptance of this Option, the Optionholder agrees to the terms and
conditions hereof.
ORCHID BIOCOMPUTER, INC.
By:
---------------------------------------
15
<PAGE>
ORCHID BIOCOMPUTER, INC. 1995 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION TERMS AND CONDITIONS
-------------------------------------------
1. Plan Incorporated by Reference. This Option is issued pursuant to
------------------------------
the terms of the Plan and may be amended as provided in the Plan. Capitalized
terms used and not otherwise defined in this certificate have the meanings given
to them in the Plan. This certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference. The
Committee administers the Plan, and its determinations regarding the operation
of the Plan are final and binding. Copies of the Plan may be obtained upon
written request without charge from the Human Resources Department of the
Company.
2. Option Price. The price to be paid for each share of Common Stock
------------
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. Exercisability Schedule. This Option may be exercised at any time
-----------------------
and from time to time for the number of shares and in accordance with the
Schedule set forth on the face of this certificate, but only for the purchase of
whole shares. This Option may not be exercised as to any shares after the
Expiration Date.
4. Method of Exercise. To exercise this Option, the Optionholder shall
------------------
deliver written notice of exercise to the Company specifying the number of
shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock of the Company valued at their
fair market value on the date of delivery, as the Committee may approve.
Promptly following such notice, the Company will deliver to the Optionholder a
certificate representing the number of shares with respect to which the Option
is being exercised. In connection with any purchase of shares pursuant to an
exercise of this option, the Optionholder shall exercise a Stock Restriction
Agreement in form and substance reasonably acceptable to the Company.
5. Rights as a Stockholder or Employee. The Optionholder shall not have
-----------------------------------
any rights in respect of shares as to which the Option shall not have been
exercised and payment made as provided above. The Optionholder shall not have
any rights to continued employment by the Company or its Affiliates by virtue of
the grant of this Option.
6. Recapitalization, Mergers, Etc. As provided in the Plan, in the
------------------------------
event of corporate transactions affecting the Company's outstanding Common
Stock, the Committee shall equitably adjust the number and kind of shares
subject to this Option and the exercise price hereunder or make provision for a
cash payment. If such transaction involves a consolidation or merger of the
Company with another equity, the sale or exchange of all or substantially all of
the assets of the Company or a reorganization or liquidation of the Company,
then in lieu of the foregoing, the Committee may upon written notice to the
Optionholder provide that this Option shall terminate on a date not less than 20
days after the date of such notice unless theretofore exercised. In connection
with such notice, the Committee may in its discretion accelerate or waive any
deferred exercise period.
7. Option Not Transferable. This Option is not transferable by the
-----------------------
Optionholder otherwise than by will or the laws of descent and distribution, and
is exercisable, during the Optionholder's lifetime, only by the Optionholder.
The naming of a Designated Beneficiary does not constitute a transfer.
8. Exercise of Option After Termination of Employment. If the
--------------------------------------------------
Optionholder's employment with (a) the Company, (b) an Affiliate, or (c) a
corporation (or parent or subsidiary corporation of such corporation) issuing or
assuming a stock option in a transaction to which section 424(a) of the Code
applies, is terminated for any reason other than by disability (within the
meaning of section 22(e)(3) of the Code) or death, the Optionholder may exercise
the rights which were available to the Optionholder at the time of such
termination only within three months from the date of termination. If
Optionholder's employment is terminated as a result of disability, such rights
may be exercised within twelve months from the date of termination. Upon the
death of the Optionholder, his or her Designated Beneficiary shall have the
right, at any time within twelve months after the date of death, to exercise in
whole or in part any rights that were available to the Optionholder at the time
of death. Notwithstanding the foregoing, no rights under this Option may be
exercised after the Expiration Date.
9. Compliance with Securities Laws. It shall be a condition to the
-------------------------------
Optionholder's right to purchase shares of Common Stock hereunder that the
Company may, in its discretion, require (a) that the shares of Common Stock
reserved for issue upon the exercise of this Option shall have been duly listed,
upon official notice of issuance, upon any national securities exchange or
automated quotation system on which the Company's Common Stock may then be
listed or quoted, (b) that either (i) a registration statement under the
Securities Act of 1933, as amended (the "Act") with respect to the shares shall
be in effect, or (ii) in the option of counsel for the Company, the proposed
purchase shall be exempt from registration under that Act and the Optionholder
shall have made such undertakings and agreements with the Company as the Company
may reasonably require, and (c) that such other steps, if any, as counsel for
the company shall consider necessary to comply with any law applicable to the
issue of such shares by the Company shall have been taken by the Company or the
Optionholder, or both. The certificates representing the shares purchased under
this Option may contain such legends as counsel for the Company shall consider
necessary to comply with any applicable law.
10. Payment of Taxes. The Optionholder shall pay to the Company, or
----------------
make provision satisfactory to the Company for payment of, any taxes required by
law to be withheld with respect to the exercise of this Option. The Committee
may, in its discretion, require any other Federal or state taxes imposed on the
sale of the shares to be paid by the Optionholder. In the Committee's
discretion, such tax obligations may be paid in whole or in part in shares of
Common Stock, including shares retained from the exercise of this Option, valued
at their fair market value on the date of delivery. The Company and its
Affiliates may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Optionholder.
11. Notice of Sale of Shares Required. The Optionholder agrees to
---------------------------------
notify the Company in writing within 30 days of the disposition of any shares
purchased upon exercise of this Option if such disposition occurs within two
years of the date of the grant of this Option or within one year after such
purchase.
16
<PAGE>
NSO-000 Shares
ORCHID BIOCOMPUTER, INC.
1995 Stock Incentive Plan
Non-Statutory Stock Option Certificate
Orchid Biocomputer, Inc. (the "Company"), a Delaware corporation,
hereby grants to the person named below an option to purchase shares of Common
Stock, $0.001 par value, of the Company (the "Option") under and subject to the
Company's 1995 Stock Incentive Plan (the "Plan") exercisable on the following
terms and conditions and those set forth on the reverse side of this
certificate:
Name of Optionholder:
Address:
Number of Shares:
Exercise Price per Share:
Date of Grant:
Vesting Schedule: The shares subject to this option certificate shall vest
monthly on the last day of each month in (_) equal
installments of ____ per month over a period of ____
(_) years from the effective date of this certificate,
with the first such vesting to occur on _________________.
Expiration Date:
By acceptance of this Option, the Optionholder agrees to the terms and
conditions hereof.
ORCHID BIOCOMPUTER, INC.
By:
---------------------------------------
17
<PAGE>
ORCHID BIOCOMPUTER, INC. 1995 STOCK INCENTIVE PLAN
NON-STATUTORY STOCK OPTION TERMS AND CONDITIONS
-----------------------------------------------
1. Plan Incorporated by Reference. This Option is issued pursuant to
------------------------------
the terms of the Plan and may be amended as provided in the Plan. Capitalized
terms used and not otherwise defined in this certificate have the meanings given
to them in the Plan. This certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference. The
Committee administers the Plan, and its determinations regarding the operation
of the Plan are final and binding. Copies of the Plan may be obtained upon
written request without charge from the Human Resources Department of the
Company.
2. Option Price. The price to be paid for each share of Common Stock
------------
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. Exercisability Schedule. This Option may be exercised at any time
-----------------------
and from time to time for the number of shares and in accordance with the
Schedule set forth on the face of this certificate, but only for the purchase of
whole shares. This Option may not be exercised as to any shares after the
Expiration Date.
4. Method of Exercise. To exercise this Option, the Optionholder shall
------------------
deliver written notice of exercise to the Company specifying the number of
shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock of the Company valued at their
fair market value on the date of delivery, as the Committee may approve.
Promptly following such notice, the Company will deliver to the Optionholder a
certificate representing the number of shares with respect to which the Option
is being exercised. In connection with any purchase of shares pursuant to an
exercise of this option, the Optionholder shall exercise a Stock Restriction
Agreement in form and substance reasonably acceptable to the Company.
5. Rights as a Stockholder or Employee. The Optionholder shall not have
-----------------------------------
any rights in respect of shares as to which the Option shall not have been
exercised and payment made as provided above. The Optionholder shall not have
any rights to continued employment by the Company or its Affiliates by virtue of
the grant of this Option.
6. Recapitalization, Mergers, Etc. As provided in the Plan, in the
------------------------------
event of corporate transactions affecting the Company's outstanding Common
Stock, the Committee shall equitably adjust the number and kind of shares
subject to this Option and the exercise price hereunder or make provision for a
cash payment. If such transaction involves a consolidation or merger of the
Company with another equity, the sale or exchange of all or substantially all of
the assets of the Company or a reorganization or liquidation of the Company,
then in lieu of the foregoing, the Committee may upon written notice to the
Optionholder provide that this Option shall terminate on a date not less than 20
days after the date of such notice unless theretofore exercised. In connection
with such notice, the Committee may in its discretion accelerate or waive any
deferred exercise period.
7. Option Not Transferable. This Option is not transferable by the
-----------------------
Optionholder otherwise than by will or the laws of descent and distribution, and
is exercisable, during the Optionholder's lifetime, only by the Optionholder.
The naming of a Designated Beneficiary does not constitute a transfer.
8. Exercise of Option After Termination of Employment. If the
--------------------------------------------------
Optionholder's status as an employee, consultant or director of (a) the Company,
(b) an Affiliate, or (c) a corporation (or parent or subsidiary corporation of
such corporation) issuing or assuming a stock option in a transaction to which
section 424(a) of the Code applies, is terminated for any reason other than by
disability (within the meaning of section 22(e)(3) of the Code) or death, the
Optionholder may exercise the rights which were available to the Optionholder at
the time of such termination only within three months from the date of
termination. If such status is terminated as a result of disability, such rights
may be exercised within twelve months from the date of termination. Upon the
death of the Optionholder, his or her Designated Beneficiary shall have the
right, at any time within twelve months after the date of death, to exercise in
whole or in part any rights that were available to the Optionholder at the time
of death. Notwithstanding the foregoing, no rights under this Option may be
exercised after the Expiration Date.
9. Compliance with Securities Laws. It shall be a condition to the
-------------------------------
Optionholder's right to purchase shares of Common Stock hereunder that the
Company may, in its discretion, require (a) that the shares of Common Stock
reserved for issue upon the exercise of this Option shall have been duly listed,
upon official notice of issuance, upon any national securities exchange or
automated quotation system on which the Company's Common Stock may then be
listed or quoted, (b) that either (i) a registration statement under the
Securities Act of 1933, as amended (the "Act") with respect to the shares shall
be in effect, or (ii) in the option of counsel for the Company, the proposed
purchase shall be exempt from registration under that Act and the Optionholder
shall have made such undertakings and agreements with the Company as the Company
may reasonably require, and (c) that such other steps, if any, as counsel for
the company shall consider necessary to comply with any law applicable to the
issue of such shares by the Company shall have been taken by the Company or the
Optionholder, or both. The certificates representing the shares purchased under
this Option may contain such legends as counsel for the Company shall consider
necessary to comply with any applicable law.
10. Payment of Taxes. The Optionholder shall pay to the Company, or
----------------
make provision satisfactory to the Company for payment of, any taxes required by
law to be withheld with respect to the exercise of this Option. The Committee
may, in its discretion, require any other Federal or state taxes imposed on the
sale of the shares to be paid by the Optionholder. In the Committee's
discretion, such tax obligations may be paid in whole or in part in shares of
Common Stock, including shares retained from the exercise of this Option, valued
at their fair market value on the date of delivery. The Company and its
Affiliates may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Optionholder.
11. Notice of Sale of Shares Required. The Optionholder agrees to
---------------------------------
notify the Company in writing within 30 days of the disposition of any shares
purchased upon exercise of this Option if such disposition occurs within two
years of the date of the grant of this Option or within one year after such
purchase.
18
<PAGE>
Exhibit 10.4
THIS LEASE is made this 6th day of March, 1998, between COLLEGE ROAD
ASSOCIATES, LIMITED PARTNERSHIP, having an office at 2 Research Way, Princeton
NJ 08540, hereinafter called "Landlord", and Orchid Biocomputer Inc. with an
office located at 303 College Road East, Princeton, New Jersey 08540,
hereinafter called `Tenant".
LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord,
subject to all of the terms and conditions hereinafter set forth, those certain
premises (the "Premises") as set forth in Items 1 of the Basic Lease Provisions
and as shown in the drawings attached hereto as Exhibit "A" being located on the
floor indicated in that certain office building (the "Building") and on that
certain lot (the "Parcel") together hereinafter referred to as (the "Project")
being located at 303 College Road East, Township of Plainsboro, County of
Middlesex, State of New Jersey.
BASIC LEASE PROVISIONS
1. Location of Premises: 303 College Road East
Princeton, New Jersey 08540
2. Rentable Area of Premises: 30,894 rentable square feet
(28,085 usable s.f. x 1.10
= 30,894 rentable s.f.)
3. Tenant's Percentage Share: 50.35% (30,894/61,359)
4. Base Project Operating Expenses: Those incurred in the year 1999
5. Base Project Property Taxes: Those incurred in the year 1999
6. Basic Annual Rent: Years 1-5 @ $695,115.00 per annum
($22.50 psf) + all electric; and
Years 6-10 @ $726,009.00 per annum
($23.50 psf) + all electric
7. Basic Monthly Rental Installments: Months 1-60 @ $57,926.25 per month
+ all electric; and
Months 61-120 @ $60,500.75 per month
+ all electric
8. Term: Ten (10) years
9. Target Commencement Date: January 1, 1999
10. Security Deposit: $115,852.50 + a Letter of Credit in
the amount of $600,000.00 (see
Paragraph 4)
11. Parking Spaces: 124
12. Broker(s): Grubb & Ellis Company
13. Permitted Use: General Office, Development, Light
Assembly and R & D Laboratory
<PAGE>
14. Addresses for Notices:
LANDLORD TENANT
College Road Associates, Orchid Biocomputer, Inc.
Limited Partnership 303 College Road East
2 Research Way Princeton, New Jersey 08540
Princeton, NJ 08540
15. All payments under this Lease shall be payable and sent to:
College Road Associates
2 Research Way
Princeton, New Jersey 08540
or such other payee or address as Landlord may designate.
IN WITNESS WHEREOF, the parties hereto have executed this Lease, consisting
of the foregoing and Paragraphs I through 48 which follow, together with
Exhibits A through F inclusive, incorporated herein by this reference as of the
date first above written.
College Road Associates,
Limited Partnership
By: Z Forrestal Center, L.P.,
Managing General Partner
By: Z Forrestal Corp.,
General Partner
By: /s/ John Zirinsky
---------------------------------
Name: John Zirinsky
Title: President
Orchid Biocompter, Inc.
By: /s/ Dale R. Pfost, Ph.D.
---------------------------------
Name: Dale R. Pfost, Ph.D.
Title: Chairman, President and CEO
2
<PAGE>
STATE OF NEW YORK:
:ss
COUNTY OF NEW YORK:
BE IT REMEMBERED, that on this 10th day of March, 1998, before me, the
subscriber, a Notary Public of the State of New York personally appeared John
Zirinsky, of Z Forrestal Corp., the General Partner of Z Forrestal Center, L.P.,
the General Partner of College Road Associates, Limited Partnership, who, I am
satisfied, is the person who has signed the within instrument, and he did
acknowledge that he signed, sealed and delivered the same as such officer
aforesaid; and that the within instrument is the voluntary act and deed of said
corporation made by virtue of authority from its Board of Directors.
/s/ Marc L. Dececchis
--------------------------------------------
MARC L. DeCECCHIS
Notary Public, State of New York
No. 4963923
Qualified in Westchester County
Commission Expires 3/19/1998
STATE OF NEW YORK:
:ss
COUNTY OF NEW YORK:
BE IT REMEMBERED, that on this 6th day of March, 1998, before me, the
subscriber, a Notary Public of the State of New Jersey personally appeared Dale
R. Pfost, Ph.D., president of Orchid Biocomputer, Inc., who, I am satisfied, is
the person who has signed the within instrument, and he did acknowledge that he
signed, sealed and delivered the same as such officer aforesaid; and that the
within instrument is the voluntary act and deed of said corporation made by
virtue of authority from its Board of Directors.
/s/ Debra H. Babashak
--------------------------------------------
DEBRA H. BABASHAK
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES AUGUST 12 2001
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH PAGE
<S> <C>
1. Commencement Date and Term 6
2. Basic Annual Rent 6
3. Additional Rent 7-11
4. Security Deposit 11
5. Repairs 12
6. Improvements and Alterations 12-14
7. Liens 14
8. Use of Premises 14-16
9. Utilities and Services 16-18
10. Rules and Regulations 19
11. Taxes on Tenant's Property 19
12. Substituted Premises 19
13. Fire and Casualty 20
14. Eminent domain 20-21
15. Assignment and Subletting 21-22
16. Landlord's Access to Premises 22-23
17. Subordination: Attornment; Estoppel Certificates 23
18. Sale by Landlord 24
19. Indemnification of Landlord and Insurance 24-26
20. Waiver of Subrogation 26
21. No Waiver 26
22. Default 27-29
23. Right of Landlord to Cure Tenant's Default 29-30
24. Notices 30
25. Insolvency or Bankruptcy 30
26. Surrender and Holdover 30-31
27. Condition of Premises 31
28. Quiet Possession 31
29. Limitation of Landlord's Liability 31-32
30. Governing Law 32
31. Common Facilities 32
32. Successors and Assigns 33
33. Brokers 33
34. Name 34
35. Examination of Lease 34
36. Additional Charges 34
37. Marginal Headings 34
38. Prior Agreements; Severability 35
39. Parking 35
40. Authority 35
41. No Light, Air or View Easement 35
42. Force Majeure 36
43. Attornment 36
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
44. Common Area Maintenance Cost 36
45. Notice Regarding Tenant's Move In or Out 37
46. Option to Expand First Available Space 37-38
47. First Option to Renew 38
48. Second Option to Renew 38
</TABLE>
Exhibit "A" Floor Plans
Exhibit "B1" Landlord's Work Letter
Exhibit "B2" Building Standard Work Letter
Exhibit "C" Commencement Date Memorandum
Exhibit "D" Rules and Regulations
Exhibit "E" Janitorial Specifications
Exhibit "F" Model Letter of Credit
5
<PAGE>
COMMENCEMENT DATE AND TERM
PARAGRAPH 1
(A) The term of this Lease shall be as shown in Item 8 of the Basic Lease
Provisions and shall commence on the Target Commencement Date as shown in Item 9
of the Basic Lease Provisions or such earlier date as a Temporary Certificate of
Occupancy has been issued. Such date of commencement, hereinafter the
"Commencement Date", shall be confirmed by Landlord and Tenant by execution of a
"Commencement Date Memorandum" in a form substantially similar to Exhibit "C".
(B) Notwithstanding the Commencement Date, if for any reason Landlord
cannot deliver possession of the Demised Premises to Tenant on said Commencement
Date, then Landlord shall not be subject to any liability therefor; nor shall
such failure affect the validity of this Lease or the obligations of Tenant
hereunder, provided that Tenant shall not be obligated to pay Rent (except a sum
equal to the first Basic Monthly Rental Installment) until possession of the
Premises is rendered to Tenant.
BASIC ANNUAL RENT
PARAGRAPH 2
(A) Tenant agrees to pay as Basic Annual Rent for the Premises the initial
sum shown in Item 6 of the Basic Lease Provisions. Except for months when this
Lease is not in effect for the full calendar month (partial month), the Basic
Annual Rent shall be payable in U.S. currency in equal monthly installments,
hereinafter sometimes referred to as "Basic Monthly Rental Installments", in
advance without notice, deduction, demand, offset, or abatement. Basic Monthly
Rental Installments shall be in the initial sum shown in Item 7 of the Basic
Lease Provisions. Payment of Basic Annual Rent shall commence on the
Commencement Date (except that the first month's rent shall be due upon the
signing of this Lease), and continue on the first day of each calendar month
thereafter except that Basic Rent for any partial month during the term hereof
shall be prorated in the proportion that the number of days this lease is in
effect during such partial month bears to the number of days in that calendar
month, and shall be paid at the commencement of such partial month, and except
further that the Basic Monthly Rental Installment for the first full calendar
month of this Lease for which an installment of Basic Annual Rent is due will be
paid on execution hereof.
(B) In addition to the Basic Annual Rent stipulated herein, Tenant
covenants and agrees to pay Landlord without offset or deduction as additional
Rent, hereinafter "Additional Rent", all other sums and charges which are to be
paid by Tenant pursuant to the terms of this Lease. Except as otherwise provided
in this Lease, Additional Rent shall be due and payable on the first day of the
month following the date on which Tenant is given notice that Additional Rent is
due. Rent means Basic Annual Rent and Additional Rent.
6
<PAGE>
ADDITIONAL RENT
PARAGRAPH 3
(A) For each calendar year during the term of this Lease, Tenant agrees to
pay as items of Additional Rent for the Premises, Tenant's "Percentage Share"
(being the percentage indicated in Item 3 of Basic Lease Provisions) of all
increases in "Project Operating Expenses" and "Project Property Taxes" (as
hereinafter defined) incurred by Landlord in the operation of the Building or
Project over the Base Project Operating Expenses and Base Project Property Taxes
as stipulated in Items 4 and 5 respectively in the Basic Lease Provisions.
(B) The items of Additional Rent contemplated under subparagraph 3(A)
shall be calculated in accordance with the following procedures:
(i) Each December during the term hereof or as soon thereafter as
practical, Landlord shall give Tenant written notice of
Landlord's estimate of any amounts payable under subparagraph
3(A) above for the ensuing calendar year. On or before the first
day of each month during the ensuing calendar year, Tenant shall
pay Landlord without further notice 1/12 (One-twelfth) of such
estimated amounts, provided that if such notice is not given in
December, Tenant shall continue to pay on the basis of the then
applicable rental until the month after such notice is given. If
at any time or times it appears to Landlord that the adjusted
amounts payable under subparagraph 3(A) for the current calendar
year will exceed its estimate, Landlord may, by notice to
Tenant, revise its estimate for such year. Subsequent payments
by Tenant for such year shall be based upon such revised
estimate.
(ii) Within ninety (90) days after the close of each calendar year or
as soon thereafter as is practical, Landlord shall deliver to
Tenant a statement of the annual adjustment of those Additional
Rent items made pursuant to subparagraph 3(A) for such calendar
year. If on the basis of such statement Tenant owes an amount
that is less than the estimated payments for such calendar year
previously made by Tenant, Landlord shall refund or credit such
excess to Tenant. If on the basis of such statement Tenant owes
an amount that is more than the estimated payment for such
calendar year previously made by Tenant, Tenant shall pay the
deficiency to Landlord within thirty (30) days after delivery of
the statement.
(iii) The Additional Rent due under the terms and conditions of this
Paragraph 3 shall survive termination of this Lease, shall be
payable by Tenant without any setoff or deduction, and shall be
computed by Landlord on a prorated basis for any period less
than a full calendar year.
7
<PAGE>
(iv) Anything to the contrary contained in this Paragraph 3
notwithstanding, if the average occupancy of the Building is less
than ninety-five (95%) percent during the Base Year hereinafter
defined, then Landlord shall make a determination ("Landlord's
Determination") of what the Project Operating Expenses for such
year would have been if during the entire year the average tenant
occupancy of the Building were ninety-five (95%) percent.
Landlord's Determination shall be binding and conclusive upon
Tenant and shall for all purposes of this Lease be deemed to be
the Project Operating Expenses for the Base Year. Landlord shall
notify Tenant of Landlord's Determination within ninety (90) days
following the last day of the Base Year. Thereafter, if for any
subsequent calendar year beginning after the Commencement Date
the average tenant occupancy of the Building is below ninety-five
(95%) percent, the Project Operating Expenses for any such year
shall be adjusted by Landlord to the amount that such Project
Operating Expenses would have been if the average tenant
occupancy during that year had been ninety-five (95%) percent.
The term Base Year means the twelve (12) month period during
which Base Project Operating expenses are calculated.
(C) Definitions:
(i) The term "Project Operating Expenses" as used herein shall
(except as noted below), include all costs of operation and
maintenance of the Project for each calendar year as determined
by generally accepted accounting principles consistently applied.
Project Operating Expenses shall, by way of illustration but not
limitation, include water and sewer charges, insurance premiums,
license, permit, and inspection fees, fuel, heat, light, power
(except for electricity charged directly to the Premises and
other rental space on the Project), steam, janitorial and
security services, labor, salaries for owners' on-site personnel,
air conditioning, landscaping maintenance and repair of the
Building and driveways, parking structures and surface parking
areas, ice and snow removal, supplies, materials, equipment,
tools, property management fees, office costs, and the cost
incurred in contesting the validity of Project Property Taxes.
Project Operating Expenses shall also include but not be limited
to the cost of any capital improvements made to the Building by
Landlord that reduce Project Operating Expenses or that are
required under any governmental law or regulation not previously
applicable to the Building or not in effect at the time it was
constructed. Such capital cost shall be amortized over such
reasonable periods as Landlord shall determine with a return on
capital at the then current prime interest rate of the largest
national bank in New York City or at such higher rate as may have
been paid by Landlord on the funds borrowed for the purpose of
purchasing such capital improvements. In no event shall Project
Operating Expenses ever be
8
<PAGE>
less than Base Project Operating Expenses stipulated in Item 4 of
Basic Lease Provisions.
(ii) The term "Project Property Taxes" as used herein shall include
all real estate taxes or personal property taxes and other taxes,
charges and assessments, unforeseen as well as foreseen, which
are levied with respect to the Project and any improvements,
fixtures and equipment and other property of Landlord, real or
personal, located in the Building or on the Project and used in
connection with the operation of the Project for each calendar
year and shall include any tax, surcharge or assessment which
shall be levied in addition to or in lieu of real estate or
personal property taxes, other than taxes covered in Paragraph
11, and shall also include any rental, excise, sales,
transaction, privilege, or other tax or levy, however,
denominated, imposed upon or measured by the rental reserved
hereunder or on Landlord's business of leasing the Premises and
Project, excepting only net income taxes. In no event shall
Project Property Taxes ever be less than Base Project Property
taxes stipulated in Item 5 of Basic Lease Provisions.
(D) Unless Tenant takes written exception to any item in the statement
referred to in subparagraph 3(B)(ii) within thirty (30) days after the
furnishing of the statement, such statement shall be considered as final and
accepted by Tenant. Any amount due Landlord as shown on any such statement shall
be paid by Tenant within thirty (30) days after it is furnished to Tenant. If
Tenant shall dispute in writing any specific item, or items in the statement of
Project Operating Expenses and Project Property Taxes, and such dispute is not
resolved between Landlord and Tenant within sixty (60) days after the date the
statement was rendered, either party may, during the thirty (30) days next
following the expiration of the sixty (60) days, refer such disputed item or
items to any independent certified public accountant selected by Landlord, for a
determination. Pending the determination of any dispute with respect to the
statement submitted by Landlord, Tenant shall pay when due the sums shown as due
on such statement. If it shall be determined that any portion of such sums were
not properly chargeable to Tenant, then Landlord shall credit or refund the
appropriate sum to Tenant. The costs for the accountant's review and
determination will be borne by Landlord if it is determined that Landlord's
original calculation of both Project Property Taxes and Project Operating
Expenses was in error by more than five (5%) percent, otherwise such costs will
be borne by Tenant.
(E) As one of the items of Additional Rent, payable monthly, Tenant shall
also pay to Landlord the full cost of Tenant's consumption of electricity as
determined in accordance with Paragraph 9.
(F) The Basic Annual Rent plus Additional Rent are sometimes collectively
referred to as "Rent".
(G) Notwithstanding anything to the contrary in the definition of "Project
Operating Expenses", Project Operating Expenses shall not include the following:
9
<PAGE>
(i) Costs incurred by Landlord with respect to goods and services
(including utilities sold and supplied to tenants and occupants
of the Building) to the extent that Landlord is entitled to
reimbursement for such costs;
(ii) Costs incurred by Landlord for the repair of damage to the
Building to the extent that Landlord is reimbursed by insurance
proceeds;
(iii) Costs, including permit, license and inspection costs, incurred
with respect to the installation of tenant improvements made
for new tenants in the Building or incurred in renovating or
otherwise improving, decorating, painting or redecorating
vacant space for tenants or other occupants of the Building;
(iv) Depreciation and amortization, except as provided herein and
except on materials, tools, supplies and vendor-type equipment
purchased by Landlord to enable Landlord to supply services
Landlord might otherwise contract for with a third party where
such depreciation and amortization would otherwise have been
included in the charge for such third party's services, all as
determined in accordance with generally accepted accounting
principles, consistently applied;
(v) Leasing commissions in connection with prospective tenants or
other occupants of the Building;
(vi) Costs incurred by Landlord for alterations which are considered
capital improvements and replacements under generally accepted
accounting principles, consistently applied except those which
reduce Project Operating Expenses or that are required under
any governmental law or regulation not previously applicable to
the Building or not in effect at the time it was constructed;
(vii) Costs of capital nature, including, without limitation, capital
improvements, and capital tools, all as determined in
accordance with generally accepted accounting principles,
consistently applied except those which reduce Project
Operating Expenses or that are required under any governmental
law or regulation not previously applicable to the Building or
not in effect at the time it was constructed;
(viii) Overhead and profit increment paid to Landlord or to
subsidiaries or affiliates of Landlord for services in the
Building to the extent the same exceeds the costs of such
services rendered by unaffiliated third parties on a
competitive basis except all direct billing invoices will
include 10% overhead and 10% profit;
(ix) Interest, points and fees on debt or amortization on any
mortgage or mortgages encumbering the Building or the land;
10
<PAGE>
(x) All items and services for which Tenant or any other tenant in
the building reimburses Landlord or which Landlord provides
selectively to one or more tenants (other than Tenant) without
reimbursement;
(xi) Advertising and promotional expenditures; and
(xii) Electric power costs for which any tenant directly contracts
with the local public service company except for common area.
SECURITY DEPOSIT
PARAGRAPH 4
Tenant has paid or agrees to pay Landlord such sum(s) as are set forth in
Item 10 of the Basic Lease Provisions as security for the performance of the
terms hereof by Tenant. If Tenant defaults with respect to any provision of this
Lease, including but not limited to, the provisions relating to the payment of
Rent or the surrender of the Premises in accordance with the terms hereof upon
the termination of the Lease, Landlord may, but shall not be required to use,
apply or retain all or any part of the Letter of Credit for the payment of any
Rent or any other sum due from Tenant in default, or for the payment of any
other amount which Landlord may spend or become obligated to spend by reason of
Tenant's default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default including, without limitation,
costs and attorneys' fees incurred by Landlord. In the event of bankruptcy or
other debtor-creditor proceeding against Tenant, such Letter of Credit shall be
deemed to have been applied first to the payment of Rent and other charges due
Landlord for all periods prior to filing of such proceedings. In addition to the
$115,852.50 of Security Deposit set forth in Item 10 of the Basic Lease
Provisions, Tenant shall post a Letter of Credit in the form of Exhibit "F" in
the amount of $600,000.00. Beginning on the third year (twenty-fifth month) of
this Lease, and at the beginning of each successive year thereafter, Tenant
shall deliver to Landlord a revised Letter of Credit with the face amount of
each such Letter adjusted such that for the third year of this Lease the amount
shall be $533,000.00, for the fourth year the amount shall be $466,000.00, for
the fifth year the amount shall be $400,000.00, for the sixth year the amount
shall be $333,000.00, for the seventh year the amount shall be $266,000.00, for
the eighth year the amount shall be $200,000.00, for the ninth year the amount
shall be $133,000.00, and for the tenth year the amount shall be $67,000.00
(such amount shall remain in effect as Security Deposit for ninety (90) days
following the last day of the term of this Lease). The Irrevocable Letter of
Credit must be renewed sixty (60) days prior to its expiration date for each
year of this Lease, and Landlord given notice of such renewal at least sixty
(60) days prior to the expiration date of the then existing Letter of Credit.
The Letter of Credit is further security for the Tenant's performance of the
terms of this Lease.
11
<PAGE>
REPAIRS
PARAGRAPH S
(A) Subject to Paragraph 5(B), Landlord shall cause all necessary repairs
to be made to the exterior doors, windows, corridors and other common areas of
the Building and the Project and Landlord shall cause the Building and the
Project to be kept in a safe, clean and neat condition and shall use reasonable
efforts to keep all equipment used in common with other tenants (such as
elevators, plumbing, heating, air conditioning and similar equipment) in good
condition and repair. Except as provided in Paragraph 13 hereof, there shall be
no abatement of Rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Project
or in or to fixtures, appurtenances and equipment therein or thereon.
(B) Tenant agrees that all repairs to the Premises not required above to
be made by Landlord and all decorating, remodeling, alteration and painting
required by Tenant during the term of this Lease, if approved by Landlord, shall
be made by Landlord at the sole cost and expense of Tenant. Tenant will pay for
any repairs to the Premises, the Building or the Project made necessary by any
negligence or willful acts or omissions of Tenant or its assignees, subtenants,
employees or their respective agents or other persons permitted in the Building
or on the Project by Tenant, or any of them, and Tenant will maintain the
Premises, and, upon termination of this Lease, will leave the Premises in a
safe, clean, neat and sanitary condition. Tenant has the right to seek
competitive bids to ensure that Landlord's pricing for such repairs is
comparable to that which is charged by other area office parks of the same level
of quality as the Project.
(C) Landlord shall maintain and repair all HVAC equipment for Tenant,
except that with respect to any major repair (ex.: compressors, etc...), Tenant
will pay to Landlord as Additional Rent the cost of such major repair which
shall be payable in equal monthly installments over the remaining life of the
Lease.
IMPROVEMENTS AND ALTERATIONS
PARAGRAPH 6
(A) Landlord's sole construction obligation under this Lease is as set
forth in the Work Letter attached hereto as Exhibit "B-1" and incorporated
herein by reference.
(B) Landlord shall have the right at any time to change the arrangement
and/or location of entrances or passageways, doors and doorways, and corridors,
elevators, stairs, toilets, or other public parts of the Building or Project,
and upon giving Tenant reasonable notice thereof, to change the name, number or
designation by which the Building or the Project is commonly known.
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(C) The alterations, additions or improvements to or of the Premises or
any part thereof referred to in this subparagraph (6)(C) do not include the
initial tenant improvements. Tenant shall not make or cause to be made any
alterations, additions or improvements to or of the Premises or any part
thereof, or attach any fixtures or equipment thereto, without first obtaining
Landlord's prior written consent (which consent shall not be unreasonably
withheld). Any such alterations, additions or improvements to the Premises
consented to by Landlord shall at Landlord's option be made by Landlord for
Tenant's account and Tenant shall pay Landlord for the costs thereof (including
reasonable charge for Landlord's overhead) within ten (10) days after receipt of
Landlord's statement. All such alterations, additions and improvements shall
(without compensation to Tenant) at Landlord's option become Landlord's property
(except movable furniture and trade fixtures) and at the end of the term hereof,
shall remain on the Premises unless Landlord elects by notice to Tenant to have
Tenant remove same, in which event Tenant shall promptly restore the Premises to
their condition prior to the installation of (i) such alterations, additions and
improvements, and (ii) equipment of any nature. Further, Landlord may elect by
notice to Tenant to have Tenant remove not only Tenant's alterations, additions
and improvements, but also any items of Tenant's equipment including but not
limited to movable furniture, trade fixtures, office equipment and any cafeteria
equipment. Any such equipment not removed from the Premises at the end of the
term hereof shall at the option of the Landlord become Landlord's property
without payment of any consideration therefor. The removal of any such equipment
and any alterations, additions and improvements which Landlord elects Tenant to
remove will be accomplished by Tenant prior to the expiration of the term of
this Lease and if not done, Tenant will be deemed a tenant at sufferance
pursuant to Paragraph 26. If Tenant does not perform such removal, Landlord may
remove, destroy, store or otherwise dispose of such alterations, additions,
improvements and equipment, whether or not Landlord takes title thereto. In
addition, Tenant will pay (i) all Landlord's costs of removing, disposing or
destroying any such alterations, additions, improvements and equipment whether
or not Landlord takes title thereto, that Tenant is supposed to remove, which
Tenant does not remove, and (ii) Landlord's cost to restore the Premises to
their condition prior to the installation of any alterations, additions,
improvements and equipment of any nature referred to in subdivision (i) of this
sentence. Such costs will include Landlord's fees and expenses in collecting
such costs and interest on such costs at the rate of fourteen (14%) percent per
annum. Tenant will pay to Landlord Landlord's costs of storage of any equipment
which Tenant is supposed to remove pursuant to this paragraph that Tenant does
not remove. Further, Landlord reserves and shall have right of access to the
Premises at any time within ninety (90) days prior to any projected termination
of this Lease to inspect the Premises to determine alterations, additions,
improvements and equipment Landlord desires Tenant to remove. This right of
access is in addition to Landlord's right of access set forth in Paragraph 16
hereof. Notwithstanding the above, Landlord and Tenant hereby agree that nine
(9) months prior to the expiration of the term of this Lease, Tenant will have
the right to either (i) leave all of the improvements and remove only its
furniture and trade fixtures, or (ii) remove any improvements (example: hood,
benches, coolers, etc...) in which event Tenant must remove all improvements and
restore the Premises to a shell condition at its sole cost and expense, prior to
the expiration of the term of this Lease. (Shell condition shall mean... demo
walls, floors, ceilings, cap utilities, remove all wiring back to distribution
panels, remove all data and telephone wiring completely, patch all holes in
walls, floors and roof, remove flex
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ductwork to VAV boxes and leave the Premises in a safe condition to the then
current codes.
LIENS
PARAGRAPH 7
Tenant shall keep the Premises `free from any liens arising out of any work
performed, materials furnished, or obligations incurred by or for Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
any such lien, cause the same to be released of record by payment or posting of
a proper bond, Landlord shall have, in addition to all other remedies provided
herein or by law, the right but not the obligation, to cause the same to be
released by such means as it shall deem proper, including payment of or defense
against the claim giving rise to such lien. All sums paid by Landlord and all
expenses incurred by it in connection therewith, shall create automatically an
obligation of Tenant to pay an equivalent amount as Additional Rent, which
Additional Rent shall be payable by Tenant on Landlord's demand with interest at
the maximum rate per annum permitted by law until paid. For purposes of this
Paragraph 7, "liens" shall include, but not be limited to, lien claims filed
under the "Construction Lien Law".
Notwithstanding any other provision of this Lease to the contrary, Tenant
shall have the right to finance the purchase of its personal property, fixtures
and equipment by lease or otherwise and the right to enter into security
agreements with respect thereto and any such lien created thereby shall be
superior to any rights of Landlord, if any, in said personal property, fixtures
or equipment created hereunder this Lease; provided, however, that in no event,
shall any such lien encumber the Premises, the Building or the Project.
USE OF PREMISES
PARAGRAPH 8
Tenant shall use the Premises only as set forth in Item 13 of the Basic
Lease Provisions and shall not use or permit the Premises to be used for any
other purpose without the prior written consent of Landlord. Tenant shall comply
with all laws and covenants and restrictions of record affecting use of the
Premises, and shall not use or occupy the Premises in violation of law or of the
certificate of occupancy issued for the Building, and shall immediately
discontinue any use of the Premises which is declared by any governmental
authority having jurisdiction to be a violation of law or of said certificate of
occupancy. Tenant shall comply with any direction of any governmental authority
having jurisdiction which shall, by reason of the nature of Tenant's use or
occupancy of the Premises impose any duty upon Tenant or Landlord with respect
to the Premises or with respect to the use or occupancy thereof. Tenant shall
not do or permit to be done anything which will invalidate or increase the cost
of any fire, extended coverage or any other insurance policy covering the
Building, the Project and/or property located therein and shall comply with all
rules, orders, regulations and requirements of the appropriate fire
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rating bureau or any other organization performing a similar function. Tenant
shall upon demand reimburse Landlord for the full amount of any additional
premium charged for such policy by reason of Tenant's failure to comply with the
provisions of this paragraph. Such reimbursement shall not be Landlord's
exclusive remedy. Tenant shall not in any way obstruct or interfere with the
rights of other tenants or occupants of the Building or the Project or injure,
or use or allow the Premises to be used for any improper, immoral, unlawful, or
objectionable purpose, nor shall Tenant cause, maintain, or permit any nuisance
in, on, or about the Premises. Tenant shall not commit or suffer to be committed
any waste in or upon the Premises.
Upon the expiration, or early termination of the Term of this Lease or the
permanent assignment of this Lease, or subletting of the Premises, or cessation
or transferring of Tenant's operations at the Premises, or upon any action or
non-action of Landlord including a sale of the Building in which the Premises
are located, Tenant, if its operations are subject to the Environmental Clean-up
Laws hereinafter defined, shall comply, at Tenant's own expense, except as
hereinafter stated, and with diligence, with the Industrial Site Recovery Act,
1993 N.J. Law's Chapter 139, the regulations promulgated thereunder and any
successor legislation and regulations(collectively "Environmental Clean-up
Laws"). Tenant, if its operations are subject to the Environmental Clean-up Laws
shall, at Tenant's own expense, except as hereinafter stated, make prompt
submissions to, provide all information to and comply with all requirements of
the Industrial Site Evaluation Element ("ISEE") or its successor of the New
Jersey Department of Environmental Protection or its successor ("NJDEP") arising
out of the expiration, termination, assignment, subletting or transferring of
Tenant's operation at the Premises or arising out of any action or non-action of
the Landlord including the sale of the Building in which the Premises are
located. If Landlord's actions or non-actions including a sale of the Building
in which the Premises are located necessitate compliance with Environmental
Clean-up Laws, Landlord, at its expense, will make the submissions to NJDEP or
any of its elements in order to obtain a statement of non-applicability or
negative declaration, but Tenant whether or not it is subject to Environmental
Clean-up Laws, will cooperate with Landlord to aid in the making of Landlord's
submission by providing information and signing such documents as are necessary
for Landlord to make its submission. Clean-up expenses or the making up of any
clean-up plan or remedial action work plan, or sampling plan or the taking of
any corrective action to comply with Environmental Clean-up Laws and expenses
therefore, will be borne by the party whose actions or failure to act
necessitated the clean-up.
Each party shall, within a reasonable time and receipt of same, furnish to
the other party true and complete copies of all documents, submissions,
correspondence and oral or written reports, directives, correspondence and oral
or written communications by ISEE to the recipient party. Each party shall also
promptly furnish to the other party true and complete copies of all sampling and
test results and reports obtained and prepared from samples and tests taken at
and around the Premises that is obtained by the party first obtaining the
results and reports.
Tenant shall immediately and diligently cause any and all Hazardous
Materials it, its agents, employees, invitees or licensees released in, onto or
under or dispose from the Premises during the Term of the Lease to be removed in
compliance with all applicable
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laws, rules, ordinances and regulations and all conditions resulting therefrom
to be remediated in compliance with all applicable laws, rules, ordinances and
regulations and the Premises restored to their condition without said Hazardous
Materials as quickly as possible.
Tenant shall indemnify, defend and save harmless Landlord from all fines,
suits, procedures, claims and actions of any kind arising out of or in any way
connected with any release or discharge of Hazardous Materials at the Premises
which occur during the term of the Lease as a result of the acts of Tenant, its
invitees or licensees; and from all fines, suits, procedures, claims and actions
of any kind arising out of Tenant's failure to provide all information to NJDEP
or the Landlord as appropriate to make all submissions other than those Landlord
is required to make as provided herein, and take all actions required by the
NJDEP or any of its divisions.
Landlord hereby agrees to defend, indemnify and hold Tenant harmless from
and against any and all claims, lawsuits,, liabilities, losses, damages and
expenses (including, but not limited to, reasonable attorneys' fees arising by
reason of any of the aforesaid or any action against the Landlord under this
indemnity) arising directly or indirectly from, out of or by reason of (i) any
spills or discharges of toxic or hazardous waste or substances at the Premises
or Project which occur prior to or during the term of this Lease caused by
Landlord, its employees, agents or invitees; or (ii) any pre-existing conditions
including underground tanks, which are the subject of federal, state or local
environmental laws.
Tenant's obligations and liabilities under this Paragraph shall continue so
long as Landlord remains responsible for any releases or discharges of Hazardous
Materials at the Premises which occur as a result of the acts of Tenant, its
invitees or licensees. Tenant's failure to abide by the terms of this Paragraph
shall be restrainable by injunction.
UTILITIES AND SERVICES
PARAGRAPH 9
(A) Provided that Tenant is not in default hereunder, Landlord agrees to
furnish or cause to be furnished to the Premises the following utilities and
services, subject to the conditions and standards set forth below:
(i) Tenant shall have twenty-four (24) hours per day, seven (7) days
per week access to the Premises.
(ii) Intentionally deleted.
(iii) Landlord shall furnish to the Premises at all times, subject to
interruptions beyond Landlord's control and subject to
subparagraph 3(E), electric current in accordance with the
Building Standard office lighting and receptacle. At no time
shall Tenant's use of electric current exceed the capacity of
the feeders to the Building or the risers
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or wiring installation. Tenant shall not install or use or
permit the installation or use of any mainframe computer
equipment in the Premises without the prior written consent of
Landlord.
(iv) Landlord shall furnish the building with water for (x) drinking
and lavatory purposes only at no additional charge; and (y) for
laboratory purposes at a reasonable charge.
(v) Landlord shall provide janitorial services to the Premises,
comparable to such services provided in other first class
office buildings in the vicinity, provided that the said other
office buildings are used exclusively as offices, and provided
further that the Premises are kept in good order by Tenant.
Tenant shall pay to Landlord the cost of removal of any of
Tenant's refuse and rubbish to the extent that the same exceeds
the refuse and rubbish usually attendant upon the use of the
Premises as offices.
(vi) Landlord shall replace, as necessary, the fluorescent tubes in
the standard lighting fixtures installed by Landlord. Tenant
agrees to reimburse Landlord upon demand for the cost of such
fluorescent tubes and ballast and the labor and overhead for
their installation. Initial installation of fixtures will be
warranteed for one year for lamps and ballast.
(B) Landlord may impose a reasonable charge for any utilities and
services, including without limitation, electric current (except for electricity
paid under subparagraph (E) Paragraph 3 and water), provided by Landlord by
reason of any use of the Premises at any time. Separate meters for such
utilities and services are installed in the Premises, and upon demand, Tenant
shall immediately pay Landlord for all charges with respect to consumption of
such utilities or services so metered or provided (it being understood that the
cost for water for drinking and lavatory purposes is included in the Rent).
(i) Intentionally Deleted.
(ii) Intentionally Deleted.
(iii) Landlord shall not be liable in any way to Tenant for any
failure or defect in the supply or character of electric energy
furnished to the Premises by reason of any requirement, act or
omission of the public utility serving the Building with
electricity or for any other reason not attributable to
Landlord.
(iv) Tenant's use of electric energy in the Premises shall not at
any time exceed the capacity of any of the electrical
conductors and equipment serving the Premises. In order to
insure that such capacity is not exceeded and to avert possible
adverse effect upon the Building's
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electric service, Tenant shall not, without Landlord's prior
written consent in each instance (which shall not be
unreasonably withheld), connect any additional fixtures,
appliances or equipment to the Building's electric distribution
system or make any alteration or addition to the electric
system of the Premises existing on the Commencement Date.
Should Landlord grant such consent, all additional risers or
other equipment required therefor shall be provided by Landlord
and the cost thereof shall be paid by Tenant upon Landlord's
demand.
(v) If the public utility rate schedule for the supply of electric
current to the Building shall be increased during the term of
this Lease, the Additional Rent payable pursuant to Paragraph 3
hereof shall be equitably adjusted to reflect the resulting
increase in Landlord's cost of furnishing electric service to
the Premises. It is the intention hereof that Landlord only
recapture the charges payable by Tenant under Paragraph 3 and
under no circumstances shall Landlord earn any profit thereof.
(C) Tenant agrees to cooperate fully at all times with Landlord and to
abide by all reasonable regulations and requirements which Landlord may
prescribe for the use of the above utilities and services. Any failure to pay
any costs as described above shall constitute a breach of the obligation to pay
Rent under this Lease and shall entitle Landlord to rights herein granted for
such breach.
(D) Landlord shall not be liable for, and Tenant shall not be entitled to,
any abatement or reduction of Rent by reason of Landlord's failure to furnish
any of the foregoing services, nor shall any such failure, stoppage or
interruption of any such service be construed either as an eviction of Tenant,
or relieve Tenant from the obligation to perform any covenant or agreement.
However, in the event of any failure, stoppage or interruption thereof, Landlord
shall use reasonable diligence to have service resumed promptly.
(E) It is understood and agreed that Landlord has the sole right to choose
the provider or providers of all utilities and services described or referred to
in this Paragraph 9.
(F) Notwithstanding anything hereinafter to the contrary, Landlord
reserves the right from time to time to make reasonable modifications to the
above provisions for utilities and services.
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RULES AND REGULATIONS
PARAGRAPH 10
Tenant agrees to abide by all rules and regulations of the Buildings and
Project ("Rules and Regulations") imposed by the Landlord as set forth in
Exhibit "D" attached hereto, as the same may be changed from time to time upon
reasonable notice to Tenant. These Rules and Regulations are imposed for the
cleanliness, good appearance, proper maintenance, good order and reasonable use
of the Premises and the Project, as may be necessary for the enjoyment of the
Project by all tenants and their employees and invitees. Landlord shall not be
liable for the failure of any tenant, its agents or employees to conform to the
Rules and Regulations.
TAXES AND TENANT'S PROPERTY
PARAGRAPH 11
(A) Tenant shall be liable for and shall pay not later than ten (10) days
before delinquency, all taxes, levies and assessments levied against any
personal property or trade fixtures placed by Tenant in or about the Premises.
If any such taxes, levies and assessments on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or if the assessed
value of the Building or the Project is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
Landlord pays the taxes, levies and assessments, Tenant shall, upon demand,
repay to Landlord the taxes, levies and assessments so levied against Landlord,
or the proportion of such taxes, levies and assessments resulting from such
increase in the assessment.
(B) If Tenant improvements in the Premises, whether installed and/or paid
for by Landlord or Tenant and whether or not affixed to the real property so as
to become as part thereof, are assessed for real property tax purposes at a
valuation higher than the valuation at which Tenant improvements conforming to
"Building Standard" (as referred to in Exhibit "B-2") are assessed, then the
real property taxes and assessments levied against Landlord or the Project by
reason of such excess, assessed valuation shall be deemed to be taxes levied
against personal property of Tenant and shall be governed by the provisions of
subparagraph 11(A). If the records of the Tax Assessor are available and
sufficiently detailed to serve as a basis for determining whether said Tenant
improvements are assessed at a higher valuation than Building Standard, such
records shall be binding on both Landlord and Tenant; otherwise the actual cost
of construction shall be the basis for such determination.
SUBSTITUTED PREMISES
PARAGRAPH 12
Intentionally deleted.
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FIRE OR CASUALTY
PARAGRAPH 13
In the event that the Project (regardless of whether the Premises or access
thereto is affected) is so damaged or destroyed to the extent of more than one-
third of its replacement cost, or to any substantial extent by a casualty not
covered by Landlord's insurance, or during the last two (2) years of this Lease,
Landlord, upon giving thirty (30) days' notice to Tenant, may elect to terminate
this Lease. If the damage or destruction is other than as provided above, then
Landlord shall commence within ninety (90) days after such damage or destruction
to rebuild, repair or restore the Premises and access thereto to substantially
the same condition as when the same were delivered to Tenant, excluding the
improvements owned by Tenant, and the Lease shall continue in full force and
effect.
Landlord shall in no event be obligated to make any repairs or replacements
of any items owned by Tenant. If the Lease is not terminated but the Premises
are rendered totally untenantable, Rent shall abate during the period of such
untenantability. Tenant acknowledges (i) that Landlord shall not obtain
insurance of any kind on Tenant's improvements and betterment to the Premises
owned by Tenant or on Tenant's furniture, fixtures, equipment and other personal
property, (ii) that it is Tenant's obligation to obtain such insurance at
Tenant's sole cost and expense, and (iii) that Landlord not be obligated to
repair any damage thereto or replace the same.
EMINENT DOMAIN
PARAGRAPH 14
In case the whole of the Premises, or such part thereof as shall
substantially interfere with Tenant's use and occupancy thereof, shall be taken
by any lawful power or authority by exercise of the power of eminent domain,
Tenant or Landlord may terminate this Lease effective as of the date possession
is required to be surrendered to said authority. In the event of any taking (in
whole or part) of the Project whether or not the Premises or access thereto are
affected thereby, Landlord shall have the right to terminate this Lease. Except
as provided herein, Tenant shall not, because of any taking, assert any claim
against Landlord or the taking authority for any compensation because of such
taking, and Landlord shall be entitled to receive the entire amount of any award
without deduction for any estate or interest of Tenant. In the event the amount
of property or the type of estate taken shall not substantially interfere with
Tenant's use of the Premises, and Landlord does not terminate this Lease,
Landlord shall proceed to restore the Premises (to the extent permitted by the
taking) to substantially their condition prior to such partial taking, and a
proportionate allowance shall be made to Tenant for Rent corresponding to the
time during which, and to the part of the Premises of which, Tenant shall be so
deprived on account of such taking and restoration. Provided same shall not
diminish Landlord's award in any way, nothing contained in this Paragraph 14
shall prevent Tenant from seeking any award against the taking authority for the
taking of personal property and fixtures owned by Tenant or for relocation
expenses recoverable from the taking authority. In no event shall Landlord be
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required to expend more for restoration than received from the taking authority
for such taking. For the purposes of this paragraph, "taking" shall also include
any conveyance in lieu of condemnation.
ASSIGNMENT AND SUBLETTING
PARAGRAPH 15
(A) Tenant shall not voluntarily or involuntarily assign, sublet,
mortgage, or otherwise encumber all or any portion of its interest in this Lease
or in the Premises without obtaining the prior written consent of Landlord
(which consent shall not be unreasonably withheld) and any such attempted
subletting, mortgage or other encumbrance without such consent shall be null and
void and of no effect. Without limiting the instances in which the Landlord will
refuse to give its consent, Landlord will withhold its consent where the Rent
per month of the proposed sublease or assignment is (i) less than ninety (90%)
of the Rent per month in effect for the remainder of the term of this Lease, or
(ii) where the proposed sublessee is either another tenant of Landlord or a
bonafide prospective tenant of Landlord.
(B) No assignment, subletting, mortgage or other encumbrance of Tenant's
interest in this Lease shall relieve Tenant of its obligation to pay the Rent
and to perform all of the other obligations to be performed by Tenant hereunder.
The acceptance of Rent by Landlord from any other person shall not be deemed to
be a waiver by Landlord of any provision of this Lease or be a consent to any
subletting, assignment, mortgage or other encumbrance. Consent to one sublease,
assignment, mortgage or other encumbrance shall not be deemed to constitute
consent to any subsequent attempted subletting, assignment, mortgage or other
encumbrance.
(C) If Tenant desires at any time to assign this Lease or to sublet the
Premises or any portion thereof, Tenant shall first notify Landlord of Tenant's
desire to do so and shall submit in writing to Landlord no less than sixty (60)
days prior to such assignment or subletting (i) the name of the proposed
subtenant or assignee; (ii) the premises; (iii) the term and provisions of the
proposed sublease or assignment and a copy of the proposed sublease or
assignment; and (iv) such financial information as Landlord may reasonably
request concerning the proposed subtenant or assignee.
(D) At any time within thirty (30) days after Landlord's receipt of the
information specified in subparagraph (C) above, Landlord may by written notice
to Tenant, elect (i) to take from Tenant a sublease of the Premises or the
portion thereof proposed to be subleased by Tenant, or to take an assignment of
Tenant's leasehold estate hereunder, or such part thereof as shall be specified
in said notice, upon the same terms as those offered to the proposed subtenant
or assignee, as the case may be; (ii) to give Tenant written consent to the
proposed assignment or sublease, provided that the Rent payable monthly by the
Tenant to the Landlord under the terms of this Lease shall be increased by a sum
equal to one-half (1/2) of all rental and other considerations received by
Tenant from its subtenant or assignee in excess of the Rent payable by Tenant
under the terms of this Lease (less the cost of brokerage commissions and/or
reasonable legal fees); or (iii) to terminate
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this Lease as to the portion (including all) of the Premises proposed to be
subleased or assigned with a proportionate abatement in the Rent payable
hereunder. If Landlord does not exercise any option set forth in this
subparagraph (D) within said thirty (30) day period, Landlord shall be deemed to
have refused to consent to the proposed assignment or sublease and this Lease
shall remain in full force and effect.
(E) Except as provided in (i) immediately below, if Tenant is a
corporation, an unincorporated association or partnership, the transfer,
assignment or hypothecation of any stock or interest in such corporation,
association or partnership, in the aggregate in excess of forty-nine (49%)
percent, shall be deemed an assignment within the meaning and provisions of this
Paragraph.
(i) Without Landlord being able to terminate pursuant to Paragraph
15 (D), Tenant, if it is not then in material default of this
Lease may, without Landlord's consent but with notice to
Landlord with such information as Landlord may reasonably
request, sublet all or part of the Premises or assign this
Lease to any parent, affiliate or wholly-owned subsidiary of
Tenant; or assign this Lease to a corporation, or a subsidiary
of a corporation which succeeds to all or substantially all of
the assets and business of Tenant or into which Tenant is
merged; provided, however, that Tenant shall at all times be
and remain primarily and jointly liable under this Lease
despite any such subletting or assignment and provided further
that any surviving entity in a merger or any assignee or
subtenant has a net worth at least as much as Tenant had on the
Commencement Date and such successor, if an assignee or
survivor in a merger becomes liable on this Lease.
(F) Tenant shall reimburse Landlord for Landlord's reasonable costs and
attorneys' fees incurred in conjunction with the processing and documentation of
any such requested assignment, subletting, transfer, change in ownership or
hypothecation of this Lease or Tenant's interest in and to the Premises.
LANDLORD'S ACCESS TO PREMISES
PARAGRAPH 16
Landlord reserves and shall at any and all reasonable times have the right
to enter the Premises to inspect the same, to supply janitorial service and any
other service to be provided by Landlord to Tenant hereunder, to show said
Premises to prospective purchasers or tenants, to alter or repair the Premises
or any portion of the Building or Project, all without being deemed guilty of an
eviction of Tenant and without abatement of Rent, and may for that purpose erect
scaffolding and other necessary structures where reasonable required by the
character of the work to be performed, provided that the business of Tenant
shall be interfered with as little as is reasonably practicable. Tenant hereby
waives any claim for damages or any injury or inconvenience to or interference
with Tenant's business, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby. For each of the aforesaid
purposes, Landlord shall at all times have and retain a
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key with which to unlock all of the doors in, upon and about the Premises,
excluding Tenant's vaults and safes, and Landlord shall have the right to use
any and all means which Landlord may deem proper to open said doors in an
emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord by any of said means shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into, or
a detainer of the Premises, or any eviction of Tenant from the Premises or any
portion thereof. No provision of this Lease shall be construed as obligating
Landlord to perform any repairs, alterations or decoration except as otherwise
expressly agreed to be performed by Landlord.
SUBORDINATION, ATTORNMENT, ESTOPPEL CERTIFICATES
PARAGRAPH 17
(A) This Lease is junior, subject, and subordinate to all ground leases,
mortgages, deeds of trust, and other security instruments of any kind now
covering the Project or any portion thereof. Landlord reserves the right to
place liens or encumbrances on the Project or any part thereof or interest
therein superior in lien and effect to this Lease. This Lease, at the option of
Landlord, shall be subject and subordinate to any and all such liens or
encumbrances now or hereafter imposed by Landlord without the necessity of the
execution and delivery of any further instruments on the part of Tenant to
effectuate such subordination. Notwithstanding the foregoing, Tenant covenants
and agrees to execute and deliver upon request such further instruments
evidencing such subordination of this Lease as may be requested by Landlord.
Landlord will request a Subordination and Non-Disturbance Agreement from its
current mortgagee (and any future mortgagee if requested) of the Project.
(B) Tenant shall at any time and from time to time upon not less than ten
(10) days' prior notice by Landlord, execute, acknowledge and deliver to
Landlord a statement in writing and in form and substance. satisfactory to
Landlord certifying that this Lease is unmodified and in full force and effect
(or if there have been modifications, that the same is in full force and effect
as modified and stating the modifications), and the dates to which the Basic
Annual Rent, Additional Rent and other charges have been paid in advance, if
any, and stating whether or not to the best knowledge of Tenant, Landlord is in
default in the performance of any covenant, agreement or condition contained in
this Lease and, if so, specifying each such default of which Tenant may have
knowledge. Any such statement delivered pursuant to this Paragraph may be relied
upon by any prospective purchaser of the fee of the Building or the Project or
any mortgagee, ground lessor or other encumbrancer thereof or any assignee of
any such person.
(C) Should any mortgage on the Property of which the Premises are a part
be foreclosed, the Purchaser upon foreclosure of the lien of the mortgage shall
have the right following foreclosure to preserve this Lease and the rights of
the Tenant or any other person or entity having an interest in the Premises, and
the Tenant shall attorn to such Purchaser at foreclosure and pay and perform its
obligations under this Lease for the benefit of such Purchaser.
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SALE BY LANDLORD
PARAGRAPH 18
In the event of a sale or conveyance by Landlord of the Project or any part
thereof, the same shall operate to release Landlord from any and all liability
under this Lease after the date of such conveyance of title. If any security
deposit has been made by Tenant, Landlord shall transfer such security deposit
to the purchaser, and thereupon Landlord shall be discharged from any further
liability in reference thereto.
INDEMNIFICATION OF LANDLORD AND INSURANCE
PARAGRAPH 19
(A) Except for negligent acts or omissions of Landlord, its agents,
servants, employees or invitees, Tenant shall indemnify, hold Landlord harmless
from and defend Landlord against any and all claims, loss, costs, damage,
expense or liability, including without limitation reasonable attorneys' fees,
for any injury or damages to any person or property whatsoever when such injury
has been caused in part or in whole by any act, neglect, fault, or Omission of
Tenant, its agents, servants, employees or invitees. This indemnity shall not
require any payment by Landlord as condition precedent to recovery. In addition,
if any person not a party to this Lease shall institute any other type of action
against Tenant in which Landlord shall be made a party defendant, Tenant shall
indemnify, hold Landlord harmless from and defend Landlord from all liabilities
and costs by reason thereof.
(B) Tenant hereby agrees to maintain in full force and effect at all times
during the term of this Lease, at its own expense, for the protection of Tenant
and Landlord as their interests may appear, policies of insurance issued by a
responsible carrier or carriers acceptable to Landlord licensed in New Jersey
and also having a policyholder's rating of not less than A- in the most current
edition of Best's Insurance Reports, which afford the following coverage:
(i) Worker's Compensation -- Statutory
Employer's Liability -- Not less than $250,000
(ii) Comprehensive General -- Not less than $3,000,000
Liability Insurance Combined Single Limit for both
including Blanket bodily injury and property
Contractual Liability damage
Broad Form Property Damage,
Personal Injury, Completed
Operations, Products Liability,
Fire Damage
Landlord and its managing agent shall be named as an additional
insured on all policies listed under (ii) above, and (iv) below.
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(iii) All Risk Property Coverage in an amount sufficient to cover the
full cost of replacement of all improvements and betterment to
the Premises owned by Tenant and all of Tenant's fixtures and
other personal property.
(iv) Business Interruption Insurance (which includes Rent Insurance)
in an amount equal to the Basic Annual Rent and Additional Rent
for a period of at least twelve (12) months commencing with the
date of loss.
(C) Tenant shall deliver to Landlord at least thirty (30) days prior to
the time such insurance is first required to be carried by Tenant and thereafter
at least thirty (30) days prior to expiration of each such policy, certificates
of insurance evidencing the above coverage with limits not less than those
specified above. Such policy or certificate, with the exception of Worker's
Compensation, shall expressly provide that the interest of Landlord therein
shall not be affected by any breach by Tenant of any provision of any such
policy. Further, all certificates shall expressly provide that no less than
thirty (30) days prior written notice shall be given Landlord in the event of
material alterations to or cancellation of the coverage evidenced by such
certificates.
(D) Upon demand, Tenant shall provide Landlord, at Tenant's expense, with
such increased amount of existing insurance, and such other insurance in such
limits as Landlord may reasonably require and such other hazard insurance as the
nature and condition of the Premises may require in the sole judgement of
Landlord, to afford Landlord adequate protection for said risks. Such increased
insurance shall be comparable with that which is required by other landlords of
comparable buildings in the area.
(E) If on account of the failure of Tenant to comply with the provisions
of this Paragraph 19, Landlord is adjudged a coinsurer by its insurance carrier,
then any loss or damage Landlord shall sustain by reason thereof shall be borne
by Tenant and shall be immediately paid by Tenant upon receipt of a bill
therefore and evidence of such loss.
(F) Landlord makes no representation that the limits of liability
specified to be carried by Tenant under the terms of this Lease are adequate to
protect Tenant against Tenant's undertaking under this Paragraph 19. In the
event Tenant believes that any such insurance coverage called for under this
Lease is insufficient, Tenant shall provide, at its own expense, such additional
insurance as it deems adequate.
(G) Each policy evidencing the insurance to be carried by Tenant under
this Lease shall contain a clause that such policy and the coverage endorsed
thereby shall be primary with respect to any policies carried by Landlord, and
that any coverage carried by Landlord shall be excess insurance.
(H) Any insurance required of Tenant under this Lease may be furnished by
Tenant under a blanket policy carried by it. Such blanket policy shall contain
an endorsement that names Landlord as an additional insured, references the
Premises, and guarantees a minimum limit available for the Premises equal to the
insurance amounts
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required in this Lease.
(I) In the event Tenant fails to procure, maintain, and/or pay for the
insurance required by this Lease, at the times and for the durations specified
in this Lease, Landlord shall have the right, but not the obligation, at any
time and from time to time, and without notice, to procure such insurance and/or
pay the premiums for such insurance, in which event Tenant shall repay Landlord,
immediately upon demand by Landlord, as Additional Rent, all sums so paid by
Landlord together with interest thereon and any costs or expenses incurred by
Landlord in connection therewith, without prejudice to any other rights and
remedies of the Landlord under this Lease.
WAIVER OF SUBROGATION
PARAGRAPH 20
Tenant and Landlord each agree that the respective insurance carried by it
against loss or damage by fire or other casualty shall contain a clause whereby
the insurer waives its right of subrogation against the other party.
Pursuant to the foregoing, Landlord and Tenant hereby waive all claims for
recovery from the other party for any loss or damage to any of its property
insured under valid and collectible insurance policies to the extent of any
recovery collectible under such insurance. The foregoing waiver shall be in
force only if both Tenant's and Landlord's insurance policies contain a clause
providing that such waiver shall not invalidate the insurance.
NO WAIVER
PARAGRAPH 21
No waiver by Landlord of any provision of this Lease or of any breach by
Tenant hereunder shall be deemed to be a waiver of any other provision hereof,
or for any subsequent breach by Tenant of the same or any other provisions.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act of Tenant. Failure of
Landlord to insist upon strict performance of any provision of this Lease shall
not be deemed to be a waiver of such provision. No act or omission by Landlord
or Landlord's agents during the term of this Lease shall be deemed an acceptance
of a surrender of the Premises, unless confirmed by Landlord in writing. The
delivery of the keys to an employee or agent of Landlord shall not operate as a
termination of the Lease or a surrender of the Premises. The acceptance of any
Rent by Landlord following a breach of this Lease by Tenant shall not constitute
a waiver of any of Landlord's rights unless such waiver is expressly stated in
writing and signed by Landlord.
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DEFAULT
PARAGRAPH 22
(A) The occurrence of any of the following shall constitute a material
default and breach of this Lease by Tenant:
(i) Any failure by Tenant to pay the Rent or to make any other
payment required to be made by Tenant hereunder within five (5)
days of date due;
(ii) The abandonment or vacation of the Premises by Tenant;
(iii) Any failure by Tenant to observe and perform any of its
obligations under this Lease, not referred to in (i) above,
where such failure continues for fifteen (15) days after
Landlord has given Tenant written notice, provided, however,
that if the nature of Tenant's default is such that more than
fifteen (15) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant has been
pursuing such cure with reasonable diligence, within the
fifteen (15) day period and thereafter diligently completes the
cure; where such failure continues for fifteen (15) days after
Landlord has given Tenant written notice or such other notice
as may be required by law;
(iv) Tenant makes, or has made, or furnishes, or has furnished, any
warranty, representation or statement to Landlord in connection
with this Lease, or any other agreement to which Tenant and
Landlord are parties, which is or was false or misleading in
any material respect when made or furnished;
(v) Any substantial portion of the assets of Tenant is transferred
unless such transfer is incurred in the ordinary course of
Tenant's business in good faith for fair equivalent
consideration, and with Landlord's consent, and except for a
transfer of assets subject to Paragraph 15 E (i);
(vi) Tenant becomes insolvent as defined in the Federal Bankruptcy
Code, admits in writing its insolvency or its present or
prospective inability to pay its debts as they become due, is
unable to or does not pay all or any material portion (in
number or dollar amount) of its debts as they become due,
permits or suffers a judgement to exist against it which
affects Tenant's ability to conduct its business in the
ordinary course (unless enforcement thereof is stayed pending
appeal), makes or proposes an assignment for .the benefit of
creditors or any class thereof for purposes of effecting a
moratorium upon or extension or composition, or commences or
proposes to commence any bankruptcy,
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reorganization or insolvency proceeding, or other proceedings
under any federal, state or other law for the relief of
debtors;
(vii) Tenant fails to obtain the dismissal, within thirty (30) days
after the commencement thereof, of any bankruptcy,
reorganization or insolvency proceeding, or other proceeding
under any law for the relief of debtors, instituted against it
by one or more third parties, or fails actively to oppose any
such proceedings, or, in any such proceeding, defaults or files
an answer admitting the material allegations upon which the
proceeding was based or alleges its willingness to have an
order for relief entered or its desire to seek liquidation,
reorganization or adjustment of any of its debts;
(viii) Any receiver, trustee, or custodian is appointed to take
possession of all or any substantial portion of the assets of
Tenant, or any committee of Tenant, or any committee of
Tenant's creditors, or any class thereof is formed for the
purpose of monitoring or investigating the financial affairs of
Tenant or enforcing such creditors' rights.
(B) In the event of any such material default and breach of this Lease by
Tenant, then in addition to any other remedies available to Landlord at law or
in equity, Landlord shall have the option to immediately terminate this Lease
and all rights of Tenant hereunder by giving written notice of such intention to
terminate. In the event that Landlord shall elect to so terminate the Lease,
then Landlord may recover from Tenant:
(i) any unpaid Rent which shall have accrued at the time of such
termination; plus
(ii) the entire amount of unpaid Rent for the balance of the term
which amount shall, at Landlord's option, be immediately due
and payable; plus
(iii) any other amount necessary to compensate Landlord for
Landlord's loss or damage caused directly or indirectly by
Tenant's failure to perform its obligations under this Lease
including, but not limited to, reasonable attorneys' fees and
costs; plus
(iv) at Landlord's election, such other amounts in addition to, or
in lieu of the foregoing, as may be permitted from time to time
by applicable law.
(C) In the event of any such material default and breach of this Lease by
Tenant, Landlord shall also have the right, with or without terminating this
Lease, to re-enter and to take possession of the Premises and to remove all
persons and property from the Premises. Landlord is hereby granted a lien, in
addition to any statutory lien or right to distrain that may exist, on all
personal property of Tenant in or upon the Premises to assure payment of the
Rent and performance of the covenants and conditions of this Lease.
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Landlord shall have the right, as agent of Tenant, to take possession of all
personal property of Tenant found in or about the Premises including without
limitation furniture and fixtures of Tenant and, to sell the same at public or
private sale and to apply the proceeds thereof to the payment of any monies due
or becoming under this Lease, or to remove all such effects and store same in a
public warehouse or elsewhere at the cost of and for the account of Tenant, or
any other owner or occupant, Tenant hereby waiving the benefit of all laws
exempting property from executing, levy and sale of distress or judgement.
(D) In the event of the vacation or abandonment of the Premises by Tenant
or in the event that Landlord shall elect to re-enter as provided above or shall
take possession of the Premises pursuant to legal proceeding or pursuant to any
notice provided by law, then if Landlord does not elect to terminate this Lease
as provided in this Paragraph 22, Landlord may from time to time, without
terminating this Lease, either recover all Rent as it becomes due or relet the
Premises or any part thereof for such term or terms and at such rental or
rentals and upon such other terms and conditions as Landlord in his sole
discretion may deem advisable with the right to make alterations and repairs to
the Premises.
(E) In the event that Landlord shall elect to so relet, then rentals
received by Landlord from such reletting shall be applied: first, to the payment
of any indebtedness other than Rent due hereunder from Tenant to Landlord;
second, to the payment of any cost of such reletting, including but not limited
to broker's commissions and reasonable attorneys' fees; third, to the payment of
the cost of any alterations and repairs to the premises; fourth, to the payment
of any Rent due and unpaid hereunder; and the residue, if any, shall be held by
Landlord and applied in payment of future Rent as the same may become due and
payable hereunder. Should any such reletting result in the payment of rentals
less than the Rent payable by Tenant hereunder, then Tenant shall pay such
deficiency to Landlord immediately upon demand therefor by Landlord. Tenant
shall also pay Landlord as soon as ascertained, any costs and expenses incurred
by Landlord in such reletting or in making such alterations and repairs not
covered by the rentals received from such reletting.
(F) No re-entry or taking possession of the Premises by Landlord pursuant
to this Paragraph 22 shall be construed as an election to terminate this Lease
unless a written notice of such intention be given to Tenant. Notwithstanding
any reletting without termination by Landlord because of any default by Tenant,
Landlord may at any time after such reletting, elect to terminate this Lease for
any such default.
RIGHT OF LANDLORD TO CURE TENANT'S DEFAULT
PARAGRAPH 23
If Tenant defaults in the making of any payment or in the doing of any act
herein required to be made or done by Tenant, then Landlord may but shall not be
required to make such payment or do such act and charge to Tenant the amount of
41 costs in connection therewith including but not limited to reasonable legal
fees and expenses
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incurred by Landlord, with interest thereon as provided in Paragraph 36 from the
date paid by Landlord to the date of payment thereof by Tenant. Such payment and
interest shall constitute Additional Rent hereunder due and payable upon demand
but the making of such payment or the taking of such action by Landlord shall
not operate to cure such default or to stop Landlord from the pursuit of any
other remedy to which Landlord would otherwise be entitled.
NOTICES
PARAGRAPH 24
All notices which Landlord or Tenant may be required or may desire to serve
on the other may be served, as an alternative to personal service, by mailing
the same by registered or certified mail, return receipt requested, postage
prepaid, addressed as set forth in Item 14 of the Basic Lease Provisions, or
addressed to such other address or addresses as either Landlord or Tenant may
from time to time designate to the other by written notice.
INSOLVENCY OR BANKRUPTCY
PARAGRAPH 25
In no event shall this Lease be assigned or assignable by operation of law
and in no event shall this Lease be an asset of Tenant in any receivership,
bankruptcy, insolvency, or reorganization proceeding.
SURRENDER AND HOLDOVER
PARAGRAPH 26
(A) On the expiration or the sooner termination hereof, Tenant shall
peaceably surrender the Premises broom clean, in good order, condition and
repair. On or before the last day of the term or the sooner termination hereof,
Tenant shall at its expense remove its trade fixtures, signs and other personal
property from the Premises. Any property not removed shall be deemed abandoned
and may either retained by Landlord as its property, or disposed of, without
accountability and at Tenant's expense, in such manner as Landlord may
determine. If the Premises are not surrendered at the end of the term or the
sooner termination, Tenant shall indemnify Landlord against loss or liability
resulting from delay by Tenant in so surrendering the Premises, including,
without limitation, claims made by any succeeding tenants found on such delay.
Tenant shall promptly surrender all keys for the Premises and Building restrooms
to Landlord at the place then fixed for payments of Rent. Tenant's covenants
hereunder shall survive the expiration or termination of this Lease.
(B) If Tenant holds over after the expiration or sooner termination hereof
without the express written consent of Landlord, Tenant shall become a Tenant at
sufferance only
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at two times the greater of (i) the Rent due hereunder or (ii) the then
prevailing market rate rent, as determined by Landlord in its sole and absolute
discretion, plus all items of Additional Rent provided herein, and either (i) or
(ii) shall be prorated on a daily basis according to the number of days
contained in the month that such expiration or earlier termination takes place,
and otherwise upon the terms, covenants and conditions herein specified, so far
as applicable. Acceptance by Landlord of Rent after such expiration or earlier
termination shall not constitute a consent to a holdover hereunder or result in
a renewal. The foregoing provisions of this paragraph are in addition to and do
not affect Landlord's rights of re-entry or any other rights of Landlord
hereunder or as otherwise provided by law.
CONDITION OF PREMISES
PARAGRAPH 27
Landlord's sole responsibility for preparation of the Premises will be as
set forth in the Work Letter attached hereto as Exhibit "B-I" and if there is no
Work Letter, Landlord's sole responsibility will consist of building of a
demising wall and an entry door for Tenant. Landlord's responsibility for the
preparation of the Premises as described above is hereinafter referred to as
Landlord's Work. Except for Landlord's Work, Tenant acknowledges that neither
Landlord nor any agent of Landlord has made any representation or warranty with
respect to the Premises, the Building or the Project for the conduct of Tenant's
business. The taking of possession of the Premises by Tenant shall conclusively
establish that the Building and the Premises were at such time in good order and
repair.
QUIET POSSESSION
PARAGRAPH 28
Upon Tenant's paying the rent reserved hereunder and observing and
performing all of the covenants, conditions and provisions on Tenant's part to
be performed hereunder, Tenant shall have quiet possession of the Premises for
the entire term hereof, subject to all of the provisions of this Lease. This
covenant shall be binding upon any Landlord hereunder only during its respective
ownership of the Premises.
LIMITATION OF LANDLORD'S LIABILITY
PARAGRAPH 29
(A) Landlord and its employees and agents shall not be liable for any
damage to
Tenant's property entrusted to employees of Landlord or its agents, nor for any
loss or interruption of Tenant's possession, nor for loss of or damage to any
property by theft or otherwise, nor for any injury or damage to persons or
property resulting from fire, explosion,
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falling plaster, steam, gas, electricity, water or rain which may leak from any
part of the Building or from the pipes, appliances or plumbing works therein or
from the roof, street, or sub-surface or from any other place or resulting from
dampness or any other cause whatsoever in the Building or the Project. Landlord
and its employees and agents shall not be liable for any property loss resulting
from any latent defect in the Premises or in the Building. Notwithstanding the
foregoing provisions of this Paragraph 29(A) to the contrary, Landlord and its
employees and agents shall indemnify, hold harmless and indemnify Tenant against
any claims, loss, costs, damage expense, liability, including without limitation
reasonable attorney's fees, for any injury or damages to any person or property
whatsoever to the extent such injury has been caused by the gross negligence or
willful misconduct of Landlord, its agents, servants, employees or invitees or
when such injury has been caused in part or in whole by any defects relating to
Landlord's obligations with respect to the Landlord's Work which could not have
been discovered by a careful visual inspection or normal use within the three
(3) month period following the issuance of the certificate of occupancy for the
Premises.
(B) Tenant shall look solely to Landlord's estate and property in the
Project (or the proceeds thereof) for the satisfaction of Tenant's remedies for
the collection of a Judgement (or other judicial process) requiring the payment
of money by Landlord in the event of any default by Landlord hereunder, and no
other property or assets of Landlord or Landlord's partners or members shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Tenant's remedies under or with respect to either this Lease, the
relationship of Landlord and Tenant hereunder, or Tenant's use and occupancy of
the Premises.
GOVERNING LAW
PARAGRAPH 30
This Lease shall be governed by and construed pursuant to the laws of the
State of New Jersey.
COMMON FACILITIES
PARAGRAPH 31
Tenant shall have the non-exclusive right in common with others, to the use
of common entrances, lobbies, elevators, ramps, drives, stairs and similar
access and serviceways and the other common facilities (except for parking
spaces other than those provided for in Paragraph 39) in and adjacent to the
Building or Project, as may be provided by Landlord from time to time for
general use, subject to such rules and regulations as may be adopted by the
Landlord including, but not limited to, the right to close from time to time all
or a portion of said common facilities to such extent as may be legally
sufficient, in Landlord's sole opinion, to prevent a dedication thereof or the
accrual of rights to any person or to the public therein.
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SUCCESSORS AND ASSIGNS
PARAGRAPH 32
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. However, the obligations of Landlord
under this Lease shall not be binding upon Landlord herein named with respect to
any period subsequent to the transfer of its interest in the Project as owner or
lessee thereof, and in the event of such transfer said obligations shall
thereafter be binding upon each transferee of the interest of Landlord herein
named as such owner or lessee of the Project, but only with respect to the
period commencing with its respective transfer in and ending with a subsequent
transfer out, and such transferee, by accepting such interest, shall be deemed
to have assumed such obligations except only as may be expressly otherwise
provided in this Lease. A lease of Landlord's entire interest in the Project as
owner or lessee thereof shall be deemed a transfer within the meaning of this
Paragraph 32.
BROKERS
PARAGRAPH 33
Tenant represents and agrees that it has not directly or indirectly dealt
with any real estate broker(s) other than the firm(s) specified in Item 12 of
Basic Lease Provisions in connection with this transaction. Further, Tenant
covenants and agrees that with respect to any renewal or extension or expansion
of this Lease, or with respect to any transaction by Tenant or its affiliates,
successors or assigns with Landlord or 400 College Road Associates, Limited
Partnership with respect to the leasing of space by Tenant either by original
lease, renewal or expansion space within any buildings owned by Landlord or 400
College Road Associates, Limited Partnership within College Park at Princeton
Forrestal Center in Plainsboro, New Jersey, that Tenant will pay all brokerage
commissions or finders fees, commissions, fees or other remuneration claimed by
any real estate broker or finder other than the firm(s) specified in Item 12 of
the Basic Lease Provisions. Tenant agrees to defend, indemnify and hold Landlord
harmless from and against any claims for brokerage commissions or finder's fee
arising out of or based upon any actions of Tenant with respect to any other
broker or brokers other than the firm(s) specified in Item 12 of the Basic
Lease Provisions with respect to the leasing of space by Tenant, either by
original lease, renewal, or expansion space for any space including, but not
limited to the Premises, leased by Tenant or its affiliates, successors or
assigns from Landlord or 400 College Road Associates, Limited Partnership within
the buildings owned by either of them at College Park at Princeton Forrestal
Center in Plainsboro, New Jersey. The terms of this Paragraph will survive
termination of this Lease. With respect to this transaction, Landlord shall pay
the firm specified in Item 12 of the Basic Lease Provisions via a separate
agreement.
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NAME
PARAGRAPH 34
Tenant shall not, without the written consent of Landlord, use the name of
the Building or the Project for any purpose other than as the address of the
business to be conducted by Tenant in the Premises, and in no event shall Tenant
acquire any rights in or to such names.
EXAMINATION OF LEASE
PARAGRAPH 35
Submission of this instrument for examination or signature by Tenant does
not constitute a reservation of or option for lease, and it is not effective as
a Lease or otherwise until execution by and delivery to both Landlord and
Tenant.
ADDITIONAL CHARGES
PARAGRAPH 36
Any amount due from Tenant to Landlord which is not paid when due, in
addition to other remedies available to Landlord, shall at Landlord's option
bear interest which shall be at the lesser of (i) eighteen (18%) percent per
annum or (ii) the maximum lawful rate per annum, from the date such payment is
due until paid, but the payment of such interest shall not excuse the cure of
default. In addition to the foregoing, Landlord may also impose a late charge of
four (4%) percent of the amount past due, and a charge for reasonable legal fees
and costs.
MARGINAL HEADINGS
PARAGRAPH 37
The marginal headings and titles to the Paragraphs of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
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PRIOR AGREEMENTS; SEVERABILITY
PARAGRAPH 38
This Lease contains all of the agreements of the parties hereto with
respect to any matter covered or mentioned in this Lease, and no prior
agreement, understanding or representation pertaining to any such matter shall
be effective for any purpose. No provision of this Lease may be amended or added
to except by an agreement in writing signed by the parties hereto or their
respective successors in interest. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party hereunder, shall be held invalid or unenforceable to any extent,
the remainder of this Lease shall not be affected thereby and each term and
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
PARKING
PARAGRAPH 39
Tenant shall have the right to the non-exclusive use of the number of
parking spaces shown in Item 11 of Basic Lease Provisions. Tenant covenants and
agrees to comply with all reasonable rules and regulations which Landlord may
hereafter from time to time make to assure use of parking spaces by permitted
users. Landlord's remedies under such rules and regulations may include, but
shall not be limited to, the right to tow away at owner's expense any vehicles
not parked in compliance with these rules and regulations. Landlord shall not be
responsible to Tenant for the noncompliance or breach by any other tenant of
said rules and regulations.
AUTHORITY
PARAGRAPH 40
Tenant represents that Tenant is authorized to do business in the State of
New Jersey. Upon Landlord's request, Tenant's signatories hereto will furnish
satisfactory evidence of Tenant's authorization and their authority to execute
this Lease on behalf of Tenant.
NO LIGHT, AIR OR VIEW EASEMENT
PARAGRAPH 41
Any diminution or shutting off of light, air or view of any structure which
may be erected on lands adjacent to the Building shall in no way effect this
Lease or impose any liability on Landlord.
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FORCE MAJEURE
PARAGRAPH 42
Except as otherwise expressly provided herein, this Lease and the
obligations of Tenant to pay Rent hereunder and perform all of the other
covenants, agreements, terms, provisions and conditions hereunder on the part of
Tenant to be performed shall in no way be affected, impaired or excused because
Landlord is unable to fulfill any of its obligations under this Lease, if
Landlord is prevented or delayed from so doing by reason of any cause beyond
Landlord's reasonable control, including, but not limited to, Acts of God,
strikes, labor troubles, shortage of material, governmental preemption in
connection with a national emergency or by reason of any rule, order or
regulations of any governmental agency or by reason of war, hostilities or
similar emergency; provided that Landlord shall in each instance exercise
reasonable diligence to effect performance as soon as possible. It is agreed
that Landlord shall not be required to incur any overtime or additional expenses
in Landlord's reasonable diligence to effect the performance of any of
Landlord's obligations hereunder.
ATTORNMENT
PARAGRAPH 43
If for any reason the leasehold estate of Landlord as Tenant under any
underlying lease is terminated by summary proceedings or otherwise, Tenant will
attorn to the Landlord under such underlying Lease and will recognize such
Landlord as Tenant's Landlord under this (sub)lease. Tenant agrees to execute
and deliver, at any time, and from time, to time, upon the request of Landlord
or of the Landlord under any such underlying lease, any instrument which may be
necessary or appropriate to evidence such attornment and Tenant hereby appoints
Landlord the Landlord under such underlying lease the attorney-in-fact,
irrevocable, of Tenant to execute and deliver any such instrument for and on
behalf of Tenant. Tenant further waives the provisions of any statute or rule of
law now or election to terminate this (sub)lease or to surrender possession of
the Premises in the event such underlying lease terminates or any such
proceeding is brought by Landlord under such underlying lease, and agrees that
his (sub)lease shall not be affected in any way whatsoever by any such
proceeding or termination.
COMMON AREA MAINTENANCE COST
PARAGRAPH 44
Base Project Operating Expenses as defined in Paragraph 3 shall also
include Landlord's costs and expenses incurred as Landlord's share of common
area maintenance all as set forth in Article 29 of the underlying Land Lease
between the Trustees of Princeton University as landlord and Landlord as tenant.
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NOTICE REGARDING TENANT'S MOVING IN OR OUT
PARAGRAPH 45
Two days prior to any move into or out of the Premises, Tenant must notify
National Business Parks, as Agent for College Road Associates, of the following:
the name of the Moving Company, Moving Company representative in charge of the
move, and Moving Company's phone number. All moves must be done during the work
week (Monday through Friday, inclusive between the hours of 7:30 AM. and 4:30
P.M.). No elevators will be available Saturday, Sunday or holidays or after 4:30
P.M. on other days. The insurance evidence in the form required by Paragraph 19
hereof must be delivered to Landlord prior to commencement of the Tenant's move
into or out of the Premises.
OPTION TO EXPAND FIRST AVAILABLE SPACE
PARAGRAPH 46
Tenant shall have the option to expand into space when it first becomes
vacant ("Expansion Space") in the Building upon that Expansion Space becoming
vacant by giving Landlord notice in the manner hereinafter set forth on the
terms and conditions hereinafter provided. The notice must be given by. the
Tenant in writing to the Landlord within thirty (30) days after the later of the
Landlord giving notice that such Expansion Space is or will be vacant or the
Expansion Space actually becoming vacant. Time is of the essence. The Basic Rent
for such Expansion Space will be fair market rent for comparable space in the
Princeton area. The Base Year for the initial term for the Expansion Space will
be the first calendar year that the Expansion Space is leased by Tenant from
Landlord. Except as herein provided in this Paragraph, the other terms of this
Lease will apply to such Expansion Space. If no renewal term commences after the
term for the Expansion Space commences, the term for the Expansion Space will
end the later of (i) the date defined in 8 of the Basic Lease Provisions or the
date the current renewal period ends or (ii) sixty (60) months from the date the
term for the Expansion Space commences. If a renewal term commences while the
Expansion Space is subject to this Lease, the initial term for the Expansion
Space will end when the Renewal term begins. Such Expansion Space leased is part
of the Premises for any renewal term. If the term for the Expansion Space ends
on a date later than the date the Lease would have terminated had there been no
Expansion Space, and no renewal term is elected which would go into effect after
the Expansion Space is occupied, the rate of Basic Rent will then be increased
for all the Premises to the highest Basic Rent for any Expansion Space for that
period of time after the date the Lease would have terminated had there been no
Expansion Space, and further, the term for all the Premises will be extended to
a date sixty (60) months from the date the term for the Expansion Space
commences.
This is a one time option as to each space of whatever size when such space
first becomes vacant after the date of this Lease in the Building. For example,
if all space in the Building not initially the subject of this Lease becomes
vacant all at once subsequent to the date of the Lease, and none of such space
was vacant from the date of this Lease to the
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date when all such space becomes vacant, then this option will apply to such
space for the period stated in the Second sentence of this Paragraph 46 and will
not apply again to any space in the Building. When a part of the space in the
Building not initially the subject of this Lease first becomes vacant after the
date of this Lease, this option will apply to such part for the period stated in
the second sentence of this Paragraph 46 and will not apply again to such part.
An Amendment to this Lease will be made to reflect the effect of this
Paragraph 46, if the Option to Expand described in this Paragraph 46 is elected.
FIRST OPTION TO RENEW
PARAGRAPH 47
Upon condition that Tenant is not in default in the payment of any Rent or
other charge payable to Tenant under this Lease and not in default in the
performance of any covenant or obligation to be performed by Tenant under this
Lease and upon Tenant's giving Landlord twelve (12) months notice in writing in
the manner prescribed in Article 24 hereof prior to the expiration of the term
hereof, Tenant shall have the option to renew and extend this Lease for an
additional period of five (5) years, pursuant and subject to all terms,
covenants, provisions, and conditions of this Lease, including, without
limitation, the payment of all items of Rent as provided for hereunder, except
that the Basic Annual Rent shall be adjusted to the then prevailing fair market
rent for comparable space within Princeton Forrestal Center.
SECOND OPTION TO RENEW
PARAGRAPH 48
Upon condition that Tenant is not in default in the payment of any Rent or other
charge payable to Tenant under this Lease and not in default in the performance
of any covenant or obligation to be performed by Tenant under this Lease and
upon condition that Tenant has exercised the renewal option granted in Paragraph
47 hereof, and upon Tenant's giving Landlord twelve (12) months notice in
writing in the manner prescribed in Article 24 hereof prior to the expiration of
the term hereof (as may be extended pursuant to Paragraph 47 hereof), Tenant
shall have the option to renew and extend this Lease for an additional period of
five (5) years, pursuant and subject to all terms, covenants, provisions, and
conditions of this Lease, including, without limitation, the payment of all
items of Rent as provided for hereunder, except that the Basic Annual Rent shall
be adjusted to the then prevailing fair market rent for comparable space within
Princeton Forrestal Center.
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EXHIBIT "A"
[MAP APPEARS HERE]
<PAGE>
EXHIBIT B-1
LANDLORD'S WORK LETTER
It is the intent of this Exhibit that Tenant shall be permitted reasonable
freedom in the interior design and layout of its space, consistent with
applicable building codes and sound architectural and construction practices in
first class office buildings, provided that no interference is caused to the
operation of the Building's mechanical, heating, cooling or electrical systems
or other building operations or functions, and no increase in maintenance or
utility charges will be incurred by Landlord. Any additional costs of design,
construction, operation or maintenance which results from Tenant's deviations
from Building Standard quantities or specifications shall be charged to Tenant.
A. IMPROVEMENTS
1. Landlord's Work: Landlord, at its sole cost and expense, shall furnish
---------------
and install in or for the benefit of the Premises pursuant to the plans and
specifications referred to below, the following:
(a) For divided-floor tenancies, all walls separating the Premises from
areas or from other tenant space.
2. Landlord Allowance: Landlord will contribute $15.00 per rentable
------------------
square foot, towards all Tenant improvements in demised premises only.
3. Landlord's Option for Tenant's Work: Landlord under the terms of this
-----------------------------------
Lease will allow Tenant to perform its own work under the following conditions:
A) Landlord has the exclusive option to either accept to perform the
Tenant work upon the Tenant producing competitive bids from qualified and
approved contractors, and provided the scope of the work is equal to all other
bids, or elect not to perform the work Tenant must submit to the Landlord its
lowest bid price in the following manner.
1) Name of the general contractor indicating a lump sum bid and
a bid breakdown of the general contractor's sub-contractors with
their bid price.
Example:
Electrical:
-----------
Name: Contractor
Bid Price: Amount
HVAC:
----
Name: Contractor
Bid Price: Amount
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For the purpose of this bid, the following general contractors are here-by
approved:
1. Turner
2. Huber, Hunt & Nichols
3. Boys Construction Corp.
4. Torcon
* Note: Work must be performed with union labor of local jurisdiction, no
outside local jurisdiction is approved under this Lease.
2) Landlord maintains the exclusive right to approve or disapprove
any of the general contractors or sub-contractors, not listed above.
3) Landlord's Approval: Tenant's plan, as hereinafter defined, shall
-------------------
be subject to Landlord's prior written approval or disapproval within
five days of the receipt of same. If Tenant's plan requires any
variance or any modifications of any existing site plan, Tenant will
be responsible for obtaining all approvals required at Tenant's sole
cost and expense. Landlord will cooperate with Tenant in securing such
approvals.
4) If Landlord elects to perform all of the Tenant work, then any
cost above the Landlord's allowance will be paid for by the Tenant.
Payments to the Landlord will be made as follows:
a) one third (1/3) at time of issuance of all building permits
b) one third (1/3) when the work is 50% completed
c) one third (1/3) upon completion less 10% retainage
5) Base Building Changes: If Tenant Plan necessitates revisions in
---------------------
the design of the base building or necessitates changes in the
construction of the base building for which Landlord has previously
contracted, Tenant shall be responsible for all costs resulting from
such design revisions or construction changes, including but hot
limited to architectural and engineering changes, and any special
permits for fees attributed thereto. Before Landlord shall authorize
such design and/or construction changes, Tenant shall pay Landlord the
full cost attributable thereto. All costs will be paid to the Landlord
with a 10% general condition and a 10% profit fee, above sub-
contractors cost. Landlord will not proceed with any contract changes
without prior written consent by Tenant and or its representative.
6) In the event that Tenant performs its own construction the payment
of the Landlord's allowance will be paid to the Tenant upon the
issuance of a final Certificate of Occupancy.
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B. CONSTRUCTION
1. By Tenant: If Landlord elects not to perform the construction for
the Tenant improvements, then the work may be done by the Tenant in compliance
with the following:
a) No such work shall proceed without Landlord's prior written
approval of (i) Tenant's contractor, if any; (ii) detailed plans and
specifications for the work which are usual and customary; and (iii) a
certificate of workman's compensation insurance in an amount and with a company
and on a form reasonably acceptable to Landlord and a certificate of insurance
in form and from an insurer reasonably acceptable to Landlord, showing Tenant or
Tenant's contractor to have in effect public liability, comprehensive general
liability and property damage insurance with limits of not less than
$1,000,000/$5,000,000 and $1,000,000 respectively. All such certificates except
worker's compensation shall be endorsed to show Landlord as an additional
insured and such insurance shall be maintained by Tenant or Tenant's contractor
at all times during the performance of Tenant's work.
b) All such work shall be done in conformity with applicable codes
and regulations of governmental authorities having jurisdiction over the
Building and Premises and with valid building permits and other authorizations
from appropriate governmental agencies when required shall be obtained by
Landlord's representative at Tenant's sole expense. Any work not being performed
by Landlord, and not acceptable to the appropriate governmental agencies or not
reasonably satisfactory to Landlord, shall be promptly replaced at Tenant's
expense. Notwithstanding any failure by Landlord to object to any such work,
Landlord shall have no responsibility therefore, except for the negligence or
willful misconduct of Landlord. Tenant agrees to save and hold Landlord harmless
for said work as provided in the Lease.
c) Tenant and Tenant's contractors shall abide by all safety and
construction laws, ordinances, rules and regulations. All work and deliveries
shall be scheduled through Landlord. Entry by Tenant's contractors shall be
deemed to be under all the terms, covenants, provisions and conditions of the
Lease. All Tenant's materials, work, installations and decorations of any nature
brought upon or installed in the Premises before the Commencement Date shall be
at Tenant's risk, and neither Landlord nor any party acting on Landlord's behalf
shall be responsible for any damage thereto or loss or destruction thereof.
Tenant shall not employ any contractor who in Landlord's opinion may prejudice
Landlord's negotiations or relationships with Landlord's contractors or
subcontractors or the negotiations or relationship of those contractors or
subcontractors with their employees, or may disturb harmonious labor relations.
d) Tenant shall reimburse Landlord for any actual, direct, and
reasonable extra expenses incurred by Landlord by reason of faulty work done by
Tenant or its contractors, or by reason of delays caused by such work, or by
reason of cleanup which fails to comply with Landlord's rules and regulations,
or by reason of building use outside normal working hours.
e) In addition to the sums to be paid to the Landlord pursuant to the
above, Tenant shall pay to Landlord a building service fee of ten percent (10%)
of the total
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cost of Tenant's work not performed by Landlord. Such building service fee shall
be paid in the same manner as indicated in A-4 (above).
f) Tenant's contractors shall not post any signs on any part of the
Building or the Premises.
g) Tenant shall, upon Landlord's written request, provide Landlord
with copies of bills and invoices for the cost of Tenant's Work hereunder,
performed by Tenant or Tenant's contractors.
2. Tenant's Option to Use Landlord's Contractor: Tenant may elect to have
any of the work described above done by Landlord's contractor at Tenant's
expense.
3. Changes: If there are any changes requested by Tenant, after approval
of Tenant's Plan, Tenant shall be responsible for costs including permits and
fees, architectural, engineering and related design expenses resulting from such
changes. No such changes shall be made without prior written approval of
Landlord. Landlord shall not be responsible for delay in occupancy by Tenant
because of changes to plans after approval by Tenant as outlined above. Upon
completion of such revised working drawings and specifications, Landlord shall
notify Tenant in writing of the cost which will be chargeable to Tenant by
reason of such change, addition or deletion. Tenant shall, within (5) business
days, notify Landlord in writing whether it desires to proceed with such change,
addition or deletion. In the absence of such written authorization and payment
in full of the total costs of such change, addition or deletion, Landlord shall
not be obligated to continue work on Tenant's Premises and may suspend work and
Tenant shall be responsible and chargeable for any and all delays in the
completion of the Premises resulting therefrom.
4. Tenant's Inspection: Tenant is authorized by Landlord to make periodic
inspections of the Premises during construction provided that such inspections
are made during reasonable business hours and that Tenant is accompanied by a
representative of the Landlord. Tenant shall advise Landlord immediately in
writing of any objection to the performance of Tenant's Work.
5. If the Tenant's Work is done by other than Landlord, the term of this
Lease shall commence on the earlier of (a) the Target Commencement Date as shown
in Item 9 of the Basic Lease Provisions or (b) such earlier date as Tenant is
able to take possession of and is able to use the premises as a research
laboratory (in no event later than January 1, 1999).
C. ACCEPTANCE OF PREMISES
When Landlord's Work and Tenant's Work is substantially completed in
accordance with Tenant's Plan (except for the punch list items) and a Temporary
Certificate of Occupancy is issued, the Premises shall be considered acceptable
for occupancy. Within five (5) business days of Landlord's notice that
Landlord's Work and Tenant's Work has been substantially completed, Tenant shall
inspect the Premises in the presence of Landlord
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and Landlord's contractor in order to establish a punch list of items to be
completed or corrected.
D. RESPONSIBILITY FOR DELAYS
If Tenant shall cause any delay in the construction of the Premises,
whether reason of any failure by Tenant to comply with the applicable time
schedule set forth in Paragraph B-5, or by Tenant's requirement of materials or
installations different from the Building Standard, or by delays in performance
of completion by a party employed by Tenant, or by reason of building code
problems arising from Tenant's design, or by reason of changes in the work
ordered by Tenant, then notwithstanding the provisions of the Lease or any other
provision of this Exhibit, any such delay in completing the Premises shall not
in any manner affect the Lease Commencement Date of the Tenant's liability for
the payment of rent set forth in the Lease.
E. INCORPORATED OF LEASE
This Agreement is, and shall be incorporated by reference in the Lease
and all of the terms and provisions of said Lease are and shall be incorporated
herein by this reference.
F. BUILDING STANDARD ALLOWANCES
Landlord, at Landlord's expense, except as otherwise expressly
specified in this Exhibit B and in the foregoing Lease, shall furnish and
install in and to the Premises the following, all of which shall be of material,
manufacture, design, capacity, finish and color of the Building Standard adopted
by Landlord for the Building in accordance with the Tenant's Plan.
G. ELECTRICAL CONSUMPTION CALCULATION
If Tenant's electrical requirements exceed power designed to be
provided to the Premises, in order to accurately calculate the power consumed by
Tenant, it is a requirement of this Lease that the electrical design will
incorporate a check meter in order to properly calculate the power usage. The
Landlord will be consulted as to the type of meter required. All associated
cost(s) are inclusive of Tenant's Workletter Allowance.
H. FINAL PAYMENT OF EXCESS COSTS
If prior to Tenant's occupancy of the Premises there is a default by
Tenant in payment of the sum it owes Landlord for the construction of the
Premises or other cost of charges stated herein, Landlord shall, in addition to
all other legally allowable remedies, have the same rights as in the case of
default in rent under the Lease. However, Landlord must provide Tenant with
written notice of such default, and Tenant shall have the appropriate time
periods to cure such default as detailed in the Lease.
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EXHIBIT B-2
BUILDING STANDARD
300 SERIES
1. PARTITIONS
(a) Partitions within the Demised Premises shall have 5/8" gypsum
board on each side of 2-1/2" metal studs, 24" on center, taped
and spackled, to underside of finished ceiling. Partitions
between the Demised Premises and corridor(s) and between the
Demised Premises, any adjacent space shall have 5/8" fire code
gypsum board, taped and spackled, on each side of 3-1/2" metal
studs, 24" on center. Demising partitions and corridor partitions
to have 1-1/2" (full thick) sound deadening insulation installed
within from floor to underside of floor above.
(b) There will be no jogs, curves or angles in any partition.
(c) Vinyl base 4" high to be on all partitioning and existing walls
and columns.
2. DOORS
(a) All frames to be 16 gauge, pressed steel, painted.
(b) Doors within Demised Premises to be 3'-0" x 7'-0" nominal x 1-
3/4" solid core oak, rift cut, matched finish. Doors to have fire
rating as required by applicable codes.
3. HARDWARE
(a) Cylindrical latch sets, standard weight, on individual office
doors within the Demised Premises.
(b) Cylindrical lock sets, heavy duty, and closers on doors from
corridor(s) on Demised Premises.
(c) Lock sets and latch sets to be Schlage, Sargent, Yale, Russwin or
equal, as selected by Landlord.
(d) All lock sets shall be keyed to the building master key system.
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4. ACOUSTICAL CEILINGS
(a) Lay-in acoustic tile ceilings, within Demised Premises, shall be
24" x 48" regressed white mineral fiber, textured panels with
white recessed "T" - spline, as selected by Landlord.
(b) Ceiling heights within Demised Premises to be nominal 9'-0".
(c) Direction of ceiling-grid to be as determined by Landlord.
5. FLOORING
Building standard carpet to be in all tenant areas where vinyl composition
tile is not installed. All carpets will be selected from Landlord's
samples, or of equal quality.
6. PAINTING
(a) Interior wall surfaces of gypsum board shall receive two (2)
coats of flat latex paint, colors to be selected by Tenant from
Landlord's samples.
(b) All interior ferrous metal surfaces shall receive two (2) coats
of alkyd semigloss enamel paint over shop-applied primer.
(c) All wood doors to receive one (1) coat of sealer and two (2)
coats of clear polyurethane satin varnish.
(d) Paint manufacturers to be Sherwin Williams, or approved equal, as
selected by Landlord.
7. WINDOW COVERING
All exterior windows to receive building standard, narrow, horizontal
aluminum slat blinds, Levelor or equal, as selected by Landlord.
8. ELECTRICAL SPECIFICATIONS
(a) Lighting - Provide 2' x 4' 3L - high efficiency open deep cell
fixtures in regressed aluminum frame with air return feature.
(b) Power - Wall mounted duplex receptacles must meet all applicable
codes.
(c) The average electric load of the Demised Premises shall not
exceed five (5) watts per square foot for lighting and power in
office areas. Landlord will provide available service of 200A
277/480V 3 phase, for Tenant's exclusive use. All other
switchgear required is a function
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of the work letter allowance.
(d) Landlord shall initially provide and install lamps and ballasts.
Replacement of same shall be by Landlord, at Tenant's expense.
9. FIRE AND LIFE SAFETY FEATURES
(a) The Building is fully sprinklered in all areas.
(b) Fire Alarm System consisting of manual pull boxes, annunciators,
alarm bells, control panel, etc. shall be required per code.
(c) Smoke detectors, ionization-type, in corridors, Tenant's space,
electrical equipment rooms, elevator machine rooms and ductwork
where the air quality is over 15,000 CEM. Firestats in the
ductwork where air quality is less than 15,000 CEM.
(d) Battery back-up shall be required in the Building to operate all
emergency and exit lighting fixtures in public areas and fire
alarm system.
10. TELEPHONE WORK
(a) The Landlord shall arrange with New Jersey Bell Telephone Company
for telephone service within the equipment room in the Building's
core.
(b) All telephone work and wiring in partitions, floors and ceilings
to be paid for by Tenant as arranged for by Tenant with any
qualified installer selected by Tenant but approved by Landlord.
Landlord will coordinate work with other trades as required.
Completion or non-completion of the telephone work will not delay
Tenant's acceptance of the Demised Premises or the payment of
Rent. All electrical load centers, special wiring and plywood
supplied by Landlord for telephone equipment shall be an extra
cost to be paid by Tenant. Telephone company work is to meet all
prevailing codes.
11. HVAC SPECIFICATIONS
(a) Heating, ventilation and air-conditioning system shall be capable
of maintaining the following interior conditions, subject to
governmental regulations:
Summer - 75 degrees F (+2 degrees F) dry bulb and 50% relative
humidity, when outside temperature is 90 degrees F dry bulb and
75 degrees wet bulb.
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Winter - 68 degrees F when outside temperature is 14 degrees F.
(b) The VAV system with roof top A/C unit will have automatic
thermostats mounted in the rooms or open spaces within the
Demised Premises.
(c) The VAV units are connected to roof top A/C units with filters,
mixing dampers and fan motor.
(d) Tenant override timers and running hour meter will be provided in
electrical closet for after hours use.
(e) The air supply distribution of the HVAC system for the Demised
Premises shall be based on five (5) watts per square foot of
total electrical load for all purposes. Occupancy rate is based
on one (1) person per 200 square feet.
(f) All heating will be provided from the perimeter base board
heaters via solid state controllers, from Building central
system.
(g) The control system for the heating will be by means of electric
thermostats mounted in the rooms or open spaces within the
Demised Premises as described in (11 b) interfaced with solar &
ambient outdoor temperature sensors.
(h) Zoning within Tenant's Demised Premises shall provide interior
and perimeter zones. The number of zones, as determined by
Landlord, shall be based on orientation and total area occupied
with average zones as follows:
Perimeter of areas - one (1) zone per 1,200 square feet
Interior areas - one (1) zone per 2,000 square feet
An average of 1 CFM per square foot will be delivered by the HVAC
system within the Demised Premises. Diffusers supplying air will
be spaced at 1 per 225 square feet.
(i) If Tenant's equipment (i.e. computers, business machines, etc.)
or special uses (i.e. conference rooms, mailrooms, lunch rooms,
etc.) requires air-conditioning above and beyond Building
Standard, as outlined, said additional air conditioning
(including cost of operation as stipulated in the Lease) shall be
paid for by Tenant. Any special exhaust requirements will also be
paid for by Tenant.
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EXHIBIT "C"
COMMENCEMENT DATE MEMORANDUM
THIS AGREEMENT made the ___ day of _______, 1998, by and between COLLEGE:
ROAD ASSOCIATES, LIMITED PARTNERSHIP ("Landlord") and ______________ with an
office at _______________, Princeton, New Jersey 08540 ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into a lease dated ___________
("Lease") setting forth the terms of occupancy by Tenant of a portion of a
Building located at ___________ Princeton, New Jersey; and
WHEREAS, the Lease is for a term of _____________, with the "Target
Commencement Date" of the term being defined as __________ in Basic Lease
Provisions of the Lease; and
WHEREAS, it has been determined that ________________ is the actual
Commencement Date of the Lease.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter set forth, it is agreed:
1. The actual Commencement Date of the term of the Lease is ____________
and the termination date thereof is _______________
2. This agreement is executed by the parties for the purpose of providing
a record of the commencement and termination dates of the term of the Lease.
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IN WITNESS WHEREOF, the parties hereto have duly executed this instrument
as of the day and year first above written.
COLLEGE ROAD ASSOCIATES,
LIMITED PARTNERSHIP
BY: Z FORRESTAL CENTER, L.P.
Its Managing General Partner
BY: Z FORRESTAL CORP.,
Its General Partner
ATTEST
BY:________________________ BY:_______________________________
Name: Name: John Zirinsky
Title: Title: President
ATTEST
BY:________________________ BY:_______________________________
Name: Name:
Title: Title:
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RULES AND REGULATIONS
---------------------
Exhibit D
1. The sidewalks, halls, passages, elevators and stairways shall not be
obstructed by any of the tenants nor used by them for any other purpose than for
ingress and egress to and from their respective offices, nor shall they be used
as a waiting or lounging place for tenant's employees or those having business
with tenants. The halls, passages, elevators, stairways and roofs are not for
the use of the general public, and Landlord retains in all cases the right to
control and prevent access to any part of said Building of all persons whose
presence, in the judgement of Landlord or Landlord's employees, may be
prejudicial to the safety, character, reputation or interests of the Building
and its tenants. In case of invasion, mob, riot, public excitement or other
commotion, Landlord reserves the right to prevent access to the Building during
the continuance of same by closing the doors or otherwise, for the safety of
tenants and the protection of property in said Building. During other than
business hours, access to the Building may also be refused, unless the person
seeking admission is known by Landlord's agent in charge to have the right to
enter the Premises therein or is properly identified. In addition, the
production of a key to such premises may be required. Landlord shall in no case
be liable in damages for the admission or exclusion of any person from said
Building.
2. The floors, walls, partitions, skylights, transoms that reflect or admit
light into passageways or into any place in said Building shall not be covered
or obstructed by any of the tenants. The toilet-rooms, sinks and other water
apparatus shall hot be used for any purposes other than those for which they
were constructed, and no sweepings, rubbish, rags, ashes, chemicals or refuse
shall be thrown or placed therein. Any damage resulting from such misuses or
abuse shall be borne and immediately paid by Tenant by whom or by whose
employees it shall have been caused.
3. Nothing shall be placed by tenants or their employees on the outside of the
Building.
4. No sign, advertisement or notice shall be inscribed, painted or affixed on
any part of the outside or inside of said Building, unless of such character,
color, size and material and in such places as shall be first designated by
Landlord in writing. A sign painter authorized by Landlord will do such work at
Tenant's expense.
5. Tenant will see that the windows are closed and the doors securely locked
each day before leaving the Building. Shades shall be of the material, style,
form and color adopted by Landlord for the Building, and no tenant shall put up
any that do not conform to such standards. Tenant shall have the right to remove
such shades at the expiration of the lease.
6. Tenant, their employees or others shall not make or commit any improper
noises or disturbances of any kind in the Building, nor smoke in the elevators,
mark or defile the elevators, bathrooms or interfere in any way with other
tenants or those having business in the Building. Tenants shall be liable for
all damage to the Building done by their employees. Cigar & pipe smoking will
not be permitted anywhere in the Building.
50
<PAGE>
7. No carpet, rug or other article shall be hung or shaken out of any window,
and nothing shall be thrown by tenants or tenants' employees nor be allowed by
them to drop out of the windows or doors or down the passages or skylights of
the Building; and no tenant shall sweep or throw or permit to be swept or thrown
from the Premises any dirt or other substance into any of the corridors or
halls, elevators or stairways of the Building, or into any of the lightshafts or
ventilators thereof.
8. No animals shall be kept in or about the Premises, except for small
laboratory animals.
9. If the tenants desire to introduce signalling, telegraphic, telephonic or
other wires and instruments, Landlord will direct the electricians as to where
and how the same are to be placed; and, without such direction, no placing
boring or cutting for wires will be permitted. Landlord retains in all cases the
right to require the placing and using of such electrical protecting devices to
prevent the transmission of excessive currents of electricity into or through
the Building, to require the changing of wires and of their placing an
arrangement underground or otherwise as Landlord may direct, and further to
require compliance on the part of all using or seeking access to such wires with
such rules as Landlord may establish thereto; and, in the event of noncompliance
by tenants or by those furnishing service by or using such wires or by others
with the directions, requirements or rules, Landlord shall have the right to
immediately cut, displace and prevent the use of such wires. Notice requiring
such changing of wires and their replacing and rearrangement given by Landlord
to any company or individual furnishing service by means of such wires to any
tenant shall be regarded as notice to such tenants and shall take effect
immediately. All wires used by tenants must be clearly tagged at the
distributing boards and junction boxes and elsewhere in the Building and with
the number of the office to which said wires lead and the purpose for which said
wires respectively are used, together with the names of the company operating
same.
10. A directory in a conspicuous place on the first floor, with the names of
tenants, will be provided by Landlord at Landlord's expense.
11. No varnish, stain, paint, linoleum, oil-cloth, rubber or other air-tight
covering shall be laid or put upon the floors; nor shall articles be fastened to
or holes drilled or nails or screws driven into walls, doors or partitions; nor
shall the walls, doors or partitions be painted, papered or otherwise covered or
in any way marked or broken; nor shall any tenant use any other method of
heating than that provided by Landlord; without the written consent of Landlord,
which consent shall not be unreasonably withheld.
12. The delivery of materials and other supplies to tenants in the Building
will be permitted only under the direction, control and supervision of the
Landlord.
13. The use of rooms as sleeping apartments is prohibited.
14. All entrance doors leading from the hallways are to be kept closed at all
times.
15. For the protection of tenants, the Landlord reserves the right to refuse the
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admittance to the Building between the hours of 5:30 p.m. and 8:00 a.m., Monday
through Friday, and from 1:00 p.m. Saturday to 8:00 a.m. Monday to any person
not producing a key to such Tenant's office or suite and a pass issued by
building management upon the direction of the tenant. Tenants will instruct the
Building manager from time to time as to the number of persons to whom they
desire passes issued for this purpose. It will be the responsibility of the
Tenant to pick up any pass and key whenever the employment of the passholder is
discontinued.
16. Tenants must use designated parking lots only during hours of building
operation. Tenant parking is restricted to main lots and is not permitted in any
other area whatsoever including visitor, delivery or fire lane areas. It is
expressly prohibited to allow overnight parking or storage of vehicles used by
`employees or in the course of business without prior written consent of
Landlord.
Violation of this parking regulation will result in removal of the vehicle at
the sole cost of tenant.
17. Tenants must adhere to all recycling mandates (as they may be required by
local and state laws), and Landlord's existing established procedure (s).
18. No smoking is permitted in the Premises or any other part of the Building.
19. No vending machine of any type are permitted in the Premises without the
prior written consent of the Landlord.
20. All deliveries to and/or from the Building must be coordinated with the
Building's Management.
52
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EXHIBIT E
COLLEGE PARK AT
PRINCETON FORRESTAL CENTER
JANITORIAL SPECIFICATIONS
General Cleaning
- ----------------
Cleaning Services provided five (5) days per week unless otherwise
specified.
Cleaning hours Monday through Friday, between 6:00 p.m. and before 8:00
a.m. of the following day.
On the last day of the week work will be done after 6:00 p.m. Friday, but
before 8:00 a.m. Monday.
No cleaning on holidays.
I. Office Area
-----------
Furniture and fixtures within reach will be dusted and desk tops will be
wiped clean. However, desks with loose papers on top will not be cleaned.
Window sills and baseboards to be dusted and washed when necessary.
Office wastepaper baskets will be emptied.
Cartons or refuse in excess of that which can be placed in wastebaskets
will not be removed. Tenants are required to place such unusual refuse in
trash cans.
Cleaner will not remove or clean tea or coffee cups or similar containers;
also, if such liquids are spilled in wastebaskets, the wastebaskets will be
emptied but not otherwise cleaned. All kitchen cleaning by Tenant.
Carpets will be vacuumed nightly.
All tile floors will be vacuumed nightly and wet mopped weekly.
Wipe clean all glass, brass and other bright work weekly.
Dust all pictures, charts, wall hangings monthly that are not reached in
nightly cleaning.
Dust all vertical surfaces to include doors, bucks and partitions monthly.
Dust all ventilating louvers and other such installations monthly.
53
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II. Lavatories
----------
All lavatory floors to be swept and washed with disinfectant nightly.
Tile walls and dividing partitions to be washed and disinfected weekly.
Basins, bowls, urinals to be washed and disinfected daily.
Mirrors, shelves, plumbing work, bright work, and enamel surfaces cleaned
nightly.
Waste receptacles will be emptied and cleaned and wash dispensaries to be
filled with appropriate tissues, towels, and soap nightly.
III. Main Lobby Elevators, Building Exterior and Corridors
-----------------------------------------------------
Wipe and wash all floors in Main Lobby nightly.
Wipe and/or vacuum elevator floor nightly.
Polish floors weekly in elevator.
IV: All windows interior and exterior will be cleaned once a year.
V: Tenant will comply fully with the New Jersey State Recycling Mandates.
VI: Tenant is responsible for the cleaning of Tenant's laboratory area(s).
54
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EXHIBIT "F"
Model Letter of Credit
----------------------
{Insert name and address of issuing bank}
---------------------------------------
{Insert date}
IRREVOCABLE LETTER OF CREDIT NO. {Insert number}
{Insert name and address of owner}
Dear Sir:
At the request and for the account of {insert name of Tenant} located at
---------------------
{insert address of Tenant} (hereinafter called "Applicant"), we hereby establish
------------------------
our Irrevocable Letter of Credit No. {insert number} in your favor and authorize
-------------
you to draw on us up to the aggregate amount of US $ {insert amount of Letter of
--------------------------
Credit} available by your draft(s) at sight drawn on us and accompanied by the
- ------
following:
A written statement by you that:
(i) "Applicant is in default under that certain lease, dated as of {insert
------
date of lease} between you, as Landlord, and Applicant, as Tenant (the
-------------
`Lease');" or
(ii) "Applicant has failed to deliver timely a renewal Letter of Credit as
provided in the Lease."
This Irrevocable Letter of Credit will be duly honored by us at sight upon
delivery of the statement set forth above without inquiry as to the accuracy of
such statement and regardless of whether Applicant disputes the content of such
statement.
We hereby engage with you that all drafts drawn under and in compliance with the
terms of this Irrevocable Letter of Credit will be duly honored by us if
presented at {insert address of issuing bank} no later than {insert expiration
------------------------------ -----------------
date of Letter of Credit}, it being a condition of this Irrevocable Letter of
- ------------------------
Credit that it shall be automatically extended for periods of at least one year
from the present and each future expiration date unless, at least sixty (60)
days prior to the relevant expiration date, we notify you, by certified mail,
return receipt requested, that we elect not to extend this Irrevocable Letter of
Credit for any additional period.
This Irrevocable Letter of Credit is transferable at no charge to any transferee
of Landlord upon notice to the undersigned from you and such transferee.
This Irrevocable Letter of Credit is subject to the Uniform Customs and
Practices for Documentary Credits (1983-Rev) International Chamber of Commerce
Publication #400.
Sincerely yours,
{Insert authorized signature}
---------------------------
55
<PAGE>
EXHIBIT 10.5
CONFIDENTIAL TREATMENT
----------------------
ORCHID BIOSCIENCES, INC. HAS REQUESTED THAT THE MARKED PORTIONS OF THIS DOCUMENT
BE ACCORDED 406 CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
Execution Copy
COLLABORATION AGREEMENT
BY AND BETWEEN
ORCHID BIOCOMPUTER, INC.
AND
AFFYMETRIX, INC.
NOVEMBER 05, 1999
<PAGE>
Execution Copy
COLLABORATION AGREEMENT
This COLLABORATION AGREEMENT (this "Agreement"), effective as of
November 5, 1999 (the "Effective Date"), is by and between Orchid Biocomputer,
Inc., a Delaware corporation having a place of business at 303 College Road
East, Princeton, New Jersey 08540 (hereinafter referred to as "ORCHID") and
Affymetrix, Inc., a Delaware corporation having its principal place of business
at 3380 Central Expressway, Santa Clara, California 95051 (hereinafter referred
to as "AFFYMETRIX").
The Parties hereby agree as follows:
1. DEFINITIONS
-----------
As used in this Agreement, the following terms, whether used in the
singular or plural, shall have the following meanings:
1.1 "AFFYMETRIX Collaboration Technology" means any Technology developed
or conceived by employees of or consultants to AFFYMETRIX alone or jointly with
Third Parties, during the Term in the conduct of the Collaboration.
1.2 "Affiliate" of a Party means any corporation or other business entity,
which controls, is controlled by, or is under common control with, a Party. For
purposes of this Section, "control" shall mean direct or indirect ownership of
more than 50% of the voting interest or economic interest in a corporation or
more than 50% of the equity interests in the case of any other entity, or such
other relationship whereby a party controls or has the right to control the
Board of Directors or equivalent governing body of a corporation or other
entity.
1.3 "Approved Instruments" means one or more AFFYMETRIX scanners and
associated instruments and software, as such instrumentation is then
commercially available from AFFYMETRIX.
1.4 "Clinical Use" means any use of a Product as part of the prevention,
diagnosis or treatment of any disease or condition in a patient and all
government (i.e., FDA or equivalent foreign governmental body) regulated
diagnostic uses in which the result is used in treatment of such patient.
1.5 "Collaboration" means the Product research, development and
commercialization program jointly conceived, planned, organized, controlled and
performed by ORCHID and AFFYMETRIX pursuant to this Agreement.
1.6 "Combination Kit" means any Custom Kit that contains Primers more than
50% of which are identical to Primers contained in any part of any Standard Kits
existing at the time of launch of such Custom Kit, or any combination of
Standard Kits existing at the time of launch of such Custom Kit.
1.7 "Collaboration Management Committee" or "CMC" means the committee
defined in Section 2 to aid in the joint collaborative effort to develop and
commercialize Products.
1.8 "Commercial Probe Arrays" means TAG Arrays sold by AFFYMETRIX to Third
Parties in conjunction with (although they may be separately packaged from) an
ORCHID OEM Kit.
1.9 "Confidential Information" means all information and materials,
patentable or otherwise, of a Party and which is disclosed by or on behalf of
such Party (the "Disclosing Party") to the other Party (the "Receiving Party")
or developed, learned or obtained by the Receiving Party in connection with the
Collaboration or otherwise under this Agreement, including, but not limited to,
business, technical or financial information, DNA sequences, vectors, cells
substances, formulations, techniques, methodology, equipment, data,
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reports, know-how, preclinical and clinical trials and the results thereof,
sources of supply, patent positioning and business plans, including any negative
developments, whether or not related to the Collaboration.
1.10 "Contract Year" means any year during the Term of this Agreement
commencing on the Effective Date or any anniversary of the Effective Date and
ending on the anniversary thereof.
1.11 "Control" or "Controlled" means, with respect to any Technology, the
possession by a Party of the ability to grant a license or sublicense of such
Technology as provided herein without violating the terms of any agreement or
arrangement between such Party and any Third Party.
1.12 "Custom Kit" means a kit consisting of certain Reagents, certain
Primers that have been customized by Orchid or Orchid's subcontractors for use
in the Field of Use and an End User License, and shall not include use of or
refer to any use of TAG Arrays other than for genotyping with GBA.
1.13 "Custom Kit Information" means [*]
1.14 "End User" means any Third Party licensed to use a Product pursuant
to an End User License received in connection with the purchase by such Third
Party of a Product.
1.15 "End User License" means a limited non-transferable license in form
and substance as set forth in Schedule 1.15 hereto, granted by ORCHID to End
-------------
Users under ORCHID End User Technology to use only the amount of the material
included in the Product in the Field of Use.
1.16 "Field of Use" means [*]
1.17 "Generic Kit" means a kit consisting of Reagents and an End User
License.
1.18 "Joint Technology" means any Technology (i) developed or conceived by
employees of or consultants to one Party as a result of the use by such Party of
Technology of the other Party or any Joint Technology or (ii) jointly developed
by employees of or consultants to both ORCHID and AFFYMETRIX in the conduct of
the Collaboration.
1.19 "Net Sales" [*]
1.20 "ORCHID End User Technology" means Technology Controlled by ORCHID as
of the Effective Date that is useful to practice the End User License, as listed
or described on Schedule 1.20 attached hereto.
-------------
1.21 "ORCHID OEM Kits" means Standard Kits or Generic Kits.
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[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
<PAGE>
Execution Copy
1.22 "ORCHID Licensed Technology" means Technology Controlled by ORCHID
and its Affiliates as of the Effective Date that is useful in the Field of Use,
as listed or described on Schedule 1.22 attached hereto. ORCHID represents and
-------------
warrants that the items listed on Schedule 1.22 hereto comprise all of the
-------------
ORCHID Licensed Technology as of the Effective Date of this agreement. As of the
Effective Date the Orchid Licensed Technology does not require payment of
royalties to third parties. Orchid and its Affiliates will amend this Schedule
1.22 from time to time to keep it current. ORCHID and its Affiliates warrant
that all Controlled Technology for carrying out the marketing, sale, and other
disposition of Products will be included in the ORCHID Licensed Technology.
1.23 "ORCHID Collaboration Technology" means any Technology developed or
conceived by employees of or consultants to ORCHID alone or jointly with Third
Parties, during the Term in the conduct of the Collaboration.
1.24 "Product" means any of a Standard Kit, a Custom Kit and/or a Generic
Kit.
1.25 "Party" means AFFYMETRIX or ORCHID; "Parties" means AFFYMETRIX and
ORCHID .
1.26 "Primer" means GBA primers [*]
1.27 "Project Director(s)" means the senior scientists for the
Collaboration designated from time to time by AFFYMETRIX and ORCHID.
1.28 "Reagent" means buffers, enzymes and terminators (but not Primers)
useful in GBA.
1.29 "Research Purposes" means the detection and analysis of SNPs in
samples, such definition includes all non-government (i.e., FDA or equivalent
foreign governmental body) regulated diagnostic uses.
1.30 "SNP" means Single Nucleotide Polymorphism.
1.31 "Standard Kit" means a kit consisting of Reagents, CMC Approved
Primers for use in the Field of Use and an End User License.
1.32 "Technology" means and includes all inventions, discoveries,
improvements, trade secrets and proprietary methods and materials, whether or
not patentable, including but not limited to, samples of, methods of production
or use of, and structural and functional information pertaining to, chemical
compounds, proteins or other biological substances; other data; formulations;
techniques; and know-how; including any negative results.
1.33 "GBA" means Genetic Bit Analysis, or single nucleotide primer
extension methods designed to detect the identity of a single nucleotide at a
predetermined location in the DNA of a sample.
1.34 "TAG Array" means a tag array GeneChip probe array. [*]
1.35 "TAG Assay" means any assays for hybridization to a TAG Array.
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COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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1.36 "Term" means the period beginning on the Effective Date and ending on
the fifth anniversary thereof unless otherwise extended or terminated as
provided herein.
1.37 "Specifications" means the specifications for ORCHID OEM Kits
established by the CMC and set forth on Schedule 1.37 attached hereto, as such
-------------
specifications may be amended from time to time by the CMC.
1.38 "Third Party" means any person or entity other than ORCHID and
AFFYMETRIX and their respective Affiliates.
1.39 "Workplan" means any CMC-approved plan for collaborative research and
development of Products to be conducted under this Agreement. The Initial
Workplan is set forth in Schedule 1.39 to this Agreement and shall commence upon
-------------
approval by the newly formed CMC.
2. THE COLLABORATION
------------------
2.1 Purpose.
The purpose of the Collaboration is to develop, manufacture, market and
sell (i) Products, and (ii) software applications for Approved Instruments all
as set forth in Schedule 1.39. The purpose of the Collaboration may be modified
and/or extended upon mutual agreement of the Parties in writing.
2.2 Collaboration Management Committee and General Operations.
(a) CMC. Each Party shall appoint a Project Director who shall serve
---
as such Party's primary liaison with the other Party to discuss technical
matters pertaining to the Collaboration. The Parties shall also establish
the CMC composed of two or more representatives appointed by AFFYMETRIX
and two or more representatives appointed by ORCHID. A Party's
representatives shall serve at the discretion of such Party and may be
replaced at any time by such Party. Each Party, by its representative(s),
shall have one vote on the CMC. The CMC will coordinate the joint
collaborative efforts to achieve the purpose of the Collaboration. The CMC
will have general responsibility for directing both the commercial
development of ORCHID OEM Kits developed and supplied hereunder, and the
research effort of the Collaboration, and for monitoring the work done and
costs incurred pursuant to the Collaboration. In addition, the CMC shall
establish the mechanism and procedures through which each Standard Kit is
approved for, and developed under, the Collaboration; [*] The initial
meeting of the CMC shall occur no later then 30 days after the Effective
Date of this Agreement, and among other things, such initial meeting shall
consist of formal approval of the Initial Workplan (and each of the
parties hereby agrees to cause its representatives on the CMC to vote in
favor of such Initial Workplan, without modification.) The CMC will review
the Workplans for the subsequent Contract Years during the Term of the
Collaboration at least 60 days prior to the start of each subsequent
Contract Year and make any modifications as may be required prior to
granting its approval.
(b) Meetings. During the Collaboration, the CMC shall meet at least
--------
quarterly. The site of CMC meetings shall alternate between the offices of
AFFYMETRIX and ORCHID (or any other site or by teleconference as mutually
agreed upon by the CMC). Whenever any action by the CMC is called for
hereunder during a time period in which the CMC is not scheduled to meet,
a representative of either Party may cause the CMC to take the action in
the requested time period by calling a special meeting or written
agreement to take such by action without a meeting. The proceedings of all
meetings of the CMC shall be summarized in writing and sent to both
Parties. The Party hosting the meeting shall be responsible for the
preparation and circulation of such summaries. Draft summaries shall be
issued in final form only upon approval by the CMC at a subsequent meeting
or as evidenced by the signature of a majority of the representatives of
the CMC. Each Party shall bear all expenses of their respective CMC
representatives related to their participation on the CMC and attendance
at CMC meetings.
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COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
<PAGE>
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(c) Collaboration Operations. The Collaboration shall be conducted
------------------------
at and/or coordinated from the facilities of each Party under the
supervision and direction of its Project Director. Each Party shall be
responsible for the administrative management, fiscal control, and
expenses incurred by it for tasks assigned to it in each Workplan. Each
Party shall assemble a team of scientists, engineers, technical associates
and/or assistants. So long as the Collaboration continues, any Party
performing work under a Workplan that is funded by the other Party shall
periodically (at least quarterly) provide to the other Party written
progress reports summarizing the technical progress of such work, and
associated costs relating to such work. Each Party also shall provide the
other Party through the CMC with additional oral progress reports as
requested from time to time by the other Party.
(d) Generic Kit and Standard Kit Proposals. During the Term,
--------------------------------------
AFFYMETRIX may designate up to [*] Standard Kits that are each
comprised of a standard assay with up to [*], and other components, all of
which are selected by AFFYMETRIX, and the transfer price of such new
Standard Kits. Schedule 1.39 more particularly identifies such kits
-------------
including the markers and transfer price [*] and shall be deemed Standard
Kits that have been approved by the CMC, except that such transfer prices
shall be [*], and the parties shall use all commercially reasonable
efforts to promptly complete development of such kits and the CMC shall
agree on the transfer price. In addition, during the Term of the
Collaboration, either Party may, in its sole discretion, propose that new
Generic Kits or new Standard Kits be developed by the Collaboration by
providing written notice thereof (including the transfer price of each
such kit) to the CMC (such notice being referred to herein as the "New Kit
Notice"), which notice shall include a reasonable description of the
proposed specifications, components and the transfer price of such new
Generic Kit or Standard Kit. If ORCHID is the Party proposing the
development of a new Generic Kit or Standard Kit, and Affymetrix does not,
within sixty (60) days after receipt of such New Kit Notice expressly
agree to co-develop the new Generic Kit or Standard Kit described therein,
then ORCHID may pursue development of the new Generic Kit or Standard Kit
independently of AFFYMETRIX (provided that no express or implied license
to AFFYMETRIX intellectual property is conveyed thereby.) If AFFYMETRIX is
the Party proposing the development of a new Generic Kit or a new Standard
Kit, and Orchid does not, within sixty (60) days after receipt of such New
Kit Notice expressly agree to co-develop the new Generic Kit or new
Standard Kit described therein, then AFFYMETRIX may pursue development of
the new Generic Kit or new Standard Kit independently of ORCHID,and the
licenses granted to AFFYMETRIX under Section 3.1 (and Section 4.1(b))
shall include the right to directly and indirectly develop, make, use,
market, sell and distribute such kits. In such case, AFFYMETRIX shall pay
ORCHID a royalty of [*] of Net Sales of such kit unless the Parties agree
in writing to a lower rate; provided, that [*] provided that reductions
shall roll forward, if necessary, so that payments to ORCHID are not
reduced to less than [*] of what they would have been in the absence of
this provision.
(e) Custom Kits. ORCHID shall provide AFFYMETRIX with quarterly
-----------
written reports containing Custom Kit Information relating to Custom Kits
sold by ORCHID; subject, in each case, to any confidentiality obligations
of ORCHID to such customers of such Custom Kits. Either Party will be free
to use it to promote the sale of other products or services with such
information.
(i) Royalties on Combination Kits. ORCHID shall pay to
-----------------------------
AFFYMETRIX a per kit royalty on ORCHID's Net Sales of Combination
Kits equal to [*] of Net Sales of each Combination Kit, reduced by
the fraction:
[*]
(ii) Conversion of Custom Kits to Standard Kits. ORCHID agrees
------------------------------------------
that, at AFFYMETRIX's option upon written notice to ORCHID at any
time after the Conversion Date (as defined below), any Custom Kit
sold to a given customer or group of customers for which sales in
any Contract Year
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COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
<PAGE>
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exceeds [*] will, effective the first day of the first
calendar quarter following the Contract Year in which such event
occurred (the "Conversion Date") become a Standard Kit (each, a
"Converted Kit"); provided that, the Parties hereby agree that (i)
-------------
under no circumstances shall a Custom Kit convert to a Converted Kit
if such conversion would violate the terms of the applicable
agreement between ORCHID and such customer or customers or if such
Custom Kit contains primers for the analysis of SNPs that are owned
either by such customer or owned by ORCHID but limited to use by
such customer, and are subject to restrictions on use by third
parties (provided, however, ORCHID shall use commercially reasonable
efforts to ensure that any primers contained in such Custom Kits are
free of restrictions on use), and (ii) Custom Kits shall convert to
Converted Kits on an individual basis, with reference to the
Specifications of such Custom Kit. If, with respect to a Converted
Kit, the CMC concludes that at the Conversion Date ORCHID has not
recovered the [*] incurred by ORCHID in developing such Custom Kit,
then the CMC may require AFFYMETRIX to pay a conversion fee in an
amount not to exceed [*]) in an amount and payment schedule
determined by the CMC. ORCHID may until the end of the sixth month
following immediately after the Conversion Date sell its inventory
of Converted Kits. Thereafter, ORCHID will cease all distribution
activities relating to such Converted Kit, and shall transfer all
remaining inventory of Converted Kits to AFFYMETRIX at the transfer
price established for such Converted Kit by the CMC. Once a
conversion occurs, the parties will negotiate reasonable commercial
performance standards for AFFYMETRIX's sales of Converted Kits.
(iii) Standard Kits Analyte Specific Reagents Status. Within
----------------------------------------------
180 days after commercial release of each Standard Kit, but not
before nine month anniversary of the Effective Date, ORCHID will use
all commercially reasonable efforts to ensure that each Standard Kit
shall be manufactured as an analyte specific reagent in accordance
with 21 CFR 864. In addition, ORCHID will use all commercially
reasonable efforts to take all steps necessary or desirable to
ensure that the Standard Kits manufactured and sold hereunder meet
other applicable standards, such as ISO 9000, as soon as
practicable.
2.3 Specific Development Duties.
(a) Development Obligations. The Parties shall use commercially reasonable
-----------------------
efforts to fulfill their respective obligations as set forth in each Workplan in
accordance with the time schedules set forth therein. AFFYMETRIX and ORCHID
agree to work cooperatively and expeditiously to make such modifications to the
design of Products as may be required to reduce total costs and/or improve
Product performance. Notwithstanding the foregoing, it is hereby agreed that
ORCHID shall have sole responsibility for the development of Custom Kits. With
respect to the Initial Workplan, ORCHID shall be responsible for over-all ORCHID
OEM Kit development, including, assay development and optimization,
amplification technology development, and regulatory approval, as the CMC
determines to be appropriate. Specifically ORCHID shall (1) develop generic and
standard TAG Assays with consultation from Affymetrix, (2) provide AFFYMETRIX
the GBA specific analysis algorithms as set forth in Schedule 1.39, and (3)
assist AFFYMETRIX in integrating the foregoing into the AFFYMETRIX Approved
Instrument systems. With respect to the Initial Workplan, AFFYMETRIX shall be
responsible for TAG Array design and production and Approved Instrument software
integration and analysis.
(b) Development Costs of ORCHID OEM Kits, Custom Kits and Certain Standard
----------------------------------------------------------------------
Kits. As between the Parties, (i) ORCHID shall be responsible for all
- ----
development costs and expenses associated with the development of the ORCHID
Generic Kits (exclusive of any internal development costs and expenses incurred
by AFFYMETRIX), (ii) the Parties shall share all development costs and expenses
associated with the development of Standard Kits for which development has been
approved by the CMC in the manner and proportion agreed upon by the CMC and
(iii) AFFYMETRIX shall be responsible for all of its own development costs and
expenses associated with the development of the software for the ORCHID OEM
Kits. With respect to any Kit developed pursuant to Section 2.2(d), the Party
developing such Standard Kit shall be solely responsible for all costs and
expenses associated with developing such Standard Kit.
(c) Training. ORCHID will provide AFFYMETRIX reasonable training in the
--------
use of ORCHID OEM Kits at ORCHID's facility in Princeton, New Jersey. It is
anticipated that such training will take place over approximately a two- week
period and will involve two scientists from AFFYMETRIX and 2 scientists from
ORCHID. AFFYMETRIX will provide ORCHID reasonable training in the use of its TAG
Arrays at AFFYMETRIX's facility in Santa Clara, California. It is anticipated
that such training will take place over
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approximately a two-week period and will involve 2 scientists from ORCHID and
two scientists from AFFYMETRIX
(d) Use of Instruments and TAG Arrays During Development. During
----------------------------------------------------
development of an ORCHID OEM Kit pursuant to a Workplan, ORCHID may purchase TAG
Arrays and Approved Instruments from AFFYMETRIX; provided, that any TAG Arrays
purchased from AFFYMETRIX may be used only to perform internally (without the
assistance of Third Party unless AFFYMETRIX gives its prior written agreement)
the development activities expressly described in the Workplan, and for no other
purpose. AFFYMETRIX agrees to sell such items to ORCHID at the list prices set
forth in Schedule 2.3(d). All payments due hereunder to AFFYMETRIX shall be paid
to AFFYMETRIX within thirty (30) days following of the date of the applicable
AFFYMETRIX invoice.
3. DISTRIBUTION AND MARKETING
--------------------------
3.1 Marketing Rights and Responsibilities.
(a) ORCHID OEM Kit License Grants. ORCHID hereby grants AFFYMETRIX, under
-----------------------------
the ORCHID Licensed Technology and upon the terms and subject to the conditions
specified herein, an exclusive, non-transferable, worldwide, royalty-free right
and license to (a) use ORCHID OEM Kits internally for research and development
purposes, and (b) directly and indirectly offer for sale, market, distribute,
demonstrate and sell ORCHID OEM Kits.
(b) ORCHID Information License Grant. ORCHID hereby grants AFFYMETRIX
--------------------------------
under ORCHID's intellectual property rights, and upon the terms and subject to
the conditions specified herein, an exclusive, non-transferable, worldwide,
royalty-free right and license to use, reproduce and modify information and
materials provided by ORCHID to create marketing and related sales materials for
the Orchid OEM Kits, and to directly and indirectly distribute such information
and materials (whether in modified or unmodified form) to third parties.
(c) The transfer price for ORCHID OEM Kits developed under the Initial
Workplan and to be paid by AFFYMETRIX to ORCHID is set forth in Schedule 2.3(d)
---------------
attached hereto, which transfer price may be reviewed every Contract Year during
the Term by ORCHID upon sixty (60) days written notice to AFFYMETRIX. The
transfer price to be paid to ORCHID by AFFYMETRIX for ORCHID OEM Kits developed
under other Workplans shall be established and set forth in such Workplans.
AFFYMETRIX may from time to time request a discount for ORCHID OEM Kits with
respect to large volume customers or other special situations and the Parties
shall negotiate any such discount in good faith. AFFYMETRIX shall assume the
risk of payment from purchasers of ORCHID OEM Kits and AFFYMETRIX shall be free
to determine the price at which it resells ORCHID OEM Kits to such purchasers.
In the event AFFYMETRIX sells an ORCHID OEM Kit for more than [*] then
AFFYMETRIX agrees to pay ORCHID an amount equal to [*] provided, however, that
if AFFYMETRIX sells an ORCHID OEM Kit for more [*], then AFFYMETRIX agrees to
pay ORCHID an additional amount equal to [*] No employee or representative of
ORCHID shall have any authority to dictate to AFFYMETRIX or its dealers the
resale prices for ORCHID OEM Kits or in any way to inhibit their pricing
discretion with respect to ORCHID OEM Kits; provided, that, AFFYMETRIX shall
-------- ----
remain liable and responsible for the performance and observance of all of its
authorized dealer's duties and obligations in accordance with the terms of this
Agreement. AFFYMETRIX shall have responsibility for marketing and providing
support directly to customers for ORCHID OEM Kits.
(i) During the Term of this Agreement, AFFYMETRIX shall obtain
ORCHID OEM Kits exclusively from ORCHID and may not and therefore shall
not manufacture ORCHID OEM Kits except as otherwise permitted by this
Agreement.
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(ii) The Parties hereby acknowledge and agree that all sales of
ORCHID OEM Kits to AFFYMETRIX shall be controlled by the terms contained
in this Agreement and the terms and conditions of the respective business
forms of the Parties shall not form part of this Agreement.
(d) Minimum Sales Amounts. The CMC will establish minimum sales amounts
---------------------
for ORCHID OEM Kits at least thirty (30) days prior to the end of each Contract
Year during the Term for the following Contact Year, which minimum sales shall
be included in the Initial Workplan and in each subsequent Workplan approved by
the CMC. If AFFYMETRIX does not achieve established minimum sales amounts for
two consecutive calendar quarters, then ORCHID, in its sole discretion, may
convert the exclusive license granted pursuant to section 3.1(a) to a
non-exclusive license with respect to that certain ORCHID OEM Kit. AFFYMETRIX
may terminate its exclusive license or convert said licenses to a non-exclusive
license at any time. In the event that the license is converted to a
non-exclusive license pursuant to this section, AFFYMETRIX's minimum sales
requirements for such ORCHID OEM Kit will no longer apply.
(e) Marketing and Distribution of Custom Kits. Except as otherwise
-----------------------------------------
described in this Agreement, ORCHID shall be solely responsible for
manufacturing, marketing and distributing Custom Kits to customers throughout
the world.
(f) Customer Ordering Procedure; Website. ORCHID may provide a website for
------------------------------------
customers to order Custom Kits. If customer indicates on such website that
customer desires to purchase an ORCHID OEM Kit, ORCHID shall transfer such
customer to AFFYMETRIX's designated website through a hyperlink in the manner
requested by AFFYMETRIX and to the location within AFFYMETRIX's website
designated by AFFYMETRIX. If a customer indicates that it desires to purchase a
Custom Kit, and ORCHID desires to sell such customer a Custom Kit, ORCHID shall
within 5 days of receipt of such order provide to AFFYMETRIX all Custom Kit
Information related to such customer's purchase (including, but not limited to
projected delivery dates) to enable AFFYMETRIX to coordinate sale of applicable
AFFYMETRIX products to such customer. At such time, ORCHID shall provide
AFFYMETRIX with the complete written specifications of such Custom Kit, subject
in each such case to any confidentiality obligation ORCHID may have to any Third
Party (and provided that ORCHID shall use commercially reasonable efforts to
minimize such obligations), which information AFFYMETRIX may use to determine
appropriate instrumentation and to promote the sale of other AFFYMETRIX
products. To the extent that such information is Confidential Information of
ORCHID, AFFYMETRIX shall not disclose such information to any third party. In
addition, to assist AFFYMETRIX with its marketing efforts with respect to the
Custom Kits, ORCHID shall on a regular basis (at least once each calendar
quarter) provide AFFYMETRIX with current marketing and sales information
relating to the Custom Kits, which may include research, analysis, customer and
distribution information and competitive analysis, to the extent not subject to
confidentiality obligations to Third Parties. All such materials shall remain
the property of ORCHID. AFFYMETRIX also shall be responsible for distributing
and selling the TAG Arrays and Approved Instruments identified in Schedule 1.39
as required for use of such Custom Kits to purchasers of Custom Kits, provided
that such customers order and pay for such items according to AFFYMETRIX's
standard terms and conditions therefor.
(g) Joint Marketing Activities. Through the CMC, the Parties shall
--------------------------
coordinate all marketing and promotion of Products and tag arrays distributed by
the respective Parties to potential customers of SNP analysis products.
3.2 Product Maintenance and Support.
-------------------------------
(a) Generic Kit and Standard Kit. The CMC shall determine the specific
----------------------------
mechanics of providing maintenance and support for the products marketed and
distributed pursuant to this Agreement. However, AFFYMETRIX shall be generally
responsible for front-line customer support for all Products except the Custom
Kits, and ORCHID shall provide backline support, as and when requested by
AFFYMETRIX, for ORCHID OEM Kits. Specifically, ORCHID shall provide such support
directly to one or more designated support managers of AFFYMETRIX. With respect
to ORCHID OEM Kits, ORCHID shall provide support and maintenance services to
AFFYMETRIX as further specified by and consistent with the level of support
provided by AFFYMETRIX with respect to AFFYMETRIX instruments, and there shall
be no fee to ORCHID (other than the transfer price for the kits) for rendering
such support.
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(b) Custom Kits. ORCHID shall have responsibility for marketing and
-----------
supporting Custom Kits. ORCHID shall use commercially reasonable efforts to
market (including, without limitation, inclusion of the Custom Kits in ORCHID's
catalogs and other promotional materials), distribute and support the Custom
Kits (including installation, training, and agrees to provide reasonable support
for customers and AFFYMETRIX as reasonably requested by AFFYMETRIX), and shall
use commercially reasonable efforts to meet market demands for Custom Kits, and
to provide support for Custom Kits. However, AFFYMETRIX shall provide backline
support, as and when requested by ORCHID for AFFYMETRIX instruments and tag
arrays used by purchasers of Custom Kits. Specifically, AFFYMETRIX shall provide
such support directly to one or more designated support managers of ORCHID
consistent with the level of support provided by AFFYMETRIX with respect to
AFFYMETRIX Approved instruments and Tag Arrays, and there shall be no fee to
AFFYMETRIX for rendering such support. If at any time during the Term of this
Agreement, ORCHID elects to discontinue or transfer to a third party the
manufacture, sale or marketing any Custom Kit pursuant to this Agreement, ORCHID
shall notify AFFYMETRIX in writing, and AFFYMETRIX shall have 30 days to advise
ORCHID of its interest in manufacturing and/or distributing and selling such
Custom Kit during the Term. If AFFYMETRIX advises ORCHID of its interest, then
the Parties shall negotiate for 60 days in good faith to determine the
appropriate royalty or other fee (if any) that AFFYMETRIX shall pay to ORCHID.
If the parties cannot reach agreement within such period, then ORCHID may
discontinue manufacture and sale of such Custom Kit or transfer such kit to a
third party, provided that if ORCHID elects to transfer such kit to a third
party, the royalty or other fees paid by such third party must be higher than
the royalty or other fees last offered by AFFYMETRIX.
(c) Reports. Each Party shall provide the other Party with such
-------
information about their respective products and services as is reasonably
necessary to support the development and marketing of technical support
materials, and the training of technical support personnel for ORCHID OEM Kits.
(d) Rights to Sell Kits. ORCHID represents, warrants and covenants that the
restrictions set forth in the Security Agreement dated September 11, 1998 by and
among ORCHID and GeneScreen, Inc. ("GeneScreen Security Interest") are the only
restrictions imposed on ORCHID with respect to the manufacture, use,
distribution, modification or sale by AFFYMETRIX or use by AFFYMETRIX's end
users of ORCHID OEM Kits or the Custom Kits. In the event that the obligations
of ORCHID with respect to any such restriction is reduced, ORCHID shall promptly
notify AFFYMETRIX, and promptly provide AFFYMETRIX with any information
requested by AFFYMETRIX with respect to such restriction. If Orchid believes
that it needs to access third party intellectual property in order to avoid
encumbering its ability to sell Orchid OEM Kits to AFFYMETRIX, it will discuss
this with the CMC. If no CMC agreement is reached within 30 days, then Orchid
can enter into a license at its discretion, provided that Affymetrix's rights
under this agreement will not be limited by such license.
(d) Rights to Sell Kits. ORCHID represents, warrants and covenants that
-------------------
the restrictions set forth in the [*] are the only restrictions imposed on
ORCHID with respect to the manufacture, use, distribution, modification or sale
by AFFYMETRIX or use by AFFYMETRIX's end users of ORCHID OEM Kits or the Custom
Kits. In the event that the obligations of ORCHID with respect to any such
restriction is reduced, ORCHID shall promptly notify AFFYMETRIX, and promptly
provide AFFYMETRIX with any information requested by AFFYMETRIX with respect to
such restriction. If Orchid believes that it needs to access third party
intellectual property in order to avoid encumbering its ability to sell Orchid
OEM Kits to AFFYMETRIX, it will discuss this with the CMC. If no CMC agreement
is reached within 30 days, then Orchid can enter into a license at its
discretion, provided that Affymetrix's rights under this agreement will not be
limited by such license.
[*]
4. MANUFACTURING
-------------
4.1 Forecast and Supply.
-------------------
(a) Forecasts. At the end of each calendar quarter during the term of this
---------
agreement, AFFYMETRIX shall submit to ORCHID a [*] month rolling
forecast of its then current estimates of its requirements of ORCHID OEM Kits.
AFFYMETRIX's forecasts shall reflect its good-faith expectations of customer
demand and AFFYMETRIX shall act in a commercially reasonable manner to schedule
orders to avoid creating production capacity problems for ORCHID. At the end of
each calendar quarter during the Term of this Agreement, ORCHID shall submit to
AFFYMETRIX a [*] month rolling forecast of its then current estimates of
sales of Custom Kit, which forecast shall be delineated by prospective customer,
so as to permit AFFYMETRIX to validate such customers and reasonably anticipate
the quantities of AFFYMETRIX products that
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AFFYMETRIX may make available that are associated with such Custom Kit. ORCHID's
forecasts shall reflect its good-faith expectations of customer demand.
(b) Supply. ORCHID shall supply ORCHID OEM Kits to AFFYMETRIX in
------
accordance with the purchase orders submitted to ORCHID by AFFYMETRIX, including
the delivery schedules specified therein; provided, that ORCHID shall not be
required to fill any purchase orders from AFFYMETRIX requesting a delivery date
earlier than [*] after receipt of such orders by ORCHID. ORCHID will maintain
adequate production capacity to ensure delivery of ORCHID OEM Kits in accordance
with such purchase orders and shall ensure that ORCHID OEM Kits meet the
Specifications set by the CMC. ORCHID hereby grants AFFYMETRIX a, worldwide,
non-transferable, non-exclusive license under ORCHID Licensed Technology, to,
(1) develop Generic Kits and Standard Kits as authorized in Section 2.2(d), (2)
make, have made, and use (which use includes the right to modify) Orchid OEM
Kits and (3) distribute, market and sell such ORCHID OEM Kits ("OEM License")
pursuant to the license granted to AFFYMETRIX as set forth in Section 3.1 (a).
AFFYMETRIX agrees to forbear from the use and exercise of the OEM License unless
and until ORCHID fails to fill any purchase order within [*] after receipt of
such order, ORCHID has otherwise breached this Agreement, or ORCHID sells
substantially all of ORCHID's business that relates to the subject matter of
this Agreement to a third party which Affymetrix believes in good faith
materially competes with Affymetrix, or which Affymetrix believes in good faith
could not or would not satisfy its obligation hereunder. If AFFYMETRIX' use and
exercise of the OEM License is caused by ORCHID'S failure to fill a purchase
order (and no other reason), AFFYMETRIX' forbearance shall be reinstated once
ORCHID demonstrates to the reasonable satisfaction of AFFYMETRIX (which shall
not be unreasonably withheld) that ORCHID is again able to fill purchase orders
within the time limits set forth in Section 4.1. During the time that AFFYMETRIX
is not forbearing from use and exercise of the OEM License, ORCHID shall provide
promptly (at no charge) to AFFYMETRIX or an approved third party designated by
AFFYMETRIX, all technical assistance and information as reasonably required to
enable AFFYMETRIX, or said third party, to supply OEM Kits as set forth in this
Section. During the time that AFFYMETRIX is not forbearing from use and exercise
of the OEM License, AFFYMETRIX will pay ORCHID a royalty of [*] of Net Sales of
ORCHID OEM Kits which fall under the new OEM License (which royalty shall be
subject to reduction in the manner and scope described in Section 2.2(d)) unless
the Parties agree in writing to a lower rate; provided, further, however, that
if AFFYMETRIX'S use and exercise of the OEM License is caused by ORCHID'S
failure to fill a purchase order (and no other reason), and ORCHID resumes
manufacture of ORCHID OEM Kits under this Section, then the transfer price paid
by AFFYMETRIX for such ORCHID OEM Kits shall be reduced by [*] until such time
as AFFYMETRIX has recovered an amount equal to any costs and expenses incurred
to exercise the OEM License (including any royalties paid under this Section.)
(c) Packaging; Delivery. The ORCHID OEM Kits delivered hereunder shall be
-------------------
packaged as set forth in Schedule 4.1(c), with the names and logos of both
Parties prominently displayed on each package. ORCHID shall pack such items in
standard shipping containers in the manner requested by AFFYMETRIX. ORCHID shall
assist AFFYMETRIX in obtaining any desired insurance (in amounts that AFFYMETRIX
shall determine) and transportation, via air freight unless otherwise specified
in writing, to any destinations specified in writing from time to time by
AFFYMETRIX. [*]
(d) Payment. ORCHID shall invoice AFFYMETRIX for all ORCHID OEM Kits on or
-------
after the date specified for delivery in AFFYMETRIX's purchase order for such
items. AFFYMETRIX shall pay all amounts specified in such invoice not later than
thirty (30) days following the date of such invoice. Any undisputed amounts not
paid when due under this Agreement shall be subject to a late fee equal to [*]
of the outstanding amount or the maximum rate permitted by law, whichever is
less.
(e) Audit. In keeping with established bookkeeping and accounting
-----
practices, each Party shall maintain, for a period of [*] following
the end of the Contract Year, complete and accurate books and records fully
adequate to confirm the accuracy of the royalties, fees or commissions paid and
payable under this Agreement. Each of the Parties shall have the right, [*] per
calendar year, or more frequently if an examination determines that there has
been an underpayment of more than [*], during regular business hours and upon
[*] prior written notice, to have its independent auditors make such
examination as necessary to
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verify said records and books of account. In the event that such examination
reveals an underpayment of royalties, fees or commissions payable hereunder, all
such additional royalties, fees or commissions, as the case may be, together
with interest from the date when such additional royalties, fees or commissions
would have been due shall be paid within thirty (30) days of written notice from
the auditing party of such discrepancy. Any such audit shall be at the auditing
Party's sole expense and performed by a nationally recognized, "Big Five"
accounting firm under reasonable obligations of confidentiality. In the event
that an underpayment of more than [*] is discovered, then audited Party will
reimburse the auditing Party's reasonable costs of the audit.
4.2 Acceptance/Rejection of Deliverables.
------------------------------------
(a) Testing. AFFYMETRIX shall , in conjunction with the CMC, develop
-------
processes for evaluation and testing of ORCHID OEM Kits to be delivered
hereunder. Such processes may from time to time be reflected or incorporated in
the applicable Specifications for ORCHID OEM Kits. Orchid shall provide
certificates of analysis certifying completion of said testing and indicating
parameters defined by the CMC.
(b) Acceptance Procedure; Inventory Carry. Upon delivery of any shipment
-------------------------------------
of ORCHID OEM Kits to AFFYMETRIX, AFFYMETRIX shall promptly inspect the same and
shall notify ORCHID in writing no later than [*] after receipt of each such
shipment if any such shipment is found, on reasonable inspection, to be short
against order or fails to conform to the Specifications during said [*] period.
AFFYMETRIX may reject any portion of any shipment of ORCHID OEM Kits that does
not fully conform with the Specifications. If any shipment or portion thereof is
rejected by AFFYMETRIX, ORCHID shall use diligent efforts, at AFFYMETRIX's
request, to provide replacement ORCHID OEM Kits to AFFYMETRIX or to correct any
defects in such shipment as may be reasonably requested by AFFYMETRIX. Unless
ORCHID requests the return of a rejected shipment within [*] of receipt of
AFFYMETRIX's notice of rejection, AFFYMETRIX shall destroy such shipment
promptly and provide ORCHID with a certification of such destruction. To ensure
that the Parties can supply all third party requirements with accepted ORCHID
OEM Kits, ORCHID shall at all times maintain an inventory of ORCHID OEM Kits
that is equal to at least [*] of the quantities of such products sold during the
preceding calendar quarter; if no quantities of a product have been sold in the
preceding calendar quarter, the ORCHID shall maintain an inventory level equal
to at least [*] of AFFYMETRIX's forecasted quantities of such product for the
current calendar quarter. In addition, AFFYMETRIX may upon ninety (90) days'
prior notice to ORCHID elect to terminate AFFYMETRIX's obligations to purchase,
and ORCHID's obligations to supply, any such inventoried product. Any ORCHID OEM
Kit that does not meet all of the quality control and quality assurance
requirements, and any ORCHID OEM Kit that does not conform to Specifications as
set forth in this Agreement, shall not be considered delivered.
4.3 Governmental Approval.
---------------------
(a) The Parties agree to ascertain and comply with all applicable laws and
regulations and standards of industry or professional conduct in connection with
the use, distribution or promotion of Products, including without limitation,
those applicable to exportation, importation, product claims, labeling,
approvals, registrations and notifications. In addition, ORCHID agrees to obtain
AFFYMETRIX's prior written consent to all claims, labels, instructions,
packaging or the like for ORCHID OEM Kits, which consent shall not be
unreasonably withheld.
(b) The Parties agree to keep (and make reasonably available for the other
party's use and copying) for five years after termination of this Agreement (or
longer if required by applicable law) records of all Product sales and customers
sufficient to adequately administer a recall of any Products and to cooperate
fully in any decision by the Parties to recall, retrieve and/or replace any such
Products.
5. OWNERSHIP; LICENSES
-------------------
5.1 OWNERSHIP. Subject to Section 5.2 of this Agreement, ORCHID shall have
---------
sole and exclusive ownership of all right, title and interest in and to all
ORCHID Collaboration Technology. AFFYMETRIX shall have sole and exclusive
ownership of all right, title and interest in and to all AFFYMETRIX
Collaboration
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Technology. ORCHID and AFFYMETRIX shall each own an undivided one-half interest
(without an obligation of accounting) in all Joint Technology.
5.2 CERTAIN IMPROVEMENTS. Notwithstanding the foregoing, (a) if ORCHID
--------------------
creates, invents or otherwise develops any improvements to TAG Assays (each a
"TAG Improvement"), then (i) ORCHID shall (and hereby does) assign and transfer
to AFFYMETRIX all right, title and interest in and to such TAG Improvement, and
all related intellectual property rights Controlled by ORCHID related thereto,
(ii) AFFYMETRIX shall (A) grant to ORCHID a non-exclusive, non-transferable,
royalty-free license to exploit such TAG Improvement for ORCHID's internal use,
and (B) shall include internal use rights to use such TAG Improvement within the
licenses granted to Product customers, and (iii) to the extent that AFFYMETRIX
grants any Third Party a license to exploit the TAG Improvements, AFFYMETRIX
shall pay ORCHID a royalty of [*] of the Net Sales (which royalty shall be
subject to reduction in the manner and scope described in Section 2.2(d))
received by AFFYMETRIX from (and only from) use of such TAG Improvements until
ORCHID has received an aggregate of [*], at which time no further royalties or
other fees shall be due or owing ORCHID in respect of such TAG Improvement; and
(b) if AFFYMETRIX creates, invents or otherwise develops any improvements to GBA
(each a "GBA Improvement"), then (i) AFFYMETRIX shall (and hereby does) assign
and transfer to ORCHID all right, title and interest in and to such GBA
Improvement, and all related intellectual property rights Controlled by
AFFYMETRIX related thereto, (ii) ORCHID shall (A) grant to AFFYMETRIX a non-
exclusive, non-transferable, royalty-free license to exploit such GBA
Improvement for AFFYMETRIX's internal use and (B) shall include internal use
rights to use such GBA Improvements within the licenses granted to Product
customers, and (iii) to the extent that ORCHID grants any Third Party a license
to exploit the GBA Improvements, ORCHID shall pay AFFYMETRIX a royalty of [*] of
the Net Sales (which royalty shall be subject to reduction in the manner and
scope described in Section 2.2(d)) received by ORCHID from (and only from) use
of such GBA Improvements until AFFYMETRIX has received an aggregate of [*], at
which time no further royalties or other fees shall be due or owing AFFYMETRIX
in respect of such GBA Improvement. This Section 5 does not (by implication or
otherwise) extend to either party any license to any other intellectual property
or technology such as any underlying technology in any TAG Improvement or GBA
Improvement. Notwithstanding anything to the contrary, neither party shall have
any rights, licenses or obligations, whether express or implied, except as
expressly set forth in this Agreement.
6. CONFIDENTIAL INFORMATION
------------------------
6.1 CONFIDENTIALITY. ORCHID and AFFYMETRIX each recognize that the other
---------------
party's Confidential Information constitutes highly valuable and proprietary
confidential information. ORCHID and AFFYMETRIX each agree that during the Term
of the Collaboration and for [*] thereafter, it will keep confidential, and will
cause its employees, consultants, Affiliates and licensees and sublicensees to
keep confidential, and shall not transfer to any Third Party, any Confidential
Information of the other Party that is disclosed or transferred to it, or to any
of its employees, consultants, Affiliates and licensees and sublicensees,
pursuant to or in connection with this Agreement, except to the extent that
disclosure, or transfer, is reasonably required in accordance with the
performance of this Agreement. Each Receiving Party's nondisclosure obligation
shall not apply to information that is (i) known to the Receiving Party at the
time of disclosure thereof (as shown by written documentation); (ii) at the time
of disclosure, or thereafter, is generally publicly available without the fault
of the Receiving Party; (iii) subsequently disclosed to the Receiving Party, its
employees, or other duly designated representatives, by any Third Party not
under a secrecy obligation to the Disclosing Party; (iv) independently developed
by the Receiving Party without reference to Confidential Information of the
Disclosing Party; (v) required, by law, regulation or action of any governmental
agency or authority, to be disclosed; or (vi) disclosed by the Receiving Party
with the prior written consent of the Disclosing Party.
6.2 NON-DISCLOSURE. ORCHID and AFFYMETRIX each agree that any disclosure
--------------
of the Confidential Information to any of its officers, employees, consultants
or agents or of any of its Affiliates and licensees and sublicensees shall be
made only if and to the extent necessary to carry out its rights and
responsibilities under this Agreement, shall be limited to the maximum extent
possible consistent with such rights and responsibilities and shall only be made
to persons who are bound by written confidentiality obligations to maintain the
confidentiality thereof and not to use such Confidential Information except as
expressly permitted by this Agreement. Each Party shall take such action, and
shall cause its Affiliates and licensees and sublicensees to take
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such action, to preserve the confidentiality of each other's Confidential
Information as it would customarily take to preserve the confidentiality of its
own Confidential Information, and in no event, less than reasonable care.
6.3 EMPLOYEES AND CONSULTANTS. ORCHID and AFFYMETRIX each represent that
-------------------------
all of its employees and the employees of its Affiliates, and any consultants to
such party or its Affiliates, participating in the Collaboration's activities
who shall have access to Confidential Information of the other Party are bound
by written obligations to maintain such information in confidence and not to use
such information except as expressly permitted herein. Each Party agrees to
enforce confidentiality obligations to which its employees and consultants (and
those of its Affiliates) are obligated.
6.4 PUBLICITY. Neither Party shall disclose the existence or the terms or
---------
conditions of this Agreement without the express prior written consent of the
other Party, and then only pursuant to the terms authorized by such other Party;
provided, however, that either Party may make such a disclosure to the extent
required by law or by the requirements of any nationally recognized securities
exchange, quotation system or over-the-counter market on which such Party has
its securities listed or traded. The Parties, upon the execution of this
Agreement, will agree to a news release with respect to the Collaboration for
publication in general circulation and industry periodicals. Once any written
statement is approved for disclosure by both Parties, either Party may make
subsequent public disclosure of the contents of such statement without the
further approval of the other Party.
7. TERM AND TERMINATION
--------------------
7.1 TERM. Unless earlier terminated in accordance with the provisions of
----
Section 7.2 or Section 7.3, this Agreement shall remain in effect during the
Term of this Agreement. This Agreement will renew for additional terms of one
(1) year each upon notice by either Party to the other in writing at least
ninety (90) days prior to the expiration of the Term or any extension thereof
that it wishes to renew this Agreement.
7.2 TERMINATION FOR BREACH. Each Party shall be entitled (but not
----------------------
required) to terminate this Agreement by written notice to the other Party in
the event that the other Party shall be in default of any of its obligations
hereunder or if the other Party shall have breached a covenant, representation
or warranty made in this Agreement, and shall fail to remedy any such default
within thirty (30) days of receipt of notice in the case of a breach of any
payment term of this Agreement and sixty (60) days in the case of any other
breach.
7.3 TERMINATION FOR INSOLVENCY. The Agreement may be terminated by a Party
--------------------------
for cause immediately upon the occurrence of any of the following events: (a) If
the other Party ceases to do business, or otherwise terminates it business
operations; or (b) the other Party shall seek protection under any bankruptcy,
receivership, trust deed, creditors arrangement, composition or comparable
proceeding, or if any such proceeding is instituted against the other. All
rights and licenses granted under this Agreement are deemed to be, for purposes
of 365(n) of the United States Bankruptcy Code, license or rights to
"intellectual property" as defined by Section 101(56) of the United States
Bankruptcy Code and the parties will retain any may fully exercise all of their
rights and licenses under this Agreement, including the right to make or have
made, sell or have sold Products. The parties agree to relief from automatic
stay provisions under Section 362 of the Bankruptcy Code.
7.4 EFFECT OF TERMINATION. Upon any termination or expiration of this
---------------------
Agreement, neither Party shall be relieved of any obligations incurred prior to
such termination. Notwithstanding any termination or expiration of this
Agreement, the rights and obligations of the Parties under Sections 4.1(e), 5,
6, 7, 8, 10 and 11 shall survive and continue to be enforceable. Upon any
termination of this Agreement, each Party shall promptly return to the other
Party all written Confidential Information, and all copies thereof, of the
other, except for one copy thereof that may be retained by a Party's legal
department for archival purposes or to exercise rights described above that
survive termination. Neither Party shall incur any liability or compensation
obligation whatsoever for any damage (including, without limitation, damage to
or loss of goodwill or investment), loss or expenses of any kind suffered or
incurred by the other (or for any compensation to the other) arising from or
incident to any termination of this Agreement by such Party that complies with
the terms of the Agreement whether or not such Party is aware of any such
damage, loss or expenses.
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8. INDEMNIFICATION AND INSURANCE
-----------------------------
8.1 ORCHID INDEMNITY. ORCHID agrees to defend AFFYMETRIX and its
----------------
Affiliates, their agents, directors, officers and employees ("AFFYMETRIX
Indemnitees"), at ORCHID's cost and expense, and will indemnify and hold
harmless AFFYMETRIX Indemnitees from and against any and all losses, liability,
damages, costs and expenses (including, but not limited to attorneys' fees and
expenses (collectively, "Claims") (except in cases where such Claims result from
a material breach of this Agreement or willful misconduct on the part of
AFFYMETRIX) arising from or relating to (1) any alleged infringement by
AFFYMETRIX [or its customers] of any Third Party intellectual property or
proprietary rights solely attributable to AFFYMETRIX's sale or customer's use as
intended, of all or any part of the ORCHID OEM Kits or Custom Kits (including
but not limited to Reagents) or (2) any recall of any ORCHID OEM Kits or (3)
ORCHID's breach of any representation or warranty of ORCHID set forth in this
Agreement or (4) any other materials supplied by ORCHID hereunder, or (5) death
or any injury to any person or damage to property as a result of the possession
or use of any ORCHID OEM Kits or Custom Kits.
8.2 AFFYMETRIX INDEMNITY. Subject to the obligations of ORCHID set forth
--------------------
in 8.1 above, AFFYMETRIX agrees to defend ORCHID and its Affiliates, their
agents, directors, officers and employees ("ORCHID Indemnitees"), at
AFFYMETRIX's cost and expense, and will indemnify and hold harmless ORCHID
Indemnitees from and against any and all Claims (except in cases where such
Claims result from a material breach of this Agreement or willful misconduct on
the part of ORCHID) arising from or relating to (1) any alleged infringement
attributable to ORCHID's sales to AFFYMETRIX of ORCHID OEM Kits or sales of
Custom Kits (provided, however, that such indemnity shall be limited to Claims
of infringement caused by Approved Instruments and TAG Arrays except to the
extent that such Claim arises from or relates to any combination of the ORCHID
OEM Kits or Custom Kits with any Approved Instrument or the TAG Array) or (2)
any recall of any an Affymetrix instrument or Commercial Probe Arrays delivered
to a customer in conjunction with ORCHID OEM Kits, or (3) AFFYMETRIX's breach of
any representation or warranty of AFFYMETRIX set forth in this Agreement or (4)
any other materials supplied by AFFYMETRIX hereunder (provided, however, that
such indemnity shall not include any Claims of infringement arising from or
relating to any combination of the ORCHID OEM Kits or Custom Kits with any
Approved Instrument or the TAG Array except to the extent that such Claim would
have existed in the absence of such combination), or (5) death or any injury to
any person or damage to property as a result of the possession or use of any
Instrument or Commercial Probe Array delivered to a customer in conjunction with
ORCHID OEM Kits.
8.3 PROCEDURE. In the event of any such claim, the Party seeking indemnity
---------
shall promptly notify the indemnifying Party in writing of the claim and the
indemnifying Party shall have the right, to manage and control, at its sole
expense, the defense of the claim and the settlement thereof. The indemnified
Party shall cooperate with the indemnifying Party and may, at its option and
expense, be represented in any such action or proceeding. The indemnifying Party
shall not be liable for any settlements, litigation costs or expenses incurred
by the indemnified Party without the indemnifying Party's written authorization.
Notwithstanding the foregoing, unless and until ORCHID achieves annual revenues
of [*] million, AFFYMETRIX shall have the right at their expense, but not the
obligation to defend the AFFYMETRIX Indemnitees against any claim of
infringement without tendering defense thereof to ORCHID; provided, however,
that ORCHID may participate in such defense at its own expense
8.4 INSURANCE. Each Party agrees to use its best efforts to procure and,
---------
at all times during the term of this Agreement, to maintain in full force and
effect general liability insurance coverage of at least [*] per occurrence and
at least [*] aggregate (with a deductible of no more than [*] aggregate per year
and which policy names the other Party as a named insured). Each Party, upon
request of the other Party, will supply such other Party with appropriate
certificates of insurance evidencing the foregoing insurance.
9. REPRESENTATIONS AND WARRANTIES
------------------------------
9.1 Each of the Parties represents and warrants to the other Party as
follows:
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9.2 The execution and delivery of this Agreement and the performance of
the transactions contemplated hereby and thereby have been duly authorized by
all appropriate corporate action, and the Party has all requisite power and
authority to enter into this Agreement and to perform its obligations hereunder
and thereunder, and each representation of this Agreement constitutes a valid
and binding obligation of each Party, enforceable against each Party in
accordance with its terms.
9.3 The performance by the Party of any of the terms and conditions of
this Agreement on its part to be performed does not and will not constitute a
breach of any other agreement or understanding, whether written or oral, to
which it or any of its affiliates is a party.
9.4 The Party has the right to convey all technical information and
technology conveyed hereunder and that the information and technology so
conveyed does not violate the trade secret rights or copyrights of a third party
and to its knowledge, does not violate the patent or trademark rights of a third
party.
9.5 The Party has used reasonable commercial efforts to ensure the quality
of the materials and data provided hereunder.
10. DISPUTE RESOLUTION
------------------
10.1 SENIOR OFFICIALS. In the event of any controversy or claim relating
----------------
to, arising out of or in any way connected to any provision of this Agreement
("Dispute"), either Party may, by notice to the other Party, have such dispute
referred to their respective senior officials designated below or their
successors, for attempted resolution by good faith negotiations within thirty
(30) days after such notice is received. Said designated employees are as
follows:
For ORCHID: CEO
For AFFYMETRIX: CEO
10.2 MEDIATION. In the event the designated senior officials are not able
---------
to resolve any such dispute within the thirty (30) day period, either Party may
invoke the provisions of this Section 11.2 by initiating mediation of the
Dispute under the then correct Center for Public Resources Procedure for
Mediation of Business Disputes. Once mediation is initiated by one Party, the
other Party shall participate in and conduct the mediation procedures in good
faith. If a negotiator intends to be accompanied at a telephone conference or a
meeting by an attorney, the negotiator for the other Party shall be given at
least three (3) days notice of such intention, and may also be accompanied by an
attorney. All negotiations pursuant to this clause are confidential and shall be
treated as compromise and settlement negotiations for the purposes of the
Federal Rules of Evidence and any state rules of evidence. All applicable
statutes of limitations and defenses based on the passage of time shall be
tolled while the negotiation and mediation procedures set forth in this Section
10.2 are pending. The Parties will take such action, if any, as may be
reasonably required to effectuate such tolling.
10.3 ARBITRATION. Any Dispute that is not resolved pursuant to Section
-----------
10.2 shall be finally resolved by final and binding arbitration. Whenever a
Party shall decide to institute arbitration proceedings, it shall give written
notice to that effect to the other Party. The Party giving such notice shall
refrain from instituting the arbitration proceedings for a period of ten (10)
days following such notice to allow the Parties to attempt to resolve the
dispute between themselves. If the Parties are still unable to resolve the
dispute, the Party giving notice may institute the arbitration proceeding under
the rules of the American Arbitration Association ("AAA Rules"). Arbitration
shall exclusively and solely be held in San Francisco, California. The
arbitration shall be conducted before a single arbitrator mutually chosen by the
Parties, but if the parties have not agreed upon a single arbitrator within
fifteen (15) days after notice of the institution of the arbitration proceeding,
then the arbitration will be conducted by a panel of three arbitrators. In such
case, each Party shall within thirty (30) days after notice of the institution
of the arbitration proceedings appoint one arbitrator. The presiding arbitrator
shall then be appointed in accordance with AAA Rules. No arbitrator (nor the
panel of arbitrators) shall have the power to award punitive
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damages or any award of multiple damages under this Agreement and such awards
are expressly prohibited. Decisions of the arbitrator(s) shall be final and
binding on the Parties.
10.4 Notwithstanding the foregoing, if within ten (10) days of the first
occasion when the Parties' representatives meet with the arbitrator(s) either
Party gives notice by written designation of any matter relating solely to the
validity or scope of any patent as being subject to the Patent Exception
referred to above, then the matter so designated shall be set aside by the
arbitrator(s) and shall not be decided by them, provided that the matter so
designated constitutes a matter of which a United States District Court would
have jurisdiction pursuant to 28 U.S.C. (S) 1338(a), whether by way of action
for declaratory judgment or otherwise, and provided further that such matter is
submitted by the designating Party for decision by such court upon a complaint
filed within thirty (30) days of such designation, to be decided as such court
may determine. The sole jurisdiction and venue for actions related to the
subject matter hereof shall be the California state and U.S. federal courts
located in San Francisco, California. In such case, the nondesignating Party may
elect (no later than the date on which it files its answer to the complaint in
the District Court) to refer the entire matter in controversy to such court, but
if such Party does not make such election the arbitrator(s) shall proceed to
decide the remaining matter before them to the extent feasible and shall take
such other action in such regard as they deem appropriate. Judgment on the award
of the arbitrator(s) may be entered in any court having jurisdiction thereof.
10.5 Except to the extent entry of judgment and any subsequent enforcement
may require disclosure, all matters relating to the arbitration, including the
award, shall be held in confidence by the Parties.
11. MISCELLANEOUS.
-------------
11.1 Except as otherwise provided in this Agreement, neither this
Agreement nor any of the rights or obligations hereunder may be assigned by
either Party without the prior written consent of the other Party, except that
either Party may assign to an Affiliate, or to a party who acquires all or
substantially all of the relevant business relating to the subject matter of
this Agreement by merger, acquisition, sale of assets or otherwise.
11.2 This Agreement shall be governed by and interpreted in accordance
with the laws of California (without regard to its or any other jurisdiction's
choice of law principles).
11.3 Except as expressly and unambiguously provided herein, no right,
express or implied, is granted by this Agreement to either Party to use in any
manner the name of the other or any other trade name or trademark of the other
in connection with the performance of this Agreement.
11.4 In the event that either Party is prevented from performing or is
unable to perform any of its obligations under this Agreement due to any act of
God; fire; casualty; flood; war; strike; lockout; failure of public utilities;
injunction or any act, exercise, assertion or requirement of governmental
authority; epidemic; destruction of production facilities; riots; insurrection;
inability to procure or use materials, labor, equipment, transportation or
energy; or any other cause beyond the reasonable control of the Party invoking
this Section if such Party shall have used its best efforts to avoid such
occurrence, such Party shall give notice to the other Party in writing promptly,
and thereupon the affected Party's performance shall be excused and the time for
performance shall be extended for the period of delay or inability to perform
due to such occurrence.
11.5 The waiver by either Party of a breach or a default of any provision
of this Agreement by the other Party shall not be construed as a waiver of any
succeeding breach of the same or any other provision, nor shall any delay or
concession on the part of either Party to exercise or avail itself of any right,
power or privilege that it has or may have hereunder operate as a waiver of any
right, power or privilege by such Party.
11.6 Any notice or other communication in connection with this Agreement
must be in writing and if by mail, by certified mail, return receipt requested,
and shall be effective when delivered to the addressee at the address listed
below or such other address as the addressee shall have specified in a notice
actually received by the addressor.
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If to AFFYMETRIX:
Affymetrix, Inc.
3380 Central Expressway
Santa Clara, California 95051
Attention: President
With a copy to:
Affymetrix, Inc.
3380 Central Expressway
Santa Clara, California 95051
Attention: General Counsel
If to ORCHID:
303 College Road East
Princeton, New Jersey 08540
Attention: President
With a copy to:
Mintz, Levin, Cohn, Feris, Glovsky and Popeo, D.C.
One Financial Center
Boston, MA
Attention: Jeff Wiesen, Esq.
11.7 Unless otherwise expressly stated to be business days, all
references to days shall mean calendar days; provided, however, that if
the last date or the deadline for the giving of notice or performance of
any other act or fulfillment or satisfaction of any condition set forth in
this Agreement shall fall on a day which is not a business day, then the
time for the giving of such notice or performance of such act or
fulfillment or satisfaction of such condition shall be extended to the
next business day. As used herein, the term "business days" shall mean all
days other than Saturdays, Sundays or state or federal holidays.
11.8 Nothing herein shall be deemed to constitute either Party as
the agent or representative of the other Party, or both Parties as joint
venturers or partners for any purpose. Each Party shall be an independent
contractor, not an employee or partner of the other Party, and the manner
in which a Party renders its services under this Agreement shall be within
such Party's sole discretion. Neither Party shall be responsible for the
acts or omissions of the other Party, and neither Party will have
authority to speak for, represent or obligate the other Party in any way
without prior written authority from the other Party.
11.9 This Agreement and the Schedules hereto (which Schedules are
deemed to be a part of this Agreement for all purposes) contain the full
understanding of the Parties with respect to the subject matter hereof and
supersede all prior understandings and writings relating thereto. No
waiver, alteration or modification of any of the provisions hereof shall
be binding unless made in writing and signed by the Parties by their
respective officers thereunto duly authorized.
11.10 The headings contained in this Agreement are for convenience
of reference only and shall not be considered in construing this
Agreement.
11.11 In the event that any provision of this Agreement is held to
be unenforceable because it is invalid or in conflict with any law of any
relevant jurisdiction, the validity of the remaining provisions shall not
be affected, and there shall be substituted for the provision at issue a
valid, legal and operative provision as similar as possible to the
provision at issue.
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11.12 This Agreement shall be binding upon and inure to the benefit
of the Parties hereto and their successors and permitted assigns.
11.13 None of the provisions of this Agreement shall be for the
benefit of or enforc eable by any third party.
11.14 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
11.15 The Parties hereto acknowledge and agree that: (i) each party
and its counsel reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision; (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this
Agreement; and (iii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in a favor of or against
any party, regardless of which party was generally responsible for the
preparation of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed in their names by their properly and duly authorized officers or
representatives as of the date first above written.
AFFYMETRIX, INC. ORCHID BIOCOMPUTER, INC.
By: /s/ Stephen Fodor, Ph.D By: /s/ Dale R. Pfost, Ph.D.
----------------------------- -----------------------------
Stephen Fodor, Ph.D Dale R. Pfost, Ph.D.
Its: Chief Executive Officer Its: Chief Executive Officer
--------------------------- ----------------------------
Date: November 16, 1999 Date: November 5, 1999
--------------------------- ---------------------------
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SCHEDULE 1.13
- -------------
TRANSFER OF CUSTOM KIT ORDER INFORMATION
For each custom kit order, Orchid will:
. email to point of contact at AFFX
. within 5 business days of receipt of custom order by Orchid
. Orchid will notify customer of the obligation to notify AFFX
. Email to include the following bill to and ship to information:
. Customer name
. Address
. Phone number
. Fax number
. Email address
. Size and nature of custom order (# samples, # snps, multiplex)
. Delivery date for custom order
AS PART OF THE STANDING CMC AGENDA, ORCHID WILL PROVIDE TO AFFYMETRIX A LIST OF
SNPS ORDERED FOR CUSTOM KITS AND THE QUANTITY ORDERED FOR CONSIDERATION TO BE
INCLUDED IN FUTURE STANDARD KITS AND TO EVALUATE SIMILARITIES BETWEEN CUSTOM
KITS AND STANDARD KITS. AFFYMETRIX MAY AUDIT ORCHID TO VERIFY THIS INFORMATION.
ORCHID's Obligations contained in this schedule are subject to any
confidentiality obligation ORCHID may have to any Third Party (provided that
ORCHID shall use commercially reasonable efforts to minimize such obligations)
and such information shall exclude ORCHID proprietary Primers and SNPs.
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SCHEDULE 1.15
- -------------
END USER LICENSE
The purchase price of this product includes a limited, non-transferable license
under U.S. Patent 5,888,819 and its foreign counterparts owned by Orchid
Biocomputer, Inc. of Princeton NJ to use only this amount of the product to
practice Genetic Bit Analysis(TM) primer extension technology solely for use
with Affymetrix Tag Arrays in the Affymetrix GeneChip Systems for Research
Purposes and explicitly excludes use of this product for any clinical use or in
any other instrument. Information about purchasing licenses to practice Genetic
Bit Analysis(TM) primer extension technology for clinical use or in other
systems may be obtained by contacting the Senior Director for Business
Development at Orchid Biocomputer, Inc. at (609) 750-2200.
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SCHEDULE 1.20
- -------------
ORCHID END USER TECHNOLOGY
US Patent 5,888,819 (and all foreign counterparts thereof)
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SCHEDULE 1.22
- -------------
ORCHID LICENSED TECHNOLOGY
US Patent 5,888,819
ORCHID LICENSED TECHNOLOGY includes any continuations, continuations-in-part,
divisionals, extensions, re-exams or re-issues and any foreign counterparts
thereof
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SCHEDULE 1.37
- -------------
SPECIFICATIONS FOR ORCHID OEM KITS
Added to agreement as approved by CMC
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SCHEDULE 1.39
- -------------
DEFINITION OF PRODUCTS AND WORKPLAN FOR COLLABORATION
Products from Orchid
- --------------------
[*]
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COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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[*]
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[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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[*]
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[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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[*]
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[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
<PAGE>
SCHEDULE 2.3(D)
- ---------------
PRICING AND TIMING
[*]
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COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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SCHEDULE 4.1(C)
- ---------------
LABELING AND PACKAGING REQUIREMENTS
LABEL TO BE INCLUDED IN PACKAGING OF ALL ORCHID KITS
EXCEPT AS EXPRESSLY SET FORTH HEREIN, NO RIGHT TO COPY, MODIFY, DISTRIBUTE, MAKE
DERIVATIVE WORKS OF, PUBLICLY DISPLAY, MAKE, HAVE MADE, OFFER TO SELL, SELL, OR
IMPORT PROBE ARRAYS OR ANY OTHER PRODUCT PROVIDED HEREUNDER IS CONVEYED OR
IMPLIED BY THE PROBE ARRAYS, INSTRUMENTS, SOFTWARE, REAGENTS OR ANY OTHER ITEMS
PROVIDED HEREUNDER. ALL PRODUCTS (INCLUDING THE PROBE ARRAYS, INSTRUMENTS,
SOFTWARE, AND REAGENTS) DELIVERED HEREUNDER ARE LICENSED TO BUYER FOR RESEARCH
USE ONLY. THIS LIMITED LICENSE PERMITS ONLY THE USE BY BUYER OF THE PARTICULAR
PRODUCT(S) THAT BUYER PURCHASES FROM AFFYMETRIX OR ITS REPRESENTATIVE(S) AND
DOES NOT PERMIT THE USE OF SUCH PRODUCTS IN A MANNER OR IN CONNECTION WITH OTHER
PRODUCTS SUCH THAT THE INTELLECTUAL PROPERTY RIGHT(S) OF AFFYMETRIX OR ANY THIRD
PARTY ARE INFRINGED. IN PARTICULAR, NO RIGHT TO MAKE, HAVE MADE, IMPORT,
DISTRIBUTE, OR USE PROBE ARRAYS OTHER THAN THOSE OF AFFYMETRIX IS IMPLIED
THROUGH THE INSTRUMENTS OR SOFTWARE CONVEYED HEREUNDER. BUYER AGREES NOT TO
EXCEED THE SCOPE OF THIS LIMITED LICENSE OR REUSE OR ALLOW ANYONE TO REUSE A
PROBE ARRAY.
LABEL FOR TAG ARRAY - TO BE INCLUDED IN PACKAGING.
Orchid Biocomputer, Inc. (Princeton NJ ("Orchid")) hereby notifies you that The
Genetic Bit Analysis (GBA(R)) primer extension technology is covered by patents
owned by Orchid. Orchid has exclusive and non-exclusive licenses available for
various applications of the GBA(R) primer extension technology, and Orchid and
its licensees provide end-user licenses within their designated fields. These
licenses have different terms depending on the field, and different rules may
apply in different countries. In the US and most other nations, the user should
always have a proper license to perform GBA(R). THE PURCHASE OF THIS GENECHIP(R)
PROBE ARRAY DOES NOT EXPRESSLY OR IMPLICITLY GRANT ANY LICENSE TO THE GBA(R)
PRIMER EXTENSION TECHNOLOGY THROUGH THIS PURCHASE
A license for performing the GBA(R) primer extension technology which is covered
by U.S. Patent 5,888,819 and its foreign counterparts may be obtained directly
from Orchid or by the purchase of reagents kits from Affymetrix.
. Labeling for Orchid Kit: [Vern please fill in]. Add labeling for all kits
that they can only be used with GeneChip probe arrays. Legal to define
specific wording including limitations to RUO, patent references, etc.
. Both company's logos on kit packaging for standard and generic kits
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AMENDMENT NO. 1 TO COLLABORATION AGREEMENT
This Amendment No. 1 to Collaboration Agreement (this "Amendment") is made
---------
as of this 12th day of November, 1999 (the "Amendment Effective Date"), by and
------------------------
between Orchid Biocomputer, Inc., a Delaware corporation with a principal place
of business at 101 College Road East, Princeton, New Jersey 08540 ("ORCHID") and
Affymetrix, Inc., a Delaware corporation with a principal place of business at
3380 Central Expressway, Santa Clara, California 95051 ("AFFYMETRIX").
Capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed to them in the Collaboration Agreement by and
between ORCHID and AFFYMETRIX dated as of November 5, 1999 (the "Agreement").
---------
WHEREAS, the parties hereto desire to amend the Agreement as set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Amendments.
----------
1.1. The definition of "Orchid Licensed Technology" contained within
Section 1.22 of the Agreement is hereby amended by adding the following at the
end of the first sentence thereof:
"including without limitation the software and associated algorithms
necessary to assign genotype and allele calls" .
1.2. Schedule 1.22 of the Agreement is hereby amended by adding the
following:
"U.S. Patent 5,762,876*
*ORCHID agrees that, in addition to the licenses granted in Section 3.1
and 4.2, AFFYMETRIX will have the royalty-free, perpetual right and
license to directly and indirectly create and modify software
embodiments of the above patent and to directly and indirectly use,
distribute and license such embodiments (including the right to use and
modify such embodiments) to third party customers of its Tag Arrays."
2. Additional Warranties ORCHID represents, warrants and covenants that
---------------------
there is no technology or intellectual property that ORCHID has not described to
Affymetrix in writing prior to the Effective Date (and which Affymetrix has
acknowledged receiving) that ORCHID contemplates or anticipates may be
incorporated into the Orchid Licensed Technology or may be necessary or useful
either for development, use, distribution or sale of the basic genotype and
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allele calling functionality of the Products, or for use of TAG Arrays or
Approved Instruments with Products.
3. Miscellaneous. Except as amended hereby, the Agreement shall remain in
-------------
full force and effect. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized representatives.
ORCHID BIOCOMPUTER, INC.
By: /s/ Donald R. Marvin
----------------------------------------
Donald R. Marvin
Title: Chief Operating Officer
and Senior Vice President
----------------------------------------
Date: November 12, 1999
----------------------------------------
AFFYMETRIX, INC.
By: /s/ Stephen P.A. Fodor, Ph.D.
----------------------------------------
Stephen P.A. Fodor, Ph.D.
Title: Vice President
----------------------------------------
Date: November 18, 1999
----------------------------------------
<PAGE>
EXHIBIT 10.6
CONFIDENTIAL TREATMENT
----------------------
ORCHID BIOSCIENCES, INC. HAS REQUESTED THAT THE MARKED PORTIONS OF THIS DOCUMENT
BE ACCORDED CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT
OF 1933, AS AMENDED.
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
LICENSE AND OPTION AGREEMENT
LICENSE AND OPTION AGREEMENT (the "Agreement"), dated as of December 10,
1997 (the "Effective Date"), between SARNOFF CORPORATION, a New Jersey
corporation having its offices at 201 Washington Road, Princeton, New Jersey
08543 ("Sarnoff"), and ORCHID BIOCOMPUTER, INC., a Delaware corporation having
its offices at 201 Washington Road, Princeton, New Jersey 08543 ("Orchid").
WHEREAS, Sarnoff is (and will be) the owner or licensee of rights in
certain existing and future Intellectual Property and certain Patent Rights
relating thereto.
WHEREAS, Sarnoff is willing to grant to Orchid and Orchid desires to
acquire from Sarnoff, certain rights under such Intellectual Property and Patent
Rights for the purpose of allowing Orchid to research, develop, manufacture,
market, sell, import, lease and/or deliver, within the Orchid Field, Products
and Services.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Sarnoff and Orchid, intending to be legally
bound, hereby agree as follows:
1. Definitions.
As used herein, capitalized terms shall have the respective meanings set
forth below:
1.1. "Affiliate" means any corporation, firm, limited liability company,
partnership or other entity which directly or indirectly controls or is
controlled by or is under common control with a party to this Agreement.
"Control" means ownership of, or the ability to vote, directly or through one or
more Affiliates, fifty percent (50%) or more of the shares of stock entitled to
vote for the election of directors, in the case of a corporation, or fifty
percent (50%) or more of the equity interests in the case of any limited
liability company or other type of legal entity, status as a general partner in
any partnership, or any other arrangement whereby a party controls or has the
right to control the board of directors or equivalent governing body of a
corporation or other entity. Notwithstanding the foregoing, Sarnoff and SRI and
companies controlled by Sarnoff and SRI shall not be deemed to be Affiliates of
Orchid, and Orchid shall not be deemed to be an Affiliate of such entities for
purposes of this Agreement.
1.2 "Ancillary Device" shall mean a detector or other device (but not a
Storage Device or Input/Output Device) that is specifically designed by Sarnoff
to interface with a Chip,
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Storage Device or Input/Output Device to the extent such detector or other
devices are incorporated in Delivered Chips and Instruments. Ancillary Devices
shall not include (without upper or lower limitations as to size or volume), (i)
generic robotic fluid delivery systems, (ii) transport through synthetic or
natural membranes, tubes or capillaries except when part of a Chip or
Input/Output Device, (iii) conventional, non-electrokinetic fluid pumping or
valving technology except when part of a Chip or Input/Output Device and (iv) 3D
microimaging and modeling.
1.3. "Chip" shall mean a microfabricated flat structure device in one or
more layers having a plurality of Microchannels or Microchannels and
Microchambers in the form of (A) arrays (containing at least (i) six (6)
Microchambers or (ii) two Circuits, each of which contains at least one Active
Element), or (B) at least one Circuit containing at least three (3) serially
connected Elements, at least one of which is an Active Element, to carry out or
enable synthesis, reactions, assays, analyses or sample preparation by
transporting or retaining aqueous or organic fluids that are solvents,
solutions, mixtures or suspensions, including those containing chemicals,
particles, membranes, membrane fragments, cells, cell components or other
biologically derived substances. "Microchannels" shall mean enclosed channels
having a cross section at least 10 microns by 10 microns and no more than 2
millimeters by 2 millimeters. "Microchambers" shall mean chambers having a
volume of at least 10 picoliters and no more than 10 microliters.
1.4. "Circuit" shall mean a combination of at least two (2) Elements.
1.5. "Combinatorial Chemistry" shall mean the synthesis of one or more
compounds as part of a process to create compounds or resynthesize known
compounds, where such compounds are to be used in clinical applications or in
the discovery, development, testing or optimization of molecules, materials, or
compounds, or mixtures thereof.
1.6. "Confidential Information" shall mean all proprietary confidential
technology disclosed by Sarnoff to Orchid or by Orchid to Sarnoff during the
term of this Agreement. For the purposes of this Agreement, Research Technology
shall be deemed Confidential Information of both Orchid and Sarnoff.
1.7. "Covered By" shall mean, with respect to any act, an act that would,
in the absence of a license provided hereunder, constitute an infringement of a
claim of a pending patent application, or a claim of an issued patent which has
not been held invalid or unenforceable by a court of competent jurisdiction in a
decision which is unappealable or the appeal period for which has expired
without an appeal being taken.
1.8. "Delivered Chips and Instruments" shall mean Chips and/or related
instruments based on the design of the Chips and related instruments that are
(i) delivered by Sarnoff under a Funded Research Program, (ii) delivered by
Sarnoff to SB under the SB Agreement, or (iii) delivered by Sarnoff to the
Government under NIST Control No. 7ONANB5HlO37 prior to June 30, 1997, or under
DARPA Control No. N66001-96-8630 prior to June 30, 1999.
1.9 "Dynal Agreements" shall mean the proposed Joint Venture Master
Agreement between Orchid and Dynal, Inc. ("Dynal"), as executed, and the
agreements between Orchid and Dynal entered into pursuant thereto, pertaining to
the creation of a joint venture to combine
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Orchid's chip technology and Dynal's bead technology to create "Cassettes" for
use in the h-vitro Diagnostic Field.
1.10. "Elements" shall mean any pump, Microchannel or Microchamber. An
Element is "Active" if it is a pump or a Microchannel or a Microchamber in which
a chemical or binding reaction or physical separation by fractionation or
differentiation of various constituents within a sample by such parameters as
molecular size, binding affinity, charge or other physical properties occurs.
An Element is "Passive" if it is not Active, including without limitation,
Microchambers or Microchannels for storage, transport, analyses other than by
chemical or binding reaction, or division of a sample into multiple samples or
streams into multiple streams.
1.11. "Environmental Testing" shall mean the determination of the presence
or effect of molecular analytes, chemicals, microbes (including, without
limitation, viruses and bacteria), parasites or other harmful elements in the
environment utilizing nucleic acid-based analyses, immunoassays or functional
assays involving cells, cellular components or extra- or intra-cellular
interactions.
1.12. "Force Majeure" shall mean any act of God, any accident, explosion,
fire, storm, earthquake, flood, drought, peril of the sea, riot, embargo, war or
foreign, federal, state or municipal order of general application, seizure,
requisition or allocation, any failure or delay of transportation, shortage of
or inability to obtain supplies, equipment, fuel or labor or any other
circumstances or event beyond the reasonable control of the party relying upon
such circumstance or event.
1.13. "Funded Research Program" shall mean the research or development
activities under a research agreement for an Option Field in which, considering
each Option Field separately, Orchid or its designee reasonably acceptable to
Sarnoff agrees to [*]
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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1.14. "Input/Output Device" shall mean fluidic transport, fluid transfer
or fluid connection means which is specifically designed to bring a fluid to a
Chip or Storage Device or remove a fluid from a Chip or a Storage Device.
1.15. "Intellectual Property" shall mean proprietary technical or other
information, know-how, data, materials, devices, systems, software, trade
secrets, processes or formulations, and any and all Patent Rights thereon.
1.16. "In-vitro Diagnostic Field" shall mean [*]
1.17. "Licensed Technology" shall mean: (a) Intellectual Property licensed
or developed under the SB Agreement including Intellectual Property funded by
such agreements, but developed prior to August 30, 1995 and listed on Schedule
A; (b) Intellectual Property embodied in the deliverable "Chips" and
"Instruments" as defined in and developed under the SB Agreement; (c)
Intellectual Property (i) developed under NIST Contract No. 7ONANB5H 1037
through June 30, 1997, (ii) developed under DARPA Contract No. N66001-96-8630
through June 30, 1999, and listed on Schedule A and (iii) certain Intellectual
Property claiming technology relating to Chips developed by Sarnoff on or before
August 30, 1995 and listed on Schedule A, (d) Research Technology, (e)
Intellectual Property incorporated in devices or systems as part of a Funded
Research Program and (f) subject to any of Sarnoff's present or future third
party arrangements, Intellectual Property directed to Chips, Storage Devices and
Input/ Output Devices developed by Sarnoff and its wholly-owned subsidiaries
during the Option Period or during the term of any and all Funded Research
Programs at Sarnoff, and/or the research program under the SB Agreement, but
outside such programs and incorporated by Orchid into a Chip or a system
incorporating a Chip during the Option Period, or during the term of any and all
Funded Research Programs at Sarnoff, or the research program under the SB
Agreement and (g) Joint Inventions and Joint Patent Rights as defined in Section
2.6. Specifically excluded from Licensed Technology is the Intellectual Property
developed under DARPA Contract DABT63-95-C-0057 3D entitled "3D Microimaging".
Licensed Technology shall not include rights to general purpose electrical,
electronic, optical, electro-optical, mechanical or electro-mechanical
inventions.
1.18. "Life Science Field" means the Orchid Field, the Option Fields and
the use of Chips in the fields of the biological sciences, human healthcare,
animal healthcare or agriculture.
1.19. "Net Sales" shall mean [*]
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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1.20. "Non-Exclusive Licensed Technology" shall mean general purpose
electrical, electronic, optical, electro-optical, mechanical or electro-
mechanical inventions and devices to the extent such inventions and devices are
incorporated in Delivered Chips and Instruments, but not otherwise.
1.21. "Option Field(s)" shall mean [*]
1.22. "Option Period" means that period during which any Option exists as
defined in Section 2.3.
1.23. "Orchadyne" means Orchadyne, LLC, the limited liability company
created pursuant to the Dynal Agreements.
1.24. "Orchid Field" shall mean [*]
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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1.25. "Owned or Controlled" shall mean Intellectual Property which Sarnoff
owns, or under which Sarnoff is licensed and has the right to grant sublicenses
and/or grant immunity from suit. Intellectual Property "Owned or Controlled" as
of a certain date includes Intellectual Property first invented on or prior to
such date, and shall include all related patent applications and patents or
other intellectual property rights issuing thereon, whenever filed or obtained.
1.26. "Parties" means Sarnoff and Orchid.
1.27. "Partner" shall mean SB, Dynal, Orchadyne or any other Person with
whom Orchid shall have a written research and/or development agreement or other
collaborative arrangement whereby Orchid receives (a) ownership rights or
license rights in products or services based on or resulting from such research
and/or development, (b) royalty payments based on the sales of such products or
services, or (c) supply rights for such products.
1.28. "Party" means Sarnoff or Orchid.
1.29. "Patent Rights" shall mean rights (including, ,without limitation,
rights as licensee) Owned or Controlled, subject to Section 2.1.6 hereof, by
Sarnoff under (a) issued U.S. and foreign patents, (b) U.S. or foreign patent
applications, including any patent application constituting an equivalent,
counterpart, reissue, extension or continuation of any of the foregoing
applications (including, without limitation, a continuation in part or
divisional application), or (c) any patent issued or issuing upon any of the
foregoing applications. A list of Patent Rights included in Licensed Technology
as of the date of this Agreement is attached hereto as Schedule A.
1.30. "Person" shall mean any individual, partnership, limited liability
company, corporation, firm, association, unincorporated organization, joint
venture, trust or other entity.
1.31. "Product" shall mean a Chip or a system incorporating a Chip with or
without Storage Devices, Input/Output Devices or Ancillary Devices developed
using, incorporating, utilizing, manufactured using, based upon, arising out of,
or derived from the Licensed Technology.
1.32. "Research Products" shall mean [*]
1.33. "Research Technology" shall mean Intellectual Property developed by
Sarnoff in Funded Research Programs.
1.34. "SB Agreement" shall mean the Development and License Agreement
executed by and among Orchid, Sarnoff and SmithKline Beecham PLC/SmithKline
Beecham Corporation as of August 30, 1995, as amended.
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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1.35. "Services" shall mean the performance of services for a fee
utilizing a Product, but shall not include performance of research or
development services.
1.36. "SmithKline Beecham" or "SB" shall mean SmithKline Beecham
PLC/SmithKline Beecham Corporation.
1.37. "SRr" shall mean SRI International, a California not for profit
corporation having its principal offices at 333 Ravenswood Avenue, Menlo Park,
CA 94025.
1.38. "Storage Device" shall mean a microfabricated flat structure device
containing Microchambers, but not Microchannels or other Elements, that is
either (i) specifically designed for interacting with or connecting to a Chip or
(ii) broadly useful with Chips and other devices or primarily designed to be
interfaced with micropipetting systems. A Storage Device of the type described
in clause (i) is referenced to herein as a Type 1 Storage Device. A Storage
Device described in clause (ii) is referred to herein as a Type 2 Storage
Device.
1.39. "Valid Claim" shall mean an unexpired claim of (i) any issued patent
which has not been finally declared invalid or unenforceable by a patent office
or by a court or other body of competent jurisdiction in any unappealed or
unappealable decision and which has not been lost through an interference or
opposition proceeding or (ii) any pending patent application which has not been
finally rejected by a patent office of competent jurisdiction in any unappealed
or unappealable decision and which has not been pending for more than four (4)
years.
2. Grant of Rights.
2.1. Licenses to Orchid.
2.1.1. Exclusive Rights. Subject to the terms and conditions of
this Agreement, Sarnoff hereby grants to Orchid an exclusive, worldwide, right
and license under the Licensed Technology, with the right to sublicense, to
develop, have developed, make, have made, use, have used, import, have imported,
offer for sale, sell, have sold or lease, any Products, Storage Devices and/or
Input/Output Devices for Type 1 Storage Devices and Chips and/or to provide any
Services in the Orchid Field, provided, however, that with respect to Type 2
Storage Devices and Input/Output Devices for Type 1 Storage Devices, such
License shall only be exclusive for Licensed Technology described in clauses
(a)-(e) and (g) of Section 1.17 and further provided however with respect to the
exercised Option of the Option Field of Section 1.2 1(c), the license shall be
exclusive for the Life Science Field and non-exclusive for materials and
chemical research. In addition, the license granted under this Section 2.1.1
with regard to Ancillary Devices shall be limited to the designs of the
Ancillary Devices in the Delivered Chips and Instruments and shall include the
right to modify such designs using Orchid or third party Intellectual Property.
2.1.2. Non-Exclusive Rights.
2.1.2.1 Subject to the terms and conditions of this
Agreement, Sarnoff hereby grants to Orchid a non-exclusive, worldwide, right and
license under the Licensed Technology, with the right to sublicense, to develop,
have developed, make, have made, use,
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have used, import, have imported, offer for sale, sell have sold or lease (a)
any Products, Storage Devices and Input/ Output Devices and provide any Services
(i) in those Option Fields for which Orchid has not exercised its Option
hereunder as provided in Section 2.3, and (ii) which use Chips to carry out
Combinatorial Chemistry for purposes not included in the Orchid Field provided
however that such license under this Section 2.1.2.1 (ii) outside the Life
Science Field shall be limited to use for industrial materials and chemicals and
shall be limited to Licensed Technology under Section 1.1 7(a)-(e) and (g).
However, the license granted under this Section 2.1.2.1 with regard to Ancillary
Devices shall be limited to the designs of the Ancillary Devices in the
Delivered Chips and Instruments and shall include the right to modify such
designs using Orchid or third party Intellectual Property. The licenses granted
pursuant to this Section 2.1.2 shall in no way be deemed to limit the scope of
any exclusive license granted pursuant to Section 2.1.1.
2.1.2.2 Subject to the terms and conditions of this
Agreement, Sarnoff hereby grants to Orchid a non-exclusive, worldwide, right and
license under Non-Exclusive Licensed Technology, with the right to sublicense,
to develop, have developed, make, have made, use, have used, import, have
imported, offer for sale, sell, have sold or lease any Products, Storage Devices
and Input/Output Devices and provide any Services (i) in the Orchid Field and in
those Option Fields for which Orchid has not exercised its Option hereunder as
provided in Section 2.3, and (ii) which use Chips to carry out Combinatorial
Chemistry for purposes not included in the Orchid Field to the extent such uses
of Chips is licensed under Section 2.1.2.1.
2.1.2.3 Subject to the terms and conditions of this
Agreement, Sarnoff hereby grants to Orchid a non-exclusive, worldwide, right and
license under LicensedTechnology, with the right to sublicense, to develop, have
developed, make, have made, use, have used, import, have imported, offer for
sale, sell, have sold or lease Input/ Output Devices for Type 2 Storage Devices
in the Orchid Field.
2.1.3. Bead Handling. Sarnoff and Orchid shall negotiate in good
faith regarding a license upon commercially reasonable, mutually agreeable terms
to develop, have developed, make, have made, use, have used, import, have
imported, offer for sale, sell, have sold or lease any instrument based on the
bead handling technology to be developed by Sarnoff in a program funded by or in
collaboration with Orchid and useful in connection with Chips. The license will
be governed by a separate agreement which will cover the scope of the license,
field of use, statement of work to be performed by Sarnoff, the specifications
and drawings of the bead handling instrument and all other terms. No license is
granted to Orchid for such bead handling instruments by this Agreement.
2.1.4. Additional Licenses. In addition to the Options set forth in
Section 2.3, at Orchid's request Sarnoff will negotiate in good faith with
Orchid at any time for the terms and conditions of an exclusive license in one
or more Option Fields which are not the subject of a current or past Funded
Research Program.
2.1.5. Restrictions on Licenses. All licenses granted to Orchid
hereunder and all restrictions under Section 2.2. are subject to (a) a non-
exclusive, worldwide, royalty-free license which the U.S. Government may retain
under any Intellectual Property whose development was funded by the U.S.
Government, (b) a worldwide, non-exclusive, royalty-free license to Sarnoff
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and the U.S. Government to permit Sarnoff to engage in research. or .
development contracts or to prepare prototypes for the U.S. Government, and (c)
any rights previously granted to SmithKline Beecham under the SB Agreement.
Notwithstanding anything to the contrary in this Agreement, no licenses are
granted to Orchid under this Agreement to make, have made, use, sell, offer for
sale, lease or import (except as Ancillary Devices otherwise permitted
hereunder) printers, cameras, imaging systems or displays which employ Chips,
and materials for use with any of the foregoing.
2.1.6. Third-Party Technology. In the event that Sarnoff has
licensed from a third party any of the Licensed Technology, Sarnoff's license to
Orchid of such Licensed Technology is granted hereby to the extent that, and for
as long as, Sarnoff can provide such rights and subject to any royalty
obligations as hereinafter provided. Orchid shall be provided with timely notice
of the terms of any such license under which such sublicense is granted, and
Orchid may choose to accept or not accept such sublicense. To the extent that
the sale or other action by Orchid or its permitted sublicensees of Products or
Services would give rise to a royalty or other payment obligation by Sarnoff
under any license under which Orchid accepts a sublicense, Orchid shall pay and
require its sublicensees to pay such amount to Sarnoff or directly to the third
party if so requested by Sarnoff.
2.1.7. Algorithms. Except as included in Licensed Technology,
access by Orchid to algorithms for data mining and for informatics is not
included in the licenses granted herein, but may be the subject of a separate
agreement, subject to any Sarnoff agreements with third parties.
2.1.8. Tangible Results. All tangible instruments, devices,
prototypes or components thereof which are produced in Funded Research Programs
at Sarnoff funded by Orchid shall be owned by Orchid and delivered to Orchid no
later than upon completion of the relevant Funded Research Program. Orchid
shall have the right to use and to reproduce all such instruments, devices,
prototypes or components under the terms of this Agreement.
2.2. Restrictions on Sarnoff's Other Businesses. Nothing in this
Agreement shall be interpreted to preclude Sarnoff or any of its subsidiaries or
licensees or sublicensees from engaging in their businesses; provided that
nothing in this Section 2.2 shall limit the exclusive grant to Orchid under
Section 2.1. Notwithstanding the foregoing, during the Option Period and the
duration of any Funded Research Program and for a period of ninety (90) days
after the last to terminate of the Funded Research Programs, Sarnoff and its
wholly-owned subsidiaries shall not:
(a) collaborate with or enter into any agreement to provide research
services or grant any license to any commercial third party for (i) designing or
modifying Chips or Input/ Output Devices for Chips for use in the Orchid Field
or any Option Field in which the Option continues to be in effect, (ii)
designing or modifying Type I Storage Devices or Input/ Output Devices for Type
1 Storage Devices that are customized or designed by Sarnoff for use with Chips
in the Orchid Field or any Option Field in which the Option continues to be in
effect, or (iii) designing or modifying Ancillary Devices, whether or not
incorporated in Delivered Chips and Instruments, that are designed or customized
by Sarnoff in collaboration with the third party while Sarnoff itself is in
possession of the third party's Chips as part of a joint effort to design or
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optimize a system that includes Chips for use in the Orchid Field or any Option
Field in which the Option continues to be in effect; or
(b) sell products which contain Chips, Type 1 Storage Devices,
Input/Output Devices for Chips or Type 1 Storage Devices to any commercial third
party for use in the Orchid Field or any Option Field in which the Option
continues to be in effect.
The foregoing:
(w) shall not prevent Sarnoff or any of its subsidiaries from providing
services related to, or from developing, licensing or selling printers, cameras,
imaging systems or displays including but not limited to those which employ
Chips therein so long as they are not Ancillary Devices exclusively licensed to
Orchid or designed or customized in violation of 2.2(i)(a)(iii);
(x) shall not prevent Sarnoff or any of its subsidiaries from providing
services related to, or from developing, licensing or selling (a) Type 2 Storage
Devices, or (b) Ancillary Devices, Type 1 Storage Devices or Input/ Output
Devices for use outside the Orchid Field and any Option Field in which the
Option continues to be in effect or from developing, licensing or selling
products of general applicability which may be useful in the Orchid Field and
the Option Fields in which the Option continues to be in effect as long as such
products are not specifically designed or modified for use with Chips, Type 1
Storage Devices, or Input/ Output Devices for Chips or Type 1 Storage Devices,
(y) shall not require Sarnoff to prevent purchasers of such Ancillary
Devices, Storage Devices or Input/ Output Devices from using such Ancillary
Devices, StorageDevices or Input/ Output Devices in the Orchid Field and any
Option Field in which the Option continues to be in effect, and
(z) shall not require Sarnoff to prevent parties with whom Sarnoff
collaborates or provides research services or to whom Sarnoff grants any license
from modifying, for use in the Orchid Field or any Option Field in which the
Option remains in effect, products developed or licensed to them by Sarnoff, as
long as Sarnoff or its wholly-owned subsidiaries do not contribute to the
modification.
2.2.1 Notwithstanding anything to the contrary in this Agreement,
this Agreement shall not be construed as any limitation or restriction on
Sarnoff's dry powder technology or on Sarnoff's right to grant any license to a
third party for its dry powder technology or its ability to apply or employ, or
collaborate with others to apply or employ, its dry powder technology for any
purpose.
2.3. Option to Orchid.
Subject to the terms and conditions of this Agreement, Sarnoff hereby
grants Orchid the exclusive option to include one or more Option Fields in the
Orchid Field and to receive exclusive licenses in such Option Field(s) as
specified in Section 2.1 above (the "Option") as follows:
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2.3.1. Option Exercise. Any Option with respect to an Option Field
hereunder may be exercised by Orchid upon written notice and by timely entering
into an agreement for a Funded Research Program with Sarnoff relating to any
such Option Field during the Term of the Option as set forth below and upon
payment of the consideration as specified in Section 3.2 hereof
2.3.2. Term of Option. The Option(s) set forth in this Section 2.3
shall continue for a period of four (4) years unless extended or sooner
terminated as provided below (the "Option Period"). In order to maintain Options
to all remaining unexercised Option Fields during the Option Period, upon each
anniversary of the Effective Date, Orchid shall be required to have entered into
at least one Funded Research Program agreement in one new Option Field for each
year that has elapsed since the Effective Date. Notwithstanding the foregoing,
in the event Orchid has exercised at least three (3) Options during the Option
Period, then the Option Period for the remaining Option may be extended at
Orchid's sole discretion for up three additional years upon payment of an Option
Extension Fee of [*] per remaining Option Field per year.
2.3.3. Loss of Option Rights. Except as otherwise provided above,
if upon any anniversary of the Effective Date, Orchid shall have failed to
exercise at least one Option per year as set forth in Section 2.3.2 above,
Orchid shall lose rights to one of the remaining unexercised Option Fields. For
any two-year period during which Orchid has failed to exercise rights to at
least one Option Field, Orchid shall lose the rights to two of the remaining
unexercised Option Fields. Upon the occurrence of any such event, Orchid shall
have sixty (60) days in which to elect the Option Field or Fields to be removed
from its Option rights hereunder. If Orchid makes no such election, Sarnoff may,
within sixty (60) additional days, elect the Option Field(s) to be removed by
notice to Orchid. For any three-year period during which Orchid has failed to
exercise rights to at least one Option Field, Orchid shall lose the rights to
all of the remaining unexercised Option Fields. Failure by Orchid to comply with
the provisions of Section 3.2 or to fully fund and make payment for a Funded
Research Program in accordance with the agreement executed pursuant to Section
2.3.1 shall give Sarnoff the right to terminate this license in accordance with
the provisions of Section 7.2 for the corresponding Option Field.
2.3.4. Extension of Funded Research Programs. Orchid shall have
the right to extend any Funded Research Program or to fund additional related
research at Sarnoff at Orchid's request upon reasonable terms to be negotiated
in good faith. Such extensions may include funding for the transfer of Licensed
Technology to the Combinatorial Chemistry Field, the In-vitro Diagnostic Field
or any other Option Field for which Orchid has an exclusive license hereunder.
2.3.5. Technology Audits. Upon termination or expiration of each
Funded Research Program, Sarnoff and Orchid shall, within 90 days of such
termination or expiration, meet in good faith to compile a detailed list of all
Licensed Technology invented, or developed during the course of such Funded
Research Program or incorporated in devices or systems as part of such Funded
Research Program. Such list shall be mutually agreed between the parties and
appended to this Agreement as a description of the Licensed Technology
attributable to such Funded Research Program and licensed hereunder as Research
Technology. Sarnoff will provide reasonable assistance to Orchid to transfer all
of such Licensed Technology to Orchid.
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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2.4. No Waiver of Rights. Notwithstanding any provision of this
Agreement, (a) the failure by Orchid to exercise any Option hereunder shall not
in any way affect any exclusive licenses granted to Orchid herein or any
licenses subsequently granted to Orchid by Sarnoff, and (b) the scope of any
licenses granted to Orchid in the SB Agreement shall not be limited or affected
in any way by this Agreement.
2.5. Provision of Services. For the duration of the Option Period, in
order to facilitate agreements with Partners for Funded Research Programs, in
connection with the licenses and rights granted herein to Orchid, Sarnoff agrees
to provide reasonable assistance to Orchid in the area of business development
in the Orchid Field and any available Option Fields as requested by Orchid.
2.6. Rights to Jointly Developed Inventions.
2.6.1. Joint Inventions Jointly Owned. All right, title and
interest to any inventions or improvements within or outside the Orchid Field
jointly invented by the Parties prior to or during the term of this Agreement
shall be the joint property of the Parties ("Joint Inventions") unless otherwise
agreed in writing, and any resulting Patent Rights ("Joint Patent Rights") shall
be jointly owned.
2.6.2. Restrictions on Licensing Joint Inventions. Unless
otherwise agreed in writing, without the prior written consent of Sarnoff,
Orchid shall not grant a license or other right to any third party to use or
practice outside the Orchid Field and those Option Fields for which Orchid has
not exercised its Option, any Joint Invention or Joint Patent Right, or to
develop, have developed, make, have made, use, have used, offer to sell, sell,
have sold, import, have imported, lease, or otherwise distribute any products or
deliver any services outside the Orchid Field Covered By Joint Patent Rights.
Unless otherwise agreed in writing, without the prior written consent of Orchid,
Sarnoff shall not grant a license or other right to any third party to use or
practice in the Orchid Field and those Option Fields for which the Orchid Option
has not expired, any Joint Invention or Joint Patent Right, or to develop, have
developed, make, have made, use, have used, offer to sell, sell, have sold,
import, have imported, lease or otherwise distribute any products or deliver any
services, within the Orchid Field Covered By Joint Patent Rights.
2.6.3 Sarnoff Interest in Joint Inventions. Sarnoff's interest in
Joint Inventions and Joint Patent Rights shall be deemed to be Licensed
Technology.
2.7 Grant Back to Sarnoff. To the extent permitted by present or future
agreements with third parties, Orchid hereby grants to Sarnoff a paid up,
royalty-free, non-exclusive license, with right to sublicense, to all
Intellectual Property relating to Chips, Storage Devices, and Input/ Output
Devices developed by Orchid during the term of the restrictions set forth in
Section 2.2, to develop, have developed, make, have made, use, have used,
import, have imported, offer for sale, sell have sold or lease products and
practice processes outside the Life Science Field. Such license shall survive
the termination or expiration of this Agreement.
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3. Consideration.
3.1 License Consideration. In consideration of the licenses and rights
granted herein, Orchid:
(a) has previously issued to Sarnoff an aggregate of 79,300 shares of
Common Stock, par value $.001, of Orchid, subject to the terms and conditions
set forth in the Shareholder Common Stock Purchase Agreement dated August 30,
1995 and 670,000 shares of Series A Convertible Preferred Stock, par value
$.001, of Orchid, subject to the terms and conditions set forth in the Series A
Convertible Preferred Stock Purchase Agreement dated August 30, 1995;
(b) shall issue to Sarnoff or to Sarnoff's designated employees Eighty
Two Thousand Five Hundred (82,500) shares of Common Stock, par value $.001, of
Orchid and One Hundred Sixty Seven Thousand Five Hundred (167,500) shares of
Series A Convertible Preferred Stock, par value $0.001, of Orchid in
consideration of the license granted hereunder in the In-vitro Diagnostic Field;
and
(c) shall pay Sarnoff royalties for Products and Services as set forth
in Section 3.4 and 3.5.
3.2 Option Consideration. Upon exercise of an Option with respect to
any Option Field, Orchid shall issue to Sarnoff or its designated employees
33,300 shares of Common Stock, par value $.001, of Orchid and shall issue to
Sarnoff 66,700 shares of Class A Preferred Stock, par value $.001, of Orchid.
Orchid shall also issue to Sarnoff or its designated employees an additional
50,000 shares of Common Stock, par value $.001, of Orchid for each year during
the term of the related Funded Research Program at the end of each funding year.
3.3 Restrictions and Limits. All shares of Common Stock or Preferred
Stock issued to Sarnoff pursuant to this Agreement shall contain restrictive
legends as determined by counsel to Orchid to be required under the securities
laws of the United States and the relevant states or any stock subscription
agreement and shall be subject to existing Shareholder Agreements and Charter or
By-Law limitations on transfer.
3.4 Royalties under Exclusive License. Except for Products which
incorporate no Licensed Technology other than Developed Technology (as defined
in the SB Agreement), and/or technology developed under the Dynal Agreements or
Services provided using such Products which incorporate no Licensed Technology
other than Developed Technology (as defined in the SB Agreement), and/or
technology developed under the Dynal Agreements, commencing on January 1 of the
calendar year following the date on which the percentage of Orchid stock
represented by the total shares of Series A Convertible Preferred Stock and
Common Stock issued to Sarnoff as set forth in Sections 3.1(a) and (b) and
Section 3.2 (the "Issued Shares"), and regardless of whether or not Sarnoff may
have sold all or a portion of such Issued Shares, drops below 20% of all shares
of capital stock of Orchid then outstanding (calculated by assuming conversion
of all outstanding convertible securities and exercise of all outstanding
warrants) (such January 1 being referred to herein as the "Royalty Commencement
Date"), in consideration of the exclusive licenses granted pursuant to Section
2.1.1 and the non-
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exclusive licenses granted pursuant to Section 2.1.2 Orchid shall make payments
to Sarnoff of royalties as follows:
(a) [*] of Net Sales by Orchid and its Affiliates of Products and Services
whose discovery, development, testing, manufacture, use, sale, importation,
lease or offer for sale would, but for the licenses granted hereunder, infringe
a Valid Claim of a Patent Right included in the Licensed Technology which is not
a Joint Patent Right and which is exclusively licensed hereunder, or whose
discovery, development, testing, manufacture, use, sale, importation, lease or
offer for sale directly employs or embodies proprietary Licensed Technology
which is not a Joint Invention and which is exclusively licensed hereunder,
provided however that for Products which incorporate Licensed Technology and
either Developed Technology (as defined in the SB Agreement), or technology
developed under the Dynal Agreements or Services provided using such Products,
the royalty rate shall be [*] of Net Sales;
(b) [*] of Net Sales by Orchid and its Affiliates of Products and Services
whose discovery, development, testing, manufacture, use, sale, importation,
lease or offer for sale would, but for the licenses granted hereunder, infringe
a Valid Claim of a Joint Patent Right, but not any other Patent Right, which is
included in the Licensed Technology and which is exclusively licensed hereunder,
or whose discovery, development, testing, manufacture, use, sale, importation,
lease or offer for sale directly employs or embodies only such Licensed
Technology which is a Joint Invention and which is exclusively licensed
hereunder;
(c) for (i) sales by any licensees or sublicensees of Orchid of any such
Products or Services as specified in Section 3.4(a) or (b), and (ii) payments
received by Orchid under a sublicense of exclusive Licensed Technology, Orchid
shall pay Sarnoff [*] of any non-refundable amounts received by Orchid from such
licensees or sublicensees, including but not limited to advanced and minimum
royalties, up front and milestone project and licensing fees (excluding equity
investments by licensees or sublicensees and excluding fees paid to Orchid in
any form which are required to be used for research or other services to be
performed by Orchid).
3.5 Royalties under Non-exclusive License. In consideration of the non-
exclusive licenses granted pursuant to Section 2.1.2, except for Products which
incorporate no Licensed Technology other than Developed Technology (as defined
in the SB Agreement), and/or technology developed under the Dynal Agreements or
Services provided using such Products which incorporate no Licensed Technology
other than Developed Technology (as defined in the SB Agreement), and/or
technology developed under the Dynal Agreements, Orchid shall make payments to
Sarnoff of royalties without regard to Sarnoff's ownership of Issued Shares as
follows:
(a) [*] of Net Sales by Orchid and its Affiliates of Products and Services
whose discovery, development, testing, manufacture, use, sale, importation,
lease or offer for sale would, but for the licenses granted hereunder, infringe
a Valid Claim of a Patent Right included in the Licensed Technology which is not
a Joint Patent Right and which is non-exclusively licensed hereunder, or whose
discovery, development, testing,
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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manufacture, use, sale, importation, lease or offer for sale directly employs or
embodies proprietary Licensed Technology which is not a Joint Invention and
which is non-exclusively licensed hereunder, provided however that for Products
which incorporate Licensed Technology and either Developed Technology (as
defined in the SB Agreement), or technology developed under the Dynal Agreements
or Services provided using such Products, the royalty rate shall be [*] of Net
Sales; and
(b) [*] of Net Sales by Orchid and its Affiliates of Products and Services
whose discovery, development, testing, manufacture, use, sale, importation,
lease or offer for sale would, but for the licenses granted hereunder, infringe
a Valid Claim of a Joint Patent Right, but not any other Patent Right, which is
included in the Licensed Technology and which is non-exclusively licensed
hereunder, or whose discovery, development, testing, manufacture, use, sale,
importation, lease or offer for sale directly employs or embodies only such
Licensed Technology which is a Joint Invention and which is non-exclusively
licensed hereunder; and
(c) for (i) sales by any licensees or sublicensees of Orchid of any such
Products or Services as specified in Section 3.5(a) or (b) and (ii) payments
received by Orchid under a sublicense of non-exclusive Licensed Technology,
Orchid shall pay Sarnoff [*] of any non-refundable amounts received by Orchid
from such licensees or sublicensees, including but not limited to advanced and
minimum royalties, up front and milestone project and licensing fees (excluding
equity investments by licensees or sublicensees and excluding fees paid to
Orchid in any form which are required to be used for research or other services
to be performed by Orchid).
(d) In addition, Orchid shall pay Sarnoff for each Option Field for which
Orchid has a non-exclusive license under Section 2.1.2 on the relevant date the
following minimum royalties for each Option Field: [*]. For Option Fields where
Orchid notifies Sarnoff, at least thirty (30) days prior to the minimum royalty
due date, that Orchid does not wish to maintain its non-exclusive license, no
minimum royalty payment shall be due and Orchid shall no longer have a non-
exclusive license for such Option Field.
3.6 Royalty Reductions. In the event that royalties and fees paid to
Sarnoff pursuant to Section 3.4 or 3.5 shall become a significant factor in the
return realized by Orchid such as to substantially diminish its capability to
respond to competitive pressures in the market, the parties shall mutually agree
on a reasonable reduction in the royalties and fees payable under this Agreement
with respect to the affected Products and Services. Factors to be considered in
agreeing on the royalty reduction shall include but not be limited to the profit
margin on such
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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Products and Services and on analogous and/or competitive Products and Services
and prices and expenditures therefor.
3.7 Royalty Term. Royalties hereunder shall be payable only until the
expiration of the last to expire of the Patent Rights covering a particular
Product or Service. Thereafter, Orchid shall have a fully paid up, perpetual
non-exclusive license to all Licensed Technology for such Product or Service.
3.8 Royalty Reporting Provisions.
(a) Orchid agrees to submit to Sarnoff within sixty (60) days after the
calendar quarters ending March 31, June 30, September 30, and December 31 of
each year in which royalties are due hereunder, reports setting forth for the
preceding three (3) month period at least the following information for Orchid,
its Affiliates and sublicensees:
i) total billings for Products sold;
ii) total billings for all Services provided or sold;
iii) deductions applicable to determine the Net Sales thereof;
iv) the amount of royalty due thereon; and with each such royalty
report to pay the amount of royalty due.
(b) All such reports shall be maintained in confidence by Sarnoff, except
as required by law.
(c) All payments due hereunder shall be payable in United States dollars.
Conversion of foreign currency to U.S. dollars shall be made at the conversion
rate existing in the United States (as reported in The Wall Street Journal) on
the last working day of each royalty period.
(d) Any tax paid or required to be withheld by Orchid on account of
royalties payable to Sarnoff under this Agreement shall be deducted from the
amount of royalties otherwise due. Orchid shall secure and send to Sarnoff proof
of any such taxes withheld and paid by Orchid for the benefit of Sarnoff.
(e) If governmental regulations prevent remittances from a foreign country
with respect to sales made or fees received in that country, the obligation of
Orchid to pay royalties on such sales and/of fees shall be suspended until such
remittances are permitted. Sarnoff shall have the right, upon giving written
notice to Orchid, to receive payment in such country in local currency.
3.9 Royalties to Third Parties. In the event Orchid becomes liable to pay
royalties or other amounts to any third party as a result of the sale of any
product or the delivery of any services by Sarnoff or any Affiliate of Sarnoff
under Section 6 of the SB Agreement or otherwise, then Sarnoff shall be liable
for all such royalties or other amounts and shall, at Orchid's option, either
pay such amounts directly to the third party or shall reimburse Orchid for such
royalties or other amounts within thirty (30) days after receipt of an invoice
from Orchid.
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3.10 Royalty Audits. Orchid shall keep complete, true and accurate books
of account and other appropriate records for the purpose of showing the amount
payable to Sarnoff by way of royalty and of cumulative Net Sales and otherwise
showing Orchid's compliance with Section 3 of this Agreement. Said books and the
supporting data and other documentation, including technical information
relevant to the determination of Orchid's obligations hereunder, shall be kept
at Orchid's principal office and maintained for three (3) years following the
end of the calendar year to which they pertain. Such records, solely to the
extent relevant to the determination of Orchid's obligations under Section 3 of
this Agreement shall be open, upon reasonable notice and at reasonable times
during normal business hours, to the inspection by independent, certified public
accounts (to be selected solely by Sarnoff and reasonably acceptable to Orchid)
at Sarnoff's expense. However, if a discrepancy of more than five percent (5%)
of royalties due Sarnoff is discovered by the inspection, then the cost of the
inspection shall be performed at Orchid's expense.
4. Representations and Warranties.
4.1. Representations, Warranties and Covenants of Sarnoff. Sarnoff
represents, warrants and covenants to Orchid as follows:
4.1.1. Sarnoff is a corporation duly organized, validly existing and
in good standing under the laws of the State of New Jersey with corporate powers
adequate for executing and delivering, and performing its obligations under,
this Agreement;
4.1.2. The execution, delivery and performance of this Agreement have
been duly authorized by all necessary corporate action on the part of Sarnoff;
4.1.3. This Agreement has been duly executed and delivered by Sarnoff
and is a legal, valid and binding obligation of Sarnoff, enforceable against it
in accordance with its terms;
4.1.4. The execution, delivery and performance of this Agreement does
not and will not conflict with or contravene any provision of the charter
documents or bylaws of Sarnoff or any material agreement, document, instrument,
indenture or other obligation of Sarnoff;
4.1.5. Sarnoff shall not enter into any agreement, make any
commitment, take any action or fail to take any action that would contravene any
material provision of, or materially derogate or restrict any of the rights and
licenses granted to Orchid under, this Agreement; and
4.1.6. Schedule A sets forth a list of all Patent Rights relating to
Licensed Technology Owned or Controlled by Sarnoff as of the Effective Date. To
the best of Sarnoff's knowledge, all patents listed in Schedule A are valid and
in full force and all applications listed therein as pending have been
prosecuted in good faith as required by law and are in good standing. To the
best of Sarnoff's knowledge, there has been no infringement by Sarnoff or its
Affiliates with respect to any patent rights of others in the conduct of the
research activities that have resulted in the existing Licensed Technology owned
by Sarnoff. None of the patents or patent applications listed or described in
Schedule A is involved in any interference or opposition proceeding, and there
has been no written notice received by Sarnoff or any of its Affiliates that any
such proceeding will hereafter be commenced. Also, included in Schedule A is a
list of all
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licenses and license agreements relating to Licensed Technology. To the best of
Sarnoff's knowledge (i) all of the licenses listed or described in Schedule A
are legally valid and binding and in full force and effect, (ii) Sarnoff is not
in default under any such license, and (iii) there are no defaults by any other
party to any such license. None of Sarnoff's rights under any such license will
be impaired by the consummation of the transactions contemplated hereby. Except
for licenses granted under the SB Agreement and except as described in Schedule
A, Sarnoff has not granted any person or entity any right to use any of the
patents or patent applications listed therein in the Orchid Field or the Option
Fields.
4.1.7. Sarnoff shall diligently prosecute and maintain all Patent
Rights licensed to Orchid in accordance with the provisions set forth in Section
5.2 and shall not take or fail to take any actions which would impair such
Patent Rights without prior written notice to Orchid as provided in Section
5.2.4.
4.2. Representations, Warranties and Covenants of Orchid. Orchid
represents, warrants and covenants to Sarnoff as follows:
4.2.1. Orchid is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware with corporate powers
adequate for executing and delivering, and performing its obligations under,
this Agreement;
4.2.2. The execution, delivery and performance of this Agreement have
been duly authorized by all necessary corporate action on the part of Orchid;
4.2.3. This Agreement has been duly executed and delivered by Orchid
and is a legal, valid and binding obligation of Orchid, enforceable against
Orchid in accordance with its terms;
4.2.4. The execution, delivery and performance of this Agreement do
not and will not conflict with or contravene any provision of the charter
documents or bylaws of Orchid or any material agreement, document, instrument,
indenture or other obligation of Orchid; and
4.2.5. Orchid shall not enter into any agreement, make any
commitment, take any action or fail to take any action that would contravene any
material provisions of, or materially derogate or restrict any of the rights and
licenses granted to, Sarnoff under this Agreement.
5. Disclosure of Licensed Technology.
5.1. Documentation and Access. Upon request by Orchid from time to time,
Sarnoff shall, within a reasonable time thereafter, deliver to Orchid copies of
reasonable documentation describing the Licensed Technology and Sarnoff shall
give access to and use reasonable efforts to keep Orchid apprised of all ongoing
and future Licensed Technology created or acquired by Sarnoff and its Affiliates
and subject to a license or Option to Orchid hereunder. In the event that Orchid
shall have reason to believe that Sarnoff has not complied with the requirements
of this Section 5.1, it shall so notify Sarnoff and Sarnoff shall be given a
reasonable opportunity to cure such non-compliance.
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5.2. Patents.
5.2.1. Patent Prosecution.
Sarnoff shall, by qualified independent patent counsel, prepare, file,
prosecute and maintain patent applications, and maintain and enforce Patent
Rights included in the Licensed Technology in the countries of United States,
Canada, Australia, Europe Patent Office (designating Austria, France, Germany,
Spain, Ireland, Italy, Netherlands, Sweden, Switzerland, United Kingdom), Japan,
and Korea and such other countries as mutually agreed between Orchid and Sarnoff
and shall have all rights to otherwise deal in and to enforce rights associated
with Licensed Technology except as otherwise provided in Section 6.2. Sarnoff
shall provide Orchid with copies of all proposed patent and other applications
and filings and communications and give Orchid the reasonable opportunity to
comment thereon and Sarnoff will consider in good faith any comments provided to
Sarnoff by Orchid prior to filing. Sarnoff agrees to deliver to Orchid copies of
any communications with the applicable patent office, including without
limitation, all office actions and responses, each patent application and
filing, and each registration that issues thereon.
5.2.2. Cooperation. Orchid agrees to cause each of its employees and
agents to take all actions and to execute, acknowledge and deliver all
instruments or agreements reasonably requested by Sarnoff, and necessary for the
perfection, maintenance, enforcement or defense of Patent Rights as set forth
above.
5.2.3. Financing of Costs. Orchid agrees to pay to Sarnoff [*] of
Sarnoff's reasonable out of pocket costs incurred in the preparation, filing,
translation, prosecution, issuance and maintenance of any such patent
applications or patents relating to Licensed Technology except for Licensed
Technology under Section 1.17(f) prepared or filed after the Effective Date and
[*] of the maintenance costs for such Patent Rights incurred by Sarnoff after
the Effective Date, provided that such prosecution is conducted as set forth in
Section 5.2.1 above. If Orchid declines in writing to pay to Sarnoff its [*]
share of the costs of a particular Patent Right in a particular country,
Orchid's license to such Patent Right in such particular country shall be
terminated as of the Due Date. If Orchid fails to pay to Sarnoff within thirty
(30) days from date of receipt of invoice (the "Due Date"), and such failure
continues for a period of 30 days after written notice to Orchid by Sarnoff of
such failure to pay, Orchid's license to such Patent Right in such particular
country shall be terminated as of the Due Date.
5.2.4. Election to Discontinue Prosecution. Sarnoff may, with
respect to the Patent Rights, at any time, in its sole discretion decide that it
desires to discontinue its responsibility for the prosecution or maintenance of
a particular patent application or patent in one or more countries of Patent
Rights which are Licensed Technology under Section 1.17(a), (b), (c), (d), (e)
and (g). In such event, Sarnoff shall notify Orchid promptly in writing of its
intention to discontinue responsibility for the prosecution or maintenance for
such patent application or patent, and, in any event, shall give such notice at
least sixty (60) days prior to the effective date of such proposed
discontinuance in order to permit Orchid to determine whether it wishes to
assume the responsibility therefor. Orchid shall have the right and option, but
not the obligation, to assume responsibility for prosecution and maintenance of
such patent or patent
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
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application which Sarnoff desires to discontinue. Orchid shall inform Sarnoff in
writing of its decision to assume responsibility for prosecution and maintenance
of such patent or patent application and Sarnoff shall execute and deliver such
documents and take such actions as are reasonably necessary or appropriate to
effect such assumption and transfer of responsibility in a timely and efficient
manner. In the event Orchid exercises such right, such patent or patent
application shall be assigned to Orchid and removed from operation of this
Agreement; provided that, Sarnoff shall have a royalty free, non-exclusive,
worldwide, right and license under such Licensed Technology with the right to
sublicense, to develop, have developed, make, have made, use, have used, import,
have imported, offer for sale, sell have sold or lease products and practice
processes outside the Orchid Field and the Option Fields so long as the Options
remain in effect and further provided that upon termination of this Agreement,
such patents and patent applications shall be assigned to Sarnoff. However, if
Sarnoff elects to use or sublicense a particular patent in a particular country
assigned by Sarnoff to Orchid under this Section 5.2.4, then Sarnoff shall pay
to Orchid one half of the out of pocket costs expended by Orchid in obtaining
and maintaining the particular patent in the particular country.
5.3. Confidential Information. Any Party receiving or possessing
Confidential Information of the other Party shall use commercially reasonable
efforts to: (i) maintain the confidential and proprietary status of such
Confidential Information; (ii) keep such Confidential Information and each part
thereof within its possession or under its control sufficient to prevent any
activity with respect to the Confidential Information that is not specifically
authorized by this Agreement; (iii) prevent the disclosure of any Confidential
Information to any other Person; and (iv) ensure that such Confidential
Information is used only for those purposes specifically authorized herein;
provided, however, that such restriction shall not apply to any Confidential
Information which is (a) independently developed by the receiving Party without
reference to Confidential Information of the disclosing Party, (b) in the public
domain at the time of its receipt or thereafter becomes part of the public
domain through no fault of the receiving Party, (c) received by the receiving
Party without an obligation of confidentiality from a third party having the
right to disclose such information, (d) released from the restrictions of this
Section 5.3 by the express written consent of the disclosing Party, (e)
disclosed to any actual or prospective permitted assignee, Partner, investor,
licensee, sublicensee or subcontractor of either Sarnoff or Orchid (if such
actual or prospective assignee, Partner, investor, licensee, sublicense or
subcontractor is subject to the provisions of this Section 5.3 or comparable
provisions of other documents), or (f) required by law, statute, rule or court
order to be disclosed (the disclosing party shall, however, use commercially
reasonable efforts to obtain confidential treatment of any such disclosure and
shall notify the other party in writing of the request or requirement as soon as
feasible so that such other party may make timely effort to protect or limit the
conditions of disclosure of its Confidential Information). Without limiting the
generality of the foregoing, Sarnoff and Orchid each shall use its commercially
reasonable efforts to obtain confidentiality agreements from its respective
Partners, investors, licensees, sublicensees, subcontractors employees and
agents, similar in scope to this Section 5.3, to protect the Confidential
Information.
5.4. Permitted Disclosures. Notwithstanding the provisions of Section 5.3
hereof, Sarnoff and Orchid may, to the extent necessary, disclose and use
Confidential Information, consistent with the rights of Sarnoff and Orchid
otherwise granted hereunder (a) for the purpose of securing institutional or
government approval to clinically test or market any Product, or (b)
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for the purpose of securing patent protection for an invention within the scope
of the Patent Rights. This Agreement and the terms hereof may be disclosed by
either Party only to a third party which executes an agreement requiring such
third party to maintain the confidentiality thereof
6. Infringement.
6.1. Notification of Infringement. Orchid and Sarnoff each shall notify
the other of any infringement or misappropriation by any Person of any Licensed
Technology rights in the Orchid Field and shall provide the other with the
available evidence, if any, of such infringement. In such case, the respective
officers of Sarnoff and Orchid shall confer to determine in good faith an
appropriate course of action to enforce the Licensed Technology rights or
otherwise abate the infringement thereof.
6.2. Enforcement of Licensed Technology Rights. If the parties have not
agreed on a course of action pursuant to Section 6.1, then if Orchid determines
that enforcement of the Licensed Technology rights in the Orchid Field is
appropriate, Orchid shall have the right, but not the obligation, at its own
expense, to take appropriate action to enforce such rights; provided, however,
that, if Orchid elects to so act, Sarnoff shall have the right to participate in
the enforcement of such rights by agreeing to bear a percentage of the costs of
such enforcement in such amount as the parties shall determine. All amounts
recovered in any action to enforce rights in Licensed Technology in the Orchid
Field undertaken by Orchid, whether by judgment or settlement, shall be retained
by Orchid after reimbursing the expenses borne by both parties in enforcing such
Licensed Technology rights. If, within six (6) months after notice of
infringement, Orchid has not commenced action to enforce such rights or
thereafter ceases to diligently pursue such action, Sarnoff shall have the
right, at its expense, to take appropriate action to enforce such rights. Orchid
shall have the right to participate separately in such enforcement. All amounts
recovered in any action to enforce Licensed Technology rights undertaken by
Sarnoff solely at its expense, whether by judgment or settlement, shall be
retained by Sarnoff after reimbursing the expenses borne by both parties in
enforcing such Licensed Technology rights. Sarnoff and Orchid shall fully
cooperate with each other in the planning and execution of any action to enforce
rights. Sarnoff shall not enter into any settlement that includes the grant of a
license under, agreement not to enforce, or any statement prejudicial to the
validity or enforceability of any Licensed Technology in the Orchid Field
without the consent of the Orchid.
6.3. Disclaimer of Warranty; Consequential Damages.
6.3.1. SARNOFF EXPRESSLY DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED,
WITH RESPECT TO THE LICENSED TECHNOLOGY, INCLUDING, W1THOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6.3.2. NEITHER PARTY TO THIS AGREEMENT SHALL BE ENTITLED TO RECOVER
FROM THE OTHER ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, MULTIPLE OR PUNITIVE
DAMAGES.
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6.4 Infringement. In the event that an action for patent infringement is
commenced against Orchid and/or its sublicensees, whether severally or jointly,
based on the manufacture, use or sale of any Product or Service in any country,
Orchid may, without limitation: (i) terminate and revert its license hereunder
to such Product or Service in such country, which shall be deemed an abandonment
of such Product or Service in such country, or (ii) defend such action on
behalf, of the appropriate parties at its own expense.
6.5 Markings. Set forth in Exhibit A is a list of the Patent Rights,
which list shall be updated from time to time by Sarnoff Orchid shall refer to
this list and affix appropriate markings and legends on Products or Services
sold or distributed by or on behalf of Orchid using such Patent Rights.
6.6 Limitations. Sarnoff makes no representations or warranties that the
rights granted to Orchid pursuant to Section 2.1 hereof may be exercised by
Orchid and its sublicensees without infringing any third party rights in any
country in the world. Sarnoff assumes no responsibility hereunder for the
manufacturing, product specifications, or end-uses of Products or Services by
Orchid or its customers or sublicensees. No warranties made by Orchid in
connection with its Products or Services shall expressly or implicitly obligate
Sarnoff in any manner.
6.7 Product Indemnification. Subject to the provisions of this Section
6.7, Orchid agrees to defend, indemnify and hold harmless Sarnoff from any and
all damages arising from injury or damage to persons or property (including
without limitation, product liability or infringement of any proprietary rights)
resulting directly or indirectly from Orchid's use, development, manufacture,
licensing, marketing, sale or other disposition or any other commercial
exploitation of any Product or Service, except those which result from the gross
negligence or willful misconduct of Sarnoff. Sarnoff shall promptly notify
Orchid of any claim which is to be indemnified hereunder and Orchid shall have
the sole right to defend, settle or compromise any such action or claim.
7. Term and Termination.
7.1. Term. This Agreement shall be effective as of the Effective Date and
shall continue in full force and effect unless terminated by mutual agreement or
as set forth below.
7.2. Termination. In the event Orchid fails to make payments due
hereunder, Sarnoff shall have the right to terminate this Agreement upon ninety
(90) days' written notice, unless Orchid makes such payments within the ninety
(90) day notice period or unless any such payment is contested in good faith, in
which event Sarnoff shall not have the right to terminate this Agreement until
the matter is resolved in Sarnoff's favor pursuant to Section 13 hereof and
Orchid still fails to make any such payment for thirty (30) days after such
resolution.
7.3. Survival of Sublicenses. In the event any license granted to Orchid
hereunder terminates for any reason, any sublicenses granted by Orchid under
this Agreement shall continue.
22
<PAGE>
8. No Implied Waivers; Rights Cumulative.
The delay or failure of any Party at any time or times to require
performance of any provisions shall in no manner affect the rights at a later
time to enforce the same. No waiver by any Party of any condition or of the
breach of any term contained in this Agreement, whether by conduct, or
otherwise, in any one or more instances, shall be deemed to be, or considered
as, a further or continuing waiver of any such condition or of the breach of
such term or any other term of this Agreement.
9. Force Majeure.
Sarnoff and Orchid shall each be excused for any failure or delay in
performing any of its respective obligations under this Agreement, if such
failure or delay is caused by Force Majeure.
10. Notices.
All notices, requests and other communications to Sarnoff or Orchid
hereunder shall be in writing (including telecopy or similar electronic
transmissions), shall refer specifically to this Agreement and shall be
personally delivered, by registered mail or certified mail, return receipt
requested, postage prepaid or by reliable overnight courier service providing
evidence of receipt, in each case to the respective address specified below (or
to such address as may be specified in writing to the other party hereto):
Sarnoff Corporation
201 Washington Road
Princeton, NJ 08543
Attn: Vice President, IP and Licensing
With a copy to:
Allen Bloom, Ph.D., Esq.
Dechert Price & Rhoads
Princeton Pike Corporate Center
Princeton, NJ 08543-5218
Orchid Biocomputer, Inc.
201 Washington Road
Princeton, NJ 08543
Attn: President
With a copy to:
Jeffrey M. Wiesen, Esq.
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
23
<PAGE>
Any notice or communication given in conformity with this Section 12 shall
be deemed to be effective: (i) when received by the addressee, if delivered by
hand; (ii) three (3) days after mailing, if mailed; and (iii) one (1) business
day after delivery to a reliable overnight courier service providing evidence of
receipt.
11. Successors and Assigns.
The terms and provisions of this Agreement shall inure to the benefit of,
and be binding upon, Sarnoff, Orchid, and their respective successors and
assigns.
12. Amendments.
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor any consent to any departure by Sarnoff or
Orchid therefrom, shall in any event be effective unless the same shall be in
writing specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged and signed by Sarnoff and
Orchid, and each such amendment, modification, waiver, termination or discharge
shall be effective only in the specific instance and for the specific purpose
for which given. No provision of this Agreement shall be varied, contradicted
or explained by any oral agreement, course of dealing or performance or any
other matter not set forth in an agreement in writing and signed by Sarnoff and
Orchid.
13. Arbitration
13.1. The Parties shall attempt to resolve any dispute or controversy
arising under or relating to the interpretation or meaning of this Agreement by
good faith negotiations. Any matter that cannot be resolved by such good faith
negotiation shall be resolved by final and binding arbitration conducted by
three (3) arbitrators in Princeton, New Jersey, in accordance with the then-
current American Arbitration Association ("AAA") Commercial Arbitration Rules
(the "AAA Rules") as modified by this Section 13.
13.2. The arbitrators shall be selected by mutual agreement of the parties
or, failing such agreement, in accordance with the aforesaid AAA Rules. At
least one (1) of the arbitration panel shall be reasonably familiar with the
industry in which Orchid operates. The parties shall bear the costs of the
arbitrators equally.
13.3. The parties shall have the right of limited pre-hearing discovery,
in accordance with the U.S. Federal Rules of Civil Procedure, as then in effect,
for a period not to exceed sixty (60) days.
13.4. As soon as the discovery is concluded, but in any event with thirty
(30) days thereafter, the arbitrators shall hold a hearing in accordance with
the AAA Rules. Thereafter, the arbitrators shall promptly render a written
decision, together with a written opinion setting forth in reasonable detail the
grounds for such a decision.
13.5. Judgment may be entered in any court of competent jurisdiction to
enforce the award entered by the arbitrator.
24
<PAGE>
13.6. The duty of the parties to arbitrate any dispute hereunder shall
survive expiration or termination of this Agreement for any reason.
14. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey.
15. Severability.
If any provision hereof should be held invalid, illegal or unenforceable in
any respect in any jurisdiction, then, to the fullest extent permitted by law,
(a) all other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in order to carry out the
intentions of the parties hereto as nearly as may be possible and (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. To the
extent permitted by applicable law, Sarnoff and Orchid hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect.
16. Headings.
Headings used herein are for convenience only and shall not in any way
affect the construction of, or be taken into consideration in interpreting, this
Agreement.
17. Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an original,
and all of which counterparts, taken together, shall constitute one and the same
instrument.
18. Interpretation.
The parties hereto acknowledge and agree that (i) each Party and its
counsel reviewed and negotiated the terms and provisions of this Agreement and
have contributed to its revision; (ii) the rule of construction to the effect
that any ambiguities are resolved against the drafting Party shall not be
employed in the interpretation of this agreement; and (iii) the terms and
provisions of this Agreement shall be construed fairly as to all Parties hereto
and not in a favor of or against any Party, regardless of which Party was
generally responsible for the preparation of this Agreement.
19. Entire Agreement.
This Agreement, together with any agreements referenced herein,
constitutes, on and as of the date hereof, the entire agreement of Sarnoff and
Orchid with respect to the licensing or transfer of technology from Sarnoff to
Orchid and all prior or contemporaneous understandings or agreements, whether
written or oral, between Sarnoff and Orchid with respect to such subject matter
are hereby superseded in their entirety except for the SB Agreement. In the case
of any conflict between the terms of this Agreement and the SB Agreement, the SB
Agreement shall govern.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this License Agreement
to be duly executed under seal and delivered as of the date first above written.
SARNOFF CORPORATION
By: /s/ Carmen A. Catanese, Ph.D.
------------------------------
Carmen A. Catanese, Ph.D.
Title: Vice President
----------------------------
ORCHID BIOCOMPUTER, INC.
By: /s/ Dale R. Pfost, Ph.D.
------------------------------
Dale R. Pfost, Ph.D.
Title: Chief Executive Officer
and President
----------------------------
26
<PAGE>
LICENSE AGREEMENT
SCHEDULE A
PRESENT PATENT RIGHTS
[*]
27
[*] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, effective November 1, 1996 (the "Effective Date"), by
and between ORCHID BIOCOMPUTER, INC., a Delaware corporation (the "Company"),
and DALE R. PFOST, Ph.D., an individual (the "Executive").
PRELIMINARY STATEMENTS
----------------------
WHEREAS, the Company wishes to employ the Executive as Chairman, President
and Chief Executive Officer of the Company;
WHEREAS, Sarnoff Corporation ("Sarnoff") owns the majority of outstanding
shares of the Company;
WHEREAS, the Executive wishes to enter into the employ of the Company as
its Chairman, President and Chief Executive Officer; and
WHEREAS, the parties understand and acknowledge that there are ongoing
discussions about the possible acquisition by the Company of various technology
rights related to the area of clinical diagnostics, and the parties anticipate
that with Sarnoff's consent and cooperation there may be a transaction to have
such technology rights added to the Company's technology portfolio.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. TERM OF EMPLOYMENT.
------------------
Subject to the provisions for termination set forth in this Agreement, the
Company will employ the Executive, and the Executive will serve the Company, as
Chairman, President and Chief Executive Officer of the Company, for a period
commencing on the Effective Date and continuing until terminated in accordance
with the terms and condition of this Agreement ("Term of Employment"). The
parties understand and agree that the Executive shall be an at-will employee of
the Company.
2. POSITIONS AND DUTIES.
--------------------
2.1 Duties. During the Term of Employment, the Executive will serve as
------
Chairman, President and Chief Executive Officer of the Company with
responsibility for the business, affairs and operations of the Company, subject
to the terms of this Employment Agreement and subject to the direction and
control of the Board of Directors of the Company. The Executive will, during the
Term of Employment, serve the Company faithfully, diligently and competently and
to the best of his ability, and will hold, in addition to the offices of
Chairman, President and Chief Executive Officer of the Company, such other
executive offices in the Company to which he may be elected, appointed or
assigned by the Board of Directors from time to time and will discharge such
executive duties in connection therewith. The Executive shall devote all of his
business time to the performance of his duties hereunder; provided, however,
that, notwithstanding any provision in this Employment Agreement to the
contrary, the Executive
<PAGE>
shall not be precluded from devoting reasonable periods of time required for
serving as a member of committees or advisory boards or board(s) of directors of
companies or organizations which have been approved by the Board of Directors of
the Company so long as such memberships or activities do not interfere with the
performance of the Executive's duties hereunder and are not contrary to the
business or other interests of the Company. In this respect the Executive is
currently serving on two such boards of directors and agrees to resign from
either or both with six months' advance written notice should the Board of the
Company decide that continuation of these directorships would not be in the best
interests of the Company. One such directorship is Pangea Systems, Inc., an
informatics company working in the drug discovery area, and the other is Spectra
Science, which is engaged in laser-based technologies.
2.2 Nomination to Board. So long as the Executive is the Chairman,
-------------------
President and/or Chief Executive Officer of the Company, Sarnoff and the Company
will continue to use diligent efforts to maintain Executive's election as a
director and Chairman of the Board of Directors of the Company.
3. COMPENSATION.
------------
3.1 Salary. The Company will, commencing with the Effective Date and
------
during the Term of Employment, pay to the Executive as compensation for the
performance of his duties and obligations hereunder a salary at the rate of Two
Hundred Twenty-Five Thousand Dollars ($225,000) per annum ("Salary"), payable in
approximately equal installments not less than twice per month and otherwise in
accordance with the Company's customary payroll practice. Such base salary shall
be reviewed, and any increases in the amount thereof shall be determined, by the
Board of Directors of the Company or a compensation committee formed by the
Board of Directors of the Company at the end of each 12-month period of
employment after the Effective Date during the Term of Employment. Such review
in the first instance shall take place in the first quarter of 1998 and will
reflect the more-than-one-year nature of the review and any appropriate
compensation adjustments on an approved pro rata basis.
3.2 Shares Issued Upon Execution. The Company shall issue to the Executive
----------------------------
as of the date of execution hereof 99,333 shares of the Company's common stock
(the "Shares"). The Company shall from time to time execute, or use diligent
efforts to cause to be executed, all such documents and agreements as are
necessary to vest in the Executive such rights with respect to the Shares that
are no less favorable than the preferential treatment (including without
limitation, liquidation preference and anti-dilution rights) granted to other
current or future holders of Common Stock.
3.2.1 Additional Blue Chip Technology Shares. The Company as of the
--------------------------------------
execution date of this Agreement is in the process of concluding a transaction
whereby Sarnoff will license to the Company certain technology commonly referred
to as the "Blue Chip Technology" in exchange for the issuance by the Company to
Sarnoff of additional shares of Orchid common stock. The Company agrees that at
the close of such licensing transaction the Company shall simultaneously issue
to Executive additional shares of Orchid common stock in an amount equal to four
percent (4%) of the equity value assigned to the Blue Chip Technology to be
licensed by Sarnoff to Orchid. By way of example only, if the proposed value of
such technology license is 250,000 shares, at the time the transaction closes
and 250,000 shares are issued by Orchid to Sarnoff in exchange for such license,
then at such time Orchid shall also
2
<PAGE>
issue to Executive an additional 10,000 shares of Orchid common stock. Upon such
issuance, such additional shares shall be included in the definition of "Shares"
as defined at Section 3.2 above and used in this Agreement.
3.2.2 Repurchase Rights by the Company. Until the closing of an
--------------------------------
initial public offering of the Company's common stock, or until Sarnoff no
longer owns or controls at least 51% of the Company's outstanding voting shares,
the Company shall, upon any termination of Executive's employment, have the
right upon fourteen (14) days' prior written notice to Executive to purchase
from Executive all, but not less than all, of the Shares, at the following
prices per share:
A. The "vested" shares held by the Executive on the date of his
termination shall be purchased for a price per share equal to the fair market
value per share as of the date of such termination. The "fair market value per
share" shall be determined in good faith by the Board of Directors of the
Company in its sole discretion. If Executive disagrees with this valuation, upon
written notice by Executive to the Company, the parties mutually shall select a
neutral independent appraiser to determine such value within 90 days after such
notice, with the expense of such appraisal borne equally by the parties. The
number of Shares which are "vested" shall be calculated as follows: twenty-five
percent (25%) of the total Shares issued to Executive (including without
limitation the issuance of any additional Blue Chip Technology shares under
Section 3.2.1 above) plus the addition on the last day of each month following
November 1,1996 to such pool of "vested" Shares of 2.083% of the total Shares
(including any such Blue Chip Technology shares), so that all of the Shares
(including without limitation any such Blue Chip Technology shares) shall be
fully (100%) vested on the third anniversary of the Effective Date of this
Agreement.
B. The "unvested" Shares held by the Executive on the date of
his termination shall be purchased for $.01 per share. The number of "unvested"
Shares shall be the total number of Shares, less the "vested" Shares (as
determined above) on the date of any such termination.
3.3 Employee's Sale Rights. At anytime, if the Executive's employment is
----------------------
terminated for any reason, with or without cause, the Executive shall have the
right to require the Company to purchase all, but not less than all, of the
fully "vested" Shares of the Company's capital stock held by the Executive on
the date of his termination at a price per share equal to the fair market value
per share of the stock, as determined in good faith by the Board of Directors in
its sole discretion. If Executive disagrees with this valuation, upon written
notice by Executive to the Company, the parties mutually shall select a neutral
independent appraiser to determine such value within 90 days after such notice,
with the expense of such appraisal borne equally by the parties. The number of
such "vested" shares shall be determined in accordance with Section 3.2.1 .A.
above. At the Closing of any such purchase, the Company shall also purchase all
of Executive's "unvested" Shares, with such unvested Shares being determined in
accordance with Section 3.2.1 .B. above, at a price of $.01 per Share.
4. EXPENSES AND BENEFITS.
---------------------
4.1 Relocation and Legal Expenses. The Company shall reimburse the
-----------------------------
Executive for (i) all reasonable costs incurred by him in connection with his
accepting this employment, up to a
3
<PAGE>
maximum of Twenty-Five Thousand Dollars ($25,000.00) including, without
limitation, (1) the costs of moving his family and belongings from California
and the UK to the Princeton, New Jersey area; (2) housing search and closing
costs; and (3) legal fees in connection with the review and negotiation of this
Agreement, plus (ii) any federal, state or local income or payroll taxes
incurred by the Executive with respect to payments made to him or on his behalf
under this Section 4.1 so that Executive shall be made whole on an after tax
basis.
4.2 Additional Personal Expenses. In addition to the relocation expenses
----------------------------
set forth in Section 4.1 above, the Company shall reimburse the Executive for
(i) the reasonable costs of hotel and airfare for the Executive and his family
for two (2) trips to New Jersey to find housing in the Princeton area and (ii)
the reasonable cost of airfare for the Executive's travel to California for
Thanksgiving, Christmas and at one other time before December 31, 1996. The
Executive will use his best efforts to incorporate this personal travel to
California with business trips to the area made on behalf of the Company.
4.3 Business Expenses. All travel and other reasonable and ordinary
-----------------
business expenses incident to the rendering of services by the Executive
hereunder will be reimbursed by the Company subject to the submission of
appropriate vouchers and receipts in accordance with the Company's policies and
procedures from time to time in effect.
4.4 Benefits. During the Term of Employment, and thereafter under the
--------
specific circumstances set forth in this Agreement, the Executive shall be
entitled to participate in all employee and fringe benefits generally provided
on an ongoing basis to other members of the Company's management who are
similarly situated, including, without limitation, all pension, profit sharing,
incentive, retirement, insurance, health and disability benefits and plans.
Notwithstanding the foregoing, the Company shall provide, at Company cost, the
Executive with the following:
4.4.1 medical insurance for the Executive and his family under an
indemnity plan, not a health maintenance organization (HMO);
4.4.2 life insurance coverage in an amount equal to three (3) times
the Executive's Salary;
4.4.3 business travel insurance; and
4.4.4 contributory long-term disability insurance under the Sarnoff
plan or under a successor Company plan.
4.5 Cash and Stock Bonuses: Stock Options. Upon the execution of this
-------------------------------------
Employment Agreement, the Company shall pay to the Executive a one-time sign-on
bonus in the amount of $50,000, which shall be in the form of a non-recourse
loan to the Executive, the repayment of which shall be forgiven monthly over a
three-year period, calculated as of the Effective Date. The Company shall in
addition pay to the Executive an annual bonus of up to an amount equal to 25% of
the Executive's salary for each year during the "Term of Employment," subject to
achievement of specific performance milestones set forth in the Company's
Business Plan and agreed to in advance and in writing by both the Company and
the Executive. The Executive also shall be entitled to such stock bonuses and
stock options as determined by the Board of Directors from time to time.
4
<PAGE>
4.6 Retirement Plan. In addition to the payment of Executive's Salary,
---------------
commencing with the Effective Date the Company shall contribute an additional
amount equal to 10% per year of the Executive's Salary to a qualified retirement
plan for the sole benefit of the Executive. Such retirement plan may be the
Company's retirement plan, or a plan established solely for the benefit of
Executive. If such 10% per year amount exceeds the amount that Executive is
permitted to contribute to any such retirement plans under applicable law, or if
there are no retirement plans in existence, then the Company shall pay any such
excess amounts to a non-qualified-plan established for the benefit of Executive.
Until such time as the Company or the Executive establishes a plan, then the
Company shall credit such contributions to the Executive's account from and
after the Effective Date, until such a plan is created.
4.7 Vacation. During the Term of Employment, the Executive shall be
--------
entitled to four (4) weeks per year of vacation time, to be taken consistent
with the policies of the Company and the effective discharge of the Executive's
duties. Such vacation time shall accumulate from year to year but the Executive
shall not be entitled to any payment with respect to vacation time remaining at
the end of any year, provided, however, that all accrued but unpaid vacation
pay and any other unpaid compensation shall be paid to Executive upon any
termination of Executive from employment. In addition, any such accrued vacation
pay may be paid to Executive earlier upon the approval of the Board of
Directors.
4.8 Sick Leave: Holidays. During the term hereof, the Executive shall be
--------------------
entitled to sick leave and holidays in accordance with the established polices
of the Company from time to time in effect.
5. SARNOFF GUARANTY.
----------------
Sarnoff hereby agrees to guaranty the payment and satisfaction of all of
the Company's obligations to the Executive hereunder in accordance with the
Guaranty Agreement attached hereto as Exhibit A.
6. ANNUAL REVIEW.
-------------
The Board of Directors of the Company shall conduct an annual review of the
Executive's performance, at which time the Board shall determine Executive's
bonus for the previous year and the Salary for the following year pursuant to
Sections 4.5 and 3.1, respectively. The first annual review shall take place in
January 1998 and shall encompass the period commencing on the Effective Date and
running through December 31, 1997.
7. TERMINATION.
-----------
7.1 Death. This Employment Agreement shall be terminated by the death of
-----
the Executive. Provided that the Company-paid life insurance described at
Section 4.4.2 of this Agreement is still in effect, in the event of termination
by reason of death Executive's estate shall receive solely his accrued Salary
and other compensation benefits, including accrued vacation pay, through and
including his date of death.
7.2 Disability. this Employment Agreement may be terminated by the Board
----------
of Directors of the Company if the Executive shall be rendered Incapable by
illness or any other disability from complying with the terms, conditions and
provisions on his part to be kept,
5
<PAGE>
observed and performed for a period in excess of six months during the Term of
Employment ("Disability"). In the event that the Executive receives disability
Insurance benefits paid for by the Company during any period prior to
termination of this Employment Agreement for Disability pursuant to this
Section, the Executive's Salary shall be reduced by an amount equal to such
disability insurance benefits during such period. If Executive's employment
hereunder is terminated by reason of Disability of the Executive, the Company
shall give ten (10) days' prior written notice to that effect to the Executive
in the manner provided herein. In such case, Executive shall receive as
severance one year of Salary and other fringe benefits for a period of one year
after the date of termination, provided, however, that the one year of Salary
severance payments payable hereunder by Company to Executive during such one-
year period shall be reduced by an amount equal to any disability insurance
benefits paid for by the Company and received to Executive during such one year
period, with such benefits being grossed up for purposes of such calculation by
the amount necessary to make such payment equivalent on a pre-tax basis to the
Salary payments received by Executive.
7.3 For Cause. The Company shall have the right to terminate the
---------
Executive's employment hereunder at any time for Cause (as hereinafter defined),
provided, however, that the Company first gives the Executive forty-five (45)
days advance written notice of the Company's intention to terminate the
Executive's employment for Cause, detailing the Company's good faith reasons for
any such determination, and, provided further, that the Executive then fails
within such 45-day period to cure or otherwise correct the circumstances giving
rise to such "Cause." For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder upon the Executive's
(a) misconduct that is materially injurious, in the reasonable judgment of the
Board of Directors of the Company, to the Company or any of its subsidiaries,
stockholders or affiliates; (b) conviction of (or pleading nolo contendere to)
any felony or any misdemeanor involving moral turpitude which might, in the
reasonable judgment of the Board of Directors of the Company, cause
embarrassment to the Company or any of its subsidiaries, stockholders or
affiliates; (c) commission of an act of personal dishonesty or breach of
fiduciary duty involving personal profit in connection with the Executive's
employment by the Company; (d) commission of an act which the Board of Directors
of the Company shall reasonably have found to have involved willful misconduct
or gross negligence on the part of the Executive, in the conduct of his duties
hereunder (e) use of illegal drugs, habitual absenteeism, chronic alcoholism or
any other form of addiction; (f) criminal activity or unethical conduct which
would, in the reasonable judgment of the Board of Directors of the Company,
impair the Executive's ability to perform his duties under this Agreement; (g)
refusal or repeated failure to comply with the reasonable policies, standards or
regulations of the Company; or (h) Executive's material breach of the terms and
conditions of this Agreement. In the event of any such "Cause" termination under
this Section, the Company's obligations under this Employment Agreement shall
cease and the Executive shall forfeit all right to receive any future
compensation under this Agreement, except for any repurchase of his shares by
the Company as described in this Agreement. Executive shall, however, receive
all accrued compensation and benefits, including without limitation, vacation
pay, payable through the date of any such termination.
7.4 Termination Without Cause. Executive's employment is at will, and may
-------------------------
be terminated at any time other than for Cause, upon twelve (12) months' prior
written notice by Company to Executive, subject to the terms and conditions of
this Agreement.
6
<PAGE>
7.5 Voluntary Termination for Breach. Notwithstanding any other provision
--------------------------------
of this Agreement, if during the Term of Employment the Executive terminates his
own employment due to any material breach hereunder by the Company, including
without limitation by reason of any material adverse change by the Company in
Executive's duties, responsibilities, compensation, benefits or perquisites, the
Company agrees to: (i) pay to the Executive his then current base salary for a
period of one year after the final date of Executive's termination of
employment, (ii) continue all fringe benefits for a period of one year
commencing upon the termination of employment, and (iii) pay as of the date of
termination any accrued but unpaid vacation pay and any other accrued but unpaid
compensation.
7.6 Delivery of Resignations. In the event that the Executive's services
------------------------
hereunder are terminated under any of the provisions of this Employment
Agreement (except by death), the Executive agrees that he will deliver his
written resignation as an officer and/or director of the Company to the Board of
Directors, such resignation to become effective as of the date of his final day
of employment; provided, however, that nothing herein shall be deemed to affect
the provisions of Sections 8, 9, 10 and 11 hereof relating to the survival
thereof following termination of the Executive's services hereunder.
8. DISCLOSURE OF INFORMATION: INVENTIONS AND DISCOVERIES.
-----------------------------------------------------
The Executive shall promptly disclose to the Company all processes,
trademarks, inventions, improvements, discoveries and other information related
to the business of the Company (collectively, "Developments") conceived,
developed or acquired by him alone or with others during the Term of Employment,
whether or not during regular working hours or through the use of materials or
facilities of the Company. All Developments shall be the sole and exclusive
property of the Company, and, upon request, the Executive shall promptly deliver
to the Company all drawings, sketches, models and other data and records
relating to the Developments. In the event any such Development shall be deemed
by the Company to be patentable, the Executive shall, at the expense of the
Company, assist the Company in obtaining a patent or patents thereon and execute
all documents and do all such other acts and things necessary or proper to
obtain letters of patent and to invest in the Company full right, title and
interest in and to such Development.
9. NON-DISCLOSURE.
--------------
The Executive shall not, at any time during or after the Term of
Employment, divulge, furnish or make accessible to anyone (other than in the
regular course of business of the Company or as may be required by law) or use
for his own account or for the account of any person any Confidential
Information or any knowledge or information with respect to confidential or
secret processes, inventions, discoveries, improvements, formulae, plans,
material, devices or ideas or other know-how, whether patentable or not, with
respect to any confidential or secret development or research work or with
respect to any other confidential or secret aspects of the Company's business
(including, without limitation, customer lists, supplier lists and pricing
arrangements with customers or suppliers). All Confidential Information shall be
the exclusive property of the Company and all such Confidential Information
shall be returned to the Company by the Executive upon the request of the
Company or upon the termination of the Executive's employment by the Company. As
used in this Section, Confidential Information
7
<PAGE>
shall mean information of any nature and in any form, except for information
which the Executive can demonstrate:
9.1 was at the time of disclosure to the Executive generally part of the
public domain or thereafter becomes part of the public domain through no act or
omission by the Executive; or
9.2 was lawfully in the Executive's possession as shown in written records
prior to disclosure by the Company and without obligation of confidentiality; or
9.3 was lawfully received by the Executive after disclosure from a third
party without obligation of confidentiality and without violation by said third
party of an obligation of confidentiality to another; or
9.4 was independently developed by the Executive without any use of
Confidential Information; or
9.5 was required to be disclosed by law or court order.
10. NON-COMPETITION.
---------------
The Company and the executive agree that the services rendered by the
Executive hereunder are unique and irreplaceable. The Executive hereby agrees
that, during the Term of Employment and for a period of one (1) year thereafter,
the Executive shall not (a) in the United States or in those foreign countries
where the Company during the Term of Employment conducts business or proposes to
conduct business or initiate activities, engage or participate in, directly or
indirectly (whether as an officer, director, employee, partner, consultant,
holder of an equity or debt investment, lender or in any other manner or
capacity), or lend his name (or any part or variant thereof) to, any business
which is, or as a result of the Executive's engagement or participation would
become, competitive with any aspect of the business of the Company, such
business being the development and commercialization of microfluid-based systems
for drug discovery research and such other specific technologies in which the
Company has, during the Term of Employment, initiated significant plans to
develop products; (b) deal, directly or indirectly, in a competitive manner with
any customers doing business with the Company during the Term of Employment
(except in connection with the performance of the duties and obligations of the
Executive during the Term of Employment); (c) solicit any officer, director,
employee or agent of the Company to become an officer, director, employee or
agent of the Executive, his respective affiliates or anyone else; or (d) engage
in or participate in, directly or indirectly, any business conducted under any
name that shall be the same as or similar to the name of the Company or any
trade name used by it. Ownership, in the aggregate, of less than 1% of the
outstanding shares of capital stock of any corporation with one or more classes
of its capital stock listed on a national securities exchange or publicly held
in the over-the-counter market shall not constitute a violation of the foregoing
provision. "Proposes to conduct business" as used above in this Section 10 means
that such proposed area was the subject of significant plans at the Company.
11. PROPERTY.
--------
Upon termination of the Term of Employment for any reason, the Executive or
his personal representative shall promptly deliver to the Company all books,
memoranda, plans,
8
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records and written data of every kind relating to the business and affairs of
the Company and all other property owned by the Company which is then in the
Executive's possession.
12. INSURANCE.
---------
The Company shall have the right at its own cost and expense to apply for
and to secure in its own name, or otherwise, life, health or accident insurance
or any or all of them covering the Executive, and the Executive agrees to submit
to usual and customary medical examinations and otherwise to cooperate with the
Company in connection with the procurement, of any such insurance, and any
claims thereunder.
13. SPECIFIC PERFORMANCE.
--------------------
The Executive acknowledges that, in the event of any breach of Sections 8,
9, 10 or 11 of this Agreement by the Executive, the remedy of the Company at law
would be inadequate. The Executive therefore agrees that the Company shall be
entitled to enforce its rights under Sections 8, 9, 10 or 11 of this Agreement
not only by an action or actions for damages but also by an action or actions
for injunctive and other equitable relief without the necessity of proving
irreparable harm or actual damage.
14. SUCCESSORS: BINDING AGREEMENT.
-----------------------------
14.1 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto, their heirs, legal representatives, successors
and permitted assigns.
14.2 Delegation. The Executive may not delegate or assign the performance
----------
of any duties and responsibilities imposed nor assign any rights and benefits
created by this Agreement; provided, however, that any amounts which are due and
owing to the Executive at the time of his death shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee or other
designee or if there be no such designee, to the Executive's estate.
14.3 No Conflicts. The Executive represents that the execution and
------------
delivery of this Agreement and the performance of his duties hereunder do not
and shall not conflict with the terms of any agreement or obligation to his
prior employer or to any other party.
15. NOTICES.
-------
All notices required or permitted under this Agreement shall be in writing
and delivered by any method providing for proof of delivery. Any notice shall be
deemed to have been given on the date of receipt. Notices shall be delivered to
the parties at the following addresses until a different address has been
designated by notice to the other party:
15.1 if to the Executive:
Dale Pfost
4 Rosedale Way
Pennington, NJ 08534
9
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15.2 if to the Company:
Orchid Biocomputer, Inc.
201 Washington Road
Princeton, New Jersey 08540
Attention:
15.3 in each instance, with a copy to:
Sarnoff Corporation
201 Washington Road
Princeton, New Jersey 08540
Attention: General Counsel
Joseph L. Cole, Esq.
SEED, MACKALL & COLE LLP
1332 Anacapa Street, Suite 200
Santa Barbara, California 93101
16. MISCELLANEOUS.
-------------
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed by the
Company and the Executive. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. Except for the guaranty attached hereto and made a part hereof,
no agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party or any other
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New Jersey applicable in the case of agreements made
and entirely performed in such State. The parties agree that all actions or
proceedings arising in connection with this Agreement shall be tried and
litigated exclusively in the State and Federal courts located in the County of
Mercer, State of New Jersey. The aforementioned choice of venue is intended by
the parties to be mandatory and not permissive in nature, thereby precluding the
possibility of litigation between the parties with respect to or arising out of
this Agreement in any jurisdiction other than that specified in this paragraph.
17. VALIDITY.
--------
It is the intention of the Executive and the Company that the provisions of
this Agreement (including, without limitation, those of Sections 8, 9,10 and 11
hereof) shall be enforced to the fullest extent permissible under the laws and
public policies of each jurisdiction in which such enforcement is sought. The
invalidity or enforceability of any provision or provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect. If any' tribunal of
competent jurisdiction shall decide that any of the provisions of this Agreement
should be deemed illegal or unenforceable, then only those provisions shall be
deemed invalid (or shall be appropriately
10
<PAGE>
modified to the maximum extent permissible in keeping with the intent of the
parties) and the remainder of this Agreement shall continue in full force and
effect.
18. SURVIVAL.
--------
The provisions of Sections 7 (regardless of the continuation of Executive's
Salary thereunder), 8, 9, 10,11 and 18 hereof shall survive the termination of
this Agreement and shall be binding upon the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees.
19. HEADINGS.
--------
The headings of this Agreement are for convenience of reference only and
are not part of the substance of this Agreement.
20. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be a original but all of which together will constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date and year first above written.
ORCHID COMPUTER, INC.
By: /s/ Dale R. Pfost, Ph.D.
-----------------------------------------
DALE R. PFOST, Ph.D.
Title: Chief Executive Officer and President
---------------------------------------
THE UNDERSIGNED ACKNOWLEDGES AND AGREES TO THE PROVISIONS OF SECTIONS 2.2, 3.2
AND 5 HEREOF AND, WITH RESPECT TO SECTION 2.2, THE UNDERSIGNED AGREES TO VOTE
ITS SHARES FOR SUCH ELECTION OF THE EXECUTIVE:
SARNOFF CORPORATION
By: /s/ James E. Carnes
-------------------------
James E. Carnes, President
11
<PAGE>
Exhibit A
GUARANTEE
---------
The undersigned guarantor, Sarnoff Corporation ("Sarnoff"), acknowledges
that Dale R. Pfost -("Executive"), has agreed to enter into an Employment
Agreement (the "Agreement") of even date with Orchid Biocomputer, Inc.
("Orchid").
1. General Guarantee. Sarnoff hereby acknowledges receipt of good,
adequate and valuable consideration, and hereby unconditionally and irrevocably
guarantees: (1) the full and prompt payment of all sums that may be due by
Orchid to Executive under the Agreement as they relate to Executive's equity,
salary, benefits and severance, and (2) the performance of all obligations of
Orchid under such Agreement as they relate to Executive's equity, salary,
benefits and severance.
2. Limitations on Guarantee. Notwithstanding any other provision of this
Guarantee, Sarnoff's liability hereunder is limited as follows:
(1) in all events Sarnoff's total liability under this instrument shall
not exceed $300,000;
(2) this guarantee shall lapse on the seventh annual anniversary of the
"Effective Date" of the Agreement;
(3) if Sarnoff's direct and indirect ownership interest in Orchid become
less than 50 percent of the outstanding voting shares of Orchid by
reason of the sale by Sarnoff of its shares in Orchid to a third
party, then the obligations due Executive under the Agreement shall be
limited to four months of compensation and fringe benefits payable to
Executive as an officer, together with the one year of severance
benefits applicable in specified circumstances under the Agreement;
(4) if Sarnoff's direct and indirect ownership interest in Orchid become
less than 50 percent of the outstanding voting shares of Orchid by
reason of a capital raising transaction approved by the Board of
Directors of Orchid, and which as part of such Board approval receives
the affirmative vote of Executive as a director of Orchid, then this
guarantee shall automatically lapse upon the close of any such
transaction;
(5) if Sarnoff's direct and indirect ownership interest in Orchid become
less than 50 percent of the outstanding voting shares of Orchid by
reason of a capital raising transaction approved by the Board of
Directors of Orchid, but which as part of such Board approval did not
receive the affirmative vote of Executive as a director of Orchid,
then the obligations due Executive under the Agreement shall be
limited to four months of compensation and fringe benefits payable to
Executive as an officer, together with the one year of severance
benefits applicable in specified circumstances under the Agreement;
12
<PAGE>
(6) this guarantee shall lapse in the event of an underwritten initial
public offering of the Company's common stock which results in $10
million in minimum net proceeds to the Company;
(7) this guarantee in all events shall lapse on that date which is three
years after the date that Sarnoff's direct and indirect ownership
interest in Orchid become less than 50 percent of the outstanding
voting shares of Orchid;
(8) this guarantee shall lapse with the prior written consent of the
Executive;
(9) this guarantee shall lapse upon its replacement by $300,000 in funds
deposited by Sarnoff into an escrow account, or by another such
equivalent security device, with any such device being under such
written terms and conditions as may be mutually acceptable to the
parties.
3. Payment of Compensation. Further, notwithstanding any other provision
of this Guarantee, if, during the Term of Employment as defined under the
Agreement, Executive, as the CEO or Chairman of Orchid, makes a good faith
determination that Orchid is unable to meet part or all of its payroll
obligations for any pay period, including, without limitation, Orchid's ability
to pay to Executive his compensation for such pay period, then Executive will
deliver written notice of such circumstances simultaneously to Sarnoff and to
all of the members of Orchid's Board of Directors. Within three (3) business
days after such notice, Sarnoff agrees to pay directly to Executive his
compensation for such pay period. If, however, after receiving such notice from
Executive, a majority of Orchid's Board disagrees in good faith with Executive's
determination, the Board may overrule Executive by directing Executive to obtain
his compensation for such period directly from Orchid if such funds are existent
in the normal accounts of the company, and, upon Executive's receipt of such
compensation payment from Orchid, Sarnoff shall have no further responsibility
to make such payment for such pay period under this Guarantee.
4. General Provisions. By signing this Guarantee, Sarnoff also agrees
that:
4.1 Changes Do Not Affect Liability. Executive may without notice to
Sarnoff and in his absolute discretion and without prejudice to him or in any
way limiting Sarnoff's liability under this Guarantee, (a) grant extensions of
time, renewals or other indulgences and modifications to Orchid or any other
party under the Agreement, (b) change, amend or modify the Agreement, (c)
authorize the use, exchange, release or subordination of any security or
collateral for the Agreement, whether real or personal property, (d) take
additional security for the Agreement, whether real or personal property, (e)
discharge or release any party or parties liable under the Agreement, (f) accept
or make compositions or other arrangements or file or refrain from filing a
claim in any bankruptcy proceeding of Orchid or any other guarantor or pledger,
(g) credit payments in such manner and order of priority as Executive may
determine in its discretion, and (h) otherwise deal with Orchid or any other
guarantor or party related to the Agreement or any security or collateral as
Executive may determine in its discretion. Without limiting the generality of
the foregoing, Sarnoff agrees that by doing so Sarnoff's liability shall
continue even if Executive alters any obligations under the Agreement in any
respect or Executive's remedies or rights against Orchid are in any way impaired
or suspended without Sarnoff's consent.
13
<PAGE>
4.2 Guarantee of Payment and Performance. Sarnoff's liability under this
Guarantee is a guarantee of payment and performance of the Agreement and not of
collect ability, and is not conditioned or contingent upon the genuineness,
validity, regularity or enforceability of any of the Agreement.
4.3 Waivers of Certain Rights and Defenses. Sarnoff hereby waives the
right to require Executive to (a) proceed against Orchid (except as provided
above in Section 3) or any other guarantor or pledger, (b) proceed against or
exhaust any security or collateral Executive may hold, or (c) pursue any other
right or remedy for Sarnoff's benefit, and agrees that Executive may proceed
against Sarnoff for the obligations guaranteed herein without taking any action
against Orchid or any other guarantor or pledger and without proceeding against
or exhausting any security or collateral Executive holds. Sarnoff agrees that
Executive may unqualifiedly exercise in his sole discretion any or all rights
and remedies available to him against Orchid or any other guarantor or pledger
without impairing Executive's rights and remedies in enforcing this Guarantee,
under which Sarnoff's liabilities shall remain independent and unconditional.
4.4 Additional Waivers. Sarnoff hereby waives diligence and all demands,
protests, presentments and notices of every kind or nature, including notices of
protests, dishonor, nonpayment, acceptance of this Guarantee and the creation,
renewal, extension, modification or accrual of any of the obligations Sarnoff
hereby guarantees. No failure or delay on Executive's part in exercising any
power, right or privilege hereunder shall impair any such power, right or
privilege or be construed as a waiver of or an acquiescence therein.
4.5 Changes, Waivers, Amendments, Attorney's Fees. No terms or provisions
of this Guarantee may be changed, waived, revoked or amended without the prior
written consent of both parties to this Guarantee. Should any provision of this
Guarantee be determined by a court of competent jurisdiction to be
unenforceable, all of the other provisions shall remain effective. This
Guarantee embodies the entire agreement among the parties hereto with respect to
the matters set forth herein, and supersedes all prior agreements among the
parties with respect to the matters set forth herein. No course of prior
dealing among the parties, no usage of trade, and no parol or extrinsic evidence
of any nature shall be used to supplement, modify or vary any of the terms
hereof. There are no conditions to the full effectiveness of this Guarantee. The
prevailing party in any dispute resulting in arbitration, litigation or other
proceedings between any guarantor hereunder and Executive shall be entitled to
its costs and expenses for such proceedings, including reasonable attorneys'
fees.
4.6 Inconsistent Law. Notices and Governing Law. If any of the provisions
of this Section 4 are inconsistent with the provisions of Sections 1, 2, or 3 of
this Guarantee, the provisions of Sections 1, 2 or 3, as the case may be, shall
control. All notices, requests and demands to be made hereunder shall be in
writing at the last known business address of each party by any of the following
means: (i) personal service (including service by overnight courier service);
(ii) electronic communication, whether by telex, telegram or telecopying (if
confirmed in writing sent by personal service or by registered or certified,
first class mail, return receipt requested); or (iii) registered or certified,
first class mail, return receipt requested. Such addresses may be changed by
notice to the other parties given in the same manner as provided above. Any
notice, request or demand sent pursuant to either subsection (i) or (ii) hereof
shall be deemed received upon such personal service or upon dispatch by
electronic means, and, if sent pursuant to subsection (iii) shall be deemed
received seven (7) days following deposit in the mail. This
14
<PAGE>
Guarantee shall be enforced and interpreted according to the laws of the State
of New Jersey, irrespective of its conflicts of laws rules.
SARNOFF CORPORATION
By_______________________
Title____________________
_________________________
Date
15
<PAGE>
RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------
This Agreement dated as of November 30, 1997 (the "Effective Date") is by
and between Orchid Biocomputer, Inc., a Delaware corporation (the "Company"),
and Dale R. Pfost, Ph.D. (THE "Stockholder").
WHEREAS, the Company and the Stockholder have entered into an Employment
Agreement dated as of November 1, 1996 (the "Employment Agreement") pursuant to
which the Company has agreed to employ the Stockholder subject to the terms
described therein and
WHEREAS, pursuant to Sections 3.2 and 3.2.1 of the Employment Agreement,
the Company is obligated to issue to the Stockholder shares of the Company's
Common Stock, $.001 par value per share (the "Common Stock"), totaling 99,333
and 10,000 shares, respectively (or 109,333 shares in the aggregate).
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein set forth, the parties hereby agree as follows:
1. Purchase of Stock. Subject to the terms and conditions of this
-----------------
Agreement, the Company hereby grants and delivers to the Stockholder an
aggregate of 109,333 shares of the Common Stock of the Company (such shares,
together with any other securities of the Company that may be issued in exchange
for or in respect of such shares of Common Stock by way of a stock split, stock
dividend, combination, reclassification, reorganization, or any other means,
being referred to herein as the "Shares"). Upon execution by the Stockholder of
this Agreement, the Company shall deliver to the Stockholder a certificate
representing the Shares being granted to the Stockholder by the Company,
2. Vesting of Shares. The Shares shall be subject to vesting in
-----------------
accordance with the following schedule:
(a) Fifty percent (50%) of the Shares will vest on the Effective
Date.
(b) The remaining fifty percent (50%) of the Shares will vest monthly
on the last day of each month in twenty-four equal portions of
2.083% per month, with the first such vesting to occur on
November 30, 1997.
The portion of the Shares that has not vested is referred to herein as the
"Unvested Shares;" the portion of the Shares that has vested is referred to
herein as the "Vested Shares."
3. Shares Subject to Restrictions. During the term of this Agreement, the
------------------------------
Shares may not be sold, assigned, transferred, pledged, hypothecated, mortgaged
or disposed to by gift or otherwise, or in any way encumbered, except in
accordance with this Agreement.
4. Repurchase Right of the Company.
-------------------------------
4.1 Repurchase Right. In the event that the Stockholder's employment with
----------------
the Company is terminated for any reason, whether by the Stockholder or by the
Company, and with or without cause, the Company shall have the option to
purchase from the Stockholder (or the
16
<PAGE>
Stockholder's heirs or the legal representatives in the event of the
Stockholder's death), and the Stockholder shall be obligated to sell to the
Company, at a price equal to the Repurchase Price (as defined below), all of the
Shares (the "Repurchase Option").
4.2 Mechanics of Repurchase. The Company may exercise the Repurchase
-----------------------
Option upon written notice (the "Company Notice") to the Stockholder within
fourteen (14) days after the date of termination of the Stockholder's employment
with the Company. Such Company Notice shall state the following: (i) the number
of Shares that the Company will repurchase, (ii) the aggregate Repurchase Price
of such Shares, and (iii) a closing date for the repurchase. On the specified
closing date, at the principal offices of the Company or by other mutually
agreeable arrangement, the Stockholder shall deliver to the Company the duly
endorsed certificate(s) representing the Shares subject to repurchase, and the
Company shall pay the Repurchase Price of such Shares (in cash, by check, or by
cancellation of indebtedness of the Stockholder to the Company). The closing
date described in the preceding sentence shall be within sixty (60) days after
the date of the Company Notice; provided, however, if there is a valuation
disagreement that is submitted to appraisal under Paragraph 4.5 of this
Agreement, then the closing date shall be thirty (30) days after the valuation
determination has been made by the appraiser.
4.3 Failure to Deliver Shares. If the Stockholder becomes obligated to
-------------------------
sell any Shares to the Company under this Section 4 and fails to deliver such
Shares in accordance with the terms of the Agreement, the Company may, in
addition to all other available remedies, send to the Stockholder the Repurchase
Price for the Shares in accordance with this Section 4 and then, immediately
upon written notice, the Company may take the following actions: (i) cancel on
its books the certificate(s) representing Shares not delivered and, at is
election, issue to itself or its assignee one or more new certificates
representing the repurchased Shares, and (ii) issue to the Stockholder a
certificate representing any Shares represented by the canceled certificate(s).
In such event, the Stockholder shall have no further rights in and to such
undelivered Shares.
4.4 Termination of Repurchase Option. This Repurchase Option shall
--------------------------------
terminate on the earlier to occur of (i) the consummation by the Company of its
first underwritten public offering pursuant to an effective registration
statement or Form S-1 (or its equivalent) under the Securities Act of 1933, as
amended (a "Qualified Offering"), and (ii) the date on which David Sarnoff
Research Center, Inc. ("Sarnoff") first ceases to own or control at least 51% of
the issued and outstanding shares of the capital stock of the Company having the
right to vote in the election of directors.
4.5 Repurchase Price. As used herein, the term "Repurchase Price" shall
----------------
mean (i) with respect to the Vested Shares, the fair market value per share as
of the date of termination of the Stockholder's employment as determined in good
faith by the Board of Directors of the Company and (ii) with respect to the
Unvested Shares, $.01 per share. In the event that the Stockholder shall
disagree with the valuation of the Vested Shares determined in accordance with
subsection (i) of this Section 4.5, then, upon written notice to the Company
given within ten (10) days of the date the Board shall notify the Stockholder of
its determination of such fair market value, the parties shall select a neutral
independent appraiser to determine such value within ninety (90) days of such
notice, with the expense of such appraisal to be borne equally by the parties.
17
<PAGE>
5. Put Right of the Stockholder.
----------------------------
5.1 Put Right. In the event that the Stockholder's employment with the
---------
Company is terminated for any reason, whether by the Stockholder or by the
Company, and with or without cause, the Stockholder shall have the right to
require the Company to purchase from the Stockholder (or the Stockholder's heirs
or the legal representatives in the event of the Stockholder's death), at a
price equal to the Repurchase Price (as defined in Section 4.5 above), all of
the Shares (the "Put Option").
5.2 Mechanics of Put Right. The Stockholder may exercise the Put Right
----------------------
upon written notice (the "Stockholder's Notice") to the Company within fourteen
(14) days after the date of termination of the Stockholder's employment with the
Company. The Stockholder's Notice shall state the following: (i) the number of
Shares that the Stockholder will be selling to the Company, and (ii) a closing
date for the sale. On the specified closing date, at the principal offices of
the Company or by other mutually agreeable arrangement, the Stockholder shall
deliver to the Company the duly endorsed certificate(s) representing the Shares
subject to the Put Right, and the Company shall pay the Repurchase Price of such
Shares (in cash, by check, or by cancellation of indebtedness of the Stockholder
to the Company). The closing date described in the preceding sentence shall be
within sixty (60) days after the date of the Stockholder's Notice, provided
however, if there is a valuation disagreement that is submitted to appraisal
under Paragraph 4.5 of this Agreement, then the closing date shall be thirty
(30) days after the valuation determination has been made by the appraiser.
6. Transfer of Unvested Shares. No portion of the Unvested Shares shall
---------------------------
be transferable, except to a trust for the benefit of (i) an immediate family
member (spouse, parents, children, or grandchildren) or (ii) the Stockholder.
7. Transfer of Vested Shares.
-------------------------
7.1 Right of First Refusal. If the Stockholder desires to sell all or
----------------------
any part of the Vested Shares and has received in writing an irrevocable and
unconditional bona fide offer (the "Bona Fide Offer") for the purchase thereof
from a party (the "Offeror"), the Stockholder shall give written notice (the
"BFO Notice") to the Company setting forth Stockholder's desire to sell such
Vested Shares, which BFO Notice shall be accompanied by a photocopy of the
original executed Bona Fide Offer and shall set forth at least the name and
address of the Offeror and the price and terms of the Bona Fide Offer. Upon
receipt of the BFO Notice, the Company shall have an option to purchase all (but
not less than all) of such Vested Shares specified in the BFO Notice, such
option to be exercised by giving, within thirty (30) days after receipt of the
BFO Notice, a written counter-notice to the Stockholder. If the Company elects
to purchase all (but not less than all) of such Vested Shares, it shall be
obligated to purchase, and the Stockholder shall be obligated to sell to the
Company, such Vested Shares at the price and in accordance with the terms
indicated in the Bona Fide Offer within sixty (60) days from the date of receipt
by the Company of the BFO Notice. The Company may assign the right of first
refusal granted by this Section 7.1.
7.2 Subsequent Sale of the Vested Shares. The Stockholder may sell
------------------------------------
any or all of the Vested Shares that the Company or its assignees have not
elected to purchase during the twenty (20) days following the expiration of the
exercise period for such purchase by the
18
<PAGE>
Company, provided that such sale is made only pursuant to the terms of the Bona
Fide Offer. If, however, any or all of the Vested Shares is not sold pursuant to
the Bona Fide Offer within such twenty-day period, the unsold portion of the
Vested Shares shall remain subject to the terms of this Agreement.
7.3 Restrictions on Offeror. Any Offeror purchasing all or any
-----------------------
portion of the Vested Shares from the Stockholder under Section 7.2 shall be
subject to the terms of this Agreement.
7.4 Exempted Transfers. The Stockholder shall be permitted to
------------------
transfer portions of the Vested Shares owned by him without complying with the
provisions of this Section 7 in the following situations: (i) any inter vivos
transfer by the Stockholder to any member of his immediate family (spouse,
parents, children or grandchildren) or to any trust for the benefit of any such
immediate family member or himself, or a family limited partnership or family
limited liability company, provided that any such transferee referred to above
shall have delivered to the Company the written agreement of such transferee to
be bound by all of the provisions of this Agreement to the same extent as the
Stockholder, or (ii) by will or the laws of descent and distribution, in which
event each such transferee shall be bound by all of the provisions of this
Agreement to the same extent as if such transferee were the Stockholder.
7.5 Failure to Deliver Shares. If the Stockholder becomes obligated
-------------------------
to sell any Shares to the Company or its assignee under this Section 7 and fails
to deliver such Shares in accordance with the terms of this Agreement, the
Company or its assignee may, at its option, in addition to all other remedies it
may have, send to the Stockholder the purchase price for such Shares as is
herein specified. Thereupon, the Company upon written notice to the Stockholder,
(i) shall cancel on its books the certificate or certificates representing the
Shares to be sold and (ii) shall issue, in lieu thereof, in the name of the
Company or its assignee, a new certificate or certificates representing such
Shares, and thereupon all of the Stockholder's rights in and to such Shares
shall terminate.
7.6 Term. This Agreement shall terminate (i) immediately prior to the
----
consummation of a Qualified Offering, or (ii) upon the closing of an
acquisition, consolidation, or merger of the Company or a sale or transfer of
all or substantially all of the assets of the Company.
8. Legend. Each certificate evidencing any of the Shares shall bear a
------
legend substantially as follows:
"The shares represented by this certificate are subject to
restrictions on transfer and repurchase provisions and may not be
sold, exchanged, transferred, pledged, hypothecated, or otherwise
disposed of except in accordance with and subject to all the terms and
conditions of a certain Restricted Stock Purchase Agreement dated as
of November 30, 1997, a copy of which the Company will furnish to the
holder of this certificate upon request and without charge."
9. Specific Performance. Because the Shares cannot be readily purchased or
--------------------
sold in the open market, and for other reasons deemed sufficient by them, the
parties hereto acknowledge that they will be irreparably damaged in the event
that this Agreement is not
19
<PAGE>
specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by either of the parties hereto,
the other, in addition to all other remedies, shall be entitled, without showing
any actual damage, to a temporary or permanent injunction and/or a decree for
specific performance, in accordance with the provisions hereof.
10. Section 83(b) Election. The Stockholder acknowledges that Section 83
----------------------
of the Internal Revenue Code of 1986, as amended (the "Code"), may apply to the
grant of Shares under this Agreement. The Stockholder further acknowledges that
an election under Section 83(b) of the Code must be filed with I.R.S., if
desired, within thirty (30) days after the date the Shares was granted to the
Stockholder under this Agreement. Because the particular tax situation for the
Stockholder will depend on individual circumstances, the Stockholder should
consult a personal tax adviser with respect to the federal income tax
consequences of the Shares received under this Agreement, as well as with
respect to the effects of applicable state tax laws and any applicable tax laws
of foreign jurisdictions. THE STOCKHOLDER ACKNOWLEDGES THAT IT IS THE
RESPONSIBILITY OF THE STOCKHOLDER AND NOT OF THE COMPANY TO FILE A TIMELY
ELECTION UNDER SECTION 83(b) OF THE CODE EVEN IF THE STOCKHOLDER REQUESTS THE
COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON BEHALF OF THE STOCKHOLDER.
11. Investment Representations.
--------------------------
11.1 Investment Intent. The Stockholder represents that the Shares
-----------------
are being acquired for his own account for investment and not with a view to, or
for sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling the Shares and acknowledge that the
certificate from the Shares will bear a legend reflecting the provisions of this
Section 11.1.
11.2 Disclosure of Information. The Stockholder has received all the
-------------------------
information that he considers necessary or appropriate for deciding whether to
purchase the Shares. The Stockholder further represents that he has had
sufficient opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Shares.
11.3 Lack of Registration. The Stockholder understands and
--------------------
acknowledges that the Shares is unregistered and may not be sold publicly unless
subsequently registered under the Securities Act, of 1933, as amended (the
"Act") or unless an exemption from such registration is available; that the
exemption from registration under Rule 144 promulgated under the Act will not be
available in any event for at least one (1) year from the date of purchase and
payment for the Shares and even then will not be available unless (i) a public
trading market then exists for the interest of the Company, (ii) adequate
current information concerning the Company is then available to the public, and
(iii) other terms and conditions of Rule 144 are complied with; and that any
sale of the Shares may be made only in limited amounts in accordance with such
terms and conditions. The Company further understands and acknowledges that: (1)
there is not presently available, and may not be available at the time he wishes
to sell the Shares adequate current public information with respect to the
Company that would permit offers or sales of the Shares pursuant to Rule 144
promulgated under the Act, and, therefore, compliance with Regulation A of the
Act may be required for any such offer or sale; and (ii) the Company is under no
obligation to register the Shares or to make Rule 144 available.
20
<PAGE>
12. Governing Law. This Agreement shall be construed under and governed by
-------------
the internal laws of the State of New Jersey, without regard to principles of
conflicts of law.
13. Notice. Notice hereunder shall be deemed to have been duly given if in
------
writing (i) on the date delivered, if delivered in person, (ii) on the business
day after the date sent, if sent by recognized overnight courier service, or
(iii) three (3) days after the date of mailing, if sent by registered or
certified mail, postage prepaid, return receipt requested. The parties shall
designate their respective addresses.
14. Entire Agreement; Amendment. This Agreement supersedes all prior
---------------------------
written and oral agreements and understandings among the parties as to its
subject matter and constitutes the entire agreement of the parties with respect
to the subject matter hereof. This Agreement may not be modified, amended,
terminated or any provision thereof waived in whole or in part except by a
written agreement signed by the parties.
15. Waivers. No waiver hereunder shall be deemed a waiver of any
-------
subsequent breach or default of the same or similar nature.
16. Severability; Reformation. If any provision of this Agreement shall be
-------------------------
determined by a court of law to be unenforceable for any reason, such
unenforceability shall not affect the enforceability of any of the remaining
provisions hereof, and this Agreement, to the fullest extent lawful, shall be
reformed and construed as if such unenforceable provision, or part of a
provision, had never been contained herein, and such provision or part reformed
so that it would be enforceable to the maximum extent legally possible.
17. Headings. Headings are for convenience only and are not deemed to be
--------
part of this Agreement.
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned as
of the date first written above.
ORCHID BIOCOMPUTER, INC.
By:______________________________
Name:
Title:
_________________________________
Dale R. Pfost
21
<PAGE>
Exhibit 21
----------
SUBSIDIARIES OF THE REGISTRANT
GeneScreen, Inc.,
a Delaware corporation
GeneShield.com, Inc.,
a Delaware corporation
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Orchid BioSciences, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Princeton, New Jersey
February 18, 2000
/s/ KPMG LLP
------------------
KPMG LLP
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
GeneScreen, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
-------------------------------------
KPMG LLP
Princeton, New Jersey
February 18, 2000
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Stockholders and Board of Directors
GeneScreen, Inc. and Subsidiaries:
We consent to the use in this registration statement of Orchid BioSciences,
Inc. of our report dated February 19, 1999, on the 1998 financial statements of
GeneScreen, Inc. and subsidiaries included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ Deloitte & Touche LLP
-------------------------------------
Deloitte & Touche LLP
Dallas, Texas
February 18, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999, AND THE RELATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE NOTES
THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 34,203,935
<SECURITIES> 0
<RECEIVABLES> 2,448,238
<ALLOWANCES> 218,466
<INVENTORY> 0
<CURRENT-ASSETS> 37,376,648
<PP&E> 10,797,691
<DEPRECIATION> 1,323,275
<TOTAL-ASSETS> 66,304,769
<CURRENT-LIABILITIES> 10,151,579
<BONDS> 0
88,995,142
1,075
<COMMON> 845
<OTHER-SE> (36,966,229)
<TOTAL-LIABILITY-AND-EQUITY> 66,304,769
<SALES> 0
<TOTAL-REVENUES> 1,793,005
<CGS> 0
<TOTAL-COSTS> 22,625,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,473,662
<INCOME-PRETAX> (24,103,441)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24,103,441)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,103,441)
<EPS-BASIC> (90.20)
<EPS-DILUTED> (90.20)
</TABLE>
